item 4.1 - iasb sme project

8/7/2019 Item 4.1 - IASB SME Project

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1 2007 IASC Foundation, all rights reserved. 2007 IASC Foundation, all rights reserved.

An International FinancialAn International Financial

Reporting Standard for SMEsReporting Standard for SMEs

Paul PacterPaul Pacter

IASB Director of Standards forIASB Director of Standards forSmall and MediumSmall and Medium--sized Entitiessized Entities

ECB Accounting and StatisticsTask Force

FrankfurtFrankfurt15 May 200715 May 2007


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IASB Exposure DraftIASB Exposure Draft

IASB has issued an Exposure Draft ofIASB has issued an Exposure Draft ofan IFRS for SMEs.an IFRS for SMEs.

Simplified, selfSimplified, self--contained set ofcontained set of

accounting principles for SMEs.accounting principles for SMEs.Makes IASB accountingMakes IASB accountingrequirements more accessible torequirements more accessible topreparers in both developed andpreparers in both developed and

emerging markets.emerging markets.Reduced burden to prepare SMEReduced burden to prepare SMEfinancial statements.financial statements.


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IFRS for SMEs:IFRS for SMEs:

Based on full IFRSs, which areBased on full IFRSs, which aredeveloped for public capital markets.developed for public capital markets.

Modifications based on user needsModifications based on user needsand costand cost--benefit.benefit.

Enables investors, lenders, others toEnables investors, lenders, others to

compare SMEs financialcompare SMEs financialperformance, financial condition,performance, financial condition,and cash flows.and cash flows.


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IFRS for SMEs:IFRS for SMEs:

Organised by topic.Organised by topic.

Plus illustrative financialPlus illustrative financial

statements, disclosure checklist,statements, disclosure checklist,and basis for conclusions.and basis for conclusions.

Posted on IASB website 15 FebruaryPosted on IASB website 15 February

2007.2007.Comment deadline 1 October 2007.Comment deadline 1 October 2007.


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IASB Definition of SMEIASB Definition of SME

IASB view:IASB view:IFRS for SMEs is appropriate for anIFRS for SMEs is appropriate for anentity with no public accountability:entity with no public accountability:

not publicly traded; andnot publicly traded; and not a financial institution.not a financial institution.

Entity whose securities are publiclyEntity whose securities are publiclytraded hastraded has public accountabilitypublic accountability..

Need full IFRSs for investorNeed full IFRSs for investorprotection.protection.

Even if small in size.Even if small in size.


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IASB Definition of SMEIASB Definition of SME

No quantified size test:No quantified size test:

Each jurisdiction should developEach jurisdiction should developguidelines on which entities willguidelines on which entities will

use the IFRS for SMEs.use the IFRS for SMEs.

Could include quantified size test.Could include quantified size test.

Focus on typical SME with aboutFocus on typical SME with about

50 employees in deciding the50 employees in deciding thecontent of the IFRS for SMEs.content of the IFRS for SMEs.


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IASB ApproachIASB Approach

General purpose financialGeneral purpose financialstatements for external users,statements for external users,including:including:

NonNon--manager owners.manager owners.

Existing and potential lendersExisting and potential lendersand creditors.and creditors.

Credit rating agencies.Credit rating agencies.

Auditor could give opinion on fairAuditor could give opinion on fairpresentation (true/fair view) ofpresentation (true/fair view) offinancial position, results, cashfinancial position, results, cashflows.flows.


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StandStand--alone document:alone document: SME must try to find answers inSME must try to find answers in

the IFRS for SMEs:the IFRS for SMEs:

by analogy, and

by using pervasive principles infirst section of IFRS for SMEs.

SMESME maymay look to full IFRSs iflook to full IFRSs ifanswer cannot be found in theanswer cannot be found in theIFRS for SMEs.IFRS for SMEs.

But,But, no mandatory fallbackno mandatory fallback totofull IFRSs.full IFRSs.


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Simplifications based on userSimplifications based on userneeds and costneeds and cost--benefit:benefit:

1.1. Some topics in IFRSs notSome topics in IFRSs notincluded if irrelevant to SME.included if irrelevant to SME.

2.2. Where IFRS has options,Where IFRS has options,include only simpler option.include only simpler option.

3.3. Recognition andRecognition and

measurement simplifications.measurement simplifications.4.4. Simplified drafting.Simplified drafting.


