IFRS for SMEs Comparison

IFRS for small and medium-sized entitiesA comparison with IFRS the basics

Introduction 3Chapter one Preparation and presentation of financial statements 4Chapter two Business combinations and group financial statements 26Chapter three Elements of the statement of financial position 52Chapter four Elements of the statement of comprehensive income 102Chapter five Transition to the IFRS for SMEs 114Contents by section 118

Contents

IntroductionShortly after its inception in 2001, the International Accounting Standards Board (IASB) started a project to consider reporting issues for small and medium-sized entities (SMEs). Following a Discussion Paper in 2004, and an Exposure Draft in 2007, the IFRS for SMEs standard was issued in July 2009.

Possibly the greatest shift in the final standard was that the IASB considered this to be a stand-alone standard that is separate from full IFRS (full IFRS is the collective term used for all other standards and interpretations issued by the IASB). In this guide, we take a top-level review of the IFRS for SMEs standard and provide an overview of the differences between IFRS for SMEs and full IFRS. In addition, we provide a commentary of the possible effects that the adoption of IFRS for SMEs may have on a reporting entity, if its previous generally accepted accounting principles (GAAP) had been full IFRS.

It would be near impossible to produce a publication that compares two broad sets of accounting frameworks and includes all differences that could arise in accounting for the myriad of business transactions that could possibly occur. The existence of any differences and their materiality to an entitys financial statements depends on a variety of specific factors including: the nature of the entity; the detailed transactions it enters into; its interpretation of accounting principles; its industry practices; and its accounting policy elections where IFRS for SMEs and IFRS offer a choice. Therefore, this guide focuses on the recognition and measurement differences expected to arise most frequently and, where applicable, provides an overview of how and when those differences are expected to arise. It does not include a full comparison of the different disclosure requirements of IFRS for SMEs compared to full IFRS.

The sections in the standard have been grouped into similar topics, such as presentation issues, statement of financial position, etc. All IFRS for SMEs sections are compared with the relevant full IFRS standards and interpretations as contained in the 2010 bound version published by the IASB.

The impact assessment from comparing these two frameworks is based on current documentation and interpretations. As the IFRS for SMEs standard is new to reporting entities, interpretations and practices will develop over time. This may lead to the identification of additional impacts that should be considered by entities adopting this standard.

As full IFRS has been compared with many other local GAAPs, it is hoped that this comparison may also provide some insight into the implication of transitioning from a reporting entitys local GAAP (if not IFRS) to IFRS for SMEs. In planning a possible move to IFRS for SMEs, it is important that entities monitor the IASBs agenda in respect of the IFRS for SMEs standard, as well as the development of international interpretation and practice.

Overall, this guide is intended to help preparers, users and auditors to gain a general understanding of the similarities and key differences between IFRS and IFRS for SMEs. We hope you find this guide a useful tool for that purpose.

April 2010

INTRODUCTION 3

Preparation and presentation of financial statements

Chapter one

Preparation and presentation of financial statements CHAPTER ONE 5

Executive summaryIn this chapter, we compare the following sections of the IFRS for SMEs with the relevant standard under full IFRS.

The concepts and principles of IFRS for SMEs are based on the Framework for the Preparation and Presentation of Financial Statements (the Framework) and therefore are very similar to full IFRS. Likewise, the statements needed to comprise a complete set of financial statements under IFRS for SMEs are also very similar to that required by IFRS. The most significant difference in the presentation of financial statements for SMEs is that there are less disclosure requirements in some instances. IFRS for SMEs also permits some of the statements required to be omitted or merged with other statements under certain circumstances, which will reduce the disclosure requirements for SMEs. The detailed requirements are set out in the following pages.

IFRS for SMEs IFRS

Section 1 Small and Medium-sized Entities IAS 1 Presentation of Financial Statements

Section 2 Concepts and Pervasive Principles Framework for the Preparation and Presentation of Financial Statements

Section 3 Financial Statement Presentation IAS 1 Presentation of Financial Statements

Section 4 Statement of Financial Position IAS 1 Presentation of Financial Statements

Section 5 Statement of Comprehensive Income and Income Statement

IAS 1 Presentation of Financial Statements

Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings

IAS 1 Presentation of Financial Statements

Section 7 Statement of Cash Flows IAS 7 Statement of Cash Flows

Section 8 Notes to the Financial Statements IAS 1 Presentation of Financial Statements

Section 10 Accounting Policies, Estimates and Errors

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Section 32 Events after the End of the Reporting Period

IAS 10 Events after the Reporting Period

Section 33 Related Party Disclosures IAS 24 Related Party Disclosures

Section 31 Hyperinflation IAS 29 Financial Reporting in Hyperinflationary Economies

6 CHAPTER ONE Preparation and presentation of financial statements

Section 1: Small and medium-sized entities

IFRS for SMEsSection 1 Small and Medium-sized Entities

IFRSIAS 1 Presentation of Financial Statements

Impact assessment

Scope

An SME is defined as an entity that:

Does not have public accountability and

Publishes general-purpose financial statements for external users.

Public accountability is further defined as an entity that:

Has debt or equity instruments traded in a public market (or it is in the process of issuing such instruments) or

Holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.

An entity applies IAS 1 when preparing and presenting general-purpose financial statements in accordance with IFRS.

The scope of IFRS for SMEs restricts its use only to entities that meet the definition of an SME. The standard clearly states that entities that do not meet the definition of an SME cannot claim compliance with IFRS for SMEs, even if they are permitted or required to do so in their jurisdiction.

Furthermore, guidance is provided in IFRS for SMEs that subsidiaries within a group may apply the standard irrespective of whether the parent and group report under full IFRS. As this potentially would require a dual reporting system for statutory and group purposes, it may not be favoured by such entities.


Section 2: Concepts and pervasive principles

IFRS for SMEsSection 2 Concepts and Pervasive Principles

IFRS Framework for the Preparation and Presentation of Financial StatementsIAS 1 Presentation of Financial Statements

Impact assessment

Objective of financial statements

The objective of the financial statements of an SME is to provide information about the financial position, financial performance and cash flows of the entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs.

Financial statements also show the results of the stewardship of management.

The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions.

Financial statements also show the results of managements stewardship of the resources entrusted to it.

There is no difference in the objectives of a set of financial statements under both bases of accounting.

The basis for conclusions states that the users of financial statements of an SME have different needs to non-SMEs. In writing the standard, these differences were taken into account.

Qualitative characteristics

The qualitative characteristics of financial statements listed in the standard are:

Understandability Relevance Materiality Reliability Substance over form Prudence Completeness Comparability Timeliness Balance between benefit and cost.

The Framework lists similar qualitative characteristics and considerations as IFRS for SMEs. In addition, the Framework deals with the following issues:

Faithful representation Balance between the qualitative characteristics.

The Framework considers each of the qualitative characteristics in more detail than IFRS for SMEs. However, both IFRS for SMEs and the Framework are consistent in their underlying messages. No difference in interpretation would be expected in this regard.

Elements of financial statements

In the statement of financial position, the elements are defined as assets, liabilities and equity.

For the purposes of performance, the elements described are income and expenses.

In the statement of financial position, the elements are defined as assets, liabilities and equity.

For the purposes of performance, the elements described are income and expenses.

