IFRSforSMEsBasisforConclusions.pdf

2009

International Accounting Standards Board (IASB )

IFRS for SMEsInternational Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs)

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Basis for Conclusions

International Accounting Standards Board

30 Cannon Street | London EC4M 6XH | United Kingdom

Telephone: +44 (0)20 7246 6410 | Fax: +44 (0)20 7246 6411

Email: [email protected] | Web: www.iasb.org

Publications Department

Telephone: +44 (0)20 7332 2730 | Fax: +44 (0)20 7332 2749

Email: [email protected]

International Financial Reporting Standard for Small and Medium-sized Entities (SMEs) 2009is the first set of international accounting requirements developed specifically for SMEs.

It has been prepared by the International Accounting Standards Board (IASB) on IFRS foundations but is a stand-alone product that is separate from the full set of International Financial Reporting Standards (IFRSs).

The IFRS for SMEs has simplifications that reflect the needs of users of SMEs financial statements and cost-benefit considerations. Compared with full IFRSs, it is less complex in a number of ways:

Topics not relevant for SMEs are omitted. Where full IFRSs allow accounting policy choices, the IFRS for SMEs allows only the

easier option.

Many of the principles for recognising and measuring assets, liabilities, income and expenses in full IFRSs are simplified.

Significantly fewer disclosures are required.

And the standard has been written in clear, easily translatable language.

It is suitable for all entities except those whose securities are publicly traded and financial institutions such as banks and insurance companies.

www.iasb.org

International Financial Reporting Standard

forSmall and Medium-sized Entities

(IFRS for SMEs)

Basis for Conclusions

This Basis for Conclusions accompanies the International Financial Reporting Standard for Smalland Medium-sized Entities (IFRS for SMEs) (see separate booklet) and is published by theInternational Accounting Standards Board (IASB), 30 Cannon Street, London EC4M 6XH,United Kingdom.

Tel: +44 (0)20 7246 6410 Fax: +44 (0)20 7246 6411Email: [email protected] Web: www.iasb.org

The International Accounting Standards Committee Foundation (IASCF), the authors andthe publishers do not accept responsibility for loss caused to any person who acts orrefrains from acting in reliance on the material in this publication, whether such loss iscaused by negligence or otherwise.

The IFRS for SMEs and its accompanying documents are published in three parts:

ISBN for this part: 978-1-907026-18-8

ISBN for complete publication (three parts): 978-1-907026-16-4

Copyright 2009 IASCF

All rights reserved. No part of this publication may be translated, reprinted or reproducedor utilised in any form either in whole or in part or by any electronic, mechanical or othermeans, now known or hereafter invented, including photocopying and recording, or inany information storage and retrieval system, without prior permission in writing fromthe IASCF.

International Financial Reporting Standards (including International AccountingStandards and SIC and IFRIC Interpretations), Exposure Drafts, and other IASB publicationsare copyright of the IASCF. The approved text of International Financial ReportingStandards and other IASB publications is that published by the IASB in the Englishlanguage. Copies may be obtained from the IASCF. Please address publications andcopyright matters to:

IASC Foundation Publications Department, 1st Floor, 30 Cannon Street, London EC4M 6XH, United Kingdom. Tel: +44 (0)20 7332 2730 Fax: +44 (0)20 7332 2749 Email: [email protected] Web: www.iasb.org

The IASB logo/the IASCF logo/Hexagon Device, the IASC Foundation Education logo, IASCFoundation, eIFRS, IAS, IASB, IASC, IASCF, IASs, IFRIC, IFRS, IFRSs, InternationalAccounting Standards, International Financial Reporting Standards and SIC are TradeMarks of the IASCF.

IFRS FOR SMES BASIS FOR CONCLUSIONS JULY 2009

CONTENTSparagraphs

BASIS FOR CONCLUSIONS ONINTERNATIONAL FINANCIAL REPORTING STANDARD FORSMALL AND MEDIUM-SIZED ENTITIES

BACKGROUND

Discussion paper (J

Recognition and mpublic round tables

Board deliberations

Exposure draft (Feb

Field tests

Responses to the e

Board redeliberatio

Additional input to

Special outreach

Final IFRS for SMEs

This Basis for Conc

WHY GLOBAL FINA

Should the IASB de

Should others dDo national staAn IFRS for SMExisting IFRSs

Different users nee

Adoption of an IFRSare not appropriate

THE OBJECTIVE O

Why determinationdistributable incom

Why it is not the puto owner-managers

PUBLIC ACCOUNTTHE ENTITIES FORTHOSE FOR WHICH

Entities whose secupublic accountabili

Financial institution

SMEs that provide

SMEs that are econ

Approval by owner IASCF 3

BC1BC35

une 2004) BC5BC7

easurement questionnaire (April 2005) and (October 2005) BC8BC11

leading to the exposure draft BC12BC14

ruary 2007) BC15BC19

BC20BC25

xposure draft BC26

ns of the proposals in the exposure draft BC27BC31

the Board BC32

BC33

: main changes from the exposure draft BC34

lusions BC35

NCIAL REPORTING STANDARDS FOR SMEs? BC36BC48

velop standards for SMEs? BC38BC43

o it? BC39ndard-setters support an IASB initiative? BC40BC41Es is consistent with the IASBs mission BC42

include some differences for non-public entities BC43

ds and cost-benefit considerations BC44BC47

for SMEs does not imply that full IFRSs for SMEs BC48

F THE IFRS FOR SMEs BC49BC54

of taxable income and determination ofe are not specific objectives of the IFRS for SMEs BC49BC52

rpose of the IFRS for SMEs to provide information to help them make management decisions BC53BC54

ABILITY AS THE PRINCIPLE FOR IDENTIFYING WHICH THE IFRS FOR SMEs IS INTENDED AND IT IS NOT INTENDED BC55BC77

rities are traded in a public market havety BC58

s have public accountability BC59

an essential public service BC60BC61

omically significant in their home jurisdiction BC62BC63

s to use the IFRS for SMEs BC64


4

SMEs that are a subsidiary, associate or joint venture of an IFRS investor BC65BC68

Quantified size criteria BC69BC70

Suitability of the IFRS for SMEs for very small entitiesthe micros BC71BC75

The IFRS for SMEs is not intended for small publicly-traded entities BC76BC77

SMALL AND MEDIU

THE USERS OF SMUSING THE IFRS FO

THE EXTENT TO WSTAND-ALONE DO

Accounting policy o

Omitted topics

WHETHER ALL ACSHOULD BE ALLOW

WHY THE FRAMEWGUIDANCE IN EXISPOINT FOR DEVEL

RECOGNITION AND

Financial instrumen

Amortisation and imintangible assets

Charge all developm

Cost method for as

Fair value through controlled entities w

Non-current assets

Borrowing costs

Income tax

Exchange differenc

Less fair value for a

Employee benefits

Employee benefits

Employee benefits

Share-based payme

Transition to the IFR

Investment propert

Government grants

Exception from strawhen payments com

No annual review odepreciation/amort

SIMPLIFICATIONS

Not to require a cas IASCF

M-SIZED ENTITIES BC78BC79

Es FINANCIAL STATEMENTS PREPAREDR SMEs BC80

HICH THE IFRS FOR SMEs SHOULD BE ACUMENT BC81BC88

ptions BC84BC86

BC87BC88

COUNTING POLICY OPTIONS IN FULL IFRSsED IN THE IFRS FOR SMEs BC89BC94

ORK AND PRINCIPLES AND MANDATORYTING IFRSs ARE THE APPROPRIATE STARTINGOPING THE IFRS FOR SMEs BC95BC97

MEASUREMENT SIMPLIFICATIONS BC98BC136

ts BC99BC107

pairment of goodwill and other indefinite-lifeBC108BC112

ent costs to expense BC113BC114

sociates and jointly controlled entities BC115

profit or loss for associates and jointlyith published price quotations BC116BC117

held for sale BC118BC119

BC120

BC121BC122

es on monetary items BC123

griculture BC124

measurement of the defined benefit obligation BC125

actuarial gains and losses of defined benefit plans BC126BC127

unvested past service cost of defined benefit plans BC128

nt BC129BC131

S for SMEs BC132

y BC133

BC134

ight-line method by lessees for operating leasespensate the lessor for inflation BC135

f useful life, residual value andisation method BC136

CONSIDERED BUT NOT ADOPTED BC137BC150

h flow statement BC138BC139


Treat all leases as operating leases BC140

Treat all employee benefit plans as defined contribution plans BC141

Completed contract method for construction contracts BC142

Fewer provisions BC143

Non-recognition of

Non-recognition of

Cost model for all a

No consolidated fin

Recognition of all it

ISSUES ADDRESSEARE NOT COVERE

OPTIONAL REVERSUSING THE IFRS FO

PRESENTATION SI

DISCLOSURE SIMP

WHY A SEPARATESECTIONS IN EACH

WHY ORGANISATIO

THE BOARDS PLATHE IFRS FOR SME

DISSENTING OPINI IASCF 5

share-based payment BC144

deferred taxes BC145

griculture BC146

ancial statements BC147

ems of income and expense in profit or loss BC148BC150

D IN THE IFRS FOR SMEs THATD IN FULL IFRSs BC151

ION TO FULL IFRSs BY AN ENTITYR SMEs BC152BC154

MPLIFICATIONS BC155

LIFICATIONS BC156BC158

VOLUME RATHER THAN ADDED IFRS BC159BC161

N BY TOPIC BC162

N FOR MAINTAINING (UPDATING)s BC163BC165

ON


6

Basis for Conclusions onInternational Financial Reporting Standardfor Small and Medium-sized Entities

This Basis for Conclusions accompanies, but is not part of, the IFRS.