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Material not relevant to typicalMaterial not relevant to typicalSME omitted, with crossSME omitted, with cross--references to full IFRSs if needed:references to full IFRSs if needed:

EquityEquity--settled sharesettled share--basedbased

payment.payment. Determining FV of agriculturalDetermining FV of agricultural

assets.assets.

Extractive industries.Extractive industries.

Interim reporting.Interim reporting. Lessor finance leases.Lessor finance leases.

Hyperinflation.Hyperinflation.


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Only simpler of options in fullOnly simpler of options in fullIFRS are included. Other(s)IFRS are included. Other(s)crosscross--referenced. So, only:referenced. So, only:

Cost for investment property.Cost for investment property. Cost for PP&E and intangibles.Cost for PP&E and intangibles.

Expense all borrowing costs.Expense all borrowing costs.

Indirect operating cash flows.Indirect operating cash flows. One method for all grants.One method for all grants.

Jurisdictions could eliminate options.Jurisdictions could eliminate options.


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IASB ApproachIASB Approach Recognition and measurementRecognition and measurement

simplifications, page 1 of 2:simplifications, page 1 of 2: Financial instruments:Financial instruments:

Two classifications, not four.Two classifications, not four. Drop continuing involvementDrop continuing involvement

approach for derecognition.approach for derecognition. Much simplified hedge accounting.Much simplified hedge accounting.

Goodwill impairmentGoodwill impairment indicatorindicatorapproach.approach.

Expense all R&D.Expense all R&D. Cost method for associates and JVs.Cost method for associates and JVs. Income taxesIncome taxes simplified method.simplified method.


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IASB ApproachIASB Approach Recognition and measurementRecognition and measurement

simplifications, page 2 of 2simplifications, page 2 of 2

Less fair value for agricultureLess fair value for agriculture onlyonlyif readily determinable withoutif readily determinable without

undue cost or effort.undue cost or effort. Defined benefit plansDefined benefit plans principleprinciple

approach, no corridor tests.approach, no corridor tests.

ShareShare--based paymentbased payment intrinsicintrinsic

value.value. FirstFirst--time adoptiontime adoption less prior data.less prior data.

LeasesLeases simplified calculations.simplified calculations.


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Other IssuesOther Issues

Suitability for microSuitability for micro--SMEs (tiny)SMEs (tiny) Yes, definitely.Yes, definitely.

Full IFRSsFull IFRSs are required forare required formicros in about 25 countries andmicros in about 25 countries and

permitted in another 50permitted in another 50countries.countries.

Issue is whether micro preparesIssue is whether micro preparesgeneral purpose financialgeneral purpose financial

statements that present fairlystatements that present fairlyposition, performance, and cashposition, performance, and cashflows.flows.


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RejectedRejected SimplificationsSimplifications

Drop the cash flow statement.Drop the cash flow statement.

All leases operating.All leases operating.

All pension plans defined contribution.All pension plans defined contribution.

Completed contract only.Completed contract only.

Fewer provisions.Fewer provisions.

NonNon--recognition of sharerecognition of share--based payment.based payment.

NonNon--recognition of deferred taxes.recognition of deferred taxes.

Cost model for all agriculture.Cost model for all agriculture. No consolidation.No consolidation.

Derivatives at cost.Derivatives at cost.


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The Effort: Due ProcessThe Effort: Due Process

Comprehensive due process,Comprehensive due process,including:including:

Discussion paper (June 2004).Discussion paper (June 2004).

Recognition and measurement (R&M)Recognition and measurement (R&M)

questionnaire (April 2005).questionnaire (April 2005).

Public roundtables on R&M (Oct. 2005).Public roundtables on R&M (Oct. 2005).

Working Group (35 members).Working Group (35 members).

Deliberations at over 30 BoardDeliberations at over 30 Boardmeetings.meetings.

Roundtables on ED (ongoing).Roundtables on ED (ongoing).


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MaintenanceMaintenance

Maintaining the IFRS for SMEs:Maintaining the IFRS for SMEs: Update the IFRS for SMEsUpdate the IFRS for SMEs

every 2 years, if needed.every 2 years, if needed.

Omnibus Exposure Draft.Omnibus Exposure Draft.