Furthermore, the Framework considers capital maintenance adjustments.

IFRS for SMEs is an abbreviated version of the Framework. The fact that capital maintenance adjustments are not dealt with in the standard should not pose any problem as specific IFRS standards do not deal with these concepts.

Overall, no differences would be expected in the interpretation of the standards.


Section 2: Concepts and pervasive principles continued

IFRS for SMEsSection 2 Concepts and Pervasive Principles

IFRS Framework for the Preparation and Presentation of Financial StatementsIAS 1 Presentation of Financial Statements

Impact assessment

Recognition of elements

The underlying recognition criteria of the elements of financial statements are that:

It is probable that any future economic benefit associated with the item will flow to or from the entity

The item has a cost or value that can be measured reliably.

The standard further considers the probability of future economic benefit and reliability of measurement. Thereafter, the recognition of assets, liabilities, income, expense and total comprehensive income/profit and loss is considered.

The underlying recognition criteria of the elements of financial statements are that:

It is probable that any future economic benefit associated with the item will flow to or from the entity

The item has a cost or value that can be measured reliably.

The Framework further considers the probability of future economic benefit and reliability of measurement. Thereafter, the recognition of assets, liabilities, income and expense is considered.

IFRS for SMEs follows the IFRS Framework in terms of recognition issues, albeit an abbreviated version.

No differences would be expected in the application of the sections of the standard compared to the full IFRS standard.

Measurement

IFRS for SMEs specifies two common measurement bases, which are amortised historical cost and fair value. In most cases the standard specifies which measurement must be used in different sections.

The Framework considers different measurement bases that may be used in the determination of monetary amounts of elements in the financial statements.

Although the approach taken by IFRS for SMEs is more prescriptive than the Framework, in practice, reporters under full IFRS usually restrict measurement to amortised cost and fair value.

Accrual basis

An entity must prepare its financial statements, except for cash flow information, using the accrual basis of accounting.

An entity prepares its financial statements (other than the cash flow statement) using the accrual basis of accounting.

No differences are expected on the application of the accrual basis.

Offsetting

The standard specifically disallows offsetting of assets and liabilities, and income and expense, unless required or permitted in the relevant section.

IAS 1 contains specific disclosures in respect of offsetting of assets and liabilities, and income and expense.

No differences would be expected between the two bases of accounting.


Section 3: Financial statement presentation

IFRS for SMEsSection 3 Financial Statements Presentation


Impact assessment

Fair presentation

In considering fair presentation, IFRS for SMEs requires faithful representation and use of the definitions and recognition criteria in section 2.

Furthermore, it concludes that application of the standard (with additional disclosures where necessary) would result in fair presentation if the entity does not have public accountability.

IAS 1 requires fair presentation in the financial statements of an entity. Specific reference is made to the definitions and recognition criteria of the Framework in achieving this goal.

Compliance with the standards would result in fair presentation. Furthermore, achieving fair presentation may involve the selection of accounting policies using the hierarchy in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, providing information in a manner consistent with the qualitative characteristics and additional disclosures where necessary.

Both bases of accounting have similar requirements when considering fair presentation. No differences would be expected in terms of fair presentation.

Compliance

Entities that apply this standard must claim compliance with IFRS for SMEs.

In extremely rare circumstances when management concludes that compliance with the standard would be so misleading that it would conflict with the objective of financial statements of SMEs, they must depart from the standard. Special disclosures are required.

Entities that apply IFRS standards must state compliance with IFRS.

In extremely rare circumstances when management concludes that compliance with a requirement in IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity must depart from the standard. Special disclosures are required.

This requirement is similar and will ultimately be the differentiator between financial statements that are prepared under full IFRS and IFRS for SMEs.

It is envisaged that these deviations would be extremely rare, as has been the case under full IFRS.

No differences are expected in the application of these requirements.

Going concern

Entities are required to make an assessment as to whether they are a going concern. Any material uncertainties regarding going concern need to be disclosed. If the financial statements are not prepared on a going concern basis, this fact and the basis of preparation needs to be disclosed.

Entities are required to make an assessment as to whether they are a going concern. An entity must prepare its financial statements on a going concern basis, unless the assessment indicates otherwise. Any material uncertainties regarding going concern assessment need to be disclosed. If the financial statements are not prepared on a going concern basis, this fact and the basis of preparation needs to be disclosed.

While the requirements appear to be similar, IFRS for SMEs (unlike full IFRS) is not specific in its requirements that financial statements should be prepared on the going concern basis. However, in reading the two paragraphs, it would be concluded that this was the intention.

No differences are expected in this regard.




Impact assessment

Frequency of reporting

Financial statements should be prepared at least annually. Certain disclosures are required if the reporting period is longer or shorter than a year.

Financial statements should be prepared at least annually. Certain disclosures are required if the reporting period is longer or shorter than a year.


Consistency of presentation

The presentation and classification of items in the financial statements must be consistent from period to period. Changes may only be made if there is a significant change to the entitys operations or the standard requires a change.

When presentation and classification is changed, comparatives should be similarly adjusted, unless impracticable. Specific disclosures are required for such changes.

The presentation and classification of items in the financial statements must be consistent from period to period. Changes may only be made if there is a significant change to the entitys operations or the standard requires a change.

When presentation and classification is changed, comparatives should be similarly adjusted, unless impracticable. Specific disclosures are required for such changes.


Comparative information

Comparative information is required (unless specifically stated otherwise) for all amounts disclosed. This is also required for narrative and descriptive information when it is relevant to an understanding of the financial statements.

Comparative information is required (unless specifically stated otherwise) for all amounts disclosed. This is also required for narrative and descriptive information when it is relevant to an understanding of the financial statements.


Materiality and aggregation

Each material class of similar items must be separately disclosed. The same is applicable to dissimilar items unless immaterial.

Each material class of similar items must be separately disclosed. The same is applicable to dissimilar items unless immaterial.


Section 3: Financial statement presentation continued




Impact assessment

Complete set of financial statements

A complete set of financial statements includes:

A statement of financial position A statement of comprehensive income (or a separate income

statement and statement of comprehensive income) A statement of changes in equity A statement of cash flows Notes comprising significant accounting policies and other

explanatory information.

If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement of comprehensive income and statement of changes in equity.

If there are no items of other comprehensive income in all periods, only an income statement need be presented.

A complete set of financial statements includes:

A statement of financial position A statement of comprehensive income A statement of changes in equity A statement of cash flows Notes comprising significant accounting policies and other

explanatory information A statement of financial position at the beginning of the

earliest comparative period when a retrospective change in accounting policy, restatement or reclassification occurs.

Essentially a set of financial statements is constructed on the same basis under full IFRS and IFRS for SMEs. The major difference is the third balance sheet which is a requirement of IFRS when retrospective changes have been performed but not required by IFRS for SMEs.

IFRS for SMEs also provides aggregation or omission of financial statements under certain circumstances. In this, the standard allows for a new concept the statement of income and retained income. Hence, there may be presentational differences in the items that constitute a set of financial statements.

Identification of financial statements

Clear identification of each of the financial statements is required, including the name of the entity, whether the financial statements are for a single entity or a group of entities, the date of the reporting period, the presentation currency and level of rounding.

