Full Pfrs vs. Pfrs for Smes

1

Diaz Murillo Dalupan

and Company

Full IFRS vs. PFRS for Full IFRS vs. PFRS for Full IFRS vs. PFRS for Full IFRS vs. PFRS for

SMEsSMEsSMEsSMEs

Atty. Bethuel V. TanupanAtty. Bethuel V. TanupanAtty. Bethuel V. TanupanAtty. Bethuel V. TanupanCPA, CMA, CPA, CMA, CPA, CMA, CPA, CMA, DipIFRSDipIFRSDipIFRSDipIFRS, MM, MM, MM, MM

Partner for Technical StandardsPartner for Technical StandardsPartner for Technical StandardsPartner for Technical Standards


and Company

Seminar Outline

• Full IFRS vs IFRS for SMEs

– Accounting Framework and first-time

adoption

– Financial Statements

– Income and Expenses

– Financial Assets & Liabilities

– Non-financial assets

– Non-financial liabilities and equity

– Other Topics

2


and Company Accounting

Framework and first-

time adoption

Apply to all

entities that issue

general purpose

FS.

No public

accountability

Small listed

entities not

included.

Scope

Full IFRSIFRS for SMEs


and Company

• Publicly accountable entities

– Files or is in the process of filing FS with SEC

or other regulatory organizations for the

purpose of issuing any class of instrument in a

public market

– Holds assets in a fiduciary capacity for a

broad group of outsiders

• (banks, insurance companies, securities brokers

and dealers, pension funds.

Accounting

Framework and

first-time adoption

3


and Company

Accounting

Framework and

first-time adoption

Include historical

cost, current

cost, realizable

value, present

value.

Usually historical

cost subject to

impairment.

Fair Value on

certain accounts.

Measure-

ment

bases



and Company

• Fair Value Measurement

– IFRS for SMEs• Certain categories of financial instruments

• Investments in associates and joint ventures

• Investment property and agricultural assets

– FULL IFRS• Investment Property, biological assets and certain categories of financial instruments

Accounting

Framework and

first-time adoption

4


and Company

Accounting

Framework and

first-time adoption

Presents its first

annual FS that

conform to IFRS.

Presents its first

annual FS that

conform with IFRS

for SMEs

regardless of

whether its

previous

framework was full

IFRS.

First time

adopter



and Company

Accounting

Framework and

first-time adoption

The beginning of

the earliest

period for which

full comparative

information is

presented in

accordance with

full IFRS.

The beginning of

the earliest period

for which full

comparative

information is

presented in

accordance with

IFRS for SMEs

Date of

transition


5


and Company

• Reconciliation required– Equity reported under its previous financial reporting framework to its equity under IFRS for SMEs for both the transition date and end of the latest period presented in the entity’s most recent annual FS under its previous financial reporting framework

– Profit or loss reported under its previous financial reporting framework for the latest period in its most recent annual FS to its profit or loss under IFRS for SMEs for the same period.

Accounting

Framework and

first-time adoption


and Company

• Mandatory exceptions from retrospective

application (no change in accounting

policy)

– Derecognition of financial assets and

liabilities

– Hedge accounting

– Estimates

– Discontinued operations

– Measuring non-controlling interests

Accounting

Framework and

first-time adoption

6


and Company

• Some optional exemptions from

retrospective application (See IFRS

FOR SMEs 35.10)

– FV or revaluation as deemed cost for

PPE, investment property or intangible

assets.

– Deferred income tax

– Arrangements containing a lease

Accounting

Framework and

first-time adoption


and Company

• General exemption from

retrospective application –

– On the ground of impracticability.

• Impracticable is defined as when the entity

cannot apply it after making every

reasonable effort to do so.

Accounting

Framework and

first-time adoption

7


and Company Financial

Statements

Not allowed.Allowed if the only

changes to equity

of an entity are a

result of profit or

loss, payment of

dividends,

correction of prior

period errors or

change in

accounting policy

Combined

statement

of income

and

retained

earnings



and Company Income and

Expenses

Borrowing costs

that are directly

attributable to the

acquisition,

construction or

production of

qualifying asset

as part of the cost

of that asset are

capitalized.

All borrowing

costs are

expensed.

Borrowing

costs


8



Expenses

May be

recognized

immediately or

amortized into P/L

over a period not

exceeding the

expected

remaining

working lives of

participating

employees

Recognized in

FULL in profit or

loss or in other

comprehensive

income (without

recycling) in the

period in which

they occur.

