1 International Financial Reporting Standards IFRS for SMEs IFRS Foundation-World Bank 18–20 October 2011 Sarajevo, Bosnia and Herzegovina Copyright © 2010 IFRS Foundation. All rights reserved.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 2 The IFRS for SMEs Topic 1.4 Quiz and Discussion Section 1 SMEs Section 2 Concepts & Pervasive Principles Michael Wells

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 3 Case study* about Section 1 Small and Medium-sized Entities * see case study in Module 1 of the IFRS Foundation training material

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 4 Section 1 – Discussion questions Case study 1 - multinational group - consolidated FS using full IFRSs - stock exchange listed parent - subsidiaries not listed - local law permits use the IFRS for SMEs except -IFRS for SMEs is not permitted for J -IFRS for SMEs is required for D (even if publicly accountable) Which subs can use the IFRS for SMEs?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 5 Section 1 – Discussion questions Case study 1 continued Information about subsidiaries A retails food. It is in the process of issuing debt in a domestic stock exchange B operates a private school. It holds refundable deposits. Deposits are refunded when child’s application is declined or the child leaves the school. Deposits are forfeited if a child declines to take up a place at the school.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 6 Section 1 – Discussion questions Case study 1 continued Information about subsidiaries continued C operates a travel agency. It holds deposits for prebooked package holidays. Deposits are refunded only if cancelled more than 60 days before travel. D retails food. As a ‘side-line’ it also takes deposits from its customers in return for a promise to return capital plus interest.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 7 Section 1 – Discussion questions Case study 1 continued Information about subsidiaries continued E retails food. It also provides employees with short-term interest-free loans so that they can purchase annual rail cards to travel between their homes and place of work. Employees repay the loan in 12 equal monthly instalments (deducted from their salaries).

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 8 Section 1 – Discussion questions Case study 1 continued Information about subsidiaries continued J retails food. Local law does not permit J to use the IFRS for SMEs.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. 9 Section 1 – Discussion questions Case study 1 continued The group wants to simplify the process of preparing its consolidated financial statements. Can the group follow any of the following options?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 1 – Discussion questions Case study 1 continued Option 1: Require subs to use the recognition and measurement (R&M) requirements of full IFRSs and provide the disclosures required by the IFRS for SMEs. Option 2: Require subs use the R&M requirements of the IFRS for SMEs, except for financial instruments, which would be R&M in accordance with full IFRSs (ie IAS 39), and provide the disclosures required by the IFRS for SMEs.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 1 – Discussion questions Case study 1 continued Option 3: Require subs to use the R&M requirements of the IFRS for SMEs, except for borrowing costs, which would be recognised and measured in accordance with full IFRSs (ie IAS 23), and provide the disclosures required by the IFRS for SMEs. Option 4: Require subs to use the IFRS for SMEs.

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Questions about Section 2 Concepts and Pervasive Principles

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 1: The objective of general purpose financial statements prepared in accordance with the IFRS for SMEs is: a.to inform government statistics? b.to support the entity’s tax return? c.to meet all the information needs of all the users of an entity’s financial statements? d.to inform economic decision-making by a broad range of users that are not in a position to demand reports tailored to their needs (eg investors and creditors)?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 1: The objective of general purpose financial statements prepared in accordance with the IFRS for SMEs is: a.to inform government statistics? b.to support the entity’s tax return? c.to meet all the information needs of all the users of an entity’s financial statements? d.to inform economic decision-making by a broad range of users that are not in a position to demand reports tailored to their needs (eg investors and creditors)?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 2: The qualitative characteristic ‘reliability’ means: a.free from material error and bias and a faithfully representation of the economic phenomenon? b.precision (eg little or no uncertainty in a measurement)? c.historic cost? d.fair value?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 2: The qualitative characteristic ‘reliability’ means: a.free from material error and bias and a faithfully representation of the economic phenomenon? b.precision (eg little or no uncertainty in a measurement)? c.historic cost? d.fair value?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 3: Expenses are recognised in comprehensive income (profit or OCI): a.using the matching basis—on the basis of a direct association between the costs incurred and the earning of specific items of income? b.using the accrual basis—items are recognised as assets, liabilities, equity, income or expenses when they satisfy the definitions and recognition criteria for those items? c.at the discretion of management?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 3: Expenses are recognised in comprehensive income (profit or OCI): a.using the matching basis—on the basis of a direct association between the costs incurred and the earning of specific items of income? b.using the accrual basis—items are recognised as assets, liabilities, equity, income or expenses when they satisfy the definitions and recognition criteria for those items? c.at the discretion of management?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 4: Prudence implies that in preparing financial statements management should: a.have a bias toward understating assets and income and overstating liabilities and expenses? b.have a bias toward understating liabilities and expenses and overstating assets and income? c.be neutral (ie no bias) and cautious in the exercise of judgements needed in making estimates?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 4: Prudence implies that in preparing financial statements management should: a.have a bias toward understating assets and income and overstating liabilities and expenses? b.have a bias toward understating liabilities and expenses and overstating assets and income? c.be neutral (ie no bias) and cautious in the exercise of judgements needed in making estimates?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 5: Recognition criteria determine when to recognise an item. Measurement is determining the monetary amounts at which to measure an item. Uncertainties about the extent of future cash flows: a.only affect the decision about whether to recognise? b.only affect the estimation of the amount at which to measure the item? c.could affect both recognition and measurement?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 5: Recognition criteria determine when to recognise an item. Measurement is determining the monetary amounts at which to measure an item. Uncertainties about the extent of future cash flows: a.only affect the decision about whether to recognise? b.only affect the estimation of the amount at which to measure the item? c.could affect both recognition and measurement?

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 6: How many measurement bases does the IFRS for SMEs specify for the measurement of assets? a.one—historical cost b.one—fair value c.two—historical cost and fair value d.many—including historical cost, fair value, value in use, estimated selling price less costs to complete and sell, etc

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK Section 2 – Discussion questions Question 6: How many measurement bases does the IFRS for SMEs specify for the measurement of assets? a.one—historical cost b.one—fair value c.two—historical cost and fair value d.many—including historical cost, fair value, value in use, estimated selling price less costs to complete and sell, etc

25 Questions or comments? Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation. © 2011 IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK |

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK This presentation may be modified from time to time. The latest version may be downloaded from: The accounting requirements applicable to small and medium ‑ sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.