After the Lord Mayor’s carriage comes the corporation dustcart!

An update

But first a little history

The IASB first mooted the project in 2004 with the intention to produce a standard, consistent with full IFRSs, that would be appropriate for application in emerging economies.

The IASB for SMEs has in fact been adopted in 63 (plus 16) jurisdictions, most of which would be understood to be emerging economies. 59 jurisdictions have not adopted the Standard

The IASB for SMEs was first exposed in February 2007 and met with widespread criticism.

The Fiji Institute of Accountants made a submission to the IASB outlining a number of concerns with the draft

FIA OBJECTIONS ADDRESSED IN THE STANDARD Inconsistency in direction – Cost based and fair value based measures used interchangeably Inadequate guidance – reference required to the full IFRSs on a number of occasions A need for more illustrative examples (?)

The IASB undertook a radical redraft of the IFRS for SMEs, in the light of the criticisms received, but did not re-expose it. The Standard was issued on 9 th July 2009, with an exhortation that it be adopted immediately!

The IASB committed itself to undertake a triennial review of the Standard to Assess whether its requirements were practical Consider aligning the IFRS for SMEs with developments in the full IFRSs

THE REVIEW PROCESS AN INVITATION TO COMMENT (June to October 2012) Specific questions General observations REVIEW BY SMALL AND MEDIUM ENTITIES IMPLEMENTATION GROUP (SMEIG) AND IASB LEADING TO EXPOSURE DRAFT (October 2013) COMMENTS ON EXPOSURE DRAFT (November 2013 to May 2014)

THE REVIEW PROCESS CONTINUED REVISIONS IN LIGHT OF COMMENTS RECEIVED FROM SMEIG (October 2014) CONSIDERATION BY THE IASB – REVISED STANDARD (Mid 2015) EFFECTIVE DATE OF AMENDMENTS (1 st January 2017) (?)

THE REVIEW PROCESS AN INVITATION TO COMMENT (June to October 2012) COMMENTS ON EXPOSURE DRAFT (November 2013 to May 2014) Most comments came from Europe. Comments were also made from Australia and New Zealand, where there has been almost total rejection of the IFRS for SMEs. No input from the FIA

SIGNIFICANT CHANGES IN THE IFRS for SMEs – PARAGRAPH 1.3(b) CURRENTLY STATES ‘An entity has public accountability (and therefore applies full IFRSs) if it holds assets in a fiduciary capacity for a broad group of outsiders....this is typically the case for banks, credit unions...’ Individual jurisdictions are to be given greater which entities can / are required to apply the IFRS for SMEs

SIGNIFICANT CHANGES IN THE IFRS for SMEs- IDENTIFIABLE INTANGIBLES Currently direction relating to identifiable intangible assets is limited to a requirement to amortise over their useful economic life and to apply an impairment test when appropriate. Under the revised standard a rebuttal presumption is made that all intangibles have a ten year life or less and are to be amortised. An impairment test is to be applied where appropriate.

SIGNIFICANT CHANGES IN THE IFRS for SMEs- GOODWILL Currently reporting entities are required to amortise goodwill over a maximum of ten years on a straight line basis, assuming a zero residual value and to apply an impairment test when appropriate. Under the revised standard a rebuttal presumption is made that goodwill has a ten year life or less and is to be amortised. An impairment test is to be applied where appropriate. ‘Full’ recognition of goodwill, where there is an outside equity interest is not permited.

SIGNIFICANT CHANGES IN THE IFRS for SMEs – TAX EFFECT ACCOUNTING Tax effect accounting – deemed incomprehensible and has been rewritten. – still incomprehensible (personal view) – no change in intent. SMEIG has opposed a proposed amendment to incorporate the term ‘undue cost or effort’ in relation to many of the requirements of section 29

SIGNIFICANT CHANGES IN THE IFRS for SMEs – TAX EFFECT ACCOUNTING continued Terminology is aligned with that used in IAS 12, so,- ‘Tax basis’ becomes ‘tax base’ Reference to the ‘valuation allowance’ is eliminated

SIGNIFICANT CHANGES IN THE IFRS for SMEs – TAX EFFECT ACCOUNTING continued Presumption introduced,- The carrying amount of an investment property will be recovered by sale, rebutted if the property is depreciable and held in a business model that will consume substantially all the economic benefits over time.