Actuarial

Gains and

Losses




Expenses

Recognized as an

expense on a SL

basis over the

average period

until the plan

amendments

vest.

Recognized in

FULL in profit or

loss in the period

in which they

occur

Past

Service

Costs


9


and Company Financial Assets

and Liabilities

FVTPL

Held to maturity

investments

Loans and

receivables

Available-for-sale

financial assets

Basic and complex

financial

instruments

Categories




and Liabilities

Not applicableBasic: Cash, Trade

accounts and

Notes

receivable/payable

, Loans from

banks/3rd parties,

Commercial

Paper, Bonds

Examples of

basic and

more

complex

financial

instruments


10



and Liabilities

Not applicableCOMPLEX:

Asset-backed securities and

repurchase agreements.

Options, rights, warrants,

futures, forward contracts

and interest rate swaps that

can be settled in cash or by

exchaging another financial

instrument.

Hedging instrument.

Commitments to make a loan

to another entity.

Investments in another

entity’s equity instrument.

Investment in covertible

debt.

Examples of

basic and

more

complex

financial

instruments




and Liabilities

Fair Value plus

transaction cost.

Fair value is normally

the transaction price,

unless part of the

consideration is for

something other than

a financial instrument

or the instrument

bears an off-market

interest rate.

Transaction price

(including transaction

costs unless the

instrument is

measured at FVTPL).

If payment is deferred

or is financed by an

interest rate that is not

a market rate, PV of

the future payments

Initial

measurement


11



and Liabilities

Held for trading –

FVTPL

Held to maturity and

loans and receivables –

amortized cost.

Financial liabilities

other than FVTPL –

amortized cost.

Available for sale – FV

to equity.

Investment in equity

securities whose FV

cannot be measured –

Cost less impairment.

Basic debt instruments

are measured at

amortized cost using the

effective interest

method.

Investments in non-

convertible and non-

puttable ordinary sahres

or preference shares are

measured at FVTPL if FV

can be measured

reliably, otherwise, cost

less impairment.

Subsequent

measurement




and Liabilities

Impairment loss is

measured as the

difference between

the carrying amount

of the financial asset

and the PV of

estimated future cash

flows discounted at

the current market

rate of return for a

similar financial

assets.

Impairment loss is the

difference between

the asset’s carrying

amount and the best

estimate of the amount

that the entity would

receive for the asset if

it were to be sold.

Assets

measured at

cost less

impairment


12


and Company Non-Financial

Assets

Borrowing costs

are included in

the cost of

inventories under

limited

circumstances as

identified in IAS

23.

Borrowing cost is

an expense.

Inventory –

other cost




Assets

Borrowing cost

that are directly

attributable to the

acquisition,

construction or

production of a

qualifying asset

are to be

capitalized.

Borrowing costs

are recognized as

expense.

Investment

property –

initial

measurement


13



Assets

Borrowing costs

that are directly

attributable to the

acquisition,

construction or

production of a

qualifying asset

are required to be

capitalized as

part of the cost of

that asset

Borrowing cost

are recognized as

an expense.

PPE – initial

measurement




Assets

Cost model or

revaluation

model.

Cost less

accumulated

depreciation and

any impairment

losses (cost

model).

PPE –

subsequent

measurement


14



Assets

Significant parts

may have

different useful

lives.

Depreciation is

calculated based

on each individual

part’s life.

Cost of an item of

PPE is allocated to

its significant

parts, with each

part depreciated

separately only

when the parts

have significantly

different patterns

of benefit or

consumption.

PPE –

Components

approach




Assets

Review ,

depreciation

method, residual

value and useful life

at least at each

annual reporting

date and amended

if expectations

differ from previous

estimates.

Review depreciation

method, residual

value and useful life

if there is an

indication of change

since the last

reporting date and

amended if

expectations differ

from previous

estimates.

PPE –

Depreciable

amount,

method and

depreciation

period


15



Assets

Research costs are

expensed as

incurred.

Development costs

are capitalized

when specific

criteria are met.

All research and

development costs

are recognized as

expense.

Intangible

asset –

research and

development

costs




Assets

Cost model or

Revaluation Model.

Cost modelIntangible

asset –

measurement

after initial

recognition


16



Assets

Either FINITE or

INFINITE

Considered to be

FINITE.

