64thanc tech 14 ifrs for smes

8/4/2019 64thanc Tech 14 Ifrs for Smes

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PICPA 64th Annual National Convention

IFRS for SMEs


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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009

Slide 2

Notice

The information presented herein is the property of Isla Lipana & Co., a

member firm of PricewaterhouseCoopers. Such information is provided forgeneral guidance and not to be used as a substitute for reading the respective

Philippine Financial Reporting Standards, Philippine Standards on Auditing or

Philippine Interpretations and do not constitute any type of professional

advice. Unauthorized use of the information may violate copyright, trademark

and other laws. Should this information be used for presentation purposes,

the user must retain all copyright, trademark, or other similar noticescontained in the original materials on any copies of the material.


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Slide 3

IFRS for SMEs Purpose and scope

Full IFRS was largely designed for the consolidated

statements of listed companies

Some parts of full IFRS are unnecessary, too complex ortoo expensive for other sorts of reporting: e.g.

unconsolidated statements or most unlisted companies

IFRS for SMEs, published in July 2009, is designed forthis other reporting

IFRS for SMEs


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Slide 4

IFRS for SMEs Purpose and scope

IFRS for SMEs

Entities

Listed Unlisted

Publicly

accountable

Not publicly

accountable


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Slide 5

IFRS for SMEs Definition of public accountability

Its debt or equity are traded in a public market

It is in the process of issuing instruments for trading in a

public market

It holds assets in a fiduciary capacity (banks, credit

unions, insurance companies, mutual funds, securities

brokers/dealers, investment banks)

IFRS for SMEs


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Slide 6

IFRS for SMEs Overview

IFRS for SMEs is 230 pages long (plus illustrative financial

statements, presentation and disclosure checklist and

basis for conclusions)

There are 35 sections on various accounting topics, plus

a preface and a glossary

Amendments are expected every 3 years

IFRS for SMEs


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Slide 7

IFRS for SMEs Overview

Topics not relevant for small companies were omitted

- earnings per share;

- interim financial reporting;

- segment reporting; and

- accounting for assets held for sale

IFRS for SMEs


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Slide 8

Agenda

Basic Concepts

Assets

Liabilities

Financial Instruments

Revenue and Group Accounting

Transition

IFRS for SMEs


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Basic Concepts


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Slide 10

IFRS for SMEs Fundamental Elements

As with the IFRS Framework, the two fundamental elements of

accounting are:

An assetis a resource controlledby the entity as a result

of past events and from which future economic benefitsare expected to flow to the entity.

A liabilityis apresentobligation of the entity arising from

past events, the settlement of which is expected to result

in an outflow from the entity of resources embodyingeconomic benefits.

Basic Concepts


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Slide 11

IFRS for SMEs Other principles

Going concern assumptions

Frequency of reporting

Consistency

Comparative information

Materiality and aggregation

Substance over form

Basic Concepts


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Slide 12

IFRS for SMEs Financial Statements

Statement of Financial Position (balance sheet)

Statement of Comprehensive Income (can show 1 statement

approach or 2 statement approach)*

Statement of Changes in Equity*

Statement of Cash Flows

Notes to the financial statements

* If an entity only has changes in owners equity, it can show a

Statement of Income and Retained Earnings

Basic Concepts


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Slide 13

IFRS for SMEs Estimates, errors

Changes in estimates corrected prospectively

Errors and changes in accounting policies correctedretrospectively

Basic Concepts


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Slide 14

IFRS for SMEs Subsequent Events

Adjusting events: evidence on conditions that already existed

at the end of the reporting period

Non-adjusting events: conditions that arose after the end of

the reporting period

Basic Concepts


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Assets


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Slide 16

Inventories

Cost Estimated selling price

less costs to complete

and sell

Lower of:

Assets

Inventories


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Slide 17

Inventories

Costs include purchase price, taxes, conversion and other

costs, overhead, but not borrowing costs.

LIFO is prohibited.

Assess impairment at each reporting date.

Impairment assessed on each item or group of similar items

Assets


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Slide 18

PP&E

CostRevaluation

Assets

Property, plant and equipment

x


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Slide 19

Property, plant and equipment

Costs include purchase price, taxes, installation, estimate of

dismantling (ARO), but not borrowing costs

Component depreciation

Review residual value, depreciable life, and method only

when there are indications that this is necessary.

Reduced disclosure comparative disclosure on movement

not required.

Assets


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Slide 20

Investment Property

Fair Value At cost, but classified as

PPE

FV can be obtained

without undue cost oreffort

Assets

Investment Property

YES NO


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Slide 21

Borrowing Costs

All borrowing costs (on construction or purchase of

qualifying assets or otherwise) are recognized as

expense as incurred.

