IFRS for SMEs in your Pocket

IFRS for SMEs in your Pocket

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This pocket guide is based on an international version produced by Deloitte's IFRS Global Office. IFRS for SMEs in your Pocket takes each section of the IFRS for SMEs, summarises its requirements, and highlights differences with full IFRS requirements. Additional guidance describing application of the IFRS for SMEs in the UK is added in shaded text.

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IFRS for SMEs in your pocket April 2010
Deloitte’swww.iasplus.comwebsite provides comprehensive information about international financial reporting in general and IASB activities in particular. Unique features include:
 daily news about financial reporting globally.
 summaries of all Standards, Interpretations and proposals.
 many IFRS-related publications available for download.
 model IFRS financial statements and checklists.
 an electronic library of several hundred IFRS resources.
 all Deloitte Touche Tohmatsu comment letters to the IASB.
 links to several hundred international accounting websites.
 e-learning modules for each IAS and IFRS – at no charge.
 information about adoptions of IFRSs around the world.
 updates on developments in national accounting standards.
Foreword
In its transition report of December 2000 to the newly formed IASB, the outgoing Board of the International Accounting Standard s Committee said “a demand exists for a special version of International Accounting Standards for Small Enterprises”. Small and medium-sized entities (SMEs) pervade the business world. In virtually every jurisdiction, from the largest economies down to the smallest, over 99% of companies have fewer than 50 employees. There are 21 million SMEs in the European Union and 20 million in the United States alone. In most jurisdictions, the law requires SMEs to prepare and publish financial statements and have them audited. T he global trend in the past decade has been for jurisdictions to adopt International Financial Reporting Standards (IFRSs) directly or to converge local generally accepted accounting practice (GAAP) to IFRSs. As IFRSs are designed to meet the needs of public capital markets, securities reg ulators actively encourage this trend. Today, over 110 jurisdictions require the adoption of IFRSs for listed companies. As a result, the scope and complexity of issues covered in IFRSs, the amount of implementation guidance, and the volume of disclosures, have increased. In some jurisdictions this complexity has been pushed down to SMEs due to the convergence of local accounting standards with IF RSs. SMEs frequently express their concerns about the burden of complying with complex accounting requirements and question the rele vance of the resulting information to the users of their financial statements, who are more interested in information about cash-flows, liqu idity and solvency. A reality in some countries is that the implementation of full IFRSs (or converged local equivalents) is fraught with difficult ies. And where jurisdictions have developed their own SME standards, these often have serious limitations from a user perspective, are not readily understoo d by lenders and other capital providers, have limited support (such as textbooks and software) and are sometimes weakly enforced. World Bank st udies of over 80 developing and emerging jurisdictions found that most have significant shortcomings in financial reporting by SMEs – shortcomin gs that impede economic growth. TheIFRS for SMEsin July 2009 in response to these concerns. It is self-contained, tailored to the needs and capabilitieswas issued by the IASB  of smaller businesses and is understandable across borders. TheIFRS for SMEsis written in a clear, easily translatable language and is less complex in a number of ways as compared with full IFRSs (and many national GAAPs), which include limiting accounting policy choices, omitt ing topics that are not relevant to SMEs, simplifying the principles for recognition and measurement and requiring fewer disclosures. TheIFRS for SMEsfull IFRSs and is therefore available for any jurisdiction to adopt, whether or not it has adopted full IFRSs.is separate from  is It also the responsibility of each jurisdiction to determine which entities should apply theIFRS for SMEs. The IASB’s only restriction is that listed companies and financial institutions, i.e. companies that are publicly accountable, should not use it. Many global accounting groups welcomed theIFRS for SMEsThe World Bank said it was a “valuable reporting frameworkwhen it was issued. for smaller entities that is more responsive to the size and ownership of their operations, and should help improve their access to finance”. The International Federation of Accountants said the standard “will contribute to enhancing the quality and comparability of SME financial statements around the world and assist SMEs in gaining access to finance. The beneficiaries will not be only SMEs, but also the ir customers, clients and other users of SME financial statements.” Those kinds of benefits are the reason the IASB developed the standard. An important public interest is served when those who p rovide capital have good information on which to base their lending, credit and investment decisions. Paul Pacter Director, IFRS Global Office
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Contents
