Full Pfrs vs. Pfrs for Smes

Diaz Murillo Dalupan and Company

Full IFRS vs. PFRS for SMEs Atty. Bethuel V. Tanupan CPA, CMA, DipIFRS, DipIFRS, MM Partner for Technical Standards


Seminar Outline • Full IFRS vs IFRS for SMEs – Accounting Framework and first-time adoption – Financial Statements – Income and Expenses – Financial Assets & Liabilities – Non-financial assets – Non-financial liabilities and equity – Other Topics

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Accounting Framework and firsttime adoption IFRS for SMEs

Scope

No public accountability Small listed entities not included.


Full IFRS Apply to all entities that issue general purpose FS.

Accounting Framework and first-time adoption

• Publicly accountable entities – Files or is in the process of filing FS with SEC or other regulatory organizations for the purpose of issuing any class of instrument in a public market – Holds assets in a fiduciary capacity for a broad group of outsiders • (banks, insurance companies, securities brokers and dealers, pension funds.

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IFRS for SMEs Measurement bases

Usually historical cost subject to impairment. Fair Value on certain accounts.


Full IFRS Include historical cost, current cost, realizable value, present value.


• Fair Value Measurement – IFRS for SMEs • Certain categories of financial instruments • Investments in associates and joint ventures • Investment property and agricultural assets

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

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Accounting Framework and first-time adoption IFRS for SMEs

First time adopter

Presents its first Presents its first annual FS that annual FS that conform with IFRS conform to IFRS. for SMEs regardless of whether its previous framework was full IFRS.


Accounting Framework and first-time adoption IFRS for SMEs

Date of transition

Full IFRS

The beginning of the earliest period for which full comparative information is presented in accordance with IFRS for SMEs

Full IFRS The beginning of the earliest period for which full comparative information is presented in accordance with full IFRS.

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



• Mandatory exceptions from retrospective application (no change in accounting policy) – Derecognition of financial assets and liabilities – Hedge accounting – Estimates – Discontinued operations – Measuring non-controlling interests

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• Some optional exemptions from retrospective application (See IFRS FOR SMEs 35.10) – FV or revaluation as deemed cost for PPE, investment property or intangible assets. – Deferred income tax – Arrangements containing a lease



• General exemption from retrospective application – – On the ground of impracticability. • Impracticable is defined as when the entity cannot apply it after making every reasonable effort to do so.

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Financial Statements IFRS for SMEs

Combined statement of income and retained earnings

Allowed if the only changes to equity of an entity are a result of profit or loss, payment of dividends, correction of prior period errors or change in accounting policy


Not allowed.

Income and Expenses IFRS for SMEs

Borrowing costs

Full IFRS

All borrowing costs are expensed.

Full IFRS Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying asset as part of the cost of that asset are capitalized.

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Actuarial Gains and Losses

Recognized in FULL in profit or loss or in other comprehensive income (without recycling) in the period in which they occur.


May be recognized immediately or amortized into P/L over a period not exceeding the expected remaining working lives of participating employees


Past Service Costs

Full IFRS

Recognized in FULL in profit or loss in the period in which they occur

Full IFRS Recognized as an expense on a SL basis over the average period until the plan amendments vest.

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Financial Assets and Liabilities IFRS for SMEs

Full IFRS

Categories Basic and complex FVTPL financial Held to maturity instruments investments Loans and receivables Available-for-sale financial assets



Examples of basic and more complex financial instruments

Full IFRS

Basic: Cash, Trade Not applicable accounts and Notes receivable/payable , Loans from banks/3rd parties, Commercial Paper, Bonds

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Examples of basic and more complex financial instruments

COMPLEX: Asset-backed securities and repurchase agreements. Options, rights, warrants, futures, forward contracts and interest rate swaps that can be settled in cash or by exchaging another financial instrument. Hedging instrument. Commitments to make a loan to another entity. Investments in another entity’s equity instrument. Investment in covertible debt.


Full IFRS Not applicable


Transaction price Initial measurement (including transaction

costs unless the instrument is measured at FVTPL). If payment is deferred or is financed by an interest rate that is not a market rate, PV of the future payments

Full IFRS Fair Value plus transaction cost. Fair value is normally the transaction price, unless part of the consideration is for something other than a financial instrument or the instrument bears an off-market interest rate.

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Subsequent measurement

IFRS for SMEs

Full IFRS

Basic debt instruments are measured at amortized cost using the effective interest method. Investments in nonconvertible and nonputtable ordinary sahres or preference shares are measured at FVTPL if FV can be measured reliably, otherwise, cost less impairment.

Held for trading – FVTPL Held to maturity and loans and receivables – amortized cost. Financial liabilities other than FVTPL – amortized cost. Available for sale – FV to equity. Investment in equity securities whose FV cannot be measured – Cost less impairment.


Assets measured at cost less impairment

Financial Assets and Liabilities


Full IFRS

Impairment loss is the difference between the asset’s carrying amount and the best estimate of the amount that the entity would receive for the asset if it were to be sold.

Impairment loss is measured as the difference between the carrying amount of the financial asset and the PV of estimated future cash flows discounted at the current market rate of return for a similar financial assets.

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Non-Financial Assets IFRS for SMEs

Inventory – other cost

Borrowing cost is an expense.