Further requirements must be included in respect of domicile, incorporation, registered address and a description of operations and principle activities of the entity.

Clear identification of each of the financial statements is required, including the name of the entity, whether the financial statements are for a single entity or a group of entities, the date of the reporting period, the presentation currency and level of rounding.

Further requirements must be included in respect of domicile, incorporation, registered address and a description of operations and principle activities of the entity, name of parent entities and details in respect of limited life.

Other than the relief provided in terms of disclosures, there are no expected differences in this section.

Presentation of additional information

If segment information, earnings per share or interim financial statements are presented, an entity should disclose the basis of preparation.

Any other reports or statements presented outside the financial statements are outside the scope of IFRS (this would include environmental reports, etc.).

IFRS for SMEs does not require disclosure of certain items and therefore the financial statements will appear different in this respect.

Section 3: Financial statement presentation continued


Section 4: Statement of financial position

IFRS for SMEsSection 4 Statement of Financial Position


Impact assessment

Information to be presented

IFRS for SMEs provides a list of items that, as a minimum, should be disclosed on the face of a statement of financial position. Additional line items and subtotals are permitted.

IAS 1 provides a list of items that, as a minimum, should be disclosed on the face of a statement of financial position. Additional line items and subtotals are permitted.

Although differences exist between these two lists, it would be expected that, based on materiality and aggregation, the line items of a statement of financial position under IFRS for SMEs and full IFRS would be similar.

Current and non-current distinction

The statement of financial position presents current and non-current assets and liabilities separately unless presentation in order of liquidity is more reliable and relevant.

A definition of current assets and liabilities is provided.

The statement of financial position presents current and non-current assets and liabilities separately unless presentation in order of liquidity is more reliable and relevant. Whichever method is employed, disclosure must be made of amounts to be recovered/settled within 12 months and after 12 months of the reporting period.

A definition of current assets and liabilities is provided.

Other than the specific liquidity disclosures under full IFRS, no differences exist in respect of the requirements under IFRS for SMEs.

Additional information to be disclosed

Specific disclosures in respect of the following are required:

Sub-classification of certain asset and liabilities Specific share capital details (or changes in capital where

there are no shares) Binding sale agreements for a major disposal of assets

(or group thereof).

Specific disclosures in respect of the following are required:

Sub-classification of certain asset and liabilities Specific share capital details (or changes in capital where

there are no shares) Reclassification of puttable instruments.

There are certain differences between the requirements for additional disclosures.

In terms of the sub-classification, IFRS for SMEs requires disclosure related to trade and other payables. This must be analysed into trade suppliers, amounts due to related parties, deferred income and accruals.

IFRS for SMEs has no concept of puttable instruments. This is discussed in further detail in Chapter three, on financial instruments. It is possible that the entity could apply the financial instruments requirements of puttable instruments contained in full IFRS as a policy choice.


Section 5: Statement of comprehensive income and income statement

IFRS for SMEsSection 5 Statement of Comprehensive Income and Income Statement


Impact assessment

Presentation of total comprehensive income

A single-statement of total comprehensive income or two statements comprising an income statement and a statement of comprehensive income can be presented. Additional line items/sub-totals may be presented if relevant.

The standard also provides a list of minimum line items in the statements.

Furthermore, disclosure is required in respect of the non-controlling interest in profit and loss and total comprehensive income.

No item may be disclosed as extraordinary.

A single-statement of total comprehensive income or two statements comprising an income statement and a statement of comprehensive income can be presented. Additional line items/sub-totals may be presented, if relevant.

IAS 1 prescribes the minimum line items that need to be disclosed in a statement of comprehensive income.

In addition, non-controlling interests in profit and loss and total comprehensive income need to be disclosed.

No item may be described as extraordinary.

Although set out differently, the requirements of both bases of accounting should provide similar results for the presentation of the statement of comprehensive income (or income statement, if presented).

Other comprehensive income

There are three types of other comprehensive income:

Some gains and losses on foreign operations

Some actuarial gains and losses

Some changes in fair values of hedging instruments.

Other comprehensive income comprises items of income and expense that are not recognised in profit or loss (including revaluation surpluses, actuarial gains and losses, gains and losses on foreign operations, gains and losses on available for sale financial assets and gains and gains or losses on cash flow hedges).

Disclosures are required in respect of the taxation effects and any reclassification adjustments relating to components of other comprehensive income.

There is a potential mismatch between IFRS for SMEs and full IFRS in respect of other comprehensive income, as the definition implies that there are only three items of other comprehensive income permitted. However, there may be other types of other comprehensive income that will need to be considered, for example, the available for sale reserve if the SME elects to follow full IFRS for financial instruments.

Additional disclosures with respect to taxation effects have been removed from IFRS for SMEs.

Analysis of expenses

An entity may present an analysis of expenses based on the function or nature of the expenses. The decision is based on which methodology provides greater reliability and relevance.

An entity may present an analysis of expenses based on the function or nature of the expenses. The decision is based on which methodology provides greater reliability and relevance.

Material expenses, whether by nature or amount, must be separately disclosed.

No difference is expected in the application of these requirements.


Section 6: Statement of changes in equity and statement of income and retained earnings

IFRS for SMEsSection 6 Statement of Changes in Equity and Statement of Income and Retained Earnings


Impact assessment

Information to be presented

The statement of changes in equity must show:

Total comprehensive income analysed between owners of the parent and non-controlling interests

For each component of equity, the effects of retrospective restatement, profit or loss, items of other comprehensive income, and any investments by, and dividends and other distributions to, owners

Changes in ownership interests in subsidiaries that do not result in a loss of control.

The statement of changes in equity must show:

Total comprehensive income analysed between owners of the parent and non-controlling interests

For each component of equity, the effects of retrospective restatement, profit or loss, items of other comprehensive income, and any investments by, and dividends and other distributions to, owners

Changes in ownership interests in subsidiaries that do not result in a loss of control.

Dividends per share may be presented with this statement or in the notes to the financial statements.

No differences are expected in the presentation of the statement of changes in equity, other than for dividends per share.

Statement of income and retained earnings

A statement of income and retained income may be presented in place of the statement of comprehensive income and statement of changes in equity, if the only changes to equity comprise profit or loss, payment of dividends, corrections of prior year errors and changes in accounting policy.

If the statement of income and retained earnings is presented, it must include:

Retained earnings at the beginning of the period Dividends declared during the period Restatements of retained earnings for corrections or errors

and changes in accounting policy Retained earnings at the end of the period.

Not applicable. This new statement was included in IFRS for SMEs in order to assist entities where the only changes in equity are effectively in the retained income component of equity. Where this is the case, the standard combines the statement of comprehensive income (including income statement) with the statement of changes in equity.

Any SME that applies this will present a statement that is not permitted under full IFRS.


Section 7: Statement of cash flows

IFRS for SMEsSection 7 Statement of Cash Flows

IFRSIAS 7 Statement of Cash Flows

Impact assessment

Cash equivalents

Cash equivalents are short-term, highly liquid investments held to meet short-term cash commitments rather than for investment or other purposes.

Bank overdrafts may be included when repayable on demand and are an integral part of the entitys cash management.

Cash equivalents are held for meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value.

Overdrafts that are repayable on demand and form an integral part of an entitys cash management are included as a component of cash and cash equivalents.