Abbreviations IASB structure Members of the IASB IASB due process IASB contact information IFRS for SMEs– resources available from the IASB Background to theIFRS for SMEs Full IFRS vs.IFRS for SMEs Summaries of individual sections of theIFRS for SMEs Section 1: Scope and application Section 2: Concepts and Pervasive Principles Section 3: Financial Statement Presentation Section 4: Statement of Financial Position Section 5: Statement of Comprehensive Income and Income Statement Section 6: Statement of Changes in Equity and Statement of Income and Retained Earnings Section 7: Statement of Cash Flows Section 8: Notes to the Financial Statements Section 9: Consolidated and Separate Financial Statements Section 10: Accounting Policies, Estimates and Errors Section 11: Basic Financial Instruments Section 12: Other Financial Instruments Issues Section 13: Inventories Section 14: Investment in Associates Section 15: Investments in Joint Ventures Section 16: Investment Property Section 17: Property, Plant and Equipment Section 18: Intangible Assets other than Goodwill Section 19: Business Combinations and Goodwill Section 20: Leases Section 21: Provisions and Contingencies Section 22: Liabilities and Equity Section 23: Revenue Section 24: Government Grants Section 25: Borrowing Costs
FISR of rMSsE i
4 5 7 9 10 11 12 13 14 14 14 15 16 16 17 17 18 18 19 20 22 24 24 25 26 26 27 28 29 30 31 32 33 33
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Section 26: Share-based Payment Section 27: Impairment of Assets Section 28: Employee Benefits Section 29: Income Tax Section 30: Foreign Currency Translation Section 31: Hyperinflation Section 32: Events after the End of the Reporting Period Section 33: Related Party Disclosures Section 34: Specialised Activities Section 35: Transition to theIFRS for SMEs
Contacts
33 35 36 37 38 39 39 40 40 41
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Abbreviations
CGU
FVTPL
GAAP
IASB
IASC
IASCF
IFRIC
IFRS(s)
IFRSF
IOSCO
NCI
SAC
SIC
SME(s)
Cash-generating unit
Fair value through profit or loss
Generally Accepted Accounting Practice(s)
International Accounting Standards Board
International Accounting Standards Committee (predecessor to the IASB)
IASC Foundation (parent body of the IASB, now named IFRS Foundation)
Interpretations issued by the IFRS Interpretations Committee (previously IFRIC)
International Financial Reporting Standard(s)
International Financial Reporting Standard Foundation
International Organisation of Securities Commissions
Non-controlling interest(s)
Standards Advisory Council (advisory body to the IASB, now named IFRS Advisory Council)
Standing Interpretations Committee of the IASC, and Interpretations issued by that committee
Small and medium-sized entity(ies)
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IASB structure
IFRS Advisory Council Approx 40 members
Monitoring Board Approve and oversee trustees
IFRS Foundation 22 trustees, appoint, oversee, raise funds
Board 16 members (maximum 3 part-time), set technical agenda, approve Standards, exposure drafts and Interpretations
IFRS Interpretations Committee 14 members
Working groups for major agenda projects
Appoints Reports Advises
Constitution review 2008-2010 The IASC Foundation (now known as the IFRS Foundation) finalised the second phase of the 2008-2010 Constitution Review in Janua ry 2010. The review began in January 2008 with the view to enhance the organisation’s governance and was split into two parts. Part One f ocused on the governance and public accountability of the IFRS Foundation (in particular, the creation of the Monitoring Board) and on the si ze and composition of the IASB (in particular, the expansion of the IASB from 14 to 16 members (with up to three part-time) and a specified geogra phical mix for the IASB). These amendments were effective on 1 February 2009. The second part of the review focussed on enhancing public accountability, stakeholder engagement and operational effectiveness . The main changes to the constitution involved the streamlining of names in the organisation1and the creation of vice-chairs for both the trustees and IASB. Changes to the Constitution resulting from Part Two of the review came into effect on 1 March 2010. Monitoring Board The primary purpose of the Monitoring Board is to serve as a mechanism for formal interaction between capital market authoritie s and the IFRS Foundation – the objective being to facilitate capital market authorities that allow or require the use of IFRSs in their j urisdictions to discharge their mandates relating to investor protection, market integrity and capital formation more effectively. The responsibilities of the Monitoring Board include:  participating in the process for appointing trustees and approving the appointment of trustees according to the guidelines set out in the IFRS Foundation’s Constitution; and  reviewing and providing advice to the trustees on their fulfilment of the responsibilities set out in the IFRS Foundation’s Co nstitution. The trustees will make an annual written report to the Monitoring Board.
1 IASC Foundation now named IFRS Foundation, Standards Advisory Council now named IFRS Advisory Council and International Finan cial Reporting Interpretations Committee now named IFRS Interpretations Committee. IFRS for SMEs in your pocketApril 20105
As at 1 March 2010, the Monitoring Board comprised the relevant Member of the European Commission and the chairs of the Financi al Services Agency of Japan, the US Securities and Exchange Commission, the Emerging Markets Committee of the International Organisation of Securities Commissions (IOSCO), and the Technical Committee of IOSCO. The Basel Committee on Banking Supervision is a non-voting observer.
