26/04/2016

KeyDatesintheProcesstoGettothe
FinalStandard

IFRSforSmallandMediumSized
Entities(IFRSforSMEs)

Sept2003:
June2004:
April2005:
responses)
Oct2005:
Feb2007:
Nov2007:
Mar Apr2008:
May2008 Apr2009:
May2009:
1June2009:
9July2009:

ByKendhoo

WorldStandardSetterssurvey
DiscussionPaper(117comments)
Questionnaireonrecognitionandmeasurement(94
Roundtablesonrecognitionandmeasurement(43groups)
ExposureDraft(162comments)
Fieldtests(116realSMEs)
Boardeducationsessions
Redeliberations
NearfinaldraftpostedonIASBwebsite
BallotdraftsenttotheBoard
FinalIFRSforSMEsissued

MNUBS/ACC235/2016S1/Kendhoo

ContentsoftheIFRSforSMEs

ContentsoftheIFRSforSMEs

Section
Preface
1SmallandMediumsizedEntities
2ConceptsandPervasivePrinciples
3FinancialStatementPresentation
4StatementofFinancialPosition
5StatementofComprehensiveIncomeandIncomeStatement
6StatementofChangesinEquityandStatementofComprehensiveIncomeandRetainedEarnings
7StatementofCashFlows
8NotestotheFinancialStatements
9ConsolidatedandSeparateFinancialStatements
10AccountingPolicies,EstimatesandErrors
11BasicFinancialInstruments
12AdditionalFinancialInstrumentsIssues
13Inventories
14InvestmentsinAssociates
15InvestmentsinJointVentures
16InvestmentProperty
17Property,PlantandEquipment
18IntangibleAssetsotherthanGoodwill
19BusinessCombinationsandGoodwill
20Leases
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Section
21ProvisionsandContingencies
22LiabilitiesandEquity
23Revenue
24GovernmentGrants
25BorrowingCosts
26SharebasedPayment
27ImpairmentofAssets
28EmployeeBenefits
29IncomeTax
30ForeignCurrencyTranslation
31Hyperinflation
32EventsaftertheEndoftheReportingPeriod
33RelatedPartyDisclosures
34Specialised Activities
35TransitiontotheIFRSforSMEs
Glossary
DerivationTable
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Preface
All of the paragraphs in the standard have equal authority
The standard is appropriate for general purpose financial
statements and other financial reporting of all profit
oriented entities

SectionbySectionSummaryof
theIFRSforSMEs

General purpose financial statements are directed towards

the common information needs of a wide range of users,
for example, shareholders, creditors, employees and the
public at large
The IASB intends to issue a comprehensively reviewed
standard after two year's implementation, to address issues
identified and also, if appropriate, recent changes to full
IFRSs

MNUBS/ACC235/2016S1/Kendhoo

Defines SME as used by IASB: Small and mediumsized

entities are entities that:
(a) do not have public accountability, and
(b) publish general purpose financial statements for
external users
includeownerswhoarenotinvolvedin
managingthebusiness,existingand
potentialcreditors,andcreditrating
agencies

General purpose financial statements are those that

present fairly financial position, operating results, and
cash flows for external capital providers and others

MNUBS/ACC235/2016S1/Kendhoo

Section1:SmallandMediumsizedEntities

Section1:SmallandMediumsizedEntities

MNUBS/ACC235/2016S1/Kendhoo

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An entity has public accountability if:

(a) 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 overthecounter market, including local
and regional markets), or
(b) it holds assets in a fiduciary capacity for a broad group
of outsiders as one of its primary businesses. This is
typically the case for banks, credit unions, insurance
companies, securities brokers/dealers, mutual funds and
investment banks. If an entity holds assets in a fiduciary
capacity as an incidental part of its business, that does not
make it publicly accountable. Entities that fall into this
category may include public utilities, travel and real estate
agents, schools, and charities
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Section1:SmallandMediumsizedEntities

Section1:SmallandMediumsizedEntities

The standard does not contain a limit on the size

of an entity that may use the IFRS for SMEs
provided that it does not have public
accountability

The standard does not require any special

approval by the owners of an SME for it to be
eligible to use the IFRS for SME

Nor is there a restriction on its use by a public

utility, notforprofit entity, or public sector entity
A subsidiary whose parent or group uses full
IFRSs may use the IFRS for SMEs if the subsidiary
itself does not have public accountability
MNUBS/ACC235/2016S1/Kendhoo

Listed companies, no matter how small, may not

use the IFRS for SMEs
Q&A 2011/01 (published June 2011) states that a
parent entity assesses its eligibility to use the IFRS
for SMEs in its separate financial statements on
the basis of its own public accountability without
considering whether other group entities have, or
the group as a whole has, public accountability
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Section2:ConceptsandPervasivePrinciples
Objective of SMEs' financial statements: To
provide information about financial position,
performance, cash flows
Also shows results of stewardship of management
over resources

Section2:ConceptsandPervasivePrinciples

Qualitative characteristics (understandability,

relevance, materiality, reliability, substance over
form, prudence, completeness, comparability,
timeliness, balance between benefit and cost)
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Section2:ConceptsandPervasivePrinciples
Definitions:

Section2:ConceptsandPervasivePrinciples
Financial position: the relationship of assets and
liabilities at a specific date

Asset: Resource with future economic benefits

Liability: Present obligation arising from past events,
result in outflow of resources
Income: Inflows of resources that increase equity,
other than owner investments
Expenses: Outflows of resources that decrease equity,
other than owner withdrawals
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Section2:ConceptsandPervasivePrinciples
There are only 3 items of other comprehensive income
(OCI) in the IFRS for SMEs:
Some foreign exchange gains and losses relating to a net
investment in a foreign operation (see Section 30)
Some changes in fair values of hedging instruments in a
hedge of variable interest rate risk of a recognised financial
instrument, foreign exchange risk or commodity price risk in
a firm commitment or highly probable forecast transaction,
or a net investment in a foreign operation (see Section 12)
(Note that hedge accounting is optional)

Performance: the relationship of income and

expenses during a reporting period
Total
comprehensive
income:
arithmetic
difference between income and expenses
Profit or loss: arithmetic difference between
income and expenses other than those items of
income or expense that are classified as 'other
comprehensive income'
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Section2:ConceptsandPervasivePrinciples
Basic recognition concept An item that
meets the definition of an asset, liability,
income, or expense is recognised in the
financial statements if:
it is probable that future benefits associated with
the item will flow to or from the entity, and
the item has a cost or value that can be measured
reliably

