Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058690975.pdf (Georgia)
1 The IFRS for SMEs Section 1 Small and medium entities Tbilisi, May 2018 Darrel Scott IASB Board Member Copyright © IFRS Foundation.

All rights reserved Can I use the IFRS for SMEs?

2 2 Decisions on which entities are required or permitted to use the IFRS for SMEs rest with legislative and regulatory authorities and standard-setters in individual jurisdictions Can I use the IFRS for SMEs?
continued 3 3 But • IASB defines SMEs o do not have public accountability (PA) o publish general purpose financial statements (GPFS) • ¶3.3 requires an explicit statement of compliance with the IFRS for SMEs Standard • ¶1.5 prohibits an entity that has PA from asserting compliance with the IFRS for SMEs Standard What is Public Accountability?
4 4 • An entity has public accountability (PA) if: o its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the- counter market, including local and regional markets); or o it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses Do ‘I’ have Public Accountability?
5 5 • A small company whose shares are listed on a securities exchange?

• A large private (unlisted) manufacturer?

• A tiny private (unlisted) commercial bank?

• Example 9* An entity’s whose only business is earning interest on money that it lends to clients.

The entity obtains all of its funds from its billionaire owner-manager?

* see example with the same number in Module 1 of the IFRS Foundation training material Do ‘I’ have Public Accountability?
continued 6 6 Example 10* An unlisted manufacturing subsidiary of an exchange listed parent that uses full IFRSs?

Example 13* A travel agency that requires its clients to pay a refundable deposit equal to 60% of the price of a package holiday when booking?

Example 14* A supermarket that has a small deposit taking banking operation?

* see example with the same number in Module 1 of the IFRS Foundation training material Do ‘I’ have Public Accountability?
Assessment for parent entity 7 7 • ¶ 1.7 requires the assessment to be made in the Parent’s separate financial statements (FS) on the basis of its own status without considering other group entities or the group as a whole o If parent entity by itself has NO public accountability → may present separate FS using IFRS for SMEs Standard even if it presents its consolidated FS using full IFRS or another GAAP o Distinguish clearly FS prepared using IFRS for SMEs Standard and FS prepared using other requirements What are general purpose financial statements?
8 8 General purpose financial statements are prepared on a basis that is designed to provide useful information to a wide range of users (eg investors and creditors) who are not in a position to demand reports tailored to meet their particular needs Are SMEs statements GPFS?
9 9 The objective of financial statements prepared in accordance with the IFRS for SMEs Standard is to provide information about the entity’s financial position, performance and cash flows that is useful to a broad range of users who are not in a position to demand reports tailored to meet their particular information needs Do ‘I’ have Public Accountability?
continued 10 10 • Example 4* Financial Statements prepared in compliance with tax requirements for calculating taxable income (that are different from the IFRS for SMEs Standard) and which are sent only to the tax authorities?

• Example 5* Financial Statements prepared on the tax basis (see above) but also sent to the entity’s bankers and the national repository.

FS filed in the national repository are publicly available?
* see example with the same number in Module 1 of the IFRS Foundation training material 1111 The IFRS for SMEs Section 2 Concepts and Pervasive Principles Tbilisi, May 2018 Darrel Scott IASB Board Member Copyright © IFRS Foundation.
All rights reserved Structure of IFRS for SMEs Standard 12 12 Rules Exceptions Accounting policy choices Principles Concepts (Section 2) Application guidance to give effect to the principles Concepts and Pervasive Principles 13 13 Objective Qualitative characteristics Elements (building blocks) Recognition Measurement Offsetting Objective 14 14 Objective of an SME’s financial statements (FS) • to provide information about the entity’s financial position, performance & cash flows • that is useful for economic decision-making by a broad range of users (eg investors & creditors) • who are not in a position to demand reports tailored to meet their particular information needs Qualitative characteristics 15 15 • Qualitative characteristics are the attributes that make the information provided in financial statements useful to users Qualitative characteristics continued 16 Understandability Relevance Materiality Reliability faithful representation substance over form free from material error free from bias (neutral/prudence) completeness o o o o o Comparability Timeliness Balance between benefit & cost Undue cost or effort Undue cost or effort exemption 17 • Definition: incremental cost (eg valuers’ fees) or additional effort (eg endeavours by employees) substantially exceed the benefits of the information to users of the SME’s FS • Depends on entity’s specific circumstances & management’s judgement • Assessment to be made based on information available at the date of the assessment • Disclosure o the exemption has been used o reasons why applying the requirement would involve undue cost or effort How concepts relate to principles 18 18 Example: correcting material prior period error • Objective of financial statements • Concepts o faithful representation o comparability • Principle o retrospective restatement (ie present comparatives as if error never occurred) • Rules o impracticable exception o specified disclosures Elements Financial position 19 19 Asset Liability Equity resource controlled by the entity present
 obligation result of past event arising from past event = assets less liabilities expected inflow of economic benefits expected outflow of economic benefits Elements continued Performance 20 20 Income Expenses enhancements/increases in assets & decreases in liabilities depletions/outflows of assets & incurrences of liabilities that result in increases in equity that result in decreases in equity other than contributions from owners other than distributions to owners Accrual basis 21 21 • Prepare financial statements (except for cash flow information) using the accrual basis of accounting • Accrual basis o recognise elements (eg assets, liabilities, equity, income or expenses) when they satisfy the definitions and recognition criteria for those items Recognition criteria 22 Recognise an item (element) when: it is probable that future economic benefit will flow to/from the entity; and • assess probability individually unless large population of individually insignificant items then assess collectively the item has a cost or value that can be measured reliably • the use of reasonable estimates • is an essential part of accounting • does not undermine the reliability of FS Measurement 23 Measurement is the process of determining the monetary amounts at which an entity measures assets, liabilities, income and expenses Many measurement methods in the IFRS for SMEs Two common measurement bases • historical cost (eg amount paid for an asset) • fair value (eg amount for which an asset could be exchanged in arm’s length transaction) Measurement continued 24 24 • Most sections of the IFRS for SMEs specify a measurement base to be used o on initial recognition o subsequently • Some sections permit more than one measurement method (an accounting policy choice) • In other sections measurement is circumstance driven, eg o fair value, if it can be determined without undue cost or effort o otherwise cost-amortisation-impairment Measurement of assets 25 Classification, recognition
 and measurement (ignoring hedge accounting) Inventory Etc PP&E Intangible Assets Defined Benefit Deferred Tax Inv Property Financial Measurement of Liabilities 26 Classification, recognition and measurement (ignoring hedge accounting) Contingent Provisions Leases Liabilities Defined Benefit Deferred Tax Etc Financial Absence of a specific requirement 27 27 Absence of a requirement in another section of the IFRS for SMEs Standard that applies specifically to a transaction, other event or condition Management must use its judgement in developing an accounting policy that results in information that is relevant and reliable.
… Offsetting 28 28 An entity shall not offset assets and liabilities, or income and expenses, unless required or permitted to do so by another section of the IFRS for SMEs.
However, o measuring assets net of a valuation allowance (eg allowance for inventory obsolescence) is not offsetting o if an entity’s normal operating activities do not include buying and selling non-current assets (including investments and operating assets) then the entity reports the profit on disposal of such items on a net basis Contact us 29 6 Keep up to date @IFRSFoundation IFRS Foundation www.ifrs.org IFRS Foundation Comment on our work go.ifrs.org/comment