Applying IFRS for SMEs E-Book

Bruce Mackenzie

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 652

Veröffentlichungsjahr: 2010

Beschreibung

An invaluable aid to companies and auditors involved in first-time adoption of the new SMEs standard

Applying the IFRS for SMEs provides expert insights and explanations of the International Financial Reporting Standards (IFRS) for small and medium enterprises (SMEs) issued by the International Accounting Standards Board (IASB). This important book includes comprehensive coverage of this recently issued standard aimed at small and medium-sized businesses.

• Provides essential coverage for application of IFRS-now a necessity in the accounting world
• Includes Foreword by Paul Pacter, Director of Standards for SMEs, IASB
• Offers commentary on the theory in the standard, illustrative disclosures, comprehensive illustrative financial statements and comparisons to full IFRS
• Includes relevant real life worked out examples aimed at SMEs, plus summaries of important points

The first book on how to apply the new SMEs standard, Applying the IFRS for SMEs is a must-have book for your small or medium-sized business.

Leseprobe

CONTENTS

Cover

Half Title Page

Title Page

Copyright

FOREWORD

WHY AN IFRS FOR SMES IS NEEDED

HOW DOES THE IFRS FOR SMES COMPARE TO FULL IFRS?

WHAT HAS BEEN THE TAKE-UP OF THE IFRS FOR SMES SO FAR?

PREFACE

LIST OF ABBREVIATIONS

1: SCOPE OF THE IFRS FOR SMEs

GENERAL SCOPE

DEFINITIONS

APPLICATION TO SUBSIDIARY COMPANIES

APPLICATION BY MICRO-ENTITIES

SUMMARY

2: CONCEPTS AND PERVASIVE PRINCIPLES

OBJECTIVE OF FINANCIAL STATEMENTS OF SMES

QUALITATIVE CHARACTERISTICS OF INFORMATION IN FINANCIAL STATEMENTS

FINANCIAL POSITION

PERFORMANCE

ACCRUAL BASIS

PERVASIVE RECOGNITION AND MEASUREMENT PRINCIPLES

RECOGNITION OF ASSETS, LIABILITIES, INCOME AND EXPENSES

MEASUREMENT

MEASUREMENT AT INITIAL RECOGNITION

SUBSEQUENT MEASUREMENT

OFFSETTING

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS AND ITS FRAMEWORK

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

3: FINANCIAL STATEMENT PRESENTATION

PRESENTATION OVERVIEW

OVERALL CONSIDERATIONS

OMISSIONS OR MISSTATEMENTS COULD ALSO INFLUENCE FAIR PRESENTATION. IDENTIFICATION OF THE FINANCIAL STATEMENTS

THE STATEMENT OF FINANCIAL POSITION

STATEMENT OF COMPREHENSIVE INCOME AND INCOME STATEMENT

STATEMENT OF CHANGES IN EQUITY AND STATEMENT OF INCOME AND RETAINED EARNINGS

STATEMENT OF CASH FLOWS

NOTES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES WITH THE EXPOSURE DRAFT

SUMMARY

4: STATEMENT OF CASH FLOWS

NATURE OF THE STATEMENT OF CASH FLOWS

DEFINITIONS AND CLARIFICATIONS OF DEFINITIONS

REPORTING CASH FLOWS FROM OPERATING ACTIVITIES

REPORTING CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES

FOREIGN CURRENCY CASH FLOWS

INTEREST AND DIVIDENDS PAID AND RECEIVED

INCOME TAX

NON-CASH TRANSACTIONS

COMPONENTS OF CASH AND CASH EQUIVALENTS

OTHER DISCLOSURES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM THE EXPOSURE DRAFT

