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IFRS FOR SMEs

Rowealth Naungayan

21 July 2010

Learning Objectives
After completing this module, you should be able to:
Define SMEs (IASB and SEC Definition) Know the objectives of the IFRS for SMEs Understand the simplified IFRS for SMEs Prepare Financial Statements in

accordance with IFRS for SMEs

Contents

Introduction and objectives

About the IFRS for SMEs

IFRS for SMEs Highlights

IASB Definition of SME

SMEs - Small and Medium-sized Entities
SMEs are entities that
publish general purpose financial statements for external users,

and
do not have public accountability.

An entity has public accountability if:

Its debt or equity instruments are traded in a public market, or

It holds assets in a fiduciary capacity for a broad group of

outsiders (e.g. banks, insurance companies, brokers/dealers, mutual fund)

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SEC Definition of SME

Public Accountable Entities

(companies w/ assets more than P250million)

Small and Medium-sized Entities (SMEs)

(companies w/ assets from P3million to P250million)

Micro Entity
(companies w/ assets below P3million)

Contents

Introduction and objectives

About the IFRS for SMEs

IFRS for SMEs Highlights

About the IFRS for SMEs

PLEASE! Just what I need to know. Not everything in IAS IASB Heres IFRS for SMEs

SMEs

About the IFRS for SMEs

IASB
Heres IFRS for SMEs

Basic Features of IFRS for SMEs

IFRS for SMEs is a stand-alone

document
IFRS for SMEs is developed from

full IFRS
It is a simplification of full IFRS

Five types of simplifications

Some topics in IFRS are omitted because they are not relevant to typical SMEs
options in full Some accounting policymore simplifiedIFRS areis not allowed because a method available to SMEs

Substantially fewer disclosures Simplified redrafting

the Simplification of many ofthat recognition and measurement principles are in full IFRSs

Omitted Topics
The IFRS for SMEs does not address the following topics that are covered in full IFRSs:

Earning per share Interim financial reporting Segment reporting Special accounting for assets held for
sale

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Exclusion to IFRS for SMEs

Examples of options in full IFRSs not included in IFRS for SMEs
Financial instrument options, including available for sale, held to maturity, and fair value option revaluation model for property, plant, and equipment, and for The

Proportionate consolidation for investments in jointly-controlled Various options for government grants

intangible assets

investment property, measurement is driven by circumstances For

More simplified method is entities available to SMEs

rather than the allowing an accounting policy choice between the cost and fair value models

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Contents

Introduction and objectives

About the IFRS for SMEs

IFRS for SMEs Highlights

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Recognition and Measurement Simplifications

Borrowing Cost Section 25
All borrowing costs are

IAS 23
Borrowing costs incurred in

recognized as expense when incurred

connection with the construction or production of a qualifying asset are capitalized as part of the cost of the asset

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Recognition and Measurement Simplifications

PPE Section 17
Scope of Section 17 includes: Investment property whose

IAS 16
IAS 16 applies only to

Property, plant and equipment

Investment property is

fair value can not be measured reliably without undue costs or effort; and
Non-current assets held for

covered by IAS 40
Non-current asset held for

sale is covered by IFRS 5

sale

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Recognition and Measurement Simplifications

PPE Section 17
Property, plant and equipment

IAS 16
Property, plant and equipment

are measured at cost less accumulated depreciation and accumulated impairment losses.
Revaluation is not permitted

can be measured using:

Cost-depreciation-

impairment model; or
Revaluation model

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Recognition and Measurement Simplifications

PPE Section 17
Review of PPEs useful life,

IAS 16
Requires annual review of

residual value, depreciation rate is made only if there is a significant change in the asset or how it is used

PPEs useful life, residual value, depreciation rate

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Recognition and Measurement Simplifications

Investment in Associates Section 14
Investment in associates shall

IAS 28
Investment in associates must

be accounted for using: Equity model; Fair value model; or Cost model

be accounted for using the equity method

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Recognition and Measurement Simplifications

Investment in Joint Ventures Section 15
Investment in joint ventures

IAS 28
Investment in joint ventures

shall be accounted for using:

Equity model; Fair value model; or

must be accounted for using the

Equity method; or Proportionate

Cost model
Proportionate consolidation is

consolidation

not permitted

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Recognition and Measurement Simplifications

Investment Property Section 16
Investment property shall be

IAS 40
Investment property may be

measured at FV through P&L if the fair value can be measured reliably

Otherwise, the investment

accounted for using:

Fair value model; or Cost-depreciation-

property shall be accounted for as PPE using the costdepreciation-impairment model

impairment model

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Recognition and Measurement Simplifications