Generally the concepts of cash equivalents are similar, however full IFRS includes a requirement that there is insignificant risk of changes in value. Therefore, under IFRS for SMEs, there is the possibility that certain marketable securities may meet the definition of a cash equivalent, but would fail under full IFRS. However, in practice differences are expected to be rare.

Statement of cash flows

Cash flows are presented as either operating, investing or financing cash flows. A list of examples is provided for each of these classifications.

Cash flows are presented as either operating, investing or financing cash flows. A list of examples is provided for each of these classifications.

No differences are expected in terms of classification of cash flows.

Cash flows from operating activities

Cash flows from operating activities may be presented using the indirect or direct methods.

Cash flows from operating activities may be presented using the indirect or direct methods.

No differences are expected in the presentation of operating cash flows.

Cash flows from investing and financing activities

Major classes of gross cash receipts and cash payments must be disclosed.

The aggregate cash flows on the acquisition or disposal of a business must be disclosed separately.

Major classes of gross cash receipts and cash payments must be disclosed, other than when a net basis of presentation is permitted. The standard provides the situations where a net basis of presentation would be acceptable.

The aggregate cash flows on the acquisition or disposal of a business must be disclosed separately.

IFRS for SMEs may be more onerous on preparers in respect of cash flows from investing and financing cash flows. The benefit of net presentation of certain cash flows under full IFRS has not been extended to SMEs.

Some relief is provided in respect of the disclosures relating to the acquisition or disposal of subsidiaries and business units.


IFRS for SMEsSection 7 Statement of Cash Flows

IFRSIAS 7 Statement of Cash Flows

Impact assessment

Foreign currency cash flows

Cash flows from transactions in a foreign currency are translated into the functional currency at the exchange rate at the date of the cash flow.

Cash flows in a foreign subsidiary are translated at rates between the functional currency and foreign currency at the date of the cash flow.

Interest and dividends

Cash flows from interest and dividends received or paid are presented separately. These are classified consistently from period to period as operating, investing or financing activities.

Income tax

Cash flows arising from income tax are presented separately. These are classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

Foreign currency cash flows

Cash flows from transactions in a foreign currency are translated into the functional currency at the exchange rate at the date of the cash flow.

Cash flows in a foreign subsidiary are translated at rates between the functional currency and foreign currency at the date of the cash flow.

Interest and dividends

Cash flows from interest and dividends received or paid are presented separately. These are classified consistently from period to period as operating, investing or financing activities.

Income tax

Cash flows arising from income tax are presented separately. These are classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

No differences are expected in respect of these specific types of cash flows.

Non-cash transactions

Any investing and financing transactions that do not require the use of cash or cash equivalents are excluded from the statement of cash flows.

Any investing and financing transactions that do not require the use of cash or cash equivalents are excluded from the statement of cash flows.

No differences are expected in respect of non-cash transactions.

Components of cash and cash equivalent

An entity is required to disclose the components of cash and cash equivalents and reconcile the amounts in the cash flow to the equivalent items in the statement of financial position. No reconciliation is required if cash and cash equivalents are presented as a single similarly described item in the statement of financial position.

An entity is required to disclose the components of cash and cash equivalents and reconcile the amounts in the cash flow to the equivalent items in the statement of financial position.

Other than the disclosure relief on the reconciliation, there should be no difference between the disclosure of cash and cash equivalents.

Other disclosures

Any cash or cash equivalents not available to the group (together with a commentary by management) must be disclosed.

Any cash or cash equivalents not available to the group (together with a commentary by management) must be disclosed.

No differences are expected.

Section 7: Statement of cash flows continued


Section 8: Notes to the financial statements

IFRS for SMEsSection 8 Notes to the Financial Statements


Impact assessment

Structure of the notes

The notes must:

Present information about the basis of preparation of the financial statements and the specific accounting policies used

Disclose the information required by other sections of the standard

Provide any other relevant information necessary to understand the financial statements.

Notes should be presented on a systematic basis.

The notes must:

Present information about the basis of preparation of the financial statements and the specific accounting policies used

Disclose the information required by other IFRS Provide any other relevant information necessary to

understand the financial statements.

Notes should be presented on a systematic basis.

There is no difference in respect of the presentation of notes. The primary benefit to SMEs will be that the quantum of disclosures required by other sections of the standard will reduce the overall amount of disclosable items.

Accounting policies

Disclosure in the summary of significant accounting policies includes:

The measurement basis (or bases) used in preparing the financial statements

The other accounting policies used that are relevant to an understanding of the financial statements.

Disclosure is also required in respect of significant judgments and major sources of estimation uncertainty.

Disclosure in the summary of significant accounting policies includes:

The measurement basis (or bases) used in preparing the financial statements

The other accounting policies used that are relevant to an understanding of the financial statements.

Disclosure is also required in respect of significant judgments and major sources of estimation uncertainty.

IFRS provides greater guidance in respect of these specific disclosures. However, this should not give rise to any particular differences in respect of these disclosures.


Section 10: Selection and application of accounting policies

IFRS for SMEsSection 10 Accounting Policies, Estimates and Errors

IFRSIAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Impact assessment

Selection of accounting policies

Where transactions, events and conditions are specifically dealt with, the standard must be applied.

In the absence of a section that applies, judgment is used to develop a policy that is relevant and reliable.

In making this judgment, reference is made to:

Sections of IFRS for SMEs that deal with similar or related issues

The definitions, recognition and measurement concepts in section 2.

Management may consider full IFRS that deal with similar or related issues.

Accounting policies must be applied consistently for similar transactions, events or conditions, unless a section specifies otherwise.

Where transactions, events and conditions are specifically dealt with in IFRS, the relevant standard must be applied.

In the absence of a section that applies, judgment is used to develop a policy that is relevant and reliable.

In making this judgment, reference is made to:

IFRSs that deal with similar or related issues The definitions, recognition and measurement concepts in the

Framework.Management may also consider recent pronouncements of other standard setters (accounting literature or industry practice) that use a similar conceptual framework.

Accounting policies must be applied consistently for similar transactions, events or conditions, unless IFRS specifies otherwise.

The selection of accounting policies that are not covered by IFRS for SMEs follows a similar hierarchy to full IFRS. However, the need to refer to full IFRS is not mandatory. The result may be that an SME could select policies that are not be permitted under full IFRS.

This could create a significant difference between financial statements prepared under IFRS for SMEs and full IFRS.

Changes in accounting policy

Changes in accounting policy may only be made:

When changes are made to the standard or

This results in more reliable and relevant information.

Changes in accounting policy must be applied:

As per the transitional provisions of changes to this standard As per the transitional provisions of changes to IAS 39, if an

entity has elected to follow it Where there are no transitional provisions on a retrospective

basis.

A retrospective application is applied to the earliest period presented and each comparative period as if the policy had always applied. Where it is impracticable to determine the period specific effect, the entity must apply the change in policy to the earliest period that it is practicable.

Changes in accounting policy may only be made:

When changes are made to an IFRS or

This results in more reliable and relevant information.

Changes in accounting policy must be applied:

As per the transitional provisions of changes to this standard (or IAS 39) or

Where there are no transitional provisions on a retrospective basis.