SUMMARY

5: CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

SCOPE

DEFINITIONS

REQUIRED FINANCIAL STATEMENTS

CONSOLIDATION PROCEDURES

NON-CONTROLLING INTEREST

INTRA-GROUP TRANSACTIONS AND BALANCES

UNIFORM REPORTING DATE

UNIFORM ACCOUNTING POLICIES

DISPOSAL OF SUBSIDIARIES

DISCLOSURE

OPTIONAL FINANCIAL STATEMENTS

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM THE EXPOSURE DRAFT

SUMMARY

6: BUSINESS COMBINATIONS AND GOODWILL

SCOPE

DEFINITIONS

IDENTIFICATION OF A BUSINESS COMBINATION

ACCOUNTING FOR BUSINESS COMBINATIONS

PROVISIONAL AMOUNTS

CONTINGENT LIABILITIES

ADJUSTMENTS IN PROFIT OR LOSS

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES WITH EXPOSURE DRAFT

SUMMARY

7: ACCOUNTING POLICIES, ESTIMATES, AND ERRORS

SCOPE

ACCOUNTING POLICIES

CHANGES IN ACCOUNTING ESTIMATES

CORRECTIONS OF PRIOR PERIOD ERRORS

DIFFERENCES BETWEEN THE IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

8: INVENTORIES

SCOPE

DEFINITION

MEASUREMENT OF INVENTORIES

COST OF INVENTORIES

COST FORMULAS

IMPAIRMENT OF INVENTORIES

RECOGNITION AS AN EXPENSE

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

9: INVESTMENTS IN ASSOCIATES

SCOPE

DEFINITIONS

ACCOUNTING POLICY ELECTION

COST MODEL

FAIR VALUE MODEL

IFRS FOR SMES’ EQUITY METHOD

LOSS OF SIGNIFICANT INFLUENCE

FINANCIAL STATEMENT PRESENTATION

SEPARATE FINANCIAL STATEMENTS

DISCLOSURES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM THE EXPOSURE DRAFT

SUMMARY

10: INVESTMENTS IN JOINT VENTURES

SCOPE

DEFINITIONS

JOINTLY CONTROLLED OPERATIONS

JOINTLY CONTROLLED ASSETS

JOINTLY CONTROLLED ENTITIES

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

11: INVESTMENT PROPERTY

SCOPE

DEFINITION

MEASUREMENT AT INITIAL RECOGNITION

SUBSEQUENT MEASUREMENT

RECLASSIFICATION OF INVESTMENT PROPERTIES

MIXED-USE PROPERTY

LEASED ASSETS

DISCLOSURES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

12: PROPERTY, PLANT, AND EQUIPMENT

SCOPE

DEFINITIONS

RECOGNITION

INITIAL MEASUREMENT

MEASUREMENT AFTER INITIAL RECOGNITION

BINDING SALE AGREEMENTS

DERECOGNITION

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

13: INTANGIBLE ASSETS OTHER THAN GOODWILL

SCOPE

DEFINITION AND RECOGNITION CRITERIA

METHODS OF ACQUISITION AND INITIAL MEASUREMENT

INTERNALLY GENERATED INTANGIBLE ASSETS

ITEMS PREVIOUSLY EXPENSED

MEASUREMENT AFTER INITIAL RECOGNITION

AMORTIZATION

IMPAIRMENT

RETIREMENTS AND DISPOSALS

DISCLOSURES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

14: IMPAIRMENT OF ASSETS

SCOPE

DEFINITIONS

IMPAIRMENT PRINCIPLES

IMPAIRMENT OF A CGU

REVERSAL OF AN IMPAIRMENT LOSS

ADDITIONAL REQUIREMENTS FOR IMPAIRMENT OF GOODWILL

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

15: PROVISIONS AND CONTINGENCIES

SCOPE

DEFINITIONS

INITIAL RECOGNITION

INITIAL MEASUREMENT

REIMBURSEMENT ASSETS

SUBSEQUENT MEASUREMENT

ONEROUS CONTRACT

RESTRUCTURINGS

DISCLOSURE RELATED TO PROVISIONS

CONTINGENT LIABILITIES

CONTINGENT ASSETS

PREJUDICIAL DISCLOSURES

DIFFERENCES BETWEEN IFRS FOR SMES AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