Some actuarial gains and losses (see Section 28) (Note that
reporting actuarial gains and losses in OCI is optional)
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Section2:ConceptsandPervasivePrinciples
Basic measurement concepts
Historical cost and fair value are described
Basic financial assets and liabilities are generally
measured at amortised cost
Other financial assets and liabilities are generally
measured at fair value through profit or loss
Nonfinancial assets are generally measured using
a costbased measure
Nonfinancial liabilities are generally measured at
settlement amount
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Section2:ConceptsandPervasivePrinciples
Section 2 includes pervasive recognition and
measurement principles
Source of guidance if a specific issue is not
addressed in the IFRS for SMEs (see Section 10)

Concepts of profit or
comprehensive income

loss

and

total

Offsetting of assets and liabilities or of income

and expenses is prohibited unless expressly
required or permitted
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Section3:FinancialStatementPresentation
Fair presentation: presumed to result if the IFRS for SMEs is
followed (may be a need for supplemental disclosures)
State compliance with IFRS for SMEs only if the financial statements
comply in full

Section3:FinancialStatementPresentation

Does include 'true and fair override' but this should be 'extremely
rare
IFRS for SMEs presumes the reporting entity is a going concern
SMEs shall present a complete set of financial statements at least
annually
At least one year comparative prior period financial statements and
note data

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Section3:FinancialStatementPresentation

Section3:FinancialStatementPresentation

Presentation and classification of items

should be consistent from one period to the
next
Must justify and disclose any change in
presentation or classification of items in financial
statements

Materiality: an omission or misstatement is

material if it could influence economic
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Section3:FinancialStatementPresentation

An entity may present only an income statement

(no statement of comprehensive income) if it has
no items of other comprehensive income (OCI)

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Statement of financial position

Either a single statement of comprehensive
income, or two statements: an income statement
and a statement of comprehensive income
Statement of changes in equity
Statement of cash flows
Notes

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Section3:FinancialStatementPresentation

If the only changes to equity arise from profit or

loss, payment of dividends, corrections of errors,
and changes in accounting policy, an entity may
present a single (combined) statement of income
and retained earnings instead of the separate
statements of comprehensive income and of
changes in equity (see Section 6)

MNUBS/ACC235/2016S1/Kendhoo

Complete set of financial statements:

23

The only OCI items under the IFRS for SMEs are:
Some foreign exchange gains and losses relating to a
net investment in a foreign operation (see Section 30)
Some changes in fair values of hedging instruments
in a hedge of variable interest rate risk of a recognised
financial instrument, foreign exchange risk or
commodity price risk in a firm commitment or highly
probable forecast transaction, or a net investment in a
foreign operation (see Section 12)
Some actuarial gains and losses (see Section 28)
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Section4:StatementofFinancialPosition
May still be called 'balance sheet

Section4:StatementofFinancialPosition

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Section4:StatementofFinancialPosition

Someminimumlineitemsrequired.Theseinclude:

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Section4:StatementofFinancialPosition
And some required items may be presented in
the statement or in the notes

Cashandequivalents
Receivables
Financialassets
Inventories
Property,plant,andequipment
Investmentpropertyatfairvalue
Intangibleassets
Biologicalassetsatcost
Biologicalassetsatfairvalue
Investmentinassociates
Investmentinjointventures
Payables
Financialliabilities
Currenttaxassetsandliabilities
Deferredtaxassetsandliabilities
Provisions
Noncontrollinginterest
Equityofownersofparent
MNUBS/ACC235/2016S1/Kendhoo

Current/noncurrent split is not required if the

entity concludes that a liquidity approach
produces more relevant information

Categories of property, plant, and equipment

Info about assets with binding sale agreements
Categories of receivables
Categories of inventories
Categories of payables
Employee benefit obligations
Classes of equity, including OCI and reserves
Details about share capital

Sequencing, format, and titles are not mandated

27

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Section5:StatementofComprehensiveIncome
andIncomeStatement
Onestatement or twostatement approach
either a single statement of comprehensive
income, or two statements:

Section5:StatementofComprehensive
IncomeandIncomeStatement

an income statement and

a statement of comprehensive income

Must segregate discontinued operations

Must present 'profit or loss' subtotal if the entity
has any items of other comprehensive income
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Section5:StatementofComprehensiveIncome
andIncomeStatement
Bottom line ('profit or loss' in the income
statement and 'total comprehensive income' in
the statement of comprehensive income) is
before allocating those amounts to non
controlling interest and owners of the parent
No item may be labelled 'extraordinary'

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30

Section5:StatementofComprehensive
IncomeandIncomeStatement
Expenses may be presented by nature
(depreciation, purchases of materials,
transport costs, employee benefits, etc) or by
function (cost of sales, distribution costs,
administrative costs, etc) either on face of the
statement of comprehensive income (or
income statement) or in the notes

But unusual items can be separately presented

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Section5:StatementofComprehensive
IncomeandIncomeStatement

Section5:StatementofComprehensive
IncomeandIncomeStatement
Singlestatementof
comprehensiveincome:
Revenue
Expenses,showingseparately:
financecosts
profitorlossfromassociatesand
jointlycontrolledentities
taxexpense
discontinuedoperations)

Profitorloss(mayomitifnoOCI)
Itemsofothercomprehensive
income
Totalcomprehensiveincome(may
labelProfitorLossifnoOCI)
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Section5:StatementofComprehensive
IncomeandIncomeStatement
Separatestatementsof
incomeandcomprehensive
income:
IncomeStatement:

Section6:StatementofChangesinEquityandStatementof
ComprehensiveIncomeandRetainedEarnings

Bottomlineisprofitorloss(asabove)

Statementof
ComprehensiveIncome:
Beginswithprofitorloss
Showseachitemofother
comprehensiveincome
BottomlineisTotalComprehensive
Income
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Section7:StatementofCashFlows

Section6:StatementofChangesinEquityandStatementof
ComprehensiveIncomeandRetainedEarnings

Presents information about an entity's changes

in cash and cash equivalents for a period

Shows all changes to equity including

Cash equivalents are shortterm, highly liquid

investments (expected to be converted to cash in
three months) held to meet shortterm cash needs
rather than for investment or other purposes

total comprehensive income

owners' investments
dividends
owners' withdrawals of capital
treasury share transactions

