1. Chapter 25 - SMALL AND MEDIUM-SIZED ENTITIES
ACTG 6580
Chapter 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, and
publish 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 Framework
Objective of financial statements
Qualitative characteristics
Definitions of elements
Recognition criteria
Measurement (historical cost or fair value)
Accrual basis
Offsetting not allowed

5. Financial Statement Presentation
Similar to IAS1 in full IFRS
Fair presentation required
Compliance with the IFRS for SMEs
Going concern basis
Frequency of reporting and comparative information
Materiality and aggregation
Specification 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 position
A statement of comprehensive income (or a separate income statement and a statement of comprehensive income)
A statement of changes in equity
A 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 income
An 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 Instruments
Simplified treatment of basic financial instruments
Entities may instead apply the recognition and measurement requirements of IAS39
Section 14 Investments in Associates
Investments in associates may be measured using either the cost model, the equity method or the fair value model
The 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 Ventures
Investments in jointly controlled entities may be measured using either the cost model, the equity method or the fair value model
The same measurement model should be used for all investments in jointly controlled entities
Proportionate consolidation is not allowed
Section 16 Investment Property
All 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 Equipment
Section 18 Intangible Assets Other Than Goodwill
Revaluation model is not permitted
residual values, useful lives and depreciation or amortization methods need not be reviewed unless there are indications of change
No 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 Goodwill
Goodwill is amortized and is measured at cost less accumulated amortization and any accumulated impairment losses
If the useful life of goodwill cannot be measured reliably, it is presumed to be ten years
Section 20 Leases
Actuarial method is required for finance leases
Straight 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 Grants
Grants that do not impose performance conditions are recognized as revenue as soon as receivable
Grants that impose performance conditions are recognized as revenue when these conditions are met
Section 25 Borrowing Costs
Borrowing 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 assets
Goodwill is tested for impairment only if there are indications of impairment
Impairment losses are generally recognized as an expense (no problem with revalued assets since revaluation model is not permitted)
Section 28 Employee Benefits
Simpler accounting treatment of defined benefit pension schemes
Actuarial profits and losses cannot be carried forward

14. Main Differences Between the IFRS for SMEs and Full IFRS
Section 29 Income Tax
Deferred 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 Disclosures
Key management personnel compensation may be disclosed in total, rather than being analyzed into categories

15. Topics Not Covered in the IFRS for SMEs
Segment reporting
Earnings per share
Interim financial reporting
None 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 checklist
IFRS for SMEs – roughly 300 disclosures
Some disclosures omitted relate to disallowed complex recognition and measurement options in full IFRS
Some 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 SMEs
An impracticability exception from having one year comparative information and with respect to restating the opening statement of financial position is included