16: LIABILITIES AND EQUITY

SCOPE

DEFINITIONS

DEEMED EQUITY CLASSIFICATIONS

INSTRUMENTS CLASSIFIED AS LIABILITIES

MEMBERS’ SHARE IN CO-OPERATIVE ENTITIES

ORIGINAL ISSUE OF SHARES OR OTHER EQUITY INSTRUMENTS

CAPITALIZATION AND BONUS SHARE ISSUES, AND SHARE SPLITS

CONVERTIBLE DEBT AND SIMILAR COMPOUND FINANCIAL INSTRUMENTS

WITHHOLDING TAX ON DIVIDENDS

TREASURY SHARES

DISTRIBUTIONS TO OWNERS

NON-CONTROLLING INTEREST

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

17: FINANCIAL INSTRUMENTS

SCOPE

DEFINITIONS

ACCOUNTING POLICY CHOICE

DISTINCTION BETWEEN BASIC AND OTHER FINANCIAL INSTRUMENTS

INITIAL RECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

MEASUREMENT MODELS

INITIAL MEASUREMENT

SUBSEQUENT MEASUREMENT

IMPAIRMENT

FAIR VALUE GUIDANCE

DERECOGNITION

HEDGE ACCOUNTING

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

18: LEASES

SCOPE

DEFINITION OF A LEASE

CLASSIFICATION OF LEASES

FINANCIAL STATEMENTS OF LESSEES: FINANCE LEASES

FINANCIAL STATEMENTS OF LESSEES: OPERATING LEASES

FINANCIAL STATEMENTS OF LESSORS: FINANCE LEASES

FINANCIAL STATEMENTS OF LESSORS: OPERATING LEASES

DISCLOSURE

SALE AND LEASE-BACK TRANSACTIONS

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM THE EXPOSURE DRAFT

SUMMARY

19: SHARE-BASED PAYMENT

SCOPE

DEFINITIONS

WHEN TO RECOGNIZE A SHARE-BASED PAYMENT TRANSACTION

RECOGNITION WHEN THERE ARE VESTING CONDITIONS

EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

CASH-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

SHARE-BASED PAYMENT TRANSACTIONS WITH CASH ALTERNATIVES

GROUP SHARE-BASED PAYMENT PLANS

GOVERNMENT-MANDATED SHARE-BASED PAYMENT PLANS

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES WITH EXPOSURE DRAFT

SUMMARY

20: EMPLOYEE BENEFITS

SCOPE

DEFINITIONS

GENERAL RECOGNITION PRINCIPLE

SHORT-TERM EMPLOYEE BENEFITS

POST-EMPLOYMENT BENEFIT CLASSIFICATION

MULTI-EMPLOYER PLANS AND STATE PLANS

INSURED BENEFITS

DEFINED CONTRIBUTION PLANS

DEFINED BENEFIT PLANS

OTHER LONG-TERM EMPLOYEE BENEFITS

TERMINATION BENEFITS

GROUP PLANS

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

21: INCOME TAX

SCOPE

DEFINITIONS

CURRENT TAX

DEFERRED TAX

OTHER ISSUES AFFECTING THE MEASUREMENT OF CURRENT AND DEFERRED TAX

WITHHOLDING TAX ON DIVIDENDS

PRESENTATION

OFFSETTING

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

22: REVENUE

SCOPE

DEFINITIONS

MEASUREMENT

IDENTIFICATION OF THE REVENUE TRANSACTION

SALE OF GOODS

RENDERING OF SERVICES

CONSTRUCTION CONTRACTS

PERCENTAGE OF COMPLETION METHOD

INTEREST, ROYALTIES, AND DIVIDENDS

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

23: GOVERNMENT GRANTS

SCOPE

DEFINITIONS

RECOGNITION AND MEASUREMENT

DISCLOSURE RELATED TO GOVERNMENT GRANTS

DISCLOSURE RELATED TO GOVERNMENT ASSISTANCE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

24: BORROWING COSTS

DEFINITION

RECOGNITION

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

25: FOREIGN CURRENCY TRANSLATION

SCOPE

DEFINITIONS

DETERMINATION OF FUNCTIONAL CURRENCY

CHANGE IN THE FUNCTIONAL CURRENCY

TRANSLATION OF FOREIGN CURRENCY TRANSACTIONS AND BALANCES

TRANSLATION OF A NET INVESTMENT IN A FOREIGN OPERATION

TRANSLATION TO ANOTHER PRESENTATION CURRENCY

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

26: HYPERINFLATION

SCOPE

IDENTIFICATION OF A HYPERINFLATIONARY ECONOMY

MEASURING UNIT IN THE FINANCIAL STATEMENTS

PROCEDURES FOR RESTATING FINANCIAL STATEMENTS

GAIN OR LOSS ON NET MONETARY POSITION

ECONOMIES CEASING TO BE HYPERINFLATIONARY

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

27: EVENTS AFTER THE END OF THE REPORTING PERIOD

SCOPE

DEFINITION

ADJUSTING EVENTS

NON-ADJUSTING EVENTS

DIVIDENDS

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

28: RELATED PARTY DISCLOSURES

SCOPE

DEFINITIONS

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

29: SPECIALIZED ACTIVITIES

SCOPE

AGRICULTURE

EXTRACTIVE ACTIVITIES

SERVICE CONCESSION ARRANGEMENTS

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCES FROM EXPOSURE DRAFT

SUMMARY

30: TRANSITION TO THE IFRS FOR SMEs

SCOPE

DEFINITION

FIRST-TIME ADOPTION

PROCEDURES FOR PREPARING FINANCIAL STATEMENTS AT THE DATE OF TRANSITION

DISCLOSURE

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

DIFFERENCE FROM EXPOSURE DRAFT

SUMMARY

INDEX

WILEY Applying IFRS for SMEs

Copyright © 2011 by John Wiley & Sons. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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International Accounting Standards Board Material: The International Accounting Standards Committee Foundation granted W Consulting and John Wiley & Sons Inc. (the ‘Publishers’) permission to reproduce material from the IFRSs in Applying IFRS for SMEs, in print format. All material from IFRS for SMEs, full IFRS and its Framework is Copyright © 2010 International Accounting Standards Committee Foundation. All rights are reserved. No permission granted to reproduce or distribute.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-0-470-60337-6 (book); ISBN 978-1-118-00365-7 (ebk); ISBN 978-1-118-00366-4 (ebk); ISBN 978-1-118-00367-1 (ebk)

FOREWORD

Small and medium-sized entities (SMEs) pervade the business world. In virtually every jurisdiction, from the largest economies down to the smallest, over 99% of companies has fewer than 50 employees.