Can omit the statement of changes in equity if

the entity has no owner investments or
withdrawals other than dividends and elects to
present a combined statement of comprehensive
income and retained earnings
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Section7:StatementofCashFlows

Dividends paid may be operating or investing

Income tax cash flows are operating unless specifically
identified with investing or financing activities
Separate disclosure is required of some noncash
investing and financing transactions (for example,
acquisition of assets by issue of debt)
Reconciliation of components of cash

MNUBS/ACC235/2016S1/Kendhoo

Option to use the indirect method or the direct

method to present operating cash flows
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Section8:NotestotheFinancialStatements

Interest paid and interest and dividends received may be

operating, investing, or financing

MNUBS/ACC235/2016S1/Kendhoo

Cash flows are classified as operating, investing,

and financing cash flows

39

Notes are normally in this sequence:

Basis of preparation (ie IFRS for SMEs)
Summary of significant accounting policies, including
Information about judgements
Information about key sources of estimation uncertainty

Supporting information
statements
Other disclosures

for

items

in

financial

Comparative prior period amounts are required

by Section 3 (unless another section allows
omission of prior period amounts)
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Section9:ConsolidatedandSeparate
FinancialStatements
Consolidated financial statements are
required when a parent company controls
another entity (a subsidiary)
Section9:ConsolidatedandSeparate
FinancialStatements

Control: Power to govern financial and

operating policies to obtain benefits
More than 50% of voting power: control
presumed

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Section9:ConsolidatedandSeparate
FinancialStatements

Section9:ConsolidatedandSeparate
FinancialStatements

Control exists when entity owns less than

50% but has

A subsidiary is not excluded from consolidation

because:

power to govern by agreement or statute, or

power to appoint majority of the board, or
power to cast majority of votes at board meetings

Investor is a venture capital organisation

Subsidiary's business activities are dissimilar to those
of parent or other subs
Subsidiary operates in a jurisdiction that imposes
restrictions on transferring cash or other assets out of
the jurisdiction

Control can be achieved by currently

exercisable options that, if exercised, would
result in control
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Section9:ConsolidatedandSeparate
FinancialStatements

Section9:ConsolidatedandSeparate
FinancialStatements
However, consolidated financial statements are
not required, even if a parentsubsidiary
relationship exists if:
Subsidiary was acquired with intent to dispose within
one year
Parent itself is a subsidiary and its parent or ultimate
parent uses IFRSs or IFRS for SMEs

Must consolidate all controlled specialpurpose

entities (SPEs)
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Section9:ConsolidatedandSeparate
FinancialStatements
Guidance on separate financial statements (but they are not
required)
In a parent's separate financial statements, it may account for
subsidiaries, associates, and joint ventures that are not held for
sale at cost or fair value through profit and loss

Guidance on combined financial statements (but they are

not required)
If investor loses control but continues to hold some
investment:
If the subsidiary becomes an associate, follow Section 14
If the subsidiary becomes a jointly controlled entity, follow
Section 15
If investment does not qualify as an associate or jointly controlled
entity, treat it as a financial
asset under Sections 11 and 12
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MNUBS/ACC235/2016S1/Kendhoo

Consolidation procedures:
Eliminate intracompany transactions and balances
Uniform reporting date unless impracticable
Uniform accounting policies
Noncontrolling interest is presented as part of
equity
Losses are allocated to a subsidiary even if non
controlling interest goes negative

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Section10:AccountingPolicies,
EstimatesandErrors
If the IFRS for SMEs addresses an issue, the entity
must follow the IFRS for SMEs
If the IFRS for SMEs does not address an issue:
Choose policy that results in the most relevant and
reliable information
Try to analogise from standards in the IFRS for SMEs
Or use the concepts and pervasive principles in
Section 2
Entity may look to guidance in full IFRSs (but not
required)
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Section10:AccountingPolicies,
EstimatesandErrors

Section11:BasicFinancialInstruments
IFRS for SMEs has two sections on financial
instruments:

Change in accounting policy:

If mandated, follow the transition guidance as
mandated
If voluntary, retrospective

Correction of prior period error: restate prior

periods if practicable
49

Section11:BasicFinancialInstruments

Except for equity investments with quoted price or readily

determinable fair value. These are measured at fair value
through profit or loss
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Initialmeasurement:

Cash
Demandandfixeddeposits
Commercialpaperandbills
Accountsandnotesreceivableandpayable
Debtinstrumentswherereturnstotheholderare
fixedorreferencedtoanobservablerate
Investmentsinnonconvertibleandnonputtable
ordinaryandpreferenceshares
Mostcommitmentstoreceivealoan

MNUBS/ACC235/2016S1/Kendhoo

Essentially, Section 11 is an amortised historical cost

model

Section11:BasicFinancialInstruments

ScopeofSection11includes:

MNUBS/ACC235/2016S1/Kendhoo

Option to follow IAS 39 instead of sections 11 and 12

Even if IAS 39 is followed, make Section 11 and 12
disclosures (not IFRS 7 disclosures)

Change in accounting estimate: prospective

MNUBS/ACC235/2016S1/Kendhoo

Section 11 on Basic Financial Instruments

Section 12 on Other FI Transactions

51

Basic financial assets and financial liabilities are initially

measured at the transaction price (including transaction costs
except in the initial measurement of financial assets and
liabilities that are measured at fair value through profit or loss)
unless the arrangement constitutes, in effect, a financing
transaction
A financing transaction may be indicated in relation to the sale
of goods or services, for example, if payment is deferred beyond
normal business terms or is financed at a rate of interest that is
not a market rate
If the arrangement constitutes a financing transaction, measure
the financial asset or financial liability at the present value of
the future payments discounted at a market rate of interest for
a similar debt instrument
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Section11:BasicFinancialInstruments

Section11:BasicFinancialInstruments

Measurement subsequent to initial recognition:

Debt instruments at amortised cost using the effective interest
method
Debt instruments that are classified as current assets or current
liabilities are measured at the undiscounted amount of the cash
or other consideration expected to be paid or received (ie net of
impairment) unless the arrangement constitutes, in effect, a
financing transaction. If the arrangement constitutes a financing
transaction, the entity shall measure the debt instrument at the
present value of the future payments discounted at a market
rate of interest for a similar debt instrument