Background

BC1 In its tranAccountinAccountinInternatio

BC2 Shortly aftstandardsa workingpotential s

BC3 In their 20IASB operissues partIn July 200the Foundadded an appropriaeconomiesencourage

BC4 At public developedwould folapproach

Discuss

BC5 In June 20Standards fthe BoardThe Board

BC6 The major

(a) Shou

(b) Whafor S

(c) For w

(d) If IArecogentit IASCF

sition report of December 2000 to the newly formed Internationalg Standards Board (IASB), the outgoing Board of the Internationalg Standards Committee said A demand exists for a special version ofnal Accounting Standards for Small Enterprises.

er its inception in 2001, the IASB began a project to develop accounting suitable for small and medium-sized entities (SMEs). The Board set up group of experts to provide advice on the issues and alternatives andolutions.

02 annual report, the Trustees of the IASC Foundation, under which theates, wrote The Trustees also support efforts by the IASB to examineicular to emerging economies and to small and medium-sized entities.5 the Trustees formalised their support by restating the objectives of

ation and the IASB as set out in the Foundations Constitution. Theyobjective that, in developing IFRSs, the IASB should take account of, aste, the special needs of small and medium-sized entities and emerging. Similarly, the Standards Advisory Council has consistentlyd the IASB to pursue the project.

meetings during the second half of 2003 and early 2004, the Board some preliminary and tentative views about the basic approach that itlow in developing accounting standards for SMEs. It tested thatby applying it to several IFRSs.

ion paper (June 2004)

04 the Board published a discussion paper Preliminary Views on Accountingor Small and Medium-sized Entities setting out and inviting comments ons approach. This was the first discussion paper that the IASB published. received 120 responses.

issues set out in the discussion paper were:

ld the IASB develop special financial reporting standards for SMEs?

t should be the objectives of a set of financial reporting standardsMEs?

hich entities would IASB standards for SMEs be intended?

SB standards for SMEs do not address a particular accountingnition or measurement issue confronting an entity, how should that

y resolve the issue?


(e) May an entity using IASB standards for SMEs elect to follow a treatmentpermitted in an IFRS that differs from the treatment in the related IASBstandard for SMEs?

(f) How should the Board approach the development of IASB standards forSMEs? To what extent should the foundation of SME standards be theconc

(g) If IArelatmod

(h) In w

BC7 At its merespondenBoard maproject. ThInternationmany coudevelopedan IFRS for

Recognand pub

BC8 Most respprincipleswere needproposed, transactiomeasuremsolved.

BC9 The IASB recognitioto hold pustatementmeasuremthe staff tshould be

BC10 The questi

1 Whameas

2 Frombe omcontappr IASCF 7

epts and principles and related mandatory guidance in IFRSs?

SB standards for SMEs are built on the concepts and principles anded mandatory guidance in full IFRSs, what should be the basis forifying those concepts and principles for SMEs?

hat format should IASB standards for SMEs be published?

etings later in 2004, the Board considered the issues raised byts to the discussion paper. In December 2004 and January 2005, the

de some tentative decisions on the appropriate way forward for thee responses to the discussion paper showed a clear demand for an

al Financial Reporting Standard for SMEs (IFRS for SMEs) and a preference, inntries, to adopt the IFRS for SMEs rather than locally or regionally standards. The Board therefore decided to publish an exposure draft of SMEs as the next step.

ition and measurement questionnaire (April 2005) lic round tables (October 2005)

ondents to the discussion paper said that simplifications of the for recognising and measuring assets, liabilities, income and expensesed, but few specifics were proposed. And when some specifics were

the commentators generally did not indicate the particularns or other events or conditions that create the recognition orent problem for SMEs under IFRSs or how that problem might be

concluded that it needed further information to assess possiblen and measurement simplifications. Consequently the Board decidedblic round-table meetings with preparers and users of the financial

s of SMEs to discuss possible modifications of the recognition andent principles in IFRSs for use in an IFRS for SMEs. The Board instructed

o develop and publish a questionnaire as a tool to identify issues thatdiscussed at those round-table meetings.

onnaire, published April 2005, asked two questions:

t are the areas for possible simplification of recognition andurement principles for SMEs?

your experience, please indicate which topics addressed in IFRSs mightitted from SME standards because they are unlikely to occur in an SME

ext. If they occur, the standards would require the SME to determine itsopriate accounting policy by looking to the applicable IFRSs.


8

BC11 The Board received 101 responses to the questionnaire. Those responses werediscussed with the Standards Advisory Council (June 2005), with the SME WorkingGroup (June 2005), World Standard-Setters (September 2005) and at the publicround tables held by the Board in October 2005. A total of 43 groups participatedin the round-table discussions with the Board over a two-day period.

Board d

BC12 The IASBsrecommenpresentatidraft of recommenpaper andthe Board exposure d

BC13 On the basstaff presein late Jarecommendraft begaRevised drMay onwa2007, the i

BC14 To keep cocomplete s2006. A re

Exposu

BC15 In Februara proposesimplifiedsmaller, nmeet the n

BC16 The proponeeds of The expos

(a) sometypicpropaddrrequ

(b) wherinclupermfull I IASCF

eliberations leading to the exposure draft

working group met in June 2005 and made a comprehensive set ofdations to the Board regarding the recognition, measurement,

on and disclosure requirements that should be included in an exposurean IFRS for SMEs. Later in 2005, the Board considered thosedations and the views expressed in the responses to the discussion

the questionnaire, and at the round tables. During those deliberations,made tentative decisions about the requirements to be included in theraft.

is of those tentative decisions, at the Board meeting in January 2006 thented a preliminary draft of the exposure draft. The working group metnuary 2006 to review that draft and prepared a report of itsdations for the Boards consideration. The Boards discussion of then in February 2006 and continued throughout the remainder of 2006.afts of the exposure draft were prepared for each Board meeting fromrds. From July 2003 until the exposure draft was published in Februaryssues were deliberated by the Board at 31 public Board meetings.

nstituents informed and help them begin planning their responses, ataff draft of the exposure draft was posted on the IASBs website in Augustvised staff draft was posted on the IASBs website in November 2006.

re draft (February 2007)

y 2007 the IASB published for public comment an exposure draft ofd IFRS for SMEs. The aim of the proposed standard was to provide a, self-contained set of accounting principles that are appropriate foron-listed entities and are based on full IFRSs, which are developed toeeds of entities whose securities trade in public capital markets.

sed standard was based on full IFRSs with modifications to reflect theusers of SMEs financial statements and cost-benefit considerations.ure draft proposed five types of simplifications of full IFRSs:

topics in IFRSs were not included because they are not relevant toal SMEs. However, for some of those omitted topics, the exposure draftosed that if SMEs encountered circumstances or a transaction that isessed in full IFRSs but not in the IFRS for SMEs, then they would beired to follow the relevant full IFRS.

e an IFRS allows an accounting policy choice, the exposure draftded only the simpler option but proposed that SMEs should beitted to choose the more complex option by reverting to the relevantFRS.


(c) simplification of many of the principles for recognising and measuringassets, liabilities, income, and expenses that are in full IFRSs.

(d) substantially fewer disclosures.

(e) simplified redrafting.

Primarily a stand-alo

BC17 Along witproposed financial accompanreaching t

BC18 The expostranslationsummary of the pro

BC19 CommentBoard extefield test p

Field te

BC20 With the htest progracent had tthe samplhad bank

BC21 The goals

(a) to asthat

(b) to astransweretestefull I

(c) to awhetonly

(d) to asof chprac

(e) to aswher IASCF 9

because of (a) and (b) above, the proposed IFRS for SMEs would not bene document.

h the exposure draft, the IASB published and invited comment onimplementation guidance consisting of a complete set of illustrativestatements and a disclosure checklist. The exposure draft wasied by a basis for conclusions that explained the Boards reasoning inhe conclusions in the exposure draft.

ure draft was translated into five languages (a first for the IASB), and thes were posted on the IASBs website. The IASB also published a staff

of the exposure draft to help constituents get an initial understandingposals, also posted on the IASBs website.

s on the exposure draft were initially due on 30 September 2007, but thended the deadline to 30 November 2007 primarily at the request ofarticipants.

sts

elp of national standard-setters and others, the IASB completed a fieldmme that involved 116 small entities from 20 countries. About 35 per

en or fewer full-time employees. A further 35 per cent of the entities ine had between 11 and 50 full-time employees. Over half of the entitiesloans or significant overdrafts. A third had foreign operations.

of the field testing were:

sess understandability of the exposure draft by identifying any partsfield testers found hard to understand.

sess appropriateness of the scope of topics covered by identifyingactions, events or conditions that the field tester encountered but that not covered in the draft IFRS for SMEs, and to find out how the fieldr made its accounting policy decision, including whether it looked toFRSs as a reference.

ssess the burden of applying the draft IFRS for SMEs, for instance,her information required to apply it was not available or available

with undue cost or effort.

sess the impact of the proposals by identifying the nature and degreeanges from the field testers current GAAP or current reporting

tices.

sess accounting policy choices made by the field testers, and why,e the exposure draft would allow choices.