In most jurisdictions, the law requires all or many of these companies to prepare financial statements and, often, to have them audited. In the European Union alone, for example, over five million of the 21 million business entities have a statutory reporting obligation.

WHY AN IFRS FOR SMES IS NEEDED

Which accounting standards do SMEs follow in preparing their financial statements? The global trend, in the past decade, has been for jurisdictions to adopt International Financial Reporting Standards (IFRS) directly, or to merge their local standards with IFRS. For listed companies today, over 110 jurisdictions mandate IFRS. IFRS is designed to meet the needs of public capital markets, and consequently address complex transactions, provide extensive detailed guidance, include a range of fair value and present value measurements, and require thousands of disclosures, many intended to meet the needs of long-term equity investors. The 2009 bound volume of IFRS has grown to 2,855 pages.

In many jurisdictions, this complexity has been pushed down to SMEs due to convergence of local accounting standards and IFRS, or direct adoption of IFRS. Small companies frequently say they find full IFRS burdensome–the resulting financial statements are off-target in terms of the users of their financial statements who are more interested in information about short-term cash flows, liquidity, and solvency.

South Africa is a perfect case in point. In October 2007, following a period of consultation, the Accounting Practices Board (APB) of the South African Institute of Chartered Accountants (SAICA) adopted the International Accounting Standards Board's (IASB), then-proposed IFRS for SMEs as a final (though intentionally interim) Statement of Generally Accepted Accounting Practice (GAAP) for SMEs. Why? By 2007, South African GAAP had become fully converged with IFRS, and many SMEs were struggling to use those standards. They found them burdensome and too complex for their needs. A change in South African company law earlier in 2007 had made provisions for differential reporting for limited interest companies (SMEs), and SAICA acted on it.

South Africa's experience using the IASB's proposed standard was successful. And so, in August 2009, the APB acted again, making South Africa the first country in the world to adopt the final IFRS for SMEs as its national SME standard.

A reality in some countries is that the quality of implementation of full IFRS (or converged local equivalents) is sub-standard. And, where jurisdictions have developed their own SME standards, these often have serious limitations from a user perspective, are not readily understood by lenders and other capital providers (particularly across borders), have limited support (such as textbooks and software), and sometimes are weakly enforced. World Bank studies of 83 developing and emerging jurisdictions found that most have significant shortcomings in financial reporting by SMEs–shortcomings that impede economic growth.

If capital and credit providers do not understand or have confidence in the financial information they receive, a SME's access to capital suffers, as well as its cost.

HOW DOES THE IFRS FOR SMES COMPARE TO FULL IFRS?

The IFRS for SMEs, issued by the IASB in July 2009, responds to these concerns. It is self-contained, 230 pages long (less than 10% of full IFRS), tailored for the needs and capabilities of smaller businesses, and is understandable across borders. Compared with full IFRS (and many national GAAPs), the IFRS for SMEs is less complex in a number of ways:

Topics not relevant for SMEs are omitted. For example, earnings per share, interim financial reporting, and segment reporting.Where full IFRS allows accounting policy choices, the IFRS for SMEs allows only the easier option. For example, no option to revalue property, equipment, or intangibles; a cost-depreciation model for investment property unless fair value is readily available without undue cost or effort; no ‘corridor approach' for actuarial gains and losses.Many principles for recognizing and measuring assets, liabilities, income and expenses in full IFRS are simplified. For example, amortize goodwill; expense all borrowing and R&D costs; cost model for associates and jointly-controlled entities; no available-for-sale or held-to-maturity classes of financial assets.Significantly fewer disclosures are required (roughly 300 vs 3,000).And the Standard has been written in clear, easily translatable language.

To further reduce the burden for SMEs, revisions to the IFRS will be limited to once every three years. You can download the Standard at http://go.iasb.org/IFRSforSMEs.

The Standard is available for any jurisdiction to adopt, whether or not it has adopted full IFRS. Each jurisdiction must determine which entities should use the Standard. IASB's only restriction is that listed companies and financial institutions should not use it. It was effective immediately on issue.