Must test all amortised cost instruments for

impairment or uncollectibility
Previously recognised impairment is reversed
if an event occurring after the impairment was
first recognised causes the original
impairment loss to decrease

Investments in nonconvertible preference shares and non

puttable ordinary or preference shares:
if the shares are publicly traded or their fair value can otherwise be
measured reliably, measure at fair value with changes in fair value
recognised in profit or loss
measure all other such
investments at cost less impairment
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Section11:BasicFinancialInstruments

The most reliable is a quoted price in an active

market
When a quoted price is not available the most
recent transaction price provides evidence of fair
value
If there is no active market or recent market
transactions, a valuation technique may be used

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Section11:BasicFinancialInstruments

Guidance is provided on determining fair

values of financial instruments

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Guidance is provided on the effective interest method

Derecognise a financial asset when:
the contractual rights to the cash flows from the financial
asset expire or are settled;
the entity transfers to another party all of the significant
risks and rewards relating to the financial asset; or
the entity, despite having retained some significant risks
and rewards relating to the financial asset, has transferred
the ability to sell the asset in its entirety to an unrelated
third party who is able to exercise that ability unilaterally
and without needing to impose additional restrictions on
the transfer

Derecognise a financial liability when the obligation is

discharged, cancelled,
or expires
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Section12:AdditionalFinancial
InstrumentsIssues

Section11:BasicFinancialInstruments
Disclosures:

Financial instruments not covered by Section 11

(and, therefore, are within Section 12) are
measured at fair value through profit or loss

Categories of financial instruments

Details of debt and other instruments
Details of derecognitions
Collateral
Defaults and breaches on loans payable
Items of income and expense

MNUBS/ACC235/2016S1/Kendhoo

This includes:
Investments in convertible and puttable ordinary and
preference shares
Options, forwards, swaps, and other derivatives
Financial assets that would otherwise be in Section 11
but that have 'exotic' provisions that could cause
gain/loss to the holder or issuer
57

Section12:AdditionalFinancial
InstrumentsIssues
It is allowed only for the following kinds of risks:
interest rate risk of a debt instrument measured at amortised cost
foreign exchange or interest rate risk in a firm commitment or a highly
probable forecast transaction
price risk of a commodity that it holds or in a firm commitment or
highly probable forecast transaction to purchase or sell a commodity
foreign exchange risk in a net investment in a foreign operation.

Section 12 defines the type of hedging instrument required for

hedge accounting
Hedges must be documented up front to qualify for hedge
accounting
Section 12 provides guidance for measuring assessing
effectiveness
Special disclosures are required

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Section13:Inventories

Hedge accounting involves matching the gains and losses

on a hedging instrument and hedged item

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Inventories include assets for sale in the

ordinary course of business, being produced
for sale, or to be consumed in production
Measured at the lower cost and estimated
selling price less costs to complete and sell

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Section13:Inventories

Section13:Inventories

Inventory cost includes costs to purchase,

costs of conversion, and costs to bring the
asset to present location and condition

Cost is determined using:

specific identification is required for large items
option to choose FIFO or weighted average for
others

If a production process creates joint products

and/or byproducts, the costs are allocated on
a consistent and rational basis

LIFO is not permitted

MNUBS/ACC235/2016S1/Kendhoo

Inventory cost excludes abnormal waste and

storage, administrative, and selling costs

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Section13:Inventories

Section14InvestmentsinAssociates

A manufacturer allocates fixed production

overheads to inventories based on normal
capacity

Associates are investments where significant

influence exists

Standard costing, retail method, and most

recent purchase price may be used only if the
result approximates actual cost
Impairment write down to net realisable
value (selling price less costs to complete and
sell see Section 27)
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Significant influence is defined as the power to

participate in the financial and operating policy
decisions of the associate but where there is
neither control nor joint control over those
policies
Presumption that significant influence exists if
investor owns 20% or more of the voting shares
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Section15:InvestmentsinJointVentures

Section14:InvestmentsinAssociates
Option to use:
Costimpairment model (except if there is a published
quotation then must use fair value through profit or loss)
Equity method (investor recognises its share of profit or
loss of the associate detailed guidance is provided)
Fair value through profit or loss

65

Section15:InvestmentsinJointVentures
Proportionate consolidation is prohibited
For jointly controlled operations, the venturer
should recognise assets that it controls and
liabilities it incurs as well as its share of
income earned and expenses that are incurred

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MNUBS/ACC235/2016S1/Kendhoo

Cost model (except if there is a published

quotation then must use fair value through
profit or loss)
Equity method (using the guidance in Section 14)

Investments in associates are always classified as non

current assets
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For investments in jointly controlled entities,

there is an option for the venturer to use:

67

Fair value through profit or loss

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66

Section15:InvestmentsinJointVentures
For jointly controlled assets, the venturer
should recognise its share of the assets and
liabilities it incurs as well as income it earns
and expenses that are incurred

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Section16:InvestmentProperty

Section16:InvestmentProperty

Investment property is investments in land,

buildings (or part of a building), and some
property interests in finance leases held to
earn rentals or for capital appreciation or both

Mixed use property must be separated

between investment and operating property

Property interests that are held under an

operating lease may be classified as an
investment property provided the property
would otherwise have met the definition of an
investment property
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69

If fair value can be measured reliably without

undue cost or effort, use the fair value
through profit or loss model
Otherwise, an entity must treat investment
property as property, plant and equipment
using Section 17
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Section17Property,PlantandEquipment

Section17Property,PlantandEquipment

Historical costdepreciationimpairment model only

Measurement is initially at cost, including costs to get the

property ready for its intended use Subsequent to
acquisition, the entity uses the costdepreciation
impairment model, which recognises depreciation and
impairment of the carrying amount

The revaluation model (as in IAS 16) is not permitted

Section 17 applies to most investment property as well
(but if fair value of investment property can be
measured reliably without undue cost or effort then
the fair value model in Section 16 applies)

The carrying amount of an asset, less estimated residual

value, is depreciated over the asset's anticipated useful life
The method of depreciation shall be the method that best
reflects the consumption of the asset's benefits over its life

Section 17 applies to property held for sale there is

no special section on assets held for sale. Holding for
sale is an indicator of possible impairment

Separate significant components should be depreciated

separately

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Section17Property,PlantandEquipment

Section18IntangibleAssetsotherthanGoodwill

Component depreciation only if major parts of an

item of PP&E have 'significantly different patterns
of consumption of economic benefits