10

(f) to assess any special problems in applying the draft IFRS for SMEs that arosefor field testers that are so-called micro entities (those with fewer than tenemployees) and for field testers in developing economies.

(g) to assess the adequacy of implementation guidance by identifying whereadditional guidance would be helpful to the field tester.

BC22 To help thpublishedone of the

BC23 The field English, Fr

(a) to prequ

(b) to suexist

(c) to refor t

(d) to reenco

BC24 A report ofwebsite. testers waentitys ex

BC25 About halproblems.

(a) Annuperfoliabiprobavail

(b) Disclto thof thexamone o

(c) RefereferMostsimito usbacktheyrequ IASCF

e field testers and others in applying the exposure draft, the IASB a compliance checklist for the exposure draft that was developed by international accounting firms.

test questionnaire was posted on the IASBs website in June 2007 inench and Spanish. Field test entities were asked:

rovide background information about their business and reportingirements.

bmit their most recent annual financial statements under theiring accounting framework.

state those financial statements in accordance with the exposure drafthe same financial year (without prior year information).

spond to a series of questions designed to identify specific problemsuntered in applying the exposure draft.

the field tests was provided to Board members and posted on the IASBsThe main factor influencing the type of problems identified by fields the nature and extent of differences between the IFRS for SMEs and anisting accounting framework.

f of the field test entities identified no, or only one or two, issues or The three main issues identified by field testers were the following:

al remeasurements. Many field testers highlighted the need torm annual remeasurements of fair values for financial assets and

lities and residual values for property, plant and equipment aslematic because market prices or active markets were often notable.

osures. A significant number of field test entities noted problems duee nature, volume and complexity of disclosures. Many felt that somee disclosures required them to provide sensitive information, forple key management personnel compensation when there are onlyr two key management personnel.

rence to full IFRSs. Around 20 per cent of the field testers chose to back to full IFRSs to apply an option available by cross-reference. of those entities already followed full IFRSs or a national GAAPlar to full IFRSs. A few field testers said that they would have wantede one of the options but did not do so because of the need to refer to full IFRSs. Only a small number of entities specifically noted that needed to refer back to full IFRSs to understand or clarifyirements in the exposure draft.


Responses to the exposure draft

BC26 The Board received 162 letters of comment on the exposure draft. All letters weremade available to Board members and posted on the IASBs website. ParagraphsBC36BC158 discuss the Boards reasoning on the chief technical issues in theproject. Hcomment

(a) StanSMEsrespoof tcrosshavindraft

(b) Accouse adiscuthe IIFRSs

(c) AnticIFRS chan

(d) Disclsimpnot i

(e) Scopfor mlisted

(f) Fair measin wcost neceshou

(g) Implimplguid

(h) Comissueexposectimost

(i)

(ii) IASCF 11

ere is a brief summary of the main issues raised in the letters ofon the exposure draft:

d-alone. The single most pervasive comment was to make the IFRS for a fully stand-alone document, or nearly so. Over 60 per cent of thendents would eliminate all cross-references to full IFRSs. Virtually all

he remaining respondents either (i) would keep the number of-references to an absolute minimum or (ii) were indifferent betweeng minimal cross-references and removing all of them. The exposure

had included 23 cross-references to full IFRSs.

unting policy options. Whether the IFRS for SMEs should allow SMEs toll of the accounting policy options that are available in full IFRSs wasssed by many commentators. This issue is interrelated with makingFRS for SMEs a stand-alone document without cross-references to full.

ipating changes to IFRSs. Many respondents were of the view that thefor SMEs should be based on existing IFRSs and should not anticipateges to IFRSs that the Board is considering in current agenda projects.

osures. Many comment letters encouraged the Board to make furtherlifications to disclosure requirements, but many of those letters diddentify specific disclosures to be eliminated or why.

e. Many comment letters discussed the suitability of the exposure drafticro-sized entities (those with fewer than ten or so employees), small entities, and entities that act in a fiduciary capacity.

value measurements. Many respondents proposed that fair valueurements in the IFRS for SMEs should be restricted to (a) circumstances

hich a market price is quoted or readily determinable without undueor effort and (b) all derivatives. Some respondents also thought it wasssary that the measured item should be readily realisable or that thereld be an intention to dispose or transfer.

ementation guidance. Many respondents cited the need forementation guidance and encouraged the Board to consider how suchance could be provided.

ments on specific sections of the exposure draft. In addition to generals, most comment letters raised issues related to specific sections in thesure draft. While respondents offered suggestions for each of the 38ons of the exposure draft, staff noted that the topics that attracted the comments (generally in favour of further simplifications) included:

consolidation.

amortisation of goodwill and other indefinite life intangibles.


12

(iii) financial instruments.

(iv) requirements for statements of cash flows and changes in equity.

(v) measurements for impairments.

(vi) measurements for finance leases.

(vii)

(viii)

(ix)

Board r

BC27 The BoardMarch 200public Boawhich the

BC28 At the Boaissues (othdraft (see presentedprogrammthose meefor decisio

BC29 The IASBsof workindiscussed May 2008.were presJuly 2008the IASBs

BC30 In May 200by addrepresentatithe reportworking gmain chaparagraph

BC31 In March 2of the expProcess Hanwarrant re IASCF

share-based payment.

employee benefits.

income taxes.

edeliberations of the proposals in the exposure draft

began its redeliberations of the proposals in the exposure draft in8. Those redeliberations continued until April 2009a total of 13rd meetingsbringing to 44 the total number of public meetings at

Board deliberated the IFRS for SMEs.

rds meeting in March 2008, staff presented an overview of the mainer than disclosure issues) raised in the comment letters on the exposureparagraph BC26). At the Boards next meeting in April 2008, staff

an overview of the main issues that were identified as a result of thee for field testing the exposure draft (see paragraph BC25). Both oftings were educational in nature, and the staff did not raise any issuesn.

working group met on 10 and 11 April 2008. The recommendationsg group members on each issue (other than disclosure) that wasat that meeting were presented to the Board at the Boards meeting in Recommendations of working group members relating to disclosureented to the Board in an agenda paper at the Boards meeting in. The reports of the working groups recommendations were posted on website.

8, the Board began to redeliberate the proposals in the exposure draftssing issues relating to scope, recognition, measurement andon that were raised in the letters of comment on the exposure draft, ins prepared by field test entities and in the recommendations of theroup. Those redeliberations continued until February 2009. A list of thenges made as a result of those redeliberations is presented inBC34.

009 the Board considered the changes made during its redeliberationsosure draft in the light of the guidelines for re-exposure in the Duedbook for the IASB. The Board concluded that the changes made did not-exposure.


Additional input to the Board

BC32 The project was discussed with the Standards Advisory Council at seven of itsmeetings. The issues in the project were also discussed at five of the annualmeetings of the World Accounting Standard-Setters hosted by the IASB from 2003to 2008. advice to tAdvisory Gparticular

Special

BC33 The Boardnot particsuch partiexposure dproject. Ttables in 4publishedquestions In April 2format, wprovide an

Final IF

BC34 The mainprinciplesredelibera

(a) makthe 2drafta reMeasfor SM

(b) elimremaprop

(c) omitremo

(d) not a

(e) elimbodiacco

(f) confFinanfinan IASCF 13

The working group met four times to discuss the issues and providehe Board. A joint working party of the European Financial Reportingroup (EFRAG) and the European Federation of Accountants (FEE) was

ly helpful in providing guidance to the staff.

outreach

recognised that, typically, SMEs and their auditors and bankers haveipated in the IASBs due process. With the objectives of encouraginges to become familiar with the IASB and to consider and respond to theraft, the staff undertook a comprehensive outreach programme on thishat programme entailed presentations at 104 conferences and round0 countries, including 55 presentations after the exposure draft was

. The IASB also explained the exposure draft and responded toin two public webcasts for which nearly 1,000 participants registered.007 a staff overview of the exposure draft, in question-and-answeras posted on the IASBs website. The purpose of the overview was to introduction to the proposals in non-technical language.