WHAT HAS BEEN THE TAKE-UP OF THE IFRS FOR SMES SO FAR?

The Standard was issued in July 2009. A survey of world accounting standard setters conducted in September found that, of 51 responding jurisdictions, 31 plan to require or permit the IFRS for SMEs within the next three years, 11 have no plans to do so, and nine are undecided. Since that survey, at least half-a-dozen additional countries have announced plans to adopt it.

Many global accounting groups welcomed the IFRS for SMEs when it was issued in July. The World Bank said it is a “valuable reporting framework for smaller entities that is more responsive to the size and ownership of their operations, and should help improve their access to finance.” And, the International Federation of Accountants said the Standard “will contribute to enhancing the quality and comparability of SME financial statements around the world and assist SMEs in gaining access to finance. The beneficiaries will be not only SMEs, but also their customers, clients, and all other users of SME financial statements.”

Those kinds of benefits are the reasons why the IASB developed the Standard. An important public interest is served when those who provide capital have good information on which to base their lending, credit, and investment decisions. The IFRS for SMEs will bring those benefits to South Africa and the rest of the world.

Paul PacterIASB Board MemberDirector of Standards for SMEsInternational Accounting Standards BoardLondonNovember 2010

PREFACE

Applying IFRS for SMEs is based on the International Financial Reporting Standards for Small and Medium-Sized Entities (IFRS for SMEs or the Standard) as issued by the International Accounting Standards Board in June 2009. The book is a comprehensive review of the Standard, providing the principles and guidance contained in the Standard. It has been written by subject matter experts, training, and applying the Standard in practice.

The publication can be used by practitioners and preparers applying IFRS for SMEs, as well as for academic purposes.

The aim of Applying IFRS for SMEs is to assist in the application of the Standard in practice and to provide insights on certain interpretative issues. This is achieved by:

Examples showing certain transactions and events.Figures illustrating more complex issues in the form of a diagram.Tables providing lists and points.Our insights and opinions on the appropriate treatment for certain transactions and events.Extracts from the IFRS for SMEs and full IFRS.Highlights of main points.Comparisons to Exposure Draft (a.k.a., the Exposure Draft of a Proposed IFRS for SMEs).Comparisons to full IFRS.A summary of the major points at the end of each chapter.

LIST OF ABBREVIATIONS

APB

The Accounting Practices Board

CGT

Capital gains tax

CGU

Cash-generating unit

CU

Currency unit

EUR

Euro

FCTR

Foreign currency translation reserve

FIFO

First-in-first-out

Framework

IASB's Framework for the Preparation and Presentation of Financial Statements

FV

Fair value

GAAP

Generally Accepted Accounting Principles

GBP

Great Britain Pound Sterling

IASB

International Accounting Standards Board

IFRIC

International Financial Reporting Interpretations Committee

IFRS (Full IFRS)

International Financial Reporting Standards

IFRS for SMEs

International Financial Reporting Standard for Small and Medium-Sized Entities

IRR

Internal rate of return

JIBAR

Johannesburg Interbank Agreed Rate

JV

Joint venture

LIBOR

London Interbank Offered Rate

LIFO

Last-in-first-out

NCI

Non-controlling interest

OCI

Other comprehensive income

P/L

Profit or loss

PPE

Property, plant, and equipment

SCF

Statement of cash flows

SCI

Statement of comprehensive income

SFP

Statement of financial position

SIC

Standard industrial classification

SIRE

Statement of income and retained earnings

SME

Small and medium-sized entity

SPE

Special purpose entity

The Standard

IFRS for SMEs

USD

United States Dollar

YEN

Japanese Yen

ZAR

South African Rand

1 SCOPE OF THE IFRS FOR SMEs

General Scope

Definitions

Application to Subsidiary Companies

Application by Micro-entities

Summary

GENERAL SCOPE

The IFRS for Small and Medium-Sized Entities (IFRS for SMEs, “the Standard”) is an independent standard that prescribes financial reporting guidance for small and medium-sized entities (SMEs). The Standard is applicable to SMEs that:

Do not have public accountabilityPublish general purpose financial statements for external users

The Standard does not provide any quantitative measures, such as revenue, expenditure, assets, or number of employees, to determine whether or not the Standard may be used. The Standard states that each jurisdiction needs to determine which entities may apply the IFRS for SMEs.

DEFINITIONS

General Purpose Financial Statements

General purpose financial statements are defined as financial statements aimed at the general financial information needs of a wide range of users who are not in a position to demand reports tailored to meet their particular information needs.