No recognition
intangible assets

Review useful life, residual value, depreciation

rate only if there is a significant change in the
asset or how it is used. Any adjustment is a
change in estimate (prospective)

Therefore:

Impairment testing and reversal follow Section

27
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Section18IntangibleAssetsotherthanGoodwill

Amortise over useful life. If the entity is unable to

estimate useful life, then use 10 years. Review useful
life, residual value, depreciation rate only if there is a
significant change in the asset or how it is used. Any
adjustment is a change in estimate (prospective)
Impairment testing follow Section 27
Any revaluation of intangible assets is prohibited

MNUBS/ACC235/2016S1/Kendhoo

internally

generated

Charge all research and development costs to

expense
Charge the following items to expense when
incurred: Costs of internally generated brands,
logos, and masthead, startup costs, training costs,
advertising, and relocating of a division or entity
MNUBS/ACC235/2016S1/Kendhoo

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Section19BusinessCombinationsandGoodwill

Amortisation model for intangibles that are purchased

separately, acquired in a business combination,
acquired by grant, and acquired by exchange of other
assets

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of

75

Section does not apply to combinations of entities under

common control
Acquisition (purchase) method
Under this method:
An acquirer must always be identified
The cost of the business combination is measured. Cost is the fair
value of assets given, liabilities incurred or assumed, and equity
instruments issued, plus costs directly attributable to the
combination
At the acquisition date, the cost is allocated to the assets acquired
and liabilities and provisions for contingent liabilities assumed.
The identifiable assets acquired and liabilities and provisions for
contingent liabilities assumed are measured at their fair values.
Any difference between cost and amounts allocated to identifiable
assets and liabilities (including provisions) is recognised as
goodwill or socalled 'negative goodwill'
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Section19BusinessCombinationsandGoodwill

Section20Leases

All goodwill must be amortised. If the entity is

unable to estimate useful life, then use 10 years

Scope includes arrangements that contain a

lease [IFRIC 4]

'Negative goodwill' first reassess original

accounting. If that is ok, then immediate credit to
profit or loss

Leases are classified as either finance leases

or operating leases

Impairment testing of goodwill follow Section

27
Reversal of
permitted

goodwill

impairment

MNUBS/ACC235/2016S1/Kendhoo

is

not
77

Section20Leases
the lease transfers ownership of the asset to the lessee by
the end of the lease term
the lessee has a 'bargain purchase option'
the lease term is for the major part of the economic life of
the asset even if title is not transferred
at the inception of the lease the present value of the
minimum lease payments amounts to at least substantially
all of the fair value of the leased asset
the leased assets are of such a specialised nature that only
the lessee can use them without major modifications
the lessee bears the lessor losses if cancelled
a secondary rental period at below market rates
the residual value risk is borne by the lessee

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Section20Leases

Substantially all risks and rewards of ownership are

presumed transferred if:

MNUBS/ACC235/2016S1/Kendhoo

Finance leases result in substantially all the risks

and rewards incidental to ownership being
transferred between the parties, while operating
leases do not

79

Lessees finance leases:

The rights and obligations are to be recognised as assets and
liabilities at fair value, or, if lower, the present value of the
minimum lease payments
Any direct costs of the lessee are added to the asset amount
recognised
Subsequently, payments are to be spilt between a finance
charge and reduction of the liability
The asset should be depreciated either over the useful life or
the lease term

Lessees operating leases:

Payments are to be recognised as an expense on the straight
line basis, unless payments are structured to increase in line
with expected general inflation or another systematic basis is
better representative of the time pattern of the user's benefit
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Section20Leases

Section20Leases

Lessors finance leases:

The rights are to be recognised as assets held, i.e. as a
receivable at an amount equal to the net investment in the
lease. The net investment in a lease is the lessor's gross
investment in the lease (including unguaranteed residual value)
discounted at the interest rate implicit in the lease
For finance leases other than those involving manufacturer or
dealer lessors, initial direct costs are included in the initial
measurement of the finance lease receivable and reduce the
amount of income recognised over the lease term
If there is an indication that the estimated unguaranteed
residual value used in computing the lessor's gross investment
in the lease has changed significantly, the income allocation
over the lease term is revised, and any reduction in respect of
amounts accrued is recognised immediately in profit or loss
MNUBS/ACC235/2016S1/Kendhoo

profit or loss equivalent to the profit or loss resulting from

an outright sale of the asset being leased, at normal selling
prices, reflecting any applicable volume or trade discounts;
and
finance income over the lease term

The sales revenue recognised at the commencement

of the lease term by a manufacturer or dealer lessor is
the fair value of the asset or, if lower, the present
value of the minimum lease payments accruing to the
lessor, computed at a market rate of interest
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Section20Leases

Lessors finance leases by a manufacturer or dealer

(Continued):
The cost of sale recognised at the commencement of the
lease term is the cost, or carrying amount if different, of
the leased property less the present value of the
unguaranteed residual value. The difference between the
sales revenue and the cost of sale is the selling profit,
which is recognised in accordance with the entity's policy
for outright sales
If artificially low rates of interest are quoted, selling profit
shall be restricted to that which would apply if a market
rate of interest were charged. Costs incurred by
manufacturer or dealer lessors in connection with
negotiating and arranging a lease shall be recognised as an
expense when the selling profit is recognised

MNUBS/ACC235/2016S1/Kendhoo

A finance lease of an asset by a manufacturer or

dealer lessor gives rise to two types of income:

81

Section20Leases

MNUBS/ACC235/2016S1/Kendhoo

Lessors finance leases by a manufacturer or

dealer:

83

Lessors operating leases:

Lessors retain the assets on their balance sheet and payments
are to be recognised as income on the straight line basis, unless
payments are structured to increase in line with expected
general inflation or another systematic basis is better
representative of the time pattern of the user's benefit

Sale and leaseback:

If a sale and leaseback results in a finance lease, the seller
should not recognise any excess as a profit, but recognise the
excess over the lease term
If a sale and leaseback results in an operating lease, and the
transaction was at fair value, the seller shall recognise any
profits immediately
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Section21ProvisionsandContingencies

Section21ProvisionsandContingencies
Provisions (Continued):

Provisions:
(a) there is a present obligation as a result of a past event,
(b) it is probable that the entity will be required to transfer
economic benefits, and
(c) the amount can be estimated reliably