RS for SMEs: main changes from the exposure draft

changes from the recognition, measurement and presentation proposed in the exposure draft that resulted from the Boardstions were:

ing the final IFRS a stand-alone document (eliminating all but one of3 cross-references to full IFRSs that had been proposed in the exposure, with the one remaining cross-reference providing an option, but notquirement, to follow IAS 39 Financial Instruments: Recognition andurement instead of the two financial instruments sections of the IFRS

Es).

inating most of the complex options and adding guidance on theining ones (thereby removing the cross-references to full IFRSsosed in the exposure draft).

ting topics that typical SMEs are not likely to encounter (therebyving the cross-references to full IFRSs proposed in the exposure draft).

nticipating possible future changes to IFRSs.

inating reference to the pronouncements of other standard-settinges as a source of guidance when the IFRS for SMEs does not address anunting issue directly.

orming to the presentation requirements of IAS 1 Presentation ofcial Statements, except for its requirement to present a statement ofcial position at the beginning of the earliest comparative period.


14

(g) allowing different accounting policies to be used to account for differenttypes of investments in separate financial statements, rather than onepolicy for all types of investment.

(h) restructuring of Section 11 Financial Assets and Financial Liabilities of theexposure draft into two sections (Section 11 Basic Financial Instruments andSecticost by SM

(i) ameninstr

(j) elimjoint

(k) remopost-and,

(l) elimmaxassoc

(m) requon tInvesunduAll oequi

(n) not deprasset

(o) not p

(p) not p

(q) amo

(r) recog

(s) incomeas

(t) allowwhenlesso

(u) incoame IASCF

on 12 Other Financial Instruments Issues) and clarifying that amortisedis applied to nearly all the basic financial instruments held or issued

Es.

ding the requirements for assessing impairment of an equityument carried at cost when fair value cannot be measured reliably.

inating proportionate consolidation as an option for investments inly controlled entities.

ving the distinction between distributions from pre-acquisition andacquisition profits for investments accounted for by the cost method instead, recognising all dividends received in profit or loss.

inating the requirement, when applying the equity method, of aimum three-month difference between the reporting date of theiate or jointly controlled entity and that of the investor.

iring an entity to choose its accounting policy for investment propertyhe basis of circumstances, rather than as a free choice option.tment property whose fair value can be measured reliably withoute cost or effort will be measured at fair value through profit or loss.

ther investment property will be accounted for as property, plant andpment using a cost-depreciation-impairment model.

requiring an annual review of residual value, useful life andeciation method of property, plant and equipment and intangibles.

ermitting a revaluation option for property, plant and equipment

ermitting a revaluation option for intangibles.

rtising all indefinite life intangibles, including goodwill.

nising as expenses all research and development costs.

rporating present value of minimum lease payments into theurement of a finance lease.

ing other than the straight-line method by lessees for operating leases the minimum lease payments are structured to compensate the

r for expected general inflation.

rporating into the IFRS for SMEs the February 2008 puttablesndments to IAS 32 Financial Instruments: Presentation and IAS 1.


(v) requiring all government grants to be accounted for using a single,simplified model: recognition in income when the performance conditionsare met (or earlier if there are no performance conditions) andmeasurement at the fair value of the asset received or receivable.

(w) recognising as expenses all borrowing costs.

(x) addidirec

(y) allowpaymchar

(z) addi

(aa) introimpa

(bb) simp

(cc) simpprojundu

(dd) permcomp(whiactu

(ee) on dcumcomp

(ff) elimmeas

(gg) incoRepor

(hh) incoaddr

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii) IASCF 15

ng further simplifications for share-based payments, includingtors valuations, rather than the intrinsic value method.

ing subsidiaries to measure employee benefit and share-basedent expense on the basis of a reasonable allocation of the group

ge.

ng value-in-use measurement for asset impairments.

ducing the notion of cash-generating unit for testing assetirments.

lifying the guidance for calculating impairment of goodwill.

lifying the measurement of a defined benefit pension obligation if aected unit credit measurement is not available and would requiree cost or effort.

itting recognition of actuarial gains and losses in otherrehensive income as an alternative to recognition in profit or loss

le retaining the proposal in the exposure draft to prohibit deferral ofarial gains and losses).

isposal of a foreign operation, not recycling through profit or loss anyulative exchange differences that were recognised previously in otherrehensive income.

inating the held-for-sale classification and related specialurement requirements.

rporating all the IFRS 1 First-time Adoption of International Financialting Standards exemptions into Section 35 Transition to the IFRS for SMEs.

rporating the conclusions of the following Interpretations, whichess transactions and circumstances that SMEs often encounter:

IFRIC 2 Members Shares in Co-operative Entities and Similar Instruments.

IFRIC 4 Determining Whether an Arrangement Contains a Lease.

IFRIC 8 Scope of IFRS 2.

IFRIC 12 Service Concession Arrangements.

IFRIC 13 Customer Loyalty Programmes.

IFRIC 15 Agreements for the Construction of Real Estate.

IFRIC 17 Distributions of Non-cash Assets to Owners.

SIC-12 ConsolidationSpecial Purpose Entities.


16

This Basis for Conclusions

BC35 This Basis for Conclusions sets out the main issues addressed by the Board, thealternatives considered, and the Boards reasons for accepting some alternativesand rejecting others.

Why global fin

BC36 Global ficomparabcomparisopresentatiglobal finapricing of but also thand removimprove c

BC37 The benefwhose secSMEsandset of accfrom one c

(a) Finamultvery mak

(b) Vendbefo

(c) CredSimidevefinan

(d) Manstaterelat

(e) Vent

(f) Manmanpurpimpojuris

Should

BC38 In decidinissues: IASCF

ancial reporting standards for SMEs?

nancial reporting standards, applied consistently, enhance theility of financial information. Accounting differences can obscure thens that investors, lenders and others make. By resulting in theon of high quality comparable financial information, high qualityncial reporting standards improve the efficiency of allocation and thecapital. This benefits not only those who provide debt or equity capitalose entities that seek capital because it reduces their compliance costses uncertainties that affect their cost of capital. Global standards also

onsistency in audit quality and facilitate education and training.

its of global financial reporting standards are not limited to entitiesurities are traded in public capital markets. In the Boards judgement, those who use their financial statementscan benefit from a common

ounting standards. SMEs financial statements that are comparableountry to the next are needed for the following reasons:

ncial institutions make loans across borders and operateinationally. In most jurisdictions, over half of all SMEs, including thesmall ones, have bank loans. Bankers rely on financial statements ining lending decisions and in establishing terms and interest rates.

ors want to evaluate the financial health of buyers in other countriesre they sell goods or services on credit.

it rating agencies try to develop ratings uniformly across borders.larly, banks and other institutions that operate across borders oftenlop ratings in a manner similar to credit rating agencies. Reportedcial information is crucial to the rating process.

y SMEs have overseas suppliers and use a suppliers financialments to assess the prospects of a viable long-term businessionship.

ure capital firms provide funding to SMEs across borders.

y SMEs have outside investors who are not involved in the day-to-dayagement of the entity. Global accounting standards for generalose financial statements and the resulting comparability are especiallyrtant when those outside investors are located in a differentdiction from the entity and when they have interests in other SMEs.

the IASB develop standards for SMEs?

g to develop an IFRS for SMEs, the IASB was mindful of the following


(a) Should financial reporting standards for SMEs be developed by others?

(b) Do national standard-setters support the IASB developing an IFRS for SMEs?

(c) Is developing an IFRS for SMEs consistent with the Boards mission?

(d) Existing IFRSs make some distinctions for SMEs.

Should o

BC39 The Boardbe develoregional lentities thits missionis not resmarkets. practices fall jurisdistatementPresentationnational bto full IFRreasons, th

Do natio

BC40 National ainitiative. accountinthem abouresponded

BC41 The Boardsubsequenin 200520

An IFRS

BC42 Developinprincipal oInternationsingle setstandardsfinancial various caeconomic globally shdifferent including:

(a) the u

(b) how IASCF 17

thers do it?

considered whether financial reporting standards for SMEs would bestped by otherseither globally, country by country, or perhaps at aevelwhile the IASB focused its efforts primarily on standards forat participate in public capital markets. However, the Board noted that, as set out in the IASC Foundations Constitution (see paragraph BC42),tricted to standards for entities that participate in public capitalFocusing only on those entities is likely to result in standards oror other entities (which are over 99 per cent of all entities in virtuallyctions) that may not address the needs of external users of financials, are not consistent with the IASBs Framework for the Preparation and of Financial Statements or standards, may lack comparability across

oundaries or within a country, and may not allow for an easy transitionSs for entities that wish to enter the public capital markets. For thosee Board decided to undertake the project.

nal standard-setters support an IASB initiative?

ccounting standard-setters throughout the world support the IASBs In September 2003 the IASB hosted a meeting of the worlds nationalg standard-setters. In preparation for that meeting the Board surveyedt standards for SMEs. With near unanimity, the standard-setters that said that the IASB should develop global standards for SMEs.

discussed the progress on its project on standards for SMEs att annual meetings of the worlds national accounting standard-setters08. Standard-setters continued to support the Boards project.

for SMEs is consistent with the IASBs mission

g a set of standards for SMEs is consistent with the IASBs mission. Thebjective of the IASB, as set out in the Constitution and in the Preface to

al Financial Reporting Standards, is to develop, in the public interest, a of high quality, understandable and enforceable global accounting that require high quality, transparent and comparable information instatements and other financial reporting to help participants in thepital markets of the world and other users of the information to makedecisions. Single set means that all entities in similar circumstancesould follow the same standards. The circumstances of SMEs can be

from those of larger, publicly accountable entities in several ways,

sers of the entitys financial statements and their information needs;

the financial statements are used by those users;


18

(c) the depth and breadth of accounting expertise available to the entity; and

(d) SMEs ability to bear the costs of following the same standards as the larger,publicly accountable entities.