The IFRS for SMEs allows general purpose financial statements to be published for external users, including:

Owners who are not involved in managing the businessExisting and potential creditorsCredit rating agencies

Public Accountability

An entity has public accountability if:

Its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market.It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

Meeting any one of the above two requirements is regarded as public accountability, which results in an exclusion from the scope of the Standard.

Traded in a Public Market

Publicly traded is defined in the Standard as ‘registered with a securities commission or other regulatory organization for the purpose of sale in a public market.’ Public accountability is not only when an entity's debt or equity instruments are actually traded in a public market, but also when the entity is in the process of issuing such instruments for trading in public markets.

The Standard states that public markets include domestic or foreign stock exchanges or over-the-counter markets, whether local or regional.

Entities whose memorandum of incorporation or other incorporation documentation allows for the offering of any of its securities to the public will not be regarded as having public accountability until they actually start taking steps to issue such instruments for trading in a public market.

The Standard is not intended for small publicly-traded entities. Due to the special needs of capital markets, the use of full IFRS is required for small publicly-traded entities. All entities whose debt or equity instruments are traded in public capital markets, regardless of size, have chosen to seek capital from outside investors. Usually, these investors are not involved in the management of the business and are not in a position to demand specific information. Full IFRS is developed to serve the capital markets, and with this in mind, require specific disclosures, which may not be included in the IFRS for SMEs.

Fiduciary Capacity

To be excluded from the scope of the Standard, entities must hold assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. The requirement as one of its primary businesses is essential. Some entities may hold assets in a fiduciary capacity because they hold and manage financial resources entrusted to them by clients, customers, or members not involved in the management of the entity. However, if they do so for reasons incidental to their primary business, they are not considered to be publicly accountable–they can apply the Standard.

The Standard provides the following examples of entities that are excluded from the scope of the IFRS for SMEs because they hold assets in a fiduciary capacity:

BanksCredit unionsInsurance companiesSecurities’ dealersMutual fundsInvestment banks

The Standard provides the following examples of entities that may apply the IFRS for SMEs because they hold assets in a fiduciary capacity incidental to their primary business:

Travel or real estate agentsSchoolsCharitable organizationsCo-operative enterprises requiring a nominal membership depositSellers that receive payment in advance of delivery of goods or services (e.g., utility companies)

EXAMPLE 1.1: Purchase of an Asset Management Company

Soweto is the holding company of a diverse group of entities. Currently, the Soweto Group has no public accountability as defined. The board of directors recently had their quarterly strategy meeting. As a result, the financial director had various questions about the application of the IFRS for SMEs.

The board of directors identified a small asset management company for possible acquisition that will provide them with various strategic options in the future.

The financial director is uncertain if the asset management company will be able to apply the Standard and, if not, what the implication would be for the consolidation process of the Soweto group.

Required

Provide the financial director with advice in regard to applying the Standard with reference to the possible acquisition and its implications on the Soweto group.

Suggested Solution

The asset management company receives funds, then invests them on behalf of its clients for a fee. The asset management company therefore has public accountability as it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

With respect to the Soweto group, as one of its subsidiaries will not be eligible to apply the IFRS for SMEs, the group can therefore not apply the Standard in its consolidated accounts either.

APPLICATION TO SUBSIDIARY COMPANIES

A subsidiary whose parent uses full IFRS, or that is part of a consolidated group that uses full IFRS, is allowed to use the IFRS for SMEs in its own financial statements provided that it does not have public accountability.

EXAMPLE 1.2: Acquisition by an International Investment Entity

The current shareholders of Berlin were approached by an international investment company regarding a possible purchase of a majority shareholding in Berlin.

The financial director has concerns–the international investment company is currently applying full IFRS as its financial reporting framework; Berlin uses the IFRS for SMEs. He is uncertain if Berlin would be allowed to continue applying the IFRS for SMEs if its potential new holding company does not apply the IFRS for SMEs.

Required

Provide the financial director with advice on applying the IFRS for SMEs and the implications of consolidating Berlin.

Suggested Solution

The IFRS for SMEs states that a subsidiary whose parent uses full IFRS, or that is part of a consolidated group that uses full IFRS, is not prohibited from using the IFRS for SMEs in its own financial statements if that subsidiary does not have public accountability.

Berlin may, therefore, continue to apply the IFRS for SMEs in its own accounting records.

Full IFRS requires all entities included in consolidated financial statements to have uniform accounting policies. The international investment company would therefore need to convert Berlin's IFRS for SMEs’ financial statements to full IFRS financial statements for consolidation purposes.