Initially recognised at the best possible estimate at

the reporting date. This value should take into any
time value of money if this is considered material.
When all or part of a provision may be reimbursed by
a third party, the reimbursement is to be recognised
separately only when it is virtually certain payment
will be received

The obligation may arise due to contract or law or

when there is a constructive obligation due to valid
expectations having been created from past events.
However, these do not include any future actions that
may create an expectation. Nor can expected future
losses be recognised as provisions

Subsequently, provisions are to be reviewed at each

reporting date and adjusted to meet the best current
estimate. Any adjustments are recognised in profit
and loss while any unwinding of discounts is to be
treated as a finance cost

Provisions are recognised only when

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Section21ProvisionsandContingencies

Contingent liabilities:

Onerous contracts
Warranties
Restructuring if legal or constructive obligation to
restructure
Sales refunds

These are not recognised as liabilities

Unless remote, disclose an estimate of the
financial effect, indications of the uncertainties
relating to timing or amount, and the possibility of
reimbursement

Contingent assets:

May NOT accrue provisions for (example):

Future operating losses, no matter how probable
Possible future restructuring (plan but not yet a
legal or constructive obligation)

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Section21ProvisionsandContingencies

Must accrue provisions for (examples):

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87

These are not recognised as assets

Disclose a description of the nature and the
financial effect
MNUBS/ACC235/2016S1/Kendhoo

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Section22LiabilitiesandEquity

Section22LiabilitiesandEquity
Guidance on classifying an instrument as
liability or equity

Puttable financial instruments are only recognised as equity if it has

all of the following features:
The holder is entitled to a pro rata share of the entity's net assets in
the event of liquidation
The instrument is the most subordinate class

An instrument is a liability if the issuer could

be required to pay cash

All financial instruments in the most subordinate class have identical

features
Apart from the puttable features the instrument includes no other
financial instrument features
The total expected cash flows attributable to the instrument over the
life of the instrument are based substantially on the change in the
value of the entity

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89

Members' shares in cooperative entities and

similar instruments are only classified as
equity if the entity has an unconditional right
to refuse redemption of the members' shares
or the redemption is unconditionally
prohibited by local law, regulation or the
entity's governing charter
If the entity could not refuse redemption, the
members' shares are classified as liabilities

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90

Section22LiabilitiesandEquity

Section22LiabilitiesandEquity

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91

Covers some material not covered by full IFRSs, including:

original issuance of shares and other equity instruments. Shares
are only recognised as equity when another party is obliged to
provide cash or other resources in exchange for the
instruments. The instruments are measured at the fair value of
cash or resources received, net of direct costs of issuing the
equity instruments, unless the time value of money is significant
in which case initial measurement is at the present value
amount. When shares are issued before the cash or other
resources are received, the amount receivable is presented as
an offset to equity in the statement of financial position and not
as an asset. Any shares subscribed for which no cash is received
are not recognised as equity before the shares are issued
sales of options, rights and warrants
stock dividends and stock splits these do not result in changes
to total equity but, rather, reclassification of amounts within
equity
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Section22LiabilitiesandEquity

Section22LiabilitiesandEquity

'Split accounting' is required to account for

issuance of convertible instruments

Treasury shares (an entity's own shares that are

reacquired) are measured at the fair value of the
consideration paid and are deducted from the equity

Proceeds on issue of convertible and other compound

financial instruments are split between liability
component and equity component
The liability is measured at its fair value, and the
residual amount is the equity component
The liability is subsequently measured using the
effective interest rate, with the original issue discount
amortised as added interest expense
A comprehensive example of split accounting is
included
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93

No gain or loss is recognised on subsequent resale of

treasury shares
Minority interest changes that do not affect control do not
result in a gain or loss being recognised in profit and loss.
They are equity transactions between the entity and its
owners
Dividends paid in the form of distribution of assets other
than cash are recognised when the entity has an obligation
to distribute the noncash assets. The dividend liability is
measured at the fair value of the assets to be distributed
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94

Section23Revenue

Section23Revenue

Revenue results from the sale of goods,

services being rendered, construction
contracts income by the contractor and the
use by others of your assets

Some types of revenue are excluded from this

section and dealt with elsewhere:

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95

leases (section 20)

dividends from equity accounted entities (section
14 and 15)
changes in fair value of financial instruments
(section 11 and 12)
initial
recognition
and
subsequent
re
measurement of biological assets (section 34) and
initial recognition of agricultural produce (section
34)
96

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Section23Revenue

Section23Revenue
Principleformeasurementofrevenueisthefair
valueoftheconsiderationreceivedorreceivable,
takingintoaccountanypossibletradediscounts
orrebates,includingvolumerebatesandprompt
settlementdiscounts
Ifpaymentisdeferred beyondnormalpayment
terms,thereisafinancingcomponenttothe
transaction.Inthatcase,revenueismeasuredat
thepresentvalueofallfuturereceipts.The
differenceisrecognisedasinterestrevenue
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97

Recognition sale of goods: An entity shall recognise revenue

from the sale of goods when all the following conditions are
satisfied:
(a) the entity has transferred to the buyer the significant risks and
rewards of ownership of the goods
(b) the entity retains neither continuing managerial involvement to
the degree usually associated with ownership nor effective control
over the goods sold
(c) the amount of revenue can be measured reliably
(d) it is probable that the economic benefits associated with the
transaction will flow to the entity
(e) the costs incurred or to be incurred in respect of the transaction
can be measured reliably
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Section23Revenue

Section23Revenue

Recognition sale of services: Use the

percentage of completion method if the outcome
of the transaction can be estimated reliably.
Otherwise use the costrecovery method

Recognition royalties: Royalties shall be recognised

on an accrual basis in accordance with the substance of
the relevant agreement

Recognition construction contracts: Use the

percentage of completion method if the outcome
of the contract can be estimated reliably.
Otherwise use the costrecovery method
Recognition interest: Interest shall be
recognised using the effective interest method as
described in Section 11
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99

Recognition dividends: Dividends shall be recognised

when the shareholder's right to receive payment is
established
Appendix of examples of revenue recognition under
the principles in Section 23
Award credits or other customer loyalty plan awards need
to be accounted for separately
The fair value of such awards reduces the amount of
revenue initially recognised and, instead, is recognised
when awards are redeemed
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Section24GovernmentGrants