Existing IFRSs include some differences for non-public entities

BC43 IFRSs incltraded. Fo

(a) IFRSentittradi

(b) IAS entititselfare Inves

(c) IAS 3onlypubl

Differen

BC44 The Framew

The oposita wid

In establisstatement

BC45 Users of fiin generalthan userstrading inFor exampshort-termin the hisinformatiocash flowsSMEs maystatementmarkets, Sand sharehobtain ban

BC46 In the BoaIFRSs and cost-benefdiffer acro IASCF

ude several differences for entities whose securities are not publiclyr example:

8 Operating Segments requires disclosure of segment information only byies whose debt or equity instruments are traded or registered forng in a public market.

27 Consolidated and Separate Financial Statements exempts some parenties from preparing consolidated financial statements if (i) the parent is a subsidiary of an IFRS parent and (ii) its debt or equity instruments

not traded in a public market. Similar exemptions are in IAS 28tments in Associates and IAS 31 Interests in Joint Ventures.

3 Earnings per Share requires presentation of earnings per share data by entities whose ordinary shares or potential ordinary shares areicly traded.

t users needs and cost-benefit considerations

ork (paragraph 12) states:

bjective of financial statements is to provide information about the financialion, performance and changes in financial position of an entity that is useful toe range of users in making economic decisions.

hing standards for the form and content of general purpose financials, the needs of users of financial statements are paramount.

nancial statements of SMEs may have less interest in some information purpose financial statements prepared in accordance with full IFRSs of financial statements of entities whose securities are registered for public securities markets or that otherwise have public accountability.le, users of financial statements of SMEs may have greater interest in cash flows, liquidity, balance sheet strength and interest coverage, and

torical trends of profit or loss and interest coverage, than they do inn that is intended to assist in making forecasts of an entitys long-term, profit or loss, and value. However, users of financial statements of

need some information that is not ordinarily presented in the financials of listed entities. For example, as an alternative to the public capitalMEs often obtain capital from shareholders, directors and suppliers,olders and directors often pledge personal assets so that the SMEs cank financing.

rds judgement, the nature and degree of the differences between fullan IFRS for SMEs must be determined on the basis of users needs andit analyses. In practice, the benefits of applying accounting standardsss reporting entities, depending primarily on the nature, number and


information needs of the users of their financial statements. The related costsmay not differ significantly. Therefore, consistently with the Framework, theBoard concluded that the cost-benefit trade-off should be assessed in relation tothe information needs of the users of an entitys financial statements.

BC47 The Board faced a dilemma in deciding whether to develop an IFRS for SMEs.On the onappropriaconcepts fThis suggeentities, aneeds anacknowledstatementavailable tThat separelements statement(separate s

Adoptioare not

BC48 The BoardFrameworkIFRSs. Thperformanrange of usize of thestatementstatementincluding that showIFRSs.

The objective

Why deof distriIFRS for

BC49 IFRSs are dfinancial statementof users, foGeneral puare not inneeds. Gentitys fin IASCF 19

e hand, it believed that the same concepts of financial reporting arete for all entities regardless of public accountabilityparticularly theor recognising and measuring assets, liabilities, income and expenses.sted that a single set of accounting standards should be suitable for alllthough it would not rule out disclosure differences based on usersd cost-benefit considerations. On the other hand, the Boardged that differences in the types and needs of users of SMEs financial

s, as well as limitations in, and the cost of, the accounting expertiseo SMEs, suggested that a separate standard for SMEs is appropriate.ate standard could include constraints such as consistent definitions ofof financial statements and focus on the needs of users of financials of SMEs. On balance, the Board concluded that the latter approachtandard) was appropriate.

n of an IFRS for SMEs does not imply that full IFRSs appropriate for SMEs

believes that the objective of financial statements as set out in the is appropriate for SMEs as well as for entities required to apply fulle objective of providing information about the financial position,ce and changes in financial position of an entity that is useful to a widesers in making economic decisions is applicable without regard to the reporting entity. Therefore, standards for general purpose financials of entities with public accountability would result in financials that meet the needs of users of financial statements of all entities,those without public accountability. The Board is aware of research

s that over 80 jurisdictions currently require or permit SMEs to use full

of the IFRS for SMEs

termination of taxable income and determinationbutable income are not specific objectives of the SMEs

esigned to apply to the general purpose financial statements and otherreporting of all profit-oriented entities. General purpose financials are directed towards the common information needs of a wide ranger example, shareholders, creditors, employees and the public at large.rpose financial statements are intended to meet the needs of users that

a position to demand reports tailored to their particular informationeneral purpose financial statements provide information about anancial position, performance and cash flows.


20

BC50 Determining taxable income requires special purpose financial statementsonesdesigned to comply with the tax laws and regulations in a particular jurisdiction.Similarly, an entitys distributable income is defined by the laws and regulationsof the country or other jurisdiction in which it is domiciled.

BC51 Tax authorities are also often important external users of the financialstatementwhatever collectionstarting pothe adjusttaxable prwith tax rconformittaxable prdeveloped

BC52 A similar rthe IFRS fo

Why it iinformamanage

BC53 Owner-mais not the to help thinformatioNonetheleneeds by pand cash f

BC54 SMEs oftenfor tax restatementpurpose fi

Public accounentities for whwhich it is not

BC55 One of thefor whichultimatelynational rof the clas

(a) the Bentit IASCF

s of SMEs. Almost invariably, tax authorities have the power to demandinformation they need to meet their statutory tax assessment and obligations. Tax authorities often look to financial statements as theint for determining taxable profit, and some have policies to minimisements to accounting profit or loss for the purpose of determiningofit. Nonetheless, global accounting standards for SMEs cannot dealeporting in individual jurisdictions. But profit or loss determined iny with the IFRS for SMEs can serve as the starting point for determiningofit in a given jurisdiction by means of a reconciliation that is easily at a national level.

econciliation can be developed to adjust profit or loss as measured byr SMEs to distributable income under national laws or regulations.

s not the purpose of the IFRS for SMEs to provide tion to owner-managers to help them make ment decisions

nagers use SMEs financial statements for many purposes. However, itpurpose of the IFRS for SMEs to provide information to owner-managersem make management decisions. Managers can obtain whatevern they need to run their business. (The same is true for full IFRSs.)

ss, general purpose financial statements will often also serve managersroviding insights into the businesss financial position, performance

lows.

produce financial statements only for the use of owner-managers, orporting or other non-securities regulatory filing purposes. Financials produced solely for those purposes are not necessarily generalnancial statements.

tability as the principle for identifying theich the IFRS for SMEs is intended and those for intended

first issues confronting the Board was to describe the class of entities the IFRS for SMEs would be intended. The Board recognised that,, decisions on which entities should use the IFRS for SMEs will rest withegulatory authorities and standard-setters. However, a clear definitions of entity for which the IFRS for SMEs is intended is essential so that:

oard can decide on the standard that is appropriate for that class ofy, and


(b) national regulatory authorities, standard-setters, reporting entities andtheir auditors will be informed of the intended scope of applicability of theIFRS for SMEs.

In that way, jurisdictions will understand that there are some types of entities forwhich the IFRS for SMEs is not intended.