APPLICATION BY MICRO-ENTITIES

The IASB states that this standard would be appropriate for all entities without public accountability preparing general purpose financial statements, irrespective of their size. This would include micro-sized entities (with less than 10 employees) and owner-managed businesses. If such an entity prepares financial statements solely to submit to income tax authorities for the purpose of determining taxable income or to a credit provider to obtain finance, such financial statements must not be deemed to be general purpose financial statements.

The guidance in the Standard is clear and concise. The guidance may cover some transactions or circumstances that micro-entities do not typically encounter, but the IASB did not believe that this imposes a burden on such entities. The structure of the Standard will make it easy for micro-entities to identify those aspects of the Standard that are relevant to their circumstances.

The IASB acknowledged that an extensively simplified and brief set of accounting requirements for micro-entities (with general principles of accounting, specific recognition, and measurement principles for only the most basic transactions and limited disclosure requirements) might result in relatively low costs to micro-entities in preparing financial statements. The IASB concluded that such simplified requirements for micro-entities would not meet the aim of general purpose financial statements and might not improve the micro-entities’ ability to obtain capital. Therefore, the IASB has not pursued a project to develop such a standard.

SUMMARY

The IFRS for SMEs is applicable to SMEs that do not have public accountability, and publish general purpose financial statements for external users.An entity is deemed to have public accountability if: Its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market.The entity holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.The Standard clarifies that where entities hold assets in a fiduciary capacity as an incidental part of their business activities, this does not make them publicly accountable. Entities that fall into this category may include travel agents, schools, or charities.

3 FINANCIAL STATEMENT PRESENTATION

Presentation Overview

Overall Considerations

Omissions or misstatements could also influence fair presentation. Identification of the Financial Statements

The Statement of Financial Position

Statement of Comprehensive Income and Income Statement

Statement of Changes in Equity and Statement of Income and Retained Earnings

Statement of Cash Flows

Notes

Differences between IFRS for SMEs and Full IFRS

Differences with the Exposure Draft

Summary

PRESENTATION OVERVIEW

The complete set of financial statements consists of the following sections:

A statement of financial position (SFP)A single statement of comprehensive income, which may be separated into an income statement and a separate statement of comprehensive income (SCI)A statement of changes in equity (SCE)A statement of cash flows (SCF)Notes to the financial statements

In limited circumstances, the Standard allows the statement of comprehensive income and the statement of changes of equity to be combined in a single statement of income and retained earnings (SIRE). This would be the case if the only changes to equity are profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy.

Other titles for the principle financial statements may be used if they are not misleading.

The Standard does not address the presentation of segment information, earnings per share, or interim financial reports. When such presentations are provided, the basis on which such information has been prepared and presented should be disclosed.

OVERALL CONSIDERATIONS

Seven overall considerations are provided for in the Standard, and these must be observed in the preparation and presentation of financial statements and any additional related disclosure that may be required. These considerations are in addition to the qualitative characteristics provided in the chapter on Concepts and Pervasive Principles (refer to Chapter 2).

Fair Presentation

The objective of financial statements, as stated in Chapter 2, is to present fairly the financial position, financial performance, and cash flows of an entity. Fair presentation is defined as the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses in line with Concepts and Pervasive Principles.

Specifically, the application of the IFRS for SMEs is presumed to result in financial statements that achieve fair presentation if applied by an entity that has no public accountability. Additional disclosures are permitted by the Standard if the prerequisite disclosure set out in the Standard does not provide sufficient information to enable users of the financial statements to understand the effect of particular transactions, events, and conditions on the entity's financial position and performance. For example, additional disclosure for discontinued operations may enhance the understandability of the financial statements. Preparers of financial statements must always consider whether additional disclosures are needed to achieve fair presentation.

Compliance with the Standard

An explicit and unreserved statement of compliance with the IFRS for SMEs is required in the notes. This statement may only be included in the financial statements if there is compliance with all the requirements of the Standard. Only in exceptional circumstances may an entity depart from this requirement, for example, if management concludes that compliance with the IFRS for SMEs would be so misleading that it would conflict with the objective of fair presentation of the financial statements. However, it should be noted that such a departure may only be applied when it is not specifically prohibited by any regulatory framework that is relevant to the entity.

Should management arrive at the conclusion that such a departure is warranted, the entity is required to disclose the following information with a repetition of the disclosure in subsequent years if it affects the amounts recognized in those years:

A conclusion has been arrived at that the financial statements present fairly the entity's financial position, financial performance, and cash flows.That the financial statements comply with the IFRS for SMEs, except to the extent of the particular departure, which has been necessitated by the need to achieve fair presentation.The nature of the departure, including: The required treatment of the StandardThe reason why that treatment would be so misleading in the particular circumstances of the entity and thus conflict with the objective of achieving fair presentationA description of the treatment subsequently adopted and applied

If the applicable regulatory framework prohibits departure, and management concludes that compliance with a requirement of the Standard would be misleading, the perceived misleading aspects of compliance are reduced by disclosing:

The nature of the requirement of the Standard.The reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements.For each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

Going Concern

The principle of going concern remains unchanged from other accounting frameworks. Financial statements are prepared on a going concern basis and the assumption by a reader of the financial statements is that the company will continue to operate for the foreseeable future if the financial statements have not been prepared on an alternative basis.