Section25BorrowingCosts

This section does not apply to any 'grants' in the

form of income tax benefits
All grants are measured at the fair value of the
asset received or receivable
Recognition as income:
Grants without future performance conditions are
recognised in profit or loss when proceeds are
receivable
If there are performance conditions, the grant is
recognised in profit or loss only when the conditions
are met
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Section26SharebasedPayment
Equitysettled:
Transactions with other than employees are recorded at the fair
value of the goods and services received, if these can be
estimated reliably
Transactions with employees or where the fair value of goods and
services received cannot be reliably measured are measured with
reference to the fair value of the equity instruments granted

Cashsettled:
Liability is measured at fair value on grant date and at each
reporting date and settlement date, with each adjustment
through profit or loss.
For employees where shares only vest after a specific period of
service has been completed, recognise the expense as the service
is rendered

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All borrowing costs are charged to expense

when incurred none are capitalised

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Section26SharebasedPayment

Basic principle: all sharebased payment must be recognised

MNUBS/ACC235/2016S1/Kendhoo

Borrowing costs are interest and other costs

arising on an entity's financial liabilities and
finance lease obligations

103

Sharebased payment with cash alternatives:

Account for all such transactions as cash settled, unless the
entity has a past practice of settling by issuing equity
instruments or the option has no commercial substance
because the cash settlement amount bears no relationship
to, and is likely to be lower in value than, the fair value of
the equity instrument

Fair value of equity instruments granted:

(a) Observable market price if available
(b) If no observable price, use entityspecific market data
such as a recent share transaction or valuation of the
entity
(c) If (a) and (b) are impracticable, directors must use their
judgement to estimate fair value
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Section26SharebasedPayment

Section27ImpairmentofAssets

Certain governmentmandated plans provide

for equity investors (such as employees) to
acquire equity without providing goods or
services that can be specifically identified (or
by providing goods or services that are clearly
less than the fair value of the equity
instruments granted)

Inventories write down, in profit or loss, to

lower of cost and selling price less costs to
complete and sell, if below carrying amount.
When the circumstances that led to the
impairment no longer exist, the impairment is
reversed through profit or loss

These are equitysettled sharebased payment

transactions within the scope of this section
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Other assets write down, in profit or loss, to

recoverable amount, if below carrying
amount. When the circumstances that led to
the impairment no longer exist, the
impairment is reversed through profit or loss
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Section27ImpairmentofAssets

Section27ImpairmentofAssets

Recoverable amount is the greater of fair

value less costs to sell and value in use

If an impairment indicator exists, the entity

should review the useful life and the
depreciation methods even though an
impairment may not be recognised

If recoverable amount of an individual asset

cannot be determined, measure recoverable
amount of that asset's cash generating unit

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Simplified guidance on computing impairment

of goodwill when goodwill cannot be
allocated to cash generating units

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Section28EmployeeBenefits

Section28EmployeeBenefits

Shortterm benefits:

PostEmployment Benefits
Contribution Plans:

Measured at an undiscounted rate and recognised

as the services are rendered

Defined

Contributions are recognised as a liability or an

expense when the contributions are made or due

Other costs such as annual leave are recognised as

a liability as services are rendered and expensed
when the leave is taken or used
Bonus payments are only recognised when an
obligation exists and the amount can be reliably
estimated
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Section28EmployeeBenefits

Section28EmployeeBenefits

PostEmployment Benefits Defined benefit

plans

PostEmployment Benefits Defined benefit

plans (Cont)

Recognise a liability based on the net of present

value of defined benefit obligations less the fair
value of any plan assets at balance sheet date
The projected unit credit method is only used
when it could be applied without undue cost or
effort
Otherwise, en entity can simplify its calculation:
Ignore estimated future salary increases
Ignore future service of current employees (assume
closure of plan)
Ignore possibleMNUBS/ACC235/2016S1/Kendhoo
future inservice mortality
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MNUBS/ACC235/2016S1/Kendhoo

Plan
introductions,
changes,
curtailments,
settlements: Immediate recognition (no deferrals)
For group plans, consolidated amount may be
allocated to parent and subsidiaries on a reasonable
basis
Actuarial gains and losses may be recognised in profit
or loss or as an item of other comprehensive income
but...
No deferral of actuarial gains or losses, including no corridor
approach
All past service cost is recognised immediately in profit or
loss
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Section29IncomeTax

Section28EmployeeBenefits

Requires a temporary difference approach, similar to IAS 12

Other LongTerm benefits:

The entity shall recognise a liability at the present
value of the benefit obligation less any fair value
of plan assets

Termination benefits:
These are recognised in profit and loss
immediately as there are no future economic
benefits to the entity

Current tax:
Recognise a current tax liability if the current tax payable
exceeds the current tax paid at that point in time
Recognise a current tax asset when current tax paid exceeds
current tax payable or the entity has carried a loss forward from
the prior year and this can be used to recover current tax in the
current year
Current tax assets and liabilities for current and prior periods are
measured at the actual amount that is owed or the entity owes
using the applicable tax rates enacted or substantively enacted at
the reporting date
The measurement must include the effect of the possible
outcomes of a review by the tax authorities

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Section29IncomeTax

114

Section29IncomeTax

Deferred tax:

Deferred tax (Cont.):

If an asset or liability is expected to affect taxable

profit if it recovered or settled for its carrying amount,
then a deferred tax asset or liability is recognised
If the entity expects to recover an asset through sale,
and capital gains tax is zero, then no deferred tax is
recognised, because recovery is not expected to affect
taxable profit
Temporary difference arises if the tax basis of such
assets or liabilities is different from carrying amount
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Tax basis assumes recovery by sale. Exception: No deferred

tax on unremitted earnings of foreign subsidiaries and
jointly controlled entities
Recognise deferred tax assets in full, with a valuation
allowance
Criterion is that realisation is probable (more likely than not)
Take uncertainty into account in measuring all current and
deferred taxes assume tax authorities will examine
reported amounts and have full knowledge of all relevant
information
Deferred taxes areMNUBS/ACC235/2016S1/Kendhoo
all presented as noncurrent

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Section29IncomeTax

Section30ForeignCurrencyTranslation

Recognition of changes in current or deferred

tax must be allocated to the related
components of profit or loss, other
comprehensive income and equity

Functional currency approach similar to that

in IAS 21

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117

An entity's functional currency, is the currency

of the primary economic environment in which
it operates

118

Section30ForeignCurrencyTranslation

Section30ForeignCurrencyTranslation
It is a matter of fact, not an accounting policy
choice
A change in functional currency is applied
prospectively from the date of the change