Agriculture Section 34
Biological assets shall be

IAS 41
Biological assets and

measured at fair value less cost to sell if the FV is readily determinable

Otherwise, it shall be

agricultural produced assets are measured at fair value less cost to sell
There is a presumption that

measured at cost less accumulated depreciation and accumulated impairment losses

fair value can be measured reliably for biological assets

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Recognition and Measurement Simplifications

Government grants Section 24
Government grants without

IAS 20
Government grants related to

future performance conditions are recognized in profit or loss when proceeds are receivable. If there are performance conditions, the grant is recognized in profit or loss only when the conditions are met.

assets are recognized as income over the periods necessary to match them with the related costs which they are intended to compensate
Government grants related to

income are recognized in profit or loss when the conditions for their recognition have been met
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Recognition and Measurement Simplifications

Intangible Assets Section 18
All costs incurred to internally

IAS 38
Research costs are recognized

develop intangible assets such as research and development costs are charged to expense

as expense when incurred while developmental costs may be capitalized as part of cost of an intangible asset

Recognition and Measurement Simplifications

Intangible Assets Section 18
Intangible assets must be

IAS 38
Intangible asset may be

measured using costamortization-impairment model

Revaluation of intangible asset

accounted for using:

Cost-amortization-

impairment model; or
Revaluation model

is not permitted

Recognition and Measurement Simplifications

Intangible Assets Section 18
All intangible assets are

IAS 38
Intangible asset with indefinite

considered to have a finite life. If unable to estimate the useful life of an intangible asset, the life is presumed to be 10 years

life is not amortized

Recognition and Measurement Simplifications

Intangible Assets Section 18
Amortization periods and

IAS 38
Amortization periods and

methods, and the residual value of intangible assets shall be reviewed only if there is a significant change in the asset or how an intangible asset is used.

methods, and the residual value of intangible assets must be reviewed at each reporting period.

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Recognition and Measurement Simplifications

Share-based Payment Section 26
Measure asset/expense based

IAS 2
Measure asset/expense based

on the
Fair value of the goods or

on the
Fair value of the goods or

services received;
Fair value of the equity

services received;
Fair value of the equity

instruments granted
The directors best estimate of

instruments granted
Intrinsic value of the equity

the fair value of the equity settled share based payment

instruments
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Recognition and Measurement Simplifications

Leases
Section 20
Lease payments under operating

IAS 17
Lease payments under operating

leases shall be recognized as income/expense on a straight-line basis unless

Another basis is more

leases shall be recognized as income/expense on a straight-line basis unless

Another basis is more representative

representative of the timing of the benefits obtained by the user of the asset; or
the payments are structured to

of the timing of the benefits obtained by the user of the asset

increase in line with expected general inflation.

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Recognition and Measurement Simplifications

Employee Benefits Section 28
All past service costs are

IAS 19
Unvested past service costs

recognized immediately in profit or loss.

are amortized on a straight-line basis over the vesting period.

Recognition and Measurement Simplifications

Employee Benefits Section 28
Actuarial gains or losses are

IAS 19
Actuarial gains or losses may

recognized immediately in either profit or loss or other comprehensive income.

be
Deferred and amortized

using corridor approach; or

Recognized immediately in

either profit or loss or other comprehensive income

Recognition and Measurement Simplifications

Employee Benefits Section 28
Projected unit credit method is

IAS 19
Projected unit credit method is

used to measure defined benefit obligation and the related expense only if it is possible to do so without undue cost or effort.

required

Recognition and Measurement Simplifications

Foreign Currency Translation Section 30
When a foreign operation is

IAS 21
When a foreign operation is

disposed of, any cumulative amount in equity is recognised in comprehensive income not in profit or loss

disposed of, any cumulative amount in equity is recognised in profit or loss

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Recognition and Measurement Simplifications

Basic Financial Instruments
Section 11
Debt instruments are measured at

IAS 39
Financial instruments are classified

amortised cost
Debt instruments that are classified

as current are measured at the undiscounted amount

Investments in non-convertible

as trading securities, available for sale or held to maturity depending on the intention of management.

preference shares and non-puttable ordinary or preference shares are measured at fair value through profit or loss (if readily determinable)

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Recognition and Measurement Simplifications

Complete Set of Financial Statements
IFRS for SMEs Complete set of FS includes:
Statement of Financial Position Statement of Income

Full IFRS Complete set of FS includes:

Statement of Financial Position Statement of Income

Statement of Cash Flows

Statement of Changes in Equity Statement of Comprehensive Income Notes to Financial Statements

Statement of Cash Flows

Statement of Changes in Equity Statement of Comprehensive income Notes to Financial Statements

Statement of income and retained earnings may be presented in place of Statement of changes in equity and Statement of comprehensive income
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