To achieve this and thus prepare the financial statements on an appropriate basis, an assessment of an entity's ability to continue as a going concern must be made by management each time financial statements are prepared. In terms of the Standard, an entity is considered to be a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to wind up its operations. In assessing the going concern assumption, management takes into account all available information about the future for at least 12 months from the reporting date.

Disclosure is required in respect of:

Any material uncertainties relating to events or conditions that cast significant doubt upon the entity's ability to continue to operate as a going concern.If the financial statements are not prepared on a going concern basis: The basis on which the financial statements are prepared.The reason why the entity is not considered to be a going concern.

EXAMPLE 3.1: Disclosure About Uncertainty of Going Concern

Basis of Presentation

The change in the market profile of the products that the company is producing has placed doubt on the company's ability to continue to operate as a going concern. The company is investigating different options to ensure the continued sustainability of the company. The directors are of the view that there are sufficient financial resources to ensure the ability to sustain the company for the foreseeable future.

Frequency of Reporting

A complete set of financial statements (including comparative information) is presented at least annually. When annual financial statements are presented for a longer or shorter period, the entity is required to disclose the following:

The fact that the financial information has been prepared for a longer or shorter period.The reason for changing the length of the accounting period.The fact that comparative amounts presented are not entirely comparable.

Consistency of Presentation

The presentation and classification of items should remain the same from one period to the next. Changes in presentation are only allowed when:

The Standard requires a change in presentation.There has been a significant change in the nature of the entity's operations or a review of its financial statements that necessitates the use of another presentation or classification deemed to be more appropriate.

Comparative amounts need to be adjusted for changes in presentation, unless the reclassification is impracticable. A situation is seen to be impracticable if the entity cannot apply it after making every reasonable effort to do so. If reclassification of comparatives is impracticable, the reasons for this are required to be disclosed in the financial statements.

When comparative amounts are reclassified, the following information is disclosed:

Nature of the reclassificationAmount of each item or class of items that is reclassifiedReasons for the reclassification

EXAMPLE 3.2: Disclosure Regarding the Presentation of Information

Because the company has changed its focus from the provision of services to banking activities, it has decided to present assets and liabilities in the SFP based on liquidity, not on a current and non-current basis. The presentation based on liquidity is considered to provide more reliable and relevant information in understanding the company's new focus. All items in the SFP, except for equity, have been reclassified accordingly.

Comparative Information

Comparative information is disclosed for all amounts presented, except when the Standard permits or requires otherwise. Comparative information for narrative and descriptive information is only provided when it is relevant to understanding the current period's financial statements.

Materiality and Aggregation

The basic principle is that each material class of similar items must be presented separately. Therefore, items of a dissimilar nature or function are presented separately unless they are deemed to be immaterial.

The Standard specifically states that omissions or misstatements could also influence the fair presentation of financial statements. Omissions or misstatements are regarded as material when they influence the economic decisions of users. Materiality in this context depends on the size and/or nature of the omission or misstatement judged in the surrounding circumstances.

OMISSIONS OR MISSTATEMENTS COULD ALSO INFLUENCE FAIR PRESENTATION. IDENTIFICATION OF THE FINANCIAL STATEMENTS

Financial statements must be presented with equal prominence and clearly identified from other information (See Exhibit 3.1). For identification purposes also disclose:

The name of the reporting entity and any change in the nameWhether the financial statements are individual or consolidated financial statementsThe closing date of the reporting periodThe period coveredThe presentation currencyThe level of rounding of amounts presented

Exhibit 3.1 Additional Disclosures

Notes to the Financial Statements for the year ending on December 31, 20X2.20. General InformationCountry of incorporation and domicileSouth AfricaNature of business and principal activitiesJewelry and watch retailerRegistered office40th Floor Jewelry Building110th AvenueSandtonSouth AfricaPostal addressP.O. Box 9000Sandton1000

The following additional information is required in the notes:

Domicile and legal form of the entity, its country of incorporation, and the address of its registered office (or principal place of business).Description of the nature of the entity's operations and its principal activities.

THE STATEMENT OF FINANCIAL POSITION

The Nature and Information Required