BC56 In the Boanot have pshould use

(a) its dproc(a doinclu

(b) it hoof itsinsuinves

BC57 While theprecedingexposure comments

(a) The efor SM

(b) The fiducuse tfiducexamorgaSMEspubl

Entitiespublic a

BC58 Public secuand invesconsiderininvestors demand tdecision-mAn entityaccountabbroader rastatement IASCF 21

rds judgement, the IFRS for SMEs is appropriate for an entity that doesublic accountability. An entity has public accountability (and therefore full IFRSs) if:

ebt or equity instruments are traded in a public market or it is in theess of issuing such instruments for trading in a public marketmestic or foreign stock exchange or an over-the-counter market,ding local and regional markets), or

lds assets in a fiduciary capacity for a broad group of outsiders as one primary businesses. This is typically the case for banks, credit unions,

rance companies, securities brokers/dealers, mutual funds andtment banks.

two criteria for entities with public accountability stated in the paragraph did not change significantly from those proposed in thedraft, the Board did make several small changes in response to received:

xposure draft referred to, but did not define, public markets. The IFRSEs includes a definition consistent with the definition in IFRS 8.

exposure draft had proposed that any entity that holds assets in aiary capacity for a broad group of outsiders should not be eligible tohe IFRS for SMEs. Respondents noted that entities often hold assets in aiary capacity for reasons incidental to their primary business (as, forple, may be the case for travel or real estate agents, schools, charitable

nisations, co-operative enterprises and utility companies). The IFRS for clarifies that those circumstances do not result in an entity havingic accountability.

whose securities are traded in a public market have ccountability

rities markets, by their nature, bring together entities that seek capitaltors who are not involved in managing the entity and who areg whether to provide capital, and at what price. Although those public

often provide longer-term risk capital, they do not have the power tohe financial information they might find useful for investmentaking. They must rely on general purpose financial statements.

s decision to enter a public capital market makes it publiclyleand it must provide the outside debt and equity investors with ange of financial information than may be needed by users of financials of entities that obtain capital only from private sources. Governments


22

recognise this public accountability by establishing laws, regulations andregulatory agencies that deal with market regulation and disclosures to investorsin public securities markets. The Board concluded that, regardless of size, entitieswhose securities are traded in a public market should follow full IFRSs.

Financi

BC59 Similarly, dealers, pmanage fcustomersBecause saccountabgovernme

SMEs th

BC60 In the discconditionsis a public

BC61 Most respoout that ismallforgeneratingRespondenrather thaIFRSs shou

SMEs thjurisdic

BC62 In the discconditionsis economtotal assetnature an

BC63 Most respdoes not athat termpresent anmake econmeet theisignificanaccountabstatement IASCF

al institutions have public accountability

a primary business of banks, insurance companies, securities brokers/ension funds, mutual funds and investment banks is to hold andinancial resources entrusted to them by a broad group of clients, or members who are not involved in the management of the entities.uch an entity acts in a public fiduciary capacity, it is publiclyle. In most cases, these institutions are regulated by laws andnt agencies.

at provide an essential public service

ussion paper, the Boards tentative view was that, in addition to the two cited in paragraph BC56, an entity also has public accountability if it utility or similar entity that provides an essential public service.

ndents to the discussion paper, and also the working group, pointedn many jurisdictions entities that provide public services can be very example, refuse collection companies, water companies, local power or distribution companies, and local cable television companies.ts argued that the nature of the users of the financial statements,

n the nature of the business activity, should determine whether fullld be required. The Board concurred.

at are economically significant in their home tion

ussion paper, the Boards tentative view was that, in addition to the two cited in paragraph BC56, an entity also has public accountability if itically significant in its home country on the basis of criteria such ass, total income, number of employees, degree of market dominance andd extent of external borrowings.

ondents, and the working group, argued that economic significanceutomatically result in public accountability. Public accountability, as is used in paragraphs 1.2 and 1.3, refers to accountability to thosed potential resource providers and others external to the entity whoomic decisions but are not in a position to demand reports tailored to

r particular information needs. The Board concluded that economicce may be more relevant to matters of political and societalility. Whether such accountability requires general purpose financials using full IFRSs is a matter best left to local jurisdictions to decide.


Approval by owners to use the IFRS for SMEs

BC64 In the discussion paper, the Boards tentative view was that 100 per cent of theowners of a small or medium-sized entity must agree before the entity could usethe IFRS for SMEs. The objection of even one owner of an entity to the use of the IFRSfor SMEs wfinancial sIn their vidoes not mof (a) publwith publi

SMEs thIFRS in

BC65 In the discventure oinformatioventurer ofor SMEs, iinformatioit would bcomply wiagree. Maaccountinfor the incircumstainvestor, sthey arguefull IFRSs persuasiveon the bainformatio

BC66 Some respuses full Ipermittedshould beprinciplesaccountinThose holrecognitioconsolidat

BC67 The Boardfallbacks tIFRS for SMis neither each suchchosen bynon-public IASCF 23

ould be sufficient evidence of the need for that entity to prepare itstatements on the basis of full IFRSs. Most respondents did not agree.ew, an objection, or even a non-response, by one or a few shareholdersake an entity publicly accountable. They thought that the two criteria

icly traded and (b) financial institution appropriately identify entitiesc accountability. The Board found those arguments persuasive.

at are a subsidiary, associate or joint venture of an vestor

ussion paper, the Boards tentative view was that if a subsidiary, jointr associate of an entity with public accountability prepares financialn in accordance with full IFRSs to meet the requirements of the parent,r investor, it should be required to comply with full IFRSs, not the IFRSn its separate financial statements. In the Boards view, because then in accordance with full IFRSs had been produced for other purposes,e more costly to prepare a second set of financial statements that

th the IFRS for SMEs. Most respondents to the discussion paper did notny said that the IFRS data produced for consolidation or equityg purposes have a different materiality threshold from that necessaryvestees own financial statements. Moreover, they said that the

nces of the entity, rather than the circumstances of its parent orhould determine whether it has public accountability. Consequently,d, it would be costly and burdensome for the investee to have to applyin its own financial statements. The Board found those arguments. Therefore, SMEs should assess their eligibility to use the IFRS for SMEssis of their own circumstances, even if they also submit financialn in accordance with full IFRSs to a parent, venturer or investor.

ondents to the exposure draft proposed that a subsidiary whose parentFRSs, or is part of a consolidated group that uses full IFRSs, should be to make the simplified disclosures required by the IFRS for SMEs but required to follow the accounting recognition and measurement in full IFRSs that are used by its parent if they are different from theg recognition and measurement principles in the IFRS for SMEs.ding this view thought that allowing the subsidiary to use the samen and measurement principles as its parent or its group would makeion easier.

concluded, however, that the result would be, in effect, optionalo full IFRSs for a relatively small subset of entities eligible to use theEs. The result would also be a hybrid set of accounting standards thatfull IFRSs nor the IFRS for SMEs. That set of standards would differ for small or medium-sized entity depending on the accounting policies its parent or its group. The IFRS for SMEs is a standard appropriate forly accountable entities, not a pick and choose set of options.


24

A subsidiary of a full IFRS entity can always choose to follow full IFRSs in itsseparate statements. The Board concluded that if an entitys financial statementsare described as conforming to the IFRS for SMEs, it must comply with all of theprovisions of that IFRS.

BC68 Because the IFRS for SMEs allows accounting policy choices for some recognitionand measuentitys acwould mameasuremexamples:

(a) Non-

(b) Unve

(c) Exchinves

(d) Borr

(e) Inves

(f) Invesprice

IASCF

rement principles, differences from full IFRSs can be minimised by ancounting policy choices. The circumstances in which the IFRS for SMEsndate a recognition or measurement principle that is different froment under full IFRSs are limited. The following are the principal

current assets (or groups of assets and liabilities) held for sale

IFRS for SMEs: Holding assets for sale triggers an assessment forimpairment, but otherwise no special held-for-sale classification orspecial accounting requirements.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations:Measured at lower of carrying amount and fair value less costs to sell.Depreciation stops when classified as held for sale.

sted past service cost of defined benefit pension plans

IFRS for SMEs: Recognised in profit or loss immediately.

IAS 19 Employee Benefits: Recognised as an expense on a straight-linebasis over the average period until the benefits become vested.

ange differences on a monetary item that forms part of the nettment in a foreign operation, in consolidated financial statements

IFRS for SMEs: Recognise in other comprehensive income and do notreclassify in profit or loss on disposal of the investment.

IAS 21 The Effects of Changes in Foreign Exchange Rates: Reclassify in profitor loss on disposal of the investment.

owing costs

IFRS for SMEs: Must be charged to expense.

IAS 23 Borrowing Costs: Costs directly attributable to the acquisition,construction or production of a qualifying asset must be capitalised.

tment in an associate for which there is a published price quotation

IFRS for SMEs: Must be measured at fair value through profit or loss.

IAS 28 Investments in Associates: Must be measured using the equitymethod.

tment in a jointly controlled entity for which there is a published quotation


IAS 31 Interests in Joint Ventures: Must be measured using the equitymethod or proportionate consolidation.


(g) Investment property whose fair value can be measured reliably withoutundue cost or effort


IAS 40 Investment Property: Accounting policy choice of fair value

(h) Biolo

(i) Inco

(j) Shararran

Quantif

BC69 The definiwhat is a used in ovquantifiedcountries.standard-s

BC70 In decidinjurisdictiojurisdictiocountry sh

Suitabilentities

BC71 Some contby all entithis group IASCF 25

through profit or loss or cost-depreciation-impairment model.

gical assets

IFRS for SMEs: Measure at fair value through profit or loss only if fairvalue is readily determinable without undue cost or effort.

