Statement of GAAP for SMEs IGNATIUS SEHOOLE EXECUTIVE PRESIDENT – SAICA GRAEME BERRY MEMBER OF THE ACCOUNTING PRACTICES COMMITTEE (DELOITTE)

Corporate Law Reform in South Africa Companies Act, 1973: All companies must comply with GAAP approved by the Accounting Practices Board. Corporate Laws Amendment Act, 2006 (CLAA) Public interest companies versus limited interest companies: Limited interest companies comply with financial reporting standards for limited interest companies. Until Financial Reporting Standards Council (FRSC) formed, limited interest companies comply with accounting practices consistent with the Framework. Companies Bill, 2007: Widely held versus closely held.

Statement of GAAP for SMEs Issued 1 October 2007. First country to adopt. In response to market needs and differential reporting allowed ito the CLAA. For limited interest companies and other entities with no public accountability Implemented a framework that is: Simplified and self-contained; Modifications based on user needs and cost-benefit; Easier for users to understand and apply.

Reasons for adopting IFRS for SMEs as the Statement of GAAP for SMEs IASB addressed 3 major concerns: Timeline. Recognition and measurement v disclosures relief only. Mandatory fallback to full IFRS. Further relief possible. Unfair to make it easier then more difficult. Limitation of SA standard-setting infrastructure. Credibility of reporting.

Audit considerations IRBA concluded: Audit report: Acceptable financial reporting framework. “Fair presentation framework”. Audit report: Auditor can express “presented fairly” opinion. Audit report should identify accounting framework.

Statement of GAAP for SMEs Effective date: Limited interest companies – AFS issued on or after 01/09/2007 for years ending on or after 31/12/2005. Other - AFS issued on or after 01/09/2007. Circular 9/2007 provides more detail for application. Implementation seminars. SAICA technical support.

Statement of GAAP for SMEs Organised by topic. Statement: Illustrative financial statements, Disclosure checklist, Basis for conclusions.

Scope of the Statement of GAAP for SMEs Who can apply? Limited interest companies (CLAA). Other entities with no public accountability. Regulatory override. Not mandatory – apply full GAAP/IFRS

Scope of the Statement of GAAP for SMEs Statement of GAAP for SMEs is appropriate for entity with no public accountability: not publicly traded; and not a financial institution. Entity whose securities are publicly traded has public accountability: Need full IFRSs or GAAP for investor protection. Even if small in size.

Scope of the Statement of GAAP for SMEs General purpose financial statements for external users, including: Non-manager owners. Existing and potential lenders and creditors. Credit rating agencies.

Stand-alone document SME may look to full IFRSs or GAAP if answer cannot be found in the Statement of GAAP for SMEs. No mandatory fallback to full IFRSs or GAAP.

Approach to simplifications Simplifications based on user needs and cost-benefit: Some topics in IFRSs not included if irrelevant to SMEs. Where IFRS has options, include only simpler option. Recognition and measurement simplifications. Reduced disclosures. Simplified drafting.

Approach to simplifications Only simpler of options in full IFRS are included. Other(s) cross-referenced. So, only: Cost for investment property. Cost for PP&E and intangibles. Expense all borrowing costs. Indirect operating cash flows. One method for all grants.

Recognition and measurement simplifications (1) Financial instruments: Less classifications available. Simplified hedge accounting.

Recognition and measurement simplifications (2) Goodwill impairment (no amortisation): indicator approach Expense all R&D. Cost method for associates and JVs.

Recognition and measurement simplifications (3) Income taxes: simplified; account for deferred tax. Less fair value for biological assets.

Recognition and measurement simplifications (4) Defined benefit plans: no corridor tests; all actuarial gains/losses to profit & loss immediately. Share-based payment (SBP): IFRS 2 simplified. First-time adoption: less prior period data restated.

Disclosure Simplifications Full IFRSs OR GAAP – more than 3,000 items in disclosure checklist. Statement of GAAP for SMEs – fewer than 400. Simplifications based on users’ needs and cost-benefit: Kept: short-term cash flow, liquidity, solvency, measurement uncertainties, accounting policy choices. Dropped: disaggregations, public capital market disclosures, relate to topics or options not covered in Statement of GAAP for SMEs.

Maintenance Maintaining the Statement of GAAP for SMEs: Update every 2 years if required. Omnibus Exposure Draft.

Thank you Questions? Comments?