To record a foreign currency transaction in an entity's

functional currency:
On initial recognition, record the transaction by applying the
spot rate at the date of the transaction. An average rate
may be used, unless there are significant fluctuations in the
rate
At reporting date, translate foreign currency monetary
items using the closing rate. For nonmonetary items
measured at historical cost, use the exchange at the date of
the transaction. For nonmonetary items measured at fair
value, use the exchange at the date when the fair value was
determined
For monetary and nonmonetary item translations, gains or
losses are recognised where they were initially recognised
either in profit or loss, comprehensive income, or equity

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Section30ForeignCurrencyTranslation

Section30ForeignCurrencyTranslation

Exchange differences arising from a monetary

item that forms part of the net investment in a
foreign operation are recognised in equity and
are not 'recycled' through profit or loss on
disposal of the investment

An entity may present its financial statements

in a currency different from its functional
currency (a 'presentation currency')

Goodwill arising on acquisition of a foreign

operation is deemed to be an asset of the
subsidiary, and translated at the closing rate at
year end
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Section30ForeignCurrencyTranslation

Section31Hyperinflation

If the entity's functional currency is not

hyperinflationary, translation of assets, liabilities,
income, and expense from functional currency
into presentation currency is done as follows:

An entity must prepare general pricelevel adjusted

financial statements when its functional currency is
hyperinflationary

Assets and liabilities for each statement of financial

position presented are translated at the closing rate at
the date of that statement of financial position
Income and expenses are translated at exchange rates
at the dates of the transactions
All resulting exchange differences are recognised in
other comprehensive income
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IFRS for SMEs provides indicators of hyperinflation but not

an absolute rate. One indicator is where cumulative
inflation approaches or exceeds 100% over a 3 year period
In pricelevel adjusted financial statements, all amounts are
stated in terms of the (hyperinflationary) presentation
currency at the end of the reporting period. Comparative
information and any information presented in respect of
earlier periods must also be restated in the presentation
currency
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Section31Hyperinflation
All assets and liabilities not recorded at the presentation
currency at the end of the reporting period must be
restated by applying the general price index (generally an
index published by the government)
All amounts in the statement of comprehensive income and
statement of cash flows must also be recorded at the
presentation currency at the end of the reporting period.
These amounts are restated by applying the general price
index from the dates when they were recorded
The gain or loss on translating the net monetary position is
included in profit or loss. However, that gain or loss is
adjusted for those assets and liabilities linked by agreement
to changes in prices
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Section32EventsaftertheEndofthe
ReportingPeriod

MNUBS/ACC235/2016S1/Kendhoo

Adjust financial statements to reflect adjusting

events events after the balance sheet date
that provide further evidence of conditions
that existed at the end of the reporting period
Do not adjust for nonadjusting events
events or conditions that arose after the end
of the reporting period. For these, the entity
must disclose the nature of event and an
estimate of its financial effect
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Section33RelatedPartyDisclosures

If an entity declares dividends after the

reporting period, the entity shall not recognise
those dividends as a liability at the end of the
reporting period. That is a nonadjusting event

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Section32EventsaftertheEndofthe
ReportingPeriod

127

Disclose parentsubsidiary relationships, including

the name of the parent and (if any) the ultimate
controlling party
Disclose
key
management
personnel
compensation in total for all key management.
Compensation includes salaries, shortterm
benefits, postemployment benefits, other long
term benefits, termination benefits and share
based payments. Key management personnel are
persons responsible for planning, directing and
controlling the activities of an entity, and include
executive and nonexecutive directors
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Section33RelatedPartyDisclosures

Section34Specialised Activities

Disclose the following for transactions between

related parties:
Nature of the relationship
Information about the transactions and outstanding
balances necessary to understand the potential
impact on the financial statements
Amount of the transaction
Provisions for uncollectible receivables
Any expense recognised during the period in respect
of an amount owed by a related party

Government departments and agencies are not

related parties simply by virtue of their normal
dealings with an entity
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Agriculture:
If the fair value of a class of biological asset is readily
determinable without undue cost or effort, use the fair
value through profit or loss model
If the fair value is not readily determinable, or is
determinable only with undue cost or effort, measure
the biological assets at cost less and accumulated
depreciation and impairment
At harvest, agricultural produce is be measured at fair
value less estimated costs to sell. Thereafter it is
accounted for an inventory
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Section34Specialised Activities

Section34Specialised Activities

Extractive industries:
Not required to charge exploration costs to
expense, but must test for impairment

Service concession arrangements:

Guidance is provided on how the operator accounts for a
service concession arrangement. The operator either
recognises a financial asset or an intangible asset
depending on whether the grantor (government) has
provided an unconditional guarantee of payment or not

Expenditure on tangible or intangible assets used

in extractive activities is accounted for under
Section 17 Property, Plant and Equipment and
Section 18 Intangible Assets other than Goodwill
An obligation to dismantle or remove items or
restore sites is accounted for using Section 17
and Section 21 Provisions and Contingencies
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A financial asset is recognised to the extent that the

operator has an unconditional contractual right to receive
cash or another financial asset from or at the direction of
the grantor for the construction services
An intangible asset is recognised to the extent that the
operator receives a right or license to charge users for the
public service
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Section35TransitiontotheIFRSforSMEs

Section35TransitiontotheIFRSforSMEs

Firsttime adoption is the first set of financial

statements in which the entity makes an
explicit and unreserved statement of
compliance with the IFRS for SMEs: '...in
conformity with the International Financial
Reporting Standard for Small and Medium
sized Entities

Can be switching from:

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National GAAP
Full IFRSs
Or never published General Purpose Financial
Statements in the past

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Section35TransitiontotheIFRSforSMEs

Section35TransitiontotheIFRSforSMEs

Date of transition is beginning of earliest period

presented

But there are many exceptions from restating

specific items

Select accounting policies based on IFRS for SMEs

at end of reporting period of firsttime adoption
Many accounting policy decisions
circumstances not 'free choice'
But some are pure 'free choice

depend

on

Some exceptions are optional

Some exceptions are mandatory

And a general exemption for impracticability

Prepare current year and one prior year's

financial statements using the IFRS for SMEs

All of the special exemptions in IFRS 1 are

included in the IFRS for SMEs

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