IAS 41 Agriculture: Presumption that fair value can be reliablymeasured.

me tax

IFRS for SMEs: Where a different tax rate applies to distributed income,initially measure current and deferred taxes at the rate applicable toundistributed profits.

Exposure draft Income Tax: In such a case, initially measure currentand deferred taxes at the tax rate expected to apply when the profitsare distributed.

e-based payments with cash alternatives in which the terms of thegement provide the counterparty with a choice of settlement

IFRS for SMEs: Account for the transaction as a cash-settled share-basedpayment transaction unless either the entity has a past practice ofsettling by issuing equity instruments or the option to settle in cashhas no commercial substance.

IFRS 2 Share-based Payment: Accounting akin to a compound instrument.

ied size criteria

tion of SMEs does not include quantified size criteria for determiningsmall or medium-sized entity. The Board noted that its standards areer 100 countries. The Board concluded that it is not feasible to develop size tests that would be applicable and long-lasting in all of those This is consistent with the Boards general principle-based approach toetting.

g which entities should be required or permitted to use the IFRS for SMEs,ns may choose to prescribe quantified size criteria. Similarly, an may decide that entities that are economically significant in thatould be required to use full IFRSs rather than the IFRS for SMEs.

ity of the IFRS for SMEs for very smallthe micros

end that it is unrealistic to design a single standard that could be usedties that do not have public accountability, because the size range of of entities is simply too broadfrom very large unlisted entities with


26

hundreds or even several thousand employees down to micro-sized entities withfewer than ten employees. The Board did not agree. The IFRS for SMEs is designedfor entities, regardless of size, that are required, or elect, to publish generalpurpose financial statements for external users. External users such as lenders,vendors, customers, rating agencies and employees need specific types ofinformatioparticularstatementstatement

BC72 Some whothat manytax authomore fulldeterministatementa particula

BC73 Moreover,or most limthat manyparagraphrequired obeen judgburdensommay coverencounterSMEs. ThSMEs to circumsta

BC74 Some favoSMEswitcash basiprinciplesbalance shacknowledpreparingstatementwould omchanges ineconomic prepared userve SMEconcluded

BC75 The IASB dis the resgovernmestandard-s IASCF

n but are not in a position to demand reports tailored to meet their information needs. They must rely on general purpose financials. This is as true for micros as it is for larger SMEs. Financials prepared using the IFRS for SMEs are intended to meet those needs.

question whether the IFRS for SMEs will be suitable for micros argue micro entities prepare financial statements solely to submit to incomerities for the purpose of determining taxable income. As explainedy in paragraphs BC50BC52, determining taxable income (and alsong legally distributable income) requires special purpose financialsones designed to comply with tax and other laws and regulations inr jurisdiction.

the Board noted that, in many countries, full IFRSs are required for allited liability companies, including the micros. The Board also noted

other countries permit the micros to use full IFRSs. As mentioned in BC48, over 80 jurisdictions have decided that full IFRSs should ber permitted for all or most entities, including micros. If full IFRSs haveed suitable for all entities, then the IFRS for SMEs will surely not be

e. The guidance in the IFRS for SMEs is clear and concise. That guidance some transactions or circumstances that micro SMEs do not typically, but the Board did not believe that this imposes a burden on microe topical organisation of the IFRS for SMEs will make it easy for microidentify those aspects of the standard that are relevant to theirnces.

ur a very simple and brief set of accounting requirements for microh broad principles of accrual basis accounting (some even suggest as or modified cash basis), specific recognition and measurement for only the most basic transactions, and requiring perhaps only aeet and an income statement with limited note disclosures. The Boardged that this approach might result in relatively low costs to SMEs in

financial statements. However, the Board concluded that the resultings would not meet the objective of decision-usefulness because theyit information about the entitys financial position, performance and financial position that is useful to a wide range of users in makingdecisions. Moreover, the Board believed that financial statementssing such a simple and brief set of accounting requirements might not

s by improving their ability to obtain capital. Therefore, the Board that it should not develop this type of IFRS for SMEs.

oes not have the power to require any entity to use its standards. Thatponsibility of legislators and regulators. In some countries, thent has delegated that power to a separately established independentetter or to the professional accountancy body. They will have to decide


which entities should be required or permitted to use, or perhaps prohibited fromusing, the IFRS for SMEs. The Board believes that the IFRS for SMEs will be suitablefor all entities that do not have public accountability, including micros.

The IFRS for SMEs is not intended for small publiclytraded e

BC76 Entities, lacapital mainvolved iinformatiopublic capfor investfor recognsimplifiednot requirare approp

BC77 A jurisdicttraded entfor SMEs inhowever, tGAAP. TheIFRS for SM

Small and me

BC78 Small andof the IFRSalthough ma broad raOften thosrevenue, aor to inclupurpose fi

BC79 The IASB cexposure accountabredeliberaused both

(a) Non-IFRSpubsomerecogSMEaccowerethe Cons IASCF 27

ntities

rge or small, whose debt or equity instruments are traded in publicrkets have chosen to seek capital from outside investors who are not

n managing the business and who do not have the power to demandn that they might find useful. Full IFRSs have been designed to serveital markets by providing financial information especially intended

ors and creditors in such markets. Some of the principles in full IFRSsising and measuring assets, liabilities, income and expense have been in the IFRS for SMEs. Some of the disclosures required by full IFRSs areed by the IFRS for SMEs. The Board concluded, therefore, that full IFRSsriate for an entity with public accountability.

ion that believes that the IFRS for SMEs is appropriate for small publiclyities in that jurisdiction could incorporate the requirements of the IFRSto its national standards for small publicly traded entities. In that case,he financial statements would be described as conforming to national IFRS for SMEs prohibits them from being described as conforming to theEs.

dium-sized entities

medium-sized entities (SMEs) as used by the IASB is defined in Section 1 for SMEs. The term is widely recognised and used around the world,any jurisdictions have developed their own definitions of the term for

nge of purposes including prescribing financial reporting obligations.e national or regional definitions include quantitative criteria based onssets, employees or other factors. Frequently, the term is used to meande very small entities without regard to whether they publish generalnancial statements for external users.

onsidered whether to use another term. Even before publishing thedraft in February 2007, the Board had used the term non-publiclyle entity (NPAE) for several months during 2005. During itstions of the proposals in the exposure draft during 2008, the Board also NPAE and private entities for several months.

publicly accountable entities. Because the Board concluded that fulls are necessary for entities with public accountability, the termslicly accountable entity and non-publicly accountable entity had appeal. However, constituents argued that this term is not widelynised, whereas small and medium-sized entities and the acronym

s are universally recognised. Also, some said that non-publiclyuntable entities seemed to imply, incorrectly, that the smaller entities not publicly accountable for anything. Furthermore, the objectives ofIASC Foundation and the IASB as set out in the Foundationstitution use the term small and medium-sized entities:


28

The objectives of the IASC Foundation are:

(a) to develop, in the public interest, a single set of high quality, understandableand enforceable global accounting standards that require high quality,transparent and comparable information in financial statements and otherfinancial reporting to help participants in the world's capital markets and

(b

(c

(d

(b) Privajurisentitaccoin wis coto reIn sumisu

For these r

The users of Susing the IFRS

BC80 The IFRS fogeneral puexternal u

(a) bank

(b) vendand

(c) credto ra

(d) custodo b

(e) SMEs

The extent to wdocument

BC81 In developit to be a snot propo IASCF

other users make economic decisions;

) to promote the use and rigorous application of those standards;

) in fulfilling the objectives associated with (a) and (b), to take account of, asappropriate, the special needs of small and medium-sized entities andemerging economies; and

) to bring about convergence of national accounting standards and InternationalAccounting Standards and International Financial Reporting Standards to highquality solutions.

te entities. The term private entities is commonly used in somedictionsmost particularly in North Americato refer to the kinds ofies that meet the IASBs definition of SMEs (entities without publicuntability). In other jurisdictions, howevermost particularly thosehich government ownership of equity interests in business entitiesmmonthe term private entities is used much more restrictivelyfer only to those entities in which there is no government ownership.ch jurisdictions, the term private entities would be likely to be

nderstood.

easons, the Board decided to use small and medium-sized entities.