A retrospective application is applied to the earliest period presented and each comparative period as if the policy had always applied. Where it is impracticable to determine the period specific effect, the entity must apply the change in policy to the earliest period that it is practicable. When it is impracticable to determine the cumulative effect, the entity will apply the change in accounting policy prospectively from the date that it is practicable.

Applying a change in policy is generally similar under both accounting bases.


IFRS for SMEsSection 10 Accounting Policies, Estimates and Errors

IFRSIAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Impact assessment

Changes in accounting estimates

Changes in accounting estimates are applied prospectively by including in profit or loss, the effect of the change in:

The period of the change, if it is the only period affected or

The period of the change and subsequent periods, if the change affects both.

Changes in accounting estimates are applied prospectively by including in profit or loss, the effect of the change in:

The period of the change, if it is the only period affected or

The period of the change and subsequent periods, if the change affects both.

There is no difference in the application of a change in estimate in the financial statements under full IFRS and IFRS for SMEs.

Correction of prior period errors

Errors are corrected, to the extent practicable, on a retrospective basis by restating the comparative amounts for prior periods presented when the error occurred. If the error occurred before the earliest period presented, opening balances of the affected assets, liabilities and equity items are restated.

Where it is impracticable to determine the period specific effects of an error, the entity restates the opening balance of assets, liabilities and equity for the earliest period that it is practicable.

Errors are corrected, to the extent practicable, on a retrospective basis by restating the comparative amounts for prior periods presented when the error occurred. If the error occurred before the earliest period presented, opening balances of the affected assets, liabilities and equity items are restated.

Where it is impracticable to determine the period specific effects of an error, the entity will restate the opening balance of assets, liabilities and equity for the earliest period that it is practicable. When it is impracticable to determine the cumulative effect, the entity will restate the comparative information prospectively from the date that it is practicable.

Full IFRS provides additional relief in respect of retrospective application of errors when it is impracticable to establish the cumulative effect of an error.

Other than this difference, errors should be accounted for on a similar basis.

Section 10: Selection and application of accounting policies continued


Section 32: Events after the end of the reporting period

IFRS for SMEsSection 32 Events after the End of the Reporting Period

IFRSIAS 10 Events after the Reporting Period

Impact assessment

Definition

Events after the end of the reporting period are classified as:

Adjusting events when they provide evidence of a condition that existed at the end of the reporting period

Non-adjusting events when they are indicative of conditions that arose after the end of the reporting period.

Events after the end of the reporting period would include all events up to the date the financial statements are authorised for issue.

Events after the end of the reporting period are classified as:

Adjusting events when they provide evidence of a condition that existed at the end of the reporting period

Non-adjusting events when they are indicative of conditions that arose after the end of the reporting period.

Events after the end of the reporting period would include all events up to the date the financial statements are authorised for issue.

No differences are expected in the classification of adjusting and non-adjusting events after the end of the reporting period.

Recognition and measurement

An entity must adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the end of the reporting period.

An entity must not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the end of the reporting period.

An entity must adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the end of the reporting period.

An entity must not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the end of the reporting period.

No differences are expected in the treatment of adjusting and non-adjusting events.

Dividends

If an entity declares dividends to holders of its equity instruments after the end of the reporting period, the entity must not recognise those dividends as a liability at the end of the reporting period. However, the amount may be presented as a segregated component of retained earnings.

If an entity declares dividends to holders of equity instruments after the reporting period, the entity must not recognise those dividends as a liability at the end of the reporting period.

Although it has no effect on overall balances, IFRS for SMEs allows for the segregation of retained earnings in respect of dividends declared after the end of the reporting period (albeit that they are not recognised). Unless properly disclosed, this may create confusion between recognised and non-recognised dividends in the statement of changes in equity (or statement of changes in income and retained income).


Section 33: Related party disclosures

IFRS for SMEsSection 33 Related Party Disclosures

IFRSIAS 24 Related Party Disclosures

Impact assessment

Scope

This section requires entities to include in its financial statements the disclosures necessary to draw attention to the possibility that its financial position and profit or loss have been affected by the existence of related parties and by transactions and outstanding balances with such parties.

The standard must be applied in identifying:

a) Related party relationships and transactionsb) Outstanding balances between an entity and its related partiesc) Circumstances in which disclosure of these items is requiredd) Disclosures to be made about those items.

No differences are expected in scope.

Defnition

A related party is a person or entity that is related to the entity preparing its financial statements.

a) A person or close member of that persons family is related if that person: Is a member of the key management personnel Has control over the entity

or Has joint control or significant influence over the entity.

b) An entity is related to a reporting entity if any of the following apply: The entity and reporting entity are members of the same

group Either entity is an associate or joint venture of the other Both entities are joint ventures of a third entity Either entity is a joint venture of a third entity and the

other entity is an associate of the third entity The entity is a post-employment benefit plan for the benefit

of employees of the entity or any related entity The entity is controlled or jointly controlled by a person

identified in (a) A person identified in (a) (i) has significant voting power A person identified in (a) (ii) has significant influence A person has both significant influence and joint control A member of the key management personnel has control

or joint control over the reporting entity.

A party is related to an entity if:

a) Directly, or indirectly, the party: Controls, is controlled by, or is under common control

with the entity Has significant influence

or Has joint control

b) The party is an associate of the entityc) The party is a joint venture in which the entity is a venturerd) The party is a member of the key management personnele) The party is a close member of the family in (a) or (d) abovef) The party is an entity that is controlled, jointly controlled or

significantly influenced by an individual in (d) or (e)g) The party is a post-employment benefit plan for the benefit of

employees of the entity or any related entity.

No differences are expected in the identification of related parties.




Impact assessment

Subsidiary relationships

Relationships between a parent and its subsidiaries must be disclosed irrespective of whether there are any related party transactions.

Entities must disclose the name of the parent and the ultimate controlling party.

Relationships between a parent and its subsidiaries must be disclosed irrespective of whether there are any related party transactions.

Entities must disclose the name of the parent and the ultimate controlling party.

No differences are expected in the disclosure of subsidiary relationships.

Key management personnel compensation

An entity must disclose key management personnel compensation in total.

An entity must disclose key management personnel compensation in total and for each of the following categories:

a) Short-term employee benefitsb) Post-employment benefitsc) Other long-term benefitsd) Termination benefitse) Share-based payment.

The disclosure requirements for SMEs are significantly less onerous as there is no requirement to further analyse the total compensation for key management personnel.

Disclosures

At a minimum, entities must disclose the following regarding related party transactions:

a) The amount of the transactionsb) The amount of outstanding balances including:

Their terms and conditions Details of any guarantees

c) Provisions for uncollectible receivablesd) The expense recognised in the period for bad or doubtful

debts.

At a minimum, entities must disclose the following regarding related party transactions:

a) The amount of the transactionsb) The amount of outstanding balances including:

Their terms and conditions Details of any guarantees

c) Provisions for uncollectible receivables

d) The expense recognised in the period for bad or doubtfuldebts.

No differences are expected in the minimum disclosure requirements.

Section 33: Related party disclosures continued




Impact assessment

The above disclosures must be made separately for each of the following categories:

a) Entities with control, joint control or significant influence over the entity

b) Entities over which the entity has control, joint control or significant influence

c) Key management personneld) Other related parties.