IFRS Foundation Composition:and up to two as Vice-Chairs. Trustees are appointed for a three-year22 individual trustees, of whom one is appointed as Chair term, renewable once. Regardless of prior service, a trustee may be appointed to serve as Chair or Vice-Chair for a term of thr ee years, renewable once, provided total years’ service as a trustee does not exceed nine years.
Geographical balance:the Asia/Oceania region; six from Europe; six from North America; one from Africa; one from Southsix trustees from America; and two from any area (subject to maintaining overall geographical balance).
Backgrounds of trustees:the IFRSF Constitution requires an appropriate balance of professional backgrounds, including auditors, preparers, users, academics and other officials serving the public interest. Two will normally be senior partners of prominent internation al accounting firms.
International Accounting Standards Board Composition:than 1 July 2012), of whom one is appointed as Chair and up to two as Vice-Chairs.14 Board members (rising to 16 no later Up to three members may be ‘part-time’ members. After 2 July 2009, IASB members are appointed for an initial term of five years , renewable for a further three years. The Chair and Vice-Chairs may serve second terms of five years, subject to an overall maximum term of ten years.
Geographical balance:to ensure a broad international diversity, by July 2012 there will normally be four members from the Asia/Oceania region; four from Europe; four from North America; one each from Africa and South America; and two appointed from any area, subject to maintaining overall geographical balance.
Backgrounds of Board members:the main qualification for membership is professional competence and practical experience. The group is required to represent the best available combination of technical expertise and diversity of international business and market experience.
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Members of the IASB
Sir David Tweedie, Chairmanbecame the first IASB Chairman on 1 January 2001, having served from 1990-2000 as the first full-time Chairman of the UK Accounting Standards Board. Before that, he was national technical partner for KPMG and was a professor of accounting at Edinburgh University. Term expires 30 June 2011.
Stephen Cooper,Managing Director and head of valuation and accounting research at UBS Investment Bank prior to his appointment inwas the 2007. He has also been a member of the Corporate Reporting User Forum, and of the IASB’s Analysts’ Representative Group and Fin ancial Statement Presentation working group. Term expires 30 June 2012.
Philippe DanjouAutorité des Marches Financiers (AMF), the French securitiespreviously served as director of the accounting division of the regulator. He was also Executive Director of the French Ordre des Experts Comptables (OEC) from 1982 to 1986, and has acted in various advisory roles for European and international accounting and auditing groups. Term expires 30 June 2012.
Jan Engströmsenior financial and operating positions with the Volvo Group, including serving on the management board as Chief Financia lheld Officer and as Chief Executive Officer of Volvo Bus Corporation. Term expires 30 June 2014.
Patrick Finneganwas a Director of the Financial Reporting Policy Group, CFA  eInstitute Centre for Financial Market Integrity. In that capacity h led a team at CFA Institute responsible for providing user input into the standard-setting activities of the IASB, FASB, and key regulatory bodies. Before joining the CFA Institute in 2008, Mr Finnegan worked at Moody’s Investors Service, where he served as a managing direct or in Moody’s Corporate Finance Group and as a senior analyst in Moody’s Financial Institutions Group. Term expires 30 June 2014.
Robert P. Garnettwas the Executive Vice President of Finance for Anglo American plc, a South African company listed on the London Stock Exchange. He has worked as a preparer and analyst of financial statements in his native South Africa. He serves as Chairman of IFRIC (now IFRS Interpretations Committee). Term expires 30 June 2010*.
Gilbert Gélardwas a partner at KPMG in his native France and has extensive experience with French industry. Mr. Gélard speaks eight languages and is a former member of the French standard-setting body (CNC). He was also a member of the former IASC Board. Term expires 3 0 June 2010*.
Amaro Luiz de Oliveira Gomeswas Head of Financial System Regulation Department of the Central Bank of Brazil prior to his appointment to the IASB. In that capacity, he played a leading role in the adoption of IFRSs in Brazil. Mr Gomes also served on the Accounting Task Force of the Basel Committee on Banking Supervision. Before joining the Central Bank, Mr Gomes was an auditor with one of the international audit firms. He is co-author of a bookAccounting for Financial Institutions. His term expires 30 June 2014.
Prabhakar Kalavacherla(‘PK’) was previously a partner at KPMG LLP, serving as reviewing partner for both IFRS financial statements and filings with the US Securities and Exchange Commission. He has worked extensively in India and in Europe and has specialised in technol ogy and biotechnology. Mr Kalavacherla is a member of both the Institute of Chartered Accountants of India and the American Institute o f Certified Public Accountants. Term expires 30 June 2013.
James J. Leisenringsetting over the past three decades, as the Vice Chairman and later ashas worked on issues related to accounting standard Director of International Activities of the FASB in the United States. While at the FASB, Mr. Leisenring served for several yea rs as the FASB s observer at meetings of the former IASC Board. Term expires 30 June 2010**.