MEs financial statements prepared for SMEs

r SMEs is intended for non-publicly accountable entities that publishrpose financial statements for external users. The main groups of

sers include:

s that make loans to SMEs.

ors that sell to SMEs and use SMEs financial statements to make creditpricing decisions.

it rating agencies and others that use SMEs financial statementste SMEs.

mers of SMEs that use SMEs financial statements to decide whether tousiness.

shareholders that are not also managers of their SMEs.

hich the IFRS for SMEs should be a stand-alone

ing the exposure draft of the proposed IFRS for SMEs, the Board intendedtand-alone document for many typical small entities. However, it wassed to be fully stand-alone. The exposure draft proposed that there


should be two types of occasions when the IFRS for SMEs would require entities tolook to full IFRSs:

(a) The exposure draft proposed that when IFRSs provide an accountingpolicy option, SMEs should have the same option. The simpler optionwould be included in the IFRS for SMEs while the other option or optionswoul

(b) The accobeliecircurequto a p

BC82 Over 60 pwould elimwould keeindifferencross-referIFRS for SMput forwa

(a) A staIt woimprwiththe Iburd

(b) The to foof thwhicthe cincoapprand/adop

(c) Croscrossshouthe cremafrequthe Bof althe pof thparaothecross IASCF 29

d be permitted by cross-reference to IFRSs.

exposure draft proposed that the IFRS for SMEs should omit someunting topics that are addressed in full IFRSs, because the Boardved that typical SMEs are not likely to encounter such transactions ormstances. However, the exposure draft proposed cross-referencesiring SMEs that encounter such a transaction or circumstances to lookarticular IFRS or to a part of one.

er cent of the comment letters that addressed the stand-alone issueinate all cross-references to full IFRSs. Another 35 per cent either (a)

p the number of cross-references to an absolute minimum or (b) weret between having minimal cross-references and removing allences. Also, the working group members recommended that theEs should be a completely stand-alone document. The principal reasonsrd by those recommending a stand-alone IFRS were:

nd-alone document would be more understandable and easier to use.uld also be perceived as a more user-friendly document and henceove acceptance by jurisdictions considering adoption and by entitiesin the scope. Cross-references require SMEs to be familiar with bothFRS for SMEs and full IFRSsa requirement some viewed as even moreensome than for an entity following full IFRSs.

exposure draft had proposed that if an entity is required or permittedllow an IFRS by cross-reference, the entity must apply that IFRS (or partat IFRS) in full. The twin criteria of user needs and cost-benefits onh the Board based its decisions in the IFRS for SMEs were not applied toross-referenced material. However, if such cross-referenced topics were

rporated within the IFRS for SMEs, it would be possible to makeopriate simplifications of recognition and measurement principlesor reduce disclosures based on the user needs and cost-benefit criteriated by the Board.

s-references cause version control issues. For example, if a-referenced IAS or IFRS or Interpretation is amended or replaced,ld that result in an automatic change to the cross-reference? Or doesross-reference to the earlier version of the IAS or IFRS or Interpretationin? If there is an automatic change then this will cause moreent updates to the IFRS for SMEs than every three years as planned byoard. Also it would require SMEs applying cross-references to be awarel changes to full IFRSs. If the cross-reference to the earlier version ofronouncement remains, there may be confusion about which versione Standard should be applied, especially because some cross-referencedgraphs themselves, either directly or indirectly, refer to paragraphs ofr full IFRSs (see (d) below). Also, the accounting chosen or required by-reference will not be comparable with that applied by full IFRS


30

entities. Additionally, if changes to full IFRSs are de facto amendments tothe IFRS for SMEs, SMEs would need to participate in the due process that ledto the changes in each IFRSa burden SMEs generally told the Board theycannot handle (in responses to both the June 2004 discussion paper and theexposure draft).

(d) Thercrossparamadin ca

BC83 After consBoard charequireme

Accoun

BC84 The accouexposure dthe IFRS fo

(a) Assomethinco

(b) Borrcrossbeen

(c) DeveTher

(d) Intancrossimparetai

(e) Invesan aentitwithit mubeen

(f) Joint(withthe I

(g) Preseindirhas indirretai IASCF

e is a question of where the cross-references end. Some-referenced paragraphs, either directly or indirectly, refer to othergraphs within full IFRSs. This is problematic because updates aree to full IFRSs, so SMEs would need to continuously monitor full IFRSsse any changes might affect them via the cross-reference.

idering the points raised by respondents to the exposure draft, thenged its view. The IFRS for SMEs does not have any mandatorynt to look to full IFRSs.

ting policy options

nting policy options mentioned in paragraph BC81(a) for which theraft had included cross-references to full IFRSs have been dealt with in

r SMEs as follows:

ciates. The options proposed in the exposure draft (cost method, equityod and fair value through profit or loss) are all allowed and

rporated into the IFRS for SMEs.

owing costs. The capitalisation model is not an option. Therefore, no-reference to full IFRSs. Guidance on applying the expense method had proposed in the exposure draft and has been retained.

lopment costs. Capitalisation of development costs is not an option.efore, no cross-reference to full IFRSs.

gible assets. The revaluation model is not an option. Therefore, no-reference to full IFRSs. Guidance on applying the cost-depreciation-irment model had been proposed in the exposure draft and has beenned.

tment property. Measurement is driven by circumstances rather thanccounting policy choice between the cost and fair value models. If any can measure the fair value of an item of investment property reliablyout undue cost or effort, it must use the fair value model. Otherwise,st use the cost model. Guidance on applying the fair value model has

incorporated into the IFRS for SMEs.

ly controlled entities. The options in the exposure draft are all allowed the exception of proportionate consolidation) and incorporated into

FRS for SMEs.

nting operating cash flows. The option to use either the direct or theect method has been retained. Guidance on applying direct method

been incorporated into the IFRS for SMEs. Guidance on applying theect method had been proposed in the exposure draft and has beenned.


(h) Property, plant and equipment. The revaluation model is not an option.Therefore, no cross-reference to full IFRSs. Guidance on applying the cost-depreciation-impairment model had been proposed in the exposure draftand has been retained.

(i) Government grants. The proposed option to apply IAS 20 Accounting forGovergran

BC85 The IFRS foIFRS, and Measuremeis compleIFRSs in ad

BC86 The expostransactioanother IFand reliabfirst, the rrelated issconcepts fin Sectionprovide guincluding This guida

Omitted

BC87 In additionto full IFRIFRSs but relevant fodocumentfollowing full IFRSs:

(a) EquiPaym

(b) SharSecti

(c) Fair Speci

(d) Hype

(e) Lesso

(f) The dStatem IASCF 31

nment Grants and Disclosure of Government Assistance to some governmentts has been removed.

r SMEs does include one option for an entity to choose to follow a fullthat is the option to use IAS 39 Financial Instruments: Recognition and

nt instead of Section 11 and Section 12. Otherwise, the final IFRS for SMEstely stand-alonean entity applying it is not required to look to fulldition to the IFRS for SMEs.

ure draft also proposed that if the standard does not address an or other event or condition or provide a cross-reference back toRS, an entity should select an accounting policy that results in relevantle information. In making that judgement, an entity should consider,equirements and guidance in the IFRS for SMEs dealing with similar andues and, second, the definitions, recognition criteria and measurementor assets, liabilities, income and expenses and the pervasive principles 2 Concepts and Pervasive Principles of the draft standard. If that does notidance, the entity may look to the requirements and guidance in IFRSs,Interpretations of IFRSs, dealing with similar and related issues.

nce remains in the IFRS for SMEs.

topics

to the complex options, the second type of mandatory cross-referenceSs proposed in the exposure draft related to topics addressed in fullomitted from the IFRS for SMEs because they were not expected to ber the majority of SMEs. To make the final IFRS for SMEs a stand-alone

, the Board decided to incorporate into the final IFRS for SMEs thetopics for which the exposure draft had proposed a cross-reference to

ty-settled share-based payment. Addressed in Section 26 Share-basedent.

e-based payment transactions with cash alternatives. Addressed inon 26.

value measurement of biological assets. Addressed in Section 34alised Activities.

rinflation. Addressed in Section 31 Hyperinf lation.

r accounting for finance leases. Addressed in Section 20 Leases.

irect method of presenting operating cash flows. Addressed in Section 7ent of Cash Flows.


32

BC88 Furthermore, the Board decided that the IFRS for SMEs should not address thefollowing topics for which the exposure draft had proposed a cross-reference tofull IFRSs:

(a) Earnings per share.

(b) Inter

(c) Segm

(d) Spec

Whether all acallowed in the

BC89 Full IFRSs transactiothe other(policy optifor a giventhe benefiof the resOthers argis availabland entiti

BC90 In developon balancSMEs. At tthe simplwhen full only the available t

BC91 Respondenoptions shof view decomplex aa simplifiFor exampSMEs a sta(EFRAG) aprofessiondisagreeinmost of thCouncil (Sallowing iwill choosrequire leThey alsomore of thfor SMEs. IASCF

im financial reporting.

ent reporting.

ial accounting for assets held for sale.

counting policy options in full IFRSs should be IFRS for SMEs

include some accounting policy options (choices). Generally, for a givenn, event or condition, one of the options is simpler to implement thans). Some believe that the IFRS for SMEs should eliminate all accountingons and, therefore, require all SMEs to follow a single accounting policy transaction, event or condition. Those who hold this view argue that

ts would be simplification of the IFRS for SMEs and greater comparabilityulting financial information among SMEs using the IFRS for SMEs.ue that prohibiting SMEs from using an accounting policy option thate to entit

IFRSforSMEsBasisforConclusions.pdf

Documents

smes financial statements

financial institutions

ifrs foundations

mediumsized entitiesifrs

accounting policy choices

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