The above disclosures must be made separately for each of the following categories:

a) The parentb) Entities with joint control or significant influence

over the entityc) Subsidiariesd) Associatese) Joint ventures in which the entity is a venturerf) Key management personnelg) Other related parties.

The related party transactions require less disaggregation for SMEs than under full IFRS, which may reduce the effort required.

An entity is exempt from the disclosure requirements above in relation to:

a) A state that has control, joint control or significant influence over the entity

b) Another entity that is a related party because the state has control, joint control or significant influence over both parties.

IAS 24 (as amended in November 2009) provides a similar exemption for state controlled entities. Although the above disclosures do not need to be made, the following must be disclosed:

a) The name of the government and the nature of its relationship with the reporting entity

b) The following in sufficient detail to allow users to understand the effect of the transactions: The nature and amount of each individually significant

transaction For other transactions that are collectively significant, a

qualitative or quantitative indication of their extent.

The disclosure requirements for SMEs are less onerous as there is no disclosure required in relation to state controlled entities.

Section 33: Related party disclosures continued


Section 31: Hyperinflation

IFRS for SMEsSection 31 Hyperinflation

IFRSIAS 29 Financial Reporting in Hyperinflationary Economies

Impact assessment

Scope

Applies to an entity whose functional currency is that of a hyperinflationary economy.

Applies to the financial statements of any entity whose functional currency is the currency of a hyperinflationary economy.

There is no difference in scope between IFRS for SMEs and full IFRS.

Indicators of hyperinflation

This section does not establish an absolute rate at which an economy is deemed hyperinflationary. An entity must make that judgment by considering all information available, using the given indicators of hyperinflation.

The standard does not establish an absolute rate at which hyperinflation is deemed to arise. Hyperinflation is indicated by characteristics of the economic environment of a country. The standard gives a number of indicators of hyperinflation, which are identical to those included in IFRS for SMEs.

There is no difference in the judgment of a hyperinflationary economy between IFRS for SMEs and full IFRS.

Restatement of financial statements

All amounts in the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy must be restated in terms of the measuring unit current at the end of the reporting period.

Comparative information for the previous period is also restated in terms of the measuring unit current at the reporting date.

The restatement requires the use of a general price index that reflects changes in general purchasing power.

The financial statements of an entity whose functional currency is the currency of a hyperinflationary economy, whether they are based on a historical cost approach or a current cost approach, are stated in terms of the measuring unit current at the end of the reporting period.

The corresponding figures for the previous period must also be stated in terms of the measuring unit current at the end of the reporting period.

The restatement requires the use of a general price index that reflects changes in general purchasing power.

The requirements to restate the financial statements are the same under IFRS for SMEs and full IFRS.

Gain or loss on net monetary position

An entity must include in profit or loss the gain or loss on the net monetary position.

The amount of gain or loss on monetary items must be disclosed.

The gain or loss on the net monetary position must be included in profit or loss and separately disclosed.

There is no difference between IFRS for SMEs and full IFRS.


IFRS for SMEsSection 31 Hyperinflation

IFRSIAS 29 Financial Reporting in Hyperinflationary Economies

Impact assessment

Economies ceasing to be hyperinflationary

When an economy ceases to be hyperinflationary, and an entity discontinues the preparation and presentation of financial statements in accordance with this section, it treats the amounts expressed in the presentation currency at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements.

When an economy ceases to be hyperinflationary, and an entity discontinues the preparation and presentation of financial statements in accordance with this standard, it treats the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements.

There is no difference between IFRS for SMEs and full IFRS.

Section 31: Hyperinflation continued

Business combinations and group financial statements

Chapter two

Business combinations and group financial statements CHAPTER TWO 27

Executive summaryIn this chapter, we consider business combinations and group financial statements and compare the following sections of the IFRS for SMEs with the relevant standard under full IFRS:

Whilst IFRS for SMEs applies a purchase method of accounting for business combinations, there are a number of differences between the accounting treatment under IFRS for SMEs and IFRS 3 Business Combinations. Perhaps the most significant difference is that goodwill is amortised over its useful life under IFRS for SMEs. Where this cant be reliably estimated, a useful life of 10 years is assumed. This is likely to significantly reduce the work required for preparers as impairment tests will only be required where there are indicators of impairment. The other key difference compared to full IFRS is that acquisition costs will be capitalised, resulting in higher goodwill balances being recorded.

IFRS for SMEs provides preparers with a wider choice of accounting treatment for interests in jointly controlled entities and associates. Whilst IFRS requires the use of the equity method in the consolidated accounts (or proportionate consolidation for JCEs), under IFRS for SMEs, entities can use the cost model, the equity method or the fair value model, which gives entities much greater flexibility to select a policy most appropriate to their business.

These differences may be significant to some entities that have large group structures or are highly acquisitive and therefore the different requirements should be considered prior to adopting IFRS for SMEs.

IFRS for SMEs IFRS

Section 19 Business Combinations and Goodwill IFRS 3 Business Combinations

Section 9 Consolidated and Separate Financial Statements

IAS 27 Consolidated and Separate FinancialStatementsSIC 12 Consolidation Special Purpose Entities

Section 15 Investments in Joint Ventures IAS 31 Interests in Joint Ventures

Section 14 Investments in Associates IAS 28 Investments in Associates

28 CHAPTER TWO Business combinations and group financial statements

Section 19: Business combinations and goodwill

IFRS for SMEsSection 19 Business Combinations and Goodwill

IFRSIFRS 3 Business Combinations

Impact assessment

Scope

This section is applicable to all business combinations, as defined in the standard. Furthermore, the section also addresses accounting for goodwill at the time of the business combination and subsequently.

This section specifically excludes combinations of entities or businesses under common control, the formation of joint ventures and the acquisition of a group of assets that does not constitute a business.

The standard applies to all transactions or other events that meet the definition of a business combination, as defined in the standard. (While not specifically mentioned in the scope of the standard, it also addresses accounting for goodwill.)

The standard specifically excludes combinations of entities or businesses under common control, the formation of joint ventures and the acquisition of an asset or group of assets that does not constitute a business.

The scope of the standards is essentially the same except that IFRS 3 specifically excludes acquisitions of single assets. However, such assets would generally not meet the definition of a business in IFRS for SMEs, and therefore their acquisition would not constitute a business combination.

Definitions

A business combination is the bringing together of separate entities or businesses into one reporting entity.

A business is an integrated set of activities and assets conducted and managed for the purpose of providing a return to investors or lower costs or other economic benefits directly and proportionately to policyholders or participants. Furthermore, a business generally consists of inputs, processes applied to those inputs and resulting outputs that are or will be used to generate revenues. If goodwill is present in a transferred set of activities or assets, the transferred set is presumed to be a business.

A business combination is transaction or other event in which an acquirer obtains control of one or more businesses. The definition also includes transactions sometimes referred to as true mergers or mergers of equals.

A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants.

The definition of a business combination in IFRS for SMEs differs from that in IFRS. By referring to obtaining control IFRS has a narrower scope than IFRS for SMEs, which refers more broadly to the bringing together of entities or businesses. However, this impact is modified by differences in the definition of a business.