Full IFRS Borrowing costs are included in the cost of inventories under limited circumstances as identified in IAS 23.


Investment Borrowing costs are recognized as property – initial expense. measurement

Full IFRS Borrowing cost that are directly attributable to the acquisition, construction or production of a qualifying asset are to be capitalized.

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PPE – initial Borrowing cost measurement are recognized as an expense.


Full IFRS Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are required to be capitalized as part of the cost of that asset


Full IFRS

PPE – Cost less subsequent accumulated measurement depreciation and any impairment losses (cost model).

Cost model or revaluation model.

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PPE – Components approach

IFRS for SMEs

Full IFRS

Cost of an item of PPE is allocated to its significant parts, with each part depreciated separately only when the parts have significantly different patterns of benefit or consumption.

Significant parts may have different useful lives. Depreciation is calculated based on each individual part’s life.


PPE – Depreciable amount, method and depreciation period

Non-Financial Assets


Full IFRS

Review depreciation method, residual value and useful life if there is an indication of change since the last reporting date and amended if expectations differ from previous estimates.

Review , depreciation method, residual value and useful life at least at each annual reporting date and amended if expectations differ from previous estimates.

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IFRS for SMEs Intangible asset – research and development costs

All research and development costs are recognized as expense.

Full IFRS Research costs are expensed as incurred. Development costs are capitalized when specific criteria are met.



IFRS for SMEs Cost model Intangible asset – measurement after initial recognition

Full IFRS Cost model or Revaluation Model.

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Intangible Considered to be asset – useful FINITE. life


Either FINITE or INFINITE


Intangible assets – with finite useful life

Full IFRS

Amortized on a systematic basis over the useful life. Useful life is presumed to be 10 years if a reliable estimate cannot be made. Review basis of amortization for any indication of change.

Full IFRS Amortize those with finite useful life. Review amortization method and residual value at least each annual reporting period.

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Intangible assets – with indefinite useful life

Not applicable. All intangible assets are considered to have finite lives.


Impairment of assets – annual assessment of indicators

Full IFRS Not amortized. Useful life is reviewed at each annual reporting period to determine whether events and circumstances continue to support an indefinite useful life assessment.


Full IFRS

Assets (including goodwill) are tested for impairment when there is an indication that the asset may be impaired. The existence of impairment indicaotrs is assessed at each reporting date.

The following are tested for impairment irrespective of whether there is indication of impairment: 1) Intangible asset with an indefinite useful life or an intangible asset not yet available for use. 2) Goodwill.

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Retirement benefits – measurement of defined contribution plans.

IFRS for SMEs

Full IFRS

Contribution payable for a period to the fund is recognized as a liability for a DC plan after deducting any amount already paid.

If the contributions to a DC Plan do not fall within 12 months after the end of the period, the future contributions are discounted.


Defined benefit liability

Non-Financial Liabilities and Equity

Non-Financial Liabilities and Equity IFRS for SMEs

Full IFRS

Net total of: PV of the DB obligation at the end of the reporting period Less that FV at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.

Net total of : PV of the DB obligation at the end of the reporting period. Plus/minus any actuarial gains/losses not recognized due to the corridor method. Minus any unrecognized past service cost. Minus the FV at the reporting date of the plan assets out of which the obligations are to be settled directly.

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Actuarial Valuation Method

IFRS for SMEs

Full IFRS

Projected unit credit method is required if the information that is needed to make such a calculation is already available, or can be obtained without undue cost or effort. If not, an alternative method is permitted in which future salary progression, future service, and possible mortality during an employee’s period of service are not considered.

Projected unit credit method is required for calculating DB obligations. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.


Expected return on plan assets

Non-Financial Liabilities and Equity


Full IFRS

No distinction between expected and actual report on plan assets. All changes in the fair value of plan assets are recorded in profit or loss.

Expected return on plan assets is based on market expectations at the beginning of the period for returns over the entire life of the related obligation. It reflects cahgnes in the fair value of plan assets as a result of actual contributions and benefits paid. The difference between actual and expected returns on plan assets is an actuarial gain or loss.

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Deferred tax – recognition and measurement

Valuation allowance is recognized so that the net carrying amount of the deferred tax asset equals the highest amount that is more likely than not to be recovered.


The concept of valuation allowance is not applicable. Instead, a deferred tax asset is only recognized to the extent that it is probable that there will be sufficient future taxable profit to enable recovery of the deferred tax asset. The net carrying amount of deferred tax asset is likely the same, but full IFRS does not require the disclosure of a valuation allowance.

Agriculture IFRS for SMEs

Recognition and measurement

Full IFRS

Measure biological assets at FV less cost to sell where such FV is readily determinable without undue cost or effort. Where FV is not used, the entity may use cost less any accumulated depreciation and any accumulated impairment loss.

Full IFRS Exemption from measurement at FV is only allowed if the FV cannot be measured reliably.

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Agriculture IFRS for SMEs

Recognition and measurement

The agricultural produce harvested from biological assets is measured at fair value less estimated cost to sell at the point of harvest. Gains or losses on initial recognition and from change in FV are recognized in profit or loss.

Full IFRS Exemption from measurement at FV is only allowed if the FV cannot be measured reliably.


• End of presentation.

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Full Pfrs vs. Pfrs for Smes

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