Patricia McConnellis a former Senior Managing Director, Equity Research, Accounting and Tax Policy Analyst, Bear Stearns & Co. In a 32-year career in Bear Stearns’ Equity Research group, Ms McConnell established herself as one of the leading analysts in the United St ates on issues related to accounting. Throughout her career, she has been an active participant in accounting standard-setting activities as a member of the IASB’s Standards Advisory Council, the International Accounting Standards Committee (the IASB’s predecessor body), the CFA Inst itute’s Corporate Disclosure Policy Council, and the New York Society of Security Analysts. Term expires 30 June 2014.
Warren McGregor20 years at the Australian Accountingdeveloped an intimate knowledge of standard-setting issues with his work over Research Foundation, where he ultimately became the Chief Executive Officer. Term expires 30 June 2011.
John T. Smithpreviously a partner at Deloitte & Touche LLP (USA). He was a member of the FASB’s Emerging Issues Task Force, Derivativeswas Implementation Group, and Financial Instruments Task Force. He served on the IASC Task Force on Financial Instruments and chair ed the IASC’s IAS 39 Implementation Guidance Committee. He has also been a member of the IASC, SIC and IFRIC. Term expires 30 June 2012.
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Tatsumi Yamadaof PricewaterhouseCoopers. He has extensive experience of international standardwas a partner at the Japanese member firm setting as a Japanese member of the former IASC Board between 1996 and 2000 and the Joint Working Group on Financial Instrument s. Term expires 30 June 2011.
Wei-Guo Zhangwas Chief Accountant of the China Securities Regulatory Commission (CSRC) between 1997 and 2007. Before joining the CSRC, Dr Zhang was a professor at Shanghai University of Finance and Economics (SUFE) where he also received his PhD in economics. Te rm expires 30 June 2012.
* These Board members will be replaced by the following individuals from July and October of 2010 respectively:
Dr Elke KönigFrom 2002 to 2009 she served as CFO of Hannover Re Grouphas served as a senior financial executive in the insurance industry. (Germany), a leading international reinsurance group. Previously she spent twelve years as a member of the senior management of Munich Re, with specific responsibility for the group’s accounting and controlling activities. She is currently serving in non-executive c apacities as chairperson of Hannover Finanz GmbH and as a member of the supervisory board of Deutsche Hypothekenbank Aktiengesellschaft. Dr König has be en a member of the CFO Forum of European insurers, where she has been actively engaged in the IASB’s project on insurance contracts.
Darrel Scottis the CFO of the FirstRand Banking Group, one of the largest financial institutions in South Africa. He has responsibility for both statutory and regulatory financial reporting under the Basel II Accords. He serves on various Governance, Risk, Operation and S trategic Committees of the Group. Mr Scott is also a member of the IFRIC (now IFRS Interpretations Committee), a position from which he will resign to become an IASB member, and was formerly a member of the IASC Foundation’s (now IFRS Foundation) Standards Advisory Council (now IFRS Advi sory Council).
** A replacement for Mr Leisenring will be made later in 2010.
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IASB due process
The IASB follows a rigorous open due process. All meetings of the IASB and of the IASB and its formal working groups are held i n public and are usually webcast. Formal due process for proj cts normally, but not necessarily, involves the following steps (steps required by the IFRS Foundati ’ e on s Constitution are indicated by an asterisk *):  staff are asked to identify and review the issues associated with a potential agenda topic and to consider the application of the Framework to the issues;  national accounting requirements and practice are studied, and views about the issues are exchanged with national standard-set ters;  the IFRS Foundation Trustees and the IFRS Advisory Council are consulted about the topics and priorities in the IASB’s agenda* ;  an advisory group is formed (generally called a ‘working group’) to advise the IASB and its staff on the project;  a discussion document is published for public comment (usually called a discussion paper), which will often include the Board’ s preliminary views on some of the issues in the project;  an exposure draft approved by at least nine (ten once there are 16 members) votes of the IASB is published for public comment, including therein any dissenting opinions held by IASB members (in exposure drafts, dissenting opinions are referred to as ‘alternative v iews’)*;  a basis for conclusions is included within the exposure draft;  all comments received within the comment period on discussion documents and exposure drafts are considered and discussed in op en meetings*;  the desirability of holding a public hearing and of conducting field-tests is considered and, where appropriate, these steps a re undertaken;  a Standard is approved by at least nine votes (ten votes once there are 16 members) of the IASB and any dissenting opinions ar e included in the published Standard*; and a basis for conclusions is included within the final Standard explaining, among other things, the steps in the IASB’s due proc ess and how the IASB has dealt with comments received on the exposure draft.
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