SIGNIFICANT CHANGES IN THE IFRS for SMEs – TAX EFFECT ACCOUNTING continued Increased disclosures Whether or not unused tax losses resulting from identifiable causes, which are unlikely to recur Tax benefits arising, that have been previously unrecognised Deferred tax expense / income arising from a write down / reversal of a write down of a deferred tax asset. Aggregate current and deferred tax relating to items charged / credited to equity Expiry date of unused tax losses / credits for which no deferred tax asset is recognised

SIGNIFICANT CHANGES IN THE IFRS for SMEs – RELATED PARTIES Related parties – change in definition of ‘ close family members’ Family members who may be expected to influence, or be influenced by the person in their dealings with the entity, including; That person’s children and spouse or domestic partner Children of that person’s spouse or domestic partner Dependents of that person’s spouse or domestic partner.

SIGNIFICANT CHANGES IN THE IFRS for SMEs – RELATED PARTIES- continued Some categories deleted, i.e. there are not related parties, A person or a close member of that person’s family has both significant influence over the entity or significant voting power in it and joint control over the reporting entity A key management person of the entity or its parent, or a close family member of that member’s family, has control or joint control over the reporting entity or has significant voting power in it.

SIGNIFICANT CHANGES IN THE IFRS for SMEs – RELATED PARTIES- continued A new category, The entity or any member of a group of which it is a part, provides key management personnel service to the reporting entity.

SELECTED OTHER CHANGES IN THE IFRS for SMEs Items of other comprehensive income to be grouped – recyclable and non recyclable. Extensive additional direction is given relating to financial reporting for extractive industries Certain exploration costs can be capitalised Prompts are provided as to when an impairment test is to be conducted End of economic activity obligations are to be provided for Realised gains / losses are to be reclassified to profit / loss when hedge accounting is discontinued

SELECTED OTHER CHANGES IN THE IFRS for SMEs Gains /losses on closing an overseas subsidiary are not to be recycled to operating profit – not consistent with full IFRSs Reporting of subsidiaries at point of consolidation Equity accounting allowed in consolidated reports

USE OF THE TERM ‘UNDUE COST OR EFFORT Financial Instruments at fair value Intangible assets on acquisition at fair value Matters relating to tax effect accounting Note you must explain why the matter is in the ‘too hard’ basket

USE OF THE TERM ‘IMPRACTICABLE’ Consolidation on the basis of uniform reporting dates Restatement of any item in the opening financial statements on transition from former GAAP to the IFRS for SMEs

Examples of inconsistency More complexity – tax effect accounting Lack of comparability with full IFRS – all intangibles – gains on liquidating an overseas operation not transferred OCI to P/L Changes on policy on termination benefits need not be disclosed

CHANGES IN COMPLEXITY CONSIDER REQUIREMENTS ON,- Intangibles Tax effect accounting Related parties

IS THERE ANYTHING THE BOARD MIGHT CHANGE? Jurisdictions may be given greater discretion as to which entities might apply the IFRS for SMEs Entities may be permitted to,- Report property plant and equipment at fair values in line with IAS 16. Capitalise borrowing and development costs in line with the conditions stated in IAS 23 and IAS 28 The reference to IAS 39 (section 11.2 (b)) may be replaced with a reference to IFRS 9.

CONCLUSIONS AND IMPLICATIONS FROM USP RESEARCH The IASB should consider simplifying measurement and recognition criteria for SMEs Simplification of requirements relating to matters of disclosure and presentation to better meet user needs and cost-benefit considerations

THE FUTURE Comprehensive reviews of the IFRS for SMEs to commence two years after the effective date of amendments from the previous comprehensive review. Future reviews may consider requiring greater disclosures pertaining to significant investees Reporting requirements and guidance for micro sized entities need to be considered

THE FUTURE Will training materials be updated? – And if so how quickly?