Intangible

asset – useful

life




Assets

Amortize those with

finite useful life.

Review amortization

method and residual

value at least each

annual reporting

period.

Amortized on a

systematic basis over

the useful life.

Useful life is presumed

to be 10 years if a

reliable estimate

cannot be made.

Review basis of

amortization for any

indication of change.

Intangible

assets – with

finite useful

life


17



Assets

Not amortized.

Useful life is reviewed

at each annual

reporting period to

determine whether

events and

circumstances

continue to support

an indefinite useful

life assessment.

Not applicable. All

intangible assets are

considered to have

finite lives.

Intangible

assets – with

indefinite

useful life




Assets

The following are

tested for impairment

irrespective of

whether there is

indication of

impairment:

1) Intangible asset

with an indefinite

useful life or an

intangible asset not

yet available for use.

2) Goodwill.

Assets (including

goodwill) are tested

for impairment when

there is an indication

that the asset may be

impaired.

The existence of

impairment indicaotrs

is assessed at each

reporting date.

Impairment

of assets –

annual

assessment

of indicators


18


and Company

Non-Financial

Liabilities and

Equity

If the contributions to

a DC Plan do not fall

within 12 months

after the end of the

period, the future

contributions are

discounted.

Contribution payable

for a period to the fund

is recognized as a

liability for a DC plan

after deducting any

amount already paid.

Retirement

benefits –

measurement

of defined

contribution

plans.



and Company

Non-Financial

Liabilities and

Equity

Net total of :

PV of the DB obligation

at the end of the

reporting period.

Plus/minus any

actuarial gains/losses

not recognized due to

the corridor method.

Minus any unrecognized

past service cost.

Minus the FV at the

reporting date of the

plan assets out of which

the obligations are to be

settled directly.

Net total of:

PV of the DB obligation

at the end of the

reporting period

Less that FV at the

reporting date of plan

assets (if any) out of

which the obligations

are to be settled

directly.

Defined

benefit

liability


19


and Company

Non-Financial

Liabilities and Equity

Projected unit credit

method is required for

calculating DB

obligations.

This method sees each

period of service as

giving rise to an

additional unit of benefit

entitlement and

measures each unit

separately to build up the

final obligation.

Projected unit credit

method is required if the

information that is needed

to make such a calculation

is already available, or can

be obtained without undue

cost or effort.

If not, an alternative method

is permitted in which future

salary progression, future

service, and possible

mortality during an

employee’s period of

service are not considered.

Actuarial

Valuation

Method



and Company

Non-Financial


Expected return on plan

assets is based on

market expectations at

the beginning of the

period for returns over

the entire life of the

related obligation. It

reflects cahgnes in the

fair value of plan assets

as a result of actual

contributions and

benefits paid. The

difference between

actual and expected

returns on plan assets is

an actuarial gain or loss.

No distinction between

expected and actual

report on plan assets. All

changes in the fair value

of plan assets are

recorded in profit or

loss.

Expected

return on

plan assets


20


and Company

Non-Financial


The concept of valuation

allowance is not

applicable. Instead, a

deferred tax asset is only

recognized to the extent

that it is probable that

there will be sufficient

future taxable profit to

enable recovery of the

deferred tax asset. The

net carrying amount of

deferred tax asset is

likely the same, but full

IFRS does not require the

disclosure of a valuation

allowance.

Valuation allowance is

recognized so that the

net carrying amount of

the deferred tax asset

equals the highest

amount that is more

likely than not to be

recovered.

Deferred tax

– recognition

and

measurement



and Company Agriculture

Exemption from

measurement at FV is

only allowed if the FV

cannot be measured

reliably.

Measure biological

assets at FV less cost to

sell where such FV is

readily determinable

without undue cost or

effort.

Where FV is not used,

the entity may use cost

less any accumulated

depreciation and any

accumulated

impairment loss.

Recognition

and

measurement


21


and Company Agriculture

Exemption from

measurement at FV is

only allowed if the FV

cannot be measured

reliably.

The agricultural

produce harvested

from biological assets is

measured at fair value

less estimated cost to

sell at the point of

harvest.

Gains or losses on

initial recognition and

from change in FV are

recognized in profit or

loss.

Recognition

and

measurement



and Company

• End of presentation.

Full Pfrs vs. Pfrs for Smes

Documents

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smes full

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complex financial

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