Assets


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Slide 22

Leases

Transfers substantially all therisks and rewards of the assetto the lessee

Expense/income on astraight-line basis,unless payment is inline with expectedinflation.

Leases

Finance lease Operating lease

Assets


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Slide 23

Intangible assets

CostRevaluation

Assets

Intangible assets

x


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Slide 24

Intangible assets

Amortization over estimated life, or (if no reliable estimate)maximum of 10 years.

Straight-line unless another pattern is more reliable

Residual value is zero unless there is evidence of value

Review amortization periods and methods only when there is

indication of significant changes in circumstances.

All R&D costs are expensed as incurred.

Assets


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Slide 25

Impairment of Assets

Inventories assessed at each reporting date

Other assets measured at cost are assessed for impairment

only when there is an indication of impairment

Indications include: obsolescence or physical damage,

adverse changes to entity, fall in value of asset

Impairment losses charged to P&L

Impairment losses can be reversed (except goodwill) if

circumstances change

Assets


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Slide 26

Biological assets

Fair Value Cost less depreciation

and amortization

FV can be obtained


Assets

Agriculture

YES NO


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Liabilities


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Slide 28

Liabilities vs. Equity

Liabilities include some shares, for example:

- mandatory dividend, or

- mandatory redemption, or

- optional redemption by holder for fixed amount

Convertible debt shall be split by issuer into liability and equity

components

Treasury shares shown as deduction from equity

Liabilities


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Slide 29

Provisions

Liabilities of uncertain timing or amount are recognized when:

- past event

- present obligation

- future outflow that

- is probable and

- can be estimated reliably

Liabilities


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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 30

Defined Benefit Plans

PUC, actuarial

methodSimpler method; certain

assumptions are ignored

Actuarial can be obtained


Liabilities

Employee Benefits

YES NO


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Employee Benefits

No corridor approach for actuarial gains or losses

Discount rate to be used similar with PAS 19

Does not require an actuary to be engaged

Past service costs, curtailment or settlements are recognized

in P&L in the period in which they occur.

Actuarial may not be necessary annually. Roll-forward

method is allowed, taking into account changes in number of

employees and salaries, without changing other assumptions

like turn-over or mortality rates.

Liabilities


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IFRS for SMEs IAS 39



or

Basic Others


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Financial Instruments, continued

Basic instruments include:

- cash

- receivables and payables

- bonds (fixed amount & fixed or variable return)

- non-puttable ordinary or preference shares

Others include:

- derivatives, such as options, forward contracts or interest rate swaps

- investments in convertible debt

IFRS for SMEs


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Financial Instruments - basic

Initial measurement:

- transaction price (including costs, except for items held at fair value)

- DCF for financing transactions

Subsequent measurement:

- current assets/liabilities: undiscounted flows

- debt at amortized cost

- shares at fair value if listed or reliable fair value (changes to P&L)

- others at cost

Impairment applies, except to those at fair value

IFRS for SMEs


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Financial Instruments - Others

Initial measurement at fair value (normally transaction priceexcluding costs)

Subsequent measurement at fair value, except equity

instruments with no reliable fair value

Gains and losses to profit or loss



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Revenue

Revenue is measured as fair value of consideration receivedor receivable, net of sales taxes.

For deferred inflows, the fair value is discounted receipts.

Sales of goods recognized on transfer of the significant risks

and rewards to buyer.

When outcome can be measured reliably, revenue on service

transactions and construction contracts should be taken bystage of completion.



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Isla Lipana & Co., a member firm of PricewaterhouseCoopers

December 1, 2009

Slide 39

Investments in associates and joint ventures

Measured either at:

- Cost

- Equity Method

- Fair value

All investments in quoted shares (listed) should be carried at

FV



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December 1, 2009

Slide 40

Business Combinations

All business combinations are treated using purchase methodof accounting

Cost of combination is the FV of consideration plus costs

Goodwill is the difference between cost and FV of net assets

and contingent liabilities acquired

Goodwill should be amortized over its useful life or 10 years if

no reliable estimate

Negative goodwill in P&L immediately



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Transition


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December 1, 2009

Slide 42

Transition

Considered as first-time adopter of IFRS for SMEs

Apply to opening B/S at date of transition

Generally retrospective except: estimates, derecognition offinancial liabilities, and hedge accounting

Optional exemptions (business combinations, share-based

payments)

Provide a reconciliation from previous equity and profit and

loss

Transition


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2009 Isla Lipana & Co. All rights reserved. Isla Lipana & Co. is the Philippine member firm of the

PricewaterhouseCoopers global network. PricewaterhouseCoopers refers to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Thank you

Isla Lipana & Co.

A member firm of

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December 1, 2009

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