Presentation on theme: "Chapter 25 - SMALL AND MEDIUM-SIZED ENTITIES"— Presentation transcript:
1 Chapter 25 - SMALL AND MEDIUM-SIZED ENTITIES ACTG 6580Chapter SMALL AND MEDIUM-SIZED ENTITIES(IFRS for SMEs)
2 Introduction to IFRS for SMEs Full IFRS has over 3,000 pages of rules and requires extensive disclosures. This is appropriate for large companies with complex finances but is not generally suitable for smaller companies.IFRS for SMEs has only 230 pages and is tailored for use by small and medium-sized entities.IFRS for SMEs was issued in July 2009 and is a single self-contained standard.Updated only once every three years.Over 95% of companies worldwide are SMEs.
3 Small and medium-sized entities The IFRS for SMEs defines small and medium- sized entities as "entities that:do not have public accountability, andpublish general purpose financial statements for external users".In general, an entity has public accountability if its shares are publicly traded or are financial institutions. Therefore the IFRS for SMEs is intended mainly for use by unlisted companies.Over 70 countries to date have either adopted the IFRS for SMEs or are planning to do so.
4 Concepts and Pervasive Principles Similar to IASB Conceptual FrameworkObjective of financial statementsQualitative characteristicsDefinitions of elementsRecognition criteriaMeasurement (historical cost or fair value)Accrual basisOffsetting not allowed
5 Financial Statement Presentation Similar to IAS1 in full IFRSFair presentation requiredCompliance with the IFRS for SMEsGoing concern basisFrequency of reporting and comparative informationMateriality and aggregationSpecification of a complete set of financial statements for a small or medium-sized entity
6 Financial Statement Presentation A set of financial statements under IFRS for SMEs (similar to full IFRS) comprises:A statement of financial positionA statement of comprehensive income (or a separate income statement and a statement of comprehensive income)A statement of changes in equityA statement of cash flows (using either the direct or indirect method)Notes, comprising a summary of significant accounting policies and other explanatory information
7 Complete Set of Financial Statements A complete set of financial statements for a small or medium- sized entity is normally the same as in full IFRS, but:An entity with no "other comprehensive income" may present just an income statement rather than a statement of comprehensive incomeAn entity with no "other comprehensive income" and no transactions with owners other than dividends may combine the income statement and the statement of changes in equity into a "statement of income and retained earnings".In the statement of financial position, assets and liabilities may be presented in order of liquidity rather than being classified as current or non-current.
8 Main Differences Between the IFRS for SMEs and Full IFRS Sections 11/12 Financial InstrumentsSimplified treatment of basic financial instrumentsEntities may instead apply the recognition and measurement requirements of IAS39Section 14 Investments in AssociatesInvestments in associates may be measured using either the cost model, the equity method or the fair value modelThe same measurement model should be used for all investments in associates
9 Main Differences Between the IFRS for SMEs and Full IFRS Section 15 Investments in Joint VenturesInvestments in jointly controlled entities may be measured using either the cost model, the equity method or the fair value modelThe same measurement model should be used for all investments in jointly controlled entitiesProportionate consolidation is not allowedSection 16 Investment PropertyAll investment property should normally be measured at fair value (cost model is permitted only if fair value cannot be measured reliably)
10 Main Differences Between the IFRS for SMEs and Full IFRS Section 17 Property, Plant and EquipmentSection 18 Intangible Assets Other Than GoodwillRevaluation model is not permittedresidual values, useful lives and depreciation or amortization methods need not be reviewed unless there are indications of changeNo special treatment of assets held for sale (but an impairment review is triggered)Internally generated intangible assets must not be recognized
11 Main Differences Between the IFRS for SMEs and Full IFRS Section 19 Business Combinations and GoodwillGoodwill is amortized and is measured at cost less accumulated amortization and any accumulated impairment lossesIf the useful life of goodwill cannot be measured reliably, it is presumed to be ten yearsSection 20 LeasesActuarial method is required for finance leasesStraight line basis does not apply to operating leases where payments rise in line with expected inflation
12 Main Differences Between the IFRS for SMEs and Full IFRS Section 24 Government GrantsGrants that do not impose performance conditions are recognized as revenue as soon as receivableGrants that impose performance conditions are recognized as revenue when these conditions are metSection 25 Borrowing CostsBorrowing costs must be treated as an expense and cannot be capitalized
13 Main Differences Between the IFRS for SMEs and Full IFRS Section 27 Impairment of assetsGoodwill is tested for impairment only if there are indications of impairmentImpairment losses are generally recognized as an expense (no problem with revalued assets since revaluation model is not permitted)Section 28 Employee BenefitsSimpler accounting treatment of defined benefit pension schemesActuarial profits and losses cannot be carried forward
14 Main Differences Between the IFRS for SMEs and Full IFRS Section 29 Income TaxDeferred tax assets should be recognized in full but a "valuation allowance" should then be deducted to ensure carrying amount does not exceed recoverable amount (if necessary)Section 33 Related Party DisclosuresKey management personnel compensation may be disclosed in total, rather than being analyzed into categories
15 Topics Not Covered in the IFRS for SMEs Segment reportingEarnings per shareInterim financial reportingNone of these topics is thought to be relevant to small or medium-sized entities.
16 Disclosure Simplifications Reduced disclosure requirements:Full IFRS – more than 3,000 items in the disclosure checklistIFRS for SMEs – roughly 300 disclosuresSome disclosures omitted relate to disallowed complex recognition and measurement options in full IFRSSome disclosures in full IFRS are more relevant to investment decisions in public capital markets
17 Transition to IFRS for SMEs Additional simplifications are provided in relation to comparative information on first-time adoption of IFRS for SMEsAn impracticability exception from having one year comparative information and with respect to restating the opening statement of financial position is included