IFRS For SMEs Comparison

IFRS for small and medium-sized entities
A comparison with IFRS the basics
Contents
Introduction Chapter one Preparation and presentation of financial statements Chapter two Business combinations and group financial statements Chapter three Elements of the statement of financial position Chapter four Elements of the statement of comprehensive income Chapter five Transition to the IFRS for SMEs Contents by section 3 4 26 52 102 114 118
Introduction
Shortly 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 standalone 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
Chapter one
Preparation and presentation of financial statements
Executive summary
In this chapter, we compare the following sections of the IFRS for SMEs with the relevant standard under full IFRS.
IFRS for SMEs Section 1 Small and Medium-sized Entities Section 2 Concepts and Pervasive Principles Section 3 Financial Statement Presentation Section 4 Statement of Financial Position Section 5 Statement of Comprehensive Income and Income Statement Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings Section 7 Statement of Cash Flows Section 8 Notes to the Financial Statements Section 10 Accounting Policies, Estimates and Errors Section 32 Events after the End of the Reporting Period Section 33 Related Party Disclosures Section 31 Hyperinflation IFRS IAS 1 Presentation of Financial Statements Framework for the Preparation and Presentation of Financial Statements IAS 1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IAS 1 Presentation of Financial Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Reporting Period IAS 24 Related Party Disclosures IAS 29 Financial Reporting in Hyperinflationary Economies
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.
Preparation and presentation of financial statements CHAPTER ONE 5
Section 1: Small and medium-sized entities

IFRS for SMEs Section 1 Small and Medium-sized Entities
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.
IFRS IAS 1 Presentation of Financial Statements
Impact assessment
6 CHAPTER ONE Preparation and presentation of financial statements
Section 2: Concepts and pervasive principles

IFRS for SMEs Section 2 Concepts and Pervasive Principles IFRS Framework for the Preparation and Presentation of Financial Statements IAS 1 Presentation of Financial Statements
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.
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 decisionmaking 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. Qualitative characteristics The qualitative characteristics of financial statements listed in the The Framework lists similar qualitative characteristics and considerations as IFRS for SMEs. In addition, the Framework standard are: deals with the following issues: Understandability Relevance Materiality Reliability Substance over form Prudence Completeness Comparability Timeliness Balance between benefit and cost. 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. 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.
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 SMEs Section 2 Concepts and Pervasive Principles IFRS Framework for the Preparation and Presentation of Financial Statements IAS 1 Presentation of Financial Statements
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.
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. 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. Accrual basis An entity must prepare its financial statements, except for cash flow information, using the accrual basis of accounting. 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. 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. 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.
Section 3: Financial statement presentation

IFRS for SMEs Section 3 Financial Statements Presentation
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.
Impact assessment
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. 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. 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.
Section 3: Financial statement presentation continued

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. 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. 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. 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. No differences are expected in this regard. 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. No differences are expected in this regard. 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. No differences are expected in this regard. Financial statements should be prepared at least annually. Certain disclosures are required if the reporting period is longer or shorter than a year. No differences are expected in this regard.
Impact assessment
Section 3: Financial statement presentation continued

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. 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. 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.
Impact assessment
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 4: Statement of financial position

IFRS for SMEs Section 4 Statement of Financial Position
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.
Impact assessment
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. 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. Other than the specific liquidity disclosures under full IFRS, no differences exist in respect of the requirements under IFRS for SMEs.
Section 5: Statement of comprehensive income and income statement

IFRS for SMEs Section 5 Statement of Comprehensive Income and Income Statement
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 noncontrolling interest in profit and loss and total comprehensive income. No item may be disclosed as extraordinary. 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). 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. 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).
Impact assessment
Disclosures are required in respect of the taxation effects and any reclassification adjustments relating to components of other Additional disclosures with respect to taxation effects have been comprehensive income. 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 SMEs Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings
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.
Impact assessment
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 SMEs Section 7 Statement of Cash Flows
Cash equivalents Cash equivalents are short-term, highly liquid investments held to Cash equivalents are held for meeting short-term cash meet short-term cash commitments rather than for investment commitments rather than for investment or other purposes. For or other purposes. an investment to qualify as a cash equivalent, it must be readily convertible to a known amount of cash and be subject to an Bank overdrafts may be included when repayable on demand and insignificant risk of changes in value. are an integral part of the entitys cash management. 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. 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 from operating activities Cash flows from operating activities may be presented using the indirect or direct methods. 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. 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 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. 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.
IFRS IAS 7 Statement of Cash Flows
Impact assessment
Section 7: Statement of cash flows continued

IFRS for SMEs Section 7 Statement of Cash Flows
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. 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. 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. 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. 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. 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.
IFRS IAS 7 Statement of Cash Flows