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Exposure DraftExposure Draft

Board vote to issue the ED: 13 to 1Board vote to issue the ED: 13 to 1 Comment deadline 1 October 2007.Comment deadline 1 October 2007.

French, Spanish, German translationsFrench, Spanish, German translations April 2007.April 2007.

EDED 254 pages254 pages

Implementation GuidanceImplementation Guidance 80 pages80 pages

Model financial statementsModel financial statements

Disclosure checklistDisclosure checklist

Basis for ConclusionsBasis for Conclusions 48 pages48 pages


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Invitation to comment at frontInvitation to comment at frontof the ED raises 11 questions.of the ED raises 11 questions.

Of course, comments areOf course, comments are

invited on any issues in the ED.invited on any issues in the ED.


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Next steps:Next steps: Continued roundtables withContinued roundtables with

SMEs, small audit firms, andSMEs, small audit firms, and

national standard setters.national standard setters. Field tests and/or visits to SMEs.Field tests and/or visits to SMEs.

Final StandardFinal Standard 1H 2008.1H 2008.

EffectiveEffective whenever adoptedwhenever adoptedlocally.locally.


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Public CommunicationPublic Communication

RoundRound--table meetings already held:table meetings already held:EU Parliament (x2), CAPA (20 countries,EU Parliament (x2), CAPA (20 countries,x2), World Bank, COSRA (32 countries,x2), World Bank, COSRA (32 countries,x2), SAFA (7 countries), IFAC Board andx2), SAFA (7 countries), IFAC Board andCEOs, IFAC SMP, WSS (x4), FEE, EFRAG,CEOs, IFAC SMP, WSS (x4), FEE, EFRAG,EC staff, ECB, ACCA, FASB, WCOA,EC staff, ECB, ACCA, FASB, WCOA,UNCTAD, FR, CA, Nordic, NL, IN, UK, HK,UNCTAD, FR, CA, Nordic, NL, IN, UK, HK,MT, MY, KG, FI, DE, TT, TH, SE, AUMT, MY, KG, FI, DE, TT, TH, SE, AU

Organised next few months:Organised next few months:

ECB, FR, ES, UK, PL, CH, SG, HU, IFACECB, FR, ES, UK, PL, CH, SG, HU, IFACDev Nations, IE, NL, DE/BDI, CAPA,Dev Nations, IE, NL, DE/BDI, CAPA,ECSAFA, IN/SAFA, MX/Latin AmericaECSAFA, IN/SAFA, MX/Latin America


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ASTF Can Help Us!ASTF Can Help Us!

Comments on the ED:Comments on the ED: How to disseminate the ED toHow to disseminate the ED to

SMEs and small audit firms inSMEs and small audit firms in

your jurisdiction?T

hey generallyyour jurisdiction?T

hey generallydo not get involved in IASBdo not get involved in IASBproposals.proposals.

Respond to ED and encourageRespond to ED and encourage

your constituents to respond.your constituents to respond.


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We welcome your critique ofWe welcome your critique ofthe ED. We want to know:the ED. We want to know:

Have we taken out too much fromHave we taken out too much from

IFRSs?IFRSs? Whats missing?Whats missing? Not enough?Not enough? What else?What else?

Did we get it about right?Did we get it about right?

Does it meet your informationDoes it meet your informationneeds?needs?

Perhaps review model F/S.Perhaps review model F/S.


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Consider whether and how theConsider whether and how theIFRS for SMEs could be adoptedIFRS for SMEs could be adoptedin your jurisdiction:in your jurisdiction:

Which companies?Which companies?

Are there unique local issues thatAre there unique local issues thatshould be addressed?should be addressed?

Relationship with existing SMERelationship with existing SMEstandards?standards?

Possible timing of transition?Possible timing of transition?


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Discussion time.Discussion time.

EXPRESSIONS OF INDIVIDUAL VIEWS BYMEMBERS OF THE IASB AND ITS STAFF AREENCOURAGED. THE VIEWS EXPRESSED INTHIS PRESENTATION ARE THOSE OF DR.PACTER. OFFICIAL POSITIONS OF THE IASBON ACCOUNTING MATTERS ARE DETERMINED

ONLY AFTER EXTENSIVE DUE PROCESS ANDDELIBERATION.

item 4.1 - iasb sme project

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