02. IFRS Accounting Standards And The IFRS For SMEs Accounting Standard

Question 1

What are the eligibility requirements for an entity to be considered an SME under the IFRS for SMEs standard?

Answer 1

1. Entity does not have public accountability.

That is, debt/equity instruments not traded in a public market nor is it planning on issuing instruments to be traded publicly or

It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses eg banks, insurance companies and securities brokers.

2. Entity publishes general purpose financial statements for external users.

Question 2

Give examples of 4 standards omitted from the SMEs standard.

Answer 2

1. Earnings per share (IAS 33)
2. Interim reporting (IAS 34)
3. Segmental reporting (IFRS 8)
4. Assets held for sale (IFRS 5)

If a standard is relevant to FS, the full IFRS standard must be applied.

Question 3

How does accounting for the following topics under full IFRS differ from the SMEs standard?

• investment property
• leases
• borrowing costs
• development costs

Answer 3

1. Investment property - Can be measured at cost or fair value under IAS 40 but under SMEs standard it can only be measured at fair value if it can be measured without undue cost.
2. Leases are recognised by lessees using single accounting model under IFRS 16 but under SMEs standard lessees must classify leases as operating (not in SOFP) or finance leases.
3. Borrowing costs (IAS 23) - on qualifying asset is recognised as part of the asset’s cost. Under SMEs standard, all borrowing costs are expensed.
4. Development costs may be classified as assets under IAS 38 but expenses under SMEs standard.

Question 4

How does accounting for the following topics under full IFRS differ from the SMEs standard?

• intangible assets
• defined benefit pension scheme
• financial assets
• revenue

Answer 4

1. Intangible assets can be measured under reval model under IAS 38 but only cost model allowed under SMEs standard.
2. IAS 19 says actuarial gains and losses on defined benefit pension scheme go to OCI but SMEs standard gives choice for P&L or OCI for all remeasurements.
3. Financial assets can be classified as amortised cost, FVTPL or FVTOCI depending on cash flow and business model tests and impairment requires expected loss model under IFRS 9. For SMEs, they can use amcost, FVTPL or one of the categories under IAS 39 and impairment requires incurred loss model.
4. Revenue under IFRS 15 is recognised when control passes but for SMEs is based on IAS 17 and focuses on risks and rewards, measurement at FV of consideration received(able).