The definition of a business in IFRS is similar to that in IFRS for SMEs. The major difference is the reference in IFRS to the assets or activities being capable of being conducted or managed for the purpose of providing a return. Furthermore, IFRS for SMEs indicates that a business generally consists of inputs, processes and outputs, while IFRS does not require outputs to be present for an integrated set of assets and activities to be a business. Therefore, IFRS has a broader definition of a business which, all else equal, might be expected to cause more transactions to be treated as business combinations than would be the case under IFRS for SMEs. For instance, an integrated set of activities at the development stage that has not commenced could be a business under IFRS, but may not under IFRS for SMEs.




Impact assessment

Method of accounting

All business combinations are accounted for using the purchase method.

This method involves identifying the acquirer, measuring the cost of the combination and allocating that cost to the assets acquired and liabilities and provisions for contingent liabilities assumed.

All business combinations are accounted for using the acquisition method.

This method involves identifying the acquirer, determining the acquisition date, recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree and recognising and measuring goodwill or a gain from a bargain purchase.

The method applied under IFRS for SMEs uses a cost-based approach whereby the cost of the acquired entity is allocated to the assets acquired and liabilities (and provisions for contingent liabilities) assumed. In contrast, IFRS adopts a fair value approach.

Key features of these methods are discussed further below.

Identifying the acquirer

The acquirer is the combining entity that obtains control of the other combining entities or businesses.

The acquirer is the entity that obtains control of the acquiree. There is no practical difference between IFRS for SMEs and IFRS. The definitions of control, and the concept upon which identification of the acquirer is based, are the same in IFRS for SMEs and IFRS.

Consequently, reverse acquisition accounting may be required under IFRS for SMEs, similar to IFRS.

Cost of a business combination

The cost of a business combination is the aggregate of:

The fair values of the assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer plus

Any costs directly attributable to the business combination.

The cost of a business combination is not separately defined. However, a component of the measurement of any goodwill or gain from a bargain purchase is the consideration transferred, which is calculated as the sum of the fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer.

IFRS for SMEs differs from IFRS in that it includes directly attributable costs as part of the cost of the combination, which in turn results in these costs being included in the calculation of the amount of any goodwill (or negative goodwill/discount on acquisition/gain).

IFRS requires that these costs be accounted for separately from the business combination, as they do not generally represent assets of the acquirer would be expensed in the period they are incurred and the related services received. As such, under IFRS these costs do not impact the amount of goodwill (or negative goodwill) calculated on acquisition date. All else being equal, a higher amount for goodwill would be recorded under IFRS for SMEs than under IFRS.

Section 19: Business combinations and goodwill continued




Impact assessment

Contingent consideration

When a business combination agreement provides for an adjustment to the cost of the business combination contingent on future events, the acquirer includes the estimated amount of the adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably.

If the potential adjustment is not recognised at acquisition date, but subsequently becomes probable and can be measured reliably, the additional consideration is treated as an adjustment to the cost of the combination.

The acquirer recognises the acquisition-date fair value of any contingent consideration as part of the consideration transferred in exchange for the acquiree.

The classification of a contingent consideration obligation as either a liability or equity is based on the definitions of an equity instrument and a financial liability in IAS 32 or other applicable accounting standards.

After initial recognition, changes in the fair value of contingent consideration resulting from events after the acquisition date are accounted for as follows:

Contingent consideration classified as equity is not subsequently remeasured (consistent with the accounting for equity instruments generally) and its subsequent settlement is accounted for within equity

Contingent consideration classified as a liability that: Is a financial instrument and within the scope of IAS 39, is

remeasured at fair value, with any resulting gain or loss recognised either in profit or loss or in other comprehensive income in accordance with IAS 39

Is not within the scope of IAS 39 and is accounted for in accordance with IAS 37 or other standards as appropriate.

Subsequent changes in the amount recognised for contingent consideration are treated as adjustments to the consideration transferred and are reflected in the carrying amount of goodwill under IFRS for SMEs.

In contrast, under IFRS, any post acquisition changes in the fair value of contingent consideration that is a liability are recognised in profit or loss or in other comprehensive income, while contingent consideration that is equity is not remeasured subsequent to acquisition date.

Allocating the cost of a business combination

The acquirees identifiable assets and liabilities and any contingent liabilities that can be measured reliably are recognised at their acquisition date fair values.

Any difference between the cost of the business combination and the acquirers interest in the net fair value of the identifiable assets, liabilities and contingent liabilities must be accounted for as goodwill (or negative goodwill).

The identifiable assets acquired and liabilities assumed of the acquiree are recognised as of the acquisition date, separately from goodwill and measured at fair value as at that date.

Both IFRS for SMEs and IFRS require recognition of assets and liabilities at fair value. However, IFRS includes some specific exemptions, for example, deferred taxes measured under IAS 12 Income Taxes, pension assets and liabilities measured under IAS 19 Employee Benefits.

The impact of differences in the recognition criteria under the two requirements is discussed below.





Impact assessment

Recognition of assets and liabilities

The following criteria must be satisfied for the acquirer to recognise the acquirees identifiable assets and liabilities and any provisions for contingent liabilities at the acquisition date:

Assets other than an intangible asset the future economic benefits must be probable and the fair value can be measured reliably

Liability other than a provision for contingent liability the outflow of resources must be probable and the fair value can be measured reliably

Intangible asset or provision for contingent liability the fair value can be measured reliably.

To qualify for recognition, an item acquired or assumed must be:

An asset or liability at the acquisition date (i.e., meet the definitions in the Framework)

Part of the business acquired (the acquiree) rather than the result of a separate transaction.

With the two exceptions noted below, the recognition criteria under IFRS and IFRS for SMEs are substantially the same.

Intangible assets under IFRS there is no requirement to be able to measure reliably the fair value of such assets. Thus, under IFRS intangibles are recognised whenever they can be separately identified (i.e., they are either separable or arise from contractual or other legal rights).

Contingent liabilities under IFRS a contingent liability must meet the definition of a liability (i.e., must be a present obligation arising from a past event that can be reliably measured) for it to be recognised. As such, a contingent liability that represents a possible obligation the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events are not recognised under IFRS. There is no such restriction on the recognition of contingent liabilities under IFRS for SMEs.

IFRS for SMEs does not include guidance for the subsequent recognition of tax losses not recognised at acquisition date.

Provisional accounting

Retrospective adjustments to provisional amounts recognised in initial accounting for a business combination may be made up to 12 months after the acquisition date.

This time limit does not apply to adjustments to the cost of the combination contingent on future events which becomes probable and can be reliably measured subsequent to acquisition date. (See discussion under Contingent consideration on page 30.)

Retrospective adjustments to provisional amounts recognised in initial accounting for a business combination may be made during the measurement period, which is a period up to a maximum of 12 months after the acquisition date, where new information is obtained regarding facts and circumstances that existed at acquisition date. The measurement period ends as soon as the acquirer receives the information it was seeking or learns that further information is not available.

Under IFRS, it is possible that the period during which adjustments to provisional accounting may be made would be less than 12 months if the required new information is obtained, or if it is determined that further information is not available before the expiration of the maximum 12 months allowed. There is no such limitation under IFRS for SMEs.





Impact assessment

Non-controlling interests

Where the acquirer obtains less than a 100% interest in the acquiree, a non-controlling interest (NCI) in the acquiree is recognised at the NCIs proportion of the net identifiable assets, liabilities and provisions for contingent liabilities of the acquiree at their attributed fair values at the date of acquisition; no amount is included for any goodwill relating to the NCI.

IFRS requires any NCI in an acquiree to be recognised, but provides a choice of two methods for measuring NCI arising in a business combination:

Option 1, to measure the non-controlling interest at its acquisition-date fair value

Option 2, to measure the non-controlling interest at the proportionate share of the value of net identifiable assets acquired.

The choice of method is made for each business combination on a transaction-by-transaction basis, rather than being a policy choice.

Under IFRS, Option 2 for the measurement of NCI is effectively equivalent to the requirements for the measurement of NCI under IFRS for SMEs. Adoption of Option 1 for the measurement of NCI under IFRS is likely to result in recognition of a higher amount for NCI (and, consequently, a higher amount for goodwill) than would result under Option 2 and the requirements of IFRS for SMEs.

Definition of goodwill

Goodwill is defined as future economic benefits arising from other assets that are not capable of being individually identified and separately recognised.

Goodwill is defined as an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.

There is no practical difference between the definitions of goodwill under IFRS for SMEs and IFRS.





Impact assessment

Measurement of goodwill

Goodwill is initially measured at cost, being the excess of the cost of the business combination over the acquirers interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised.

After initial recognition, goodwill is measured at cost less accumulated amortisation and accumulated impairment losses.

Goodwill is amortised in accordance with the principles of amortisation of intangible assets in Section 18. If a reliable estimate of the useful life of goodwill cannot be made the life is presumed to be 10 years. Detailed requirements in relation to impairment testing of goodwill are contained in Section 27. This includes the requirement that the acquirer test it for impairment where there is an indication that it may be impaired.

The measurement of goodwill at the acquisition date is computed as the excess of (a) over (b) below:

a) The aggregate of: The consideration transferred (generally measured at

acquisition-date fair value) The amount of any non-controlling interest in the

acquiree The acquisition-date fair value of the acquirers previously

held equity interest in the acquireeb) The net of the acquisition-date fair values (or other amounts

recognised in accordance with the requirements of the standard) of the identifiable assets acquired and the liabilities assumed.

Goodwill acquired in a business combination is not amortised. The acquirer measures goodwill acquired in a business combination at the amount recognised at the acquisition date less any accumulated impairment losses. Detailed requirements in relation to the subsequent accounting for goodwill are dealt with in IAS 36 Impairment of Assets. This includes the requirement that the acquirer has to test it for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired.

Under both IFRS for SMEs and IFRS, goodwill is measured as a residual. However, the computations differ due to the focus in IFRS on measuring the components of the business combination at their acquisition date fair values, while IFRS for SMEs adopts a cost-based approach.

IFRS for SMEs differs from IFRS by requiring that goodwill be amortised over its useful life, or if the useful life cannot be reliably measured, over 10 years. In addition, it must be tested for impairment where an indicator of possible impairment exists. In contrast, IFRS prohibits amortisation of goodwill, but requires that it be impairment tested at least annually.

Based on these differing requirements, significantly differing carrying amounts for goodwill might be expected to arise under IFRS for SMEs and IFRS in post-combination periods.





Impact assessment

Bargain purchase

An excess arises where the acquirers interest in the net fair value of the acquirees identifiable assets, liabilities and provisions for contingent liabilities exceeds the cost of the combination. The standard recognises that this is sometimes referred to as negative goodwill.

Where such an excess arises, the acquirer must:

Reassess the identification and measurement of the acquirees assets, liabilities and provisions for contingent liabilities and the measurement of the cost of the combination

Recognise immediately in profit or loss any excess remaining after that reassessment.

A bargain purchase arises when the net fair value of the identifiable assets and liabilities exceeds the cost of the combination.

Before recognising a gain on a bargain purchase, the acquirer should reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognises any additional assets or liabilities that are identified in that review. The acquirer then reviews the procedures used to measure the amounts recognised at the acquisition date for all of the following:

a) The identifiable assets acquired and liabilities assumedb) The non-controlling interest in the acquiree, if anyc) For a business combination achieved in stages, the acquirers

previously held equity interest in the acquireed) The consideration transferred.

The objective of the review is to ensure that the measurements appropriately reflect consideration of all available information as of the acquisition date.

Having undertaken that review (and made any necessary revisions), if an excess remains, a gain is recognised in profit or loss on the acquisition date.

The substance of the requirements in relation to recognition of an excess/gain (negative goodwill) on a bargain purchase is the same under both IFRS for SMEs and IFRS.



IFRS for SMEsSection 9 Consolidated and Separate Financial Statements

IFRSIAS 27 Consolidated and Separate Financial StatementsSIC 12 Consolidation Special Purpose Entities

Impact assessment

Scope

This section defines the circumstances in which an entity presents consolidated financial statements and the procedures for preparing those statements.

It also includes guidance on separate financial statements and combined financial statements.

Except as permitted or required by paragraph 9.3 (see discussion of exemptions), a parent entity must present consolidated financial statements in which it consolidates its investments in subsidiaries in accordance with this IFRS.

Consolidated financial statements shall include all subsidiaries of the parent.

This standard must be applied in the preparation and presentation of consolidated financial statements for a group of entities under the control of a parent.

A parent (see discussion of exemptions in the next row), must present consolidated financial statements in which it consolidates its investments in subsidiaries in accordance with this standard.

Consolidated financial statements shall include all subsidiaries of the parent.

IFRS for SMEs and IFRS have a similar scope for consolidated financial statements.

IFRS for SMEs permits combined financial statements to be prepared. Combined financial statements may include entities outside the group or be created from selected entities within the group provided they are under common control. Combined financial statements are not addressed in IFRS.

Section 9: Consolidated and separate financial statements


IFRS for SMEsSection 9 Consolidated and Separate Financial Statements

IFRSIAS 27 Consolidated and Separate Financial StatementsSIC 12 Consolidation Special Purpose Entities

Impact assessment

Exemption from preparing consolidated financial statements

A parent need not present consolidated financial statements if:

Both of the following conditions are met: The parent is itself a subsidiary

and Its ultimate parent (or any intermediate parent) produces

consolidated general purpose financial statements that comply with full IFRS or with this IFRS or

It has no subsidiaries other than one that was acquired with the intention of selling or disposing of it within one year. A parent accounts for such a subsidiary: At fair value with changes in fair value recognised in

profit or loss, if the fair value of the shares can be measured reliably or

Otherwise at cost less impairment.

A parent need not present consolidated financial statements if and only if:

a) The parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements

b) The parents debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets)

c) The parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market

d) The ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with IFRS.

Similar exemptions under IFRS for SMEs and IFRS (taking into account that entities that have their securities listed cannot use IFRS for SMEs).

Specific differences include:

IFRS for SMEs does not require partly-owned parents to seek permission of other shareholders for the exemption

The exemption from preparing consolidated financial statements, if the parent already prepares IFRS financial statements, has been expanded to also include the case where the parent prepares IFRS for SMEs financial statements

IFRS for SMEs does not require the consolidated financial statements of the ultimate parent (or any intermediate parent) to be made available for public use in order for the exemption to apply

IFRS for SMEs permits an additional exemption for a

Date post:	18-Dec-2015
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IFRS for SMEs Comparison

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