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.
Impact assessment
No differences are expected in respect of these specific types of cash flows.
Section 8: Notes to the financial statements

IFRS for SMEs Section 8 Notes to the Financial Statements
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. 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. 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.
Impact assessment
Section 10: Selection and application of accounting policies

IFRS for SMEs Section 10 Accounting Policies, Estimates and Errors
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. 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. 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.
IFRS IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Impact assessment
Section 10: Selection and application of accounting policies continued

IFRS for SMEs Section 10 Accounting Policies, Estimates and Errors
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. 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. 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.
IFRS IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Impact assessment
Section 32: Events after the end of the reporting period

IFRS for SMEs Section 32 Events after the End of the Reporting Period
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. 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. 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). 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. 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.
IFRS IAS 10 Events after the Reporting Period
Impact assessment
Section 33: Related party disclosures

IFRS for SMEs Section 33 Related Party Disclosures
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) b) c) d) Related party relationships and transactions Outstanding balances between an entity and its related parties Circumstances in which disclosure of these items is required Disclosures to be made about those items. No differences are expected in scope.
IFRS IAS 24 Related Party Disclosures
Impact assessment
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 entity c) The party is a joint venture in which the entity is a venturer d) The party is a member of the key management personnel e) The party is a close member of the family in (a) or (d) above f) 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.
Section 33: Related party disclosures continued

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. 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) b) c) d) e) Disclosures At a minimum, entities must disclose the following regarding related party transactions: a) The amount of the transactions b) 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 doubtful debts. At a minimum, entities must disclose the following regarding related party transactions: a) The amount of the transactions b) 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 doubtful debts. No differences are expected in the minimum disclosure requirements. Short-term employee benefits Post-employment benefits Other long-term benefits Termination benefits 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. 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.
Impact assessment
Section 33: Related party disclosures continued

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 personnel d) Other related parties.

The above disclosures must be made separately for each of the following categories: a) The parent b) Entities with joint control or significant influence over the entity c) Subsidiaries d) Associates e) Joint ventures in which the entity is a venturer f) Key management personnel g) Other related 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.
Impact assessment
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.
The disclosure requirements for SMEs are less onerous as there is no disclosure required in relation to state controlled entities.
Section 31: Hyperinflation

IFRS for SMEs Section 31 Hyperinflation
Scope Applies to an entity whose functional currency is that of a hyperinflationary economy. 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. 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.
IFRS IAS 29 Financial Reporting in Hyperinflationary Economies
Impact assessment
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. 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. The requirements to restate the financial statements are the same under IFRS for SMEs and full IFRS.
Section 31: Hyperinflation continued

IFRS for SMEs Section 31 Hyperinflation
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.
IFRS IAS 29 Financial Reporting in Hyperinflationary Economies
Impact assessment
Chapter two
Business combinations and group financial statements
Executive summary
In 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:
IFRS for SMEs Section 19 Business Combinations and Goodwill Section 9 Consolidated and Separate Financial Statements Section 15 Investments in Joint Ventures Section 14 Investments in Associates IFRS IFRS 3 Business Combinations IAS 27 Consolidated and Separate Financial Statements SIC 12 Consolidation Special Purpose Entities IAS 31 Interests in Joint Ventures IAS 28 Investments in Associates
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.
Business combinations and group financial statements CHAPTER TWO 27
Section 19: Business combinations and goodwill

IFRS for SMEs Section 19 Business Combinations and Goodwill
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. 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. 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.
IFRS IFRS 3 Business Combinations
Impact assessment
28 CHAPTER TWO Business combinations and group financial statements
Section 19: Business combinations and goodwill continued

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.
Impact assessment
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.

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. Allocating the cost of a business combination The acquirees identifiable assets and liabilities and any The identifiable assets acquired and liabilities assumed of the contingent liabilities that can be measured reliably are recognised acquiree are recognised as of the acquisition date, separately at their acquisition date fair values. from goodwill and measured at fair value as at that date. 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). 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. 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.
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 nonoccurrence 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. 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. 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.
Impact assessment

Measurement of goodwill Goodwill is initially measured at cost, being the excess of the cost The measurement of goodwill at the acquisition date is computed of the business combination over the acquirers interest in the net as the excess of (a) over (b) below: fair value of the identifiable assets, liabilities and contingent a) The aggregate of: liabilities recognised. The consideration transferred (generally measured at acquisition-date fair value) After initial recognition, goodwill is measured at cost less The amount of any non-controlling interest in the accumulated amortisation and accumulated impairment losses. acquiree Goodwill is amortised in accordance with the principles of The acquisition-date fair value of the acquirers previously amortisation of intangible assets in Section 18. If a reliable held equity interest in the acquiree estimate of the useful life of goodwill cannot be made the life is b) The net of the acquisition-date fair values (or other amounts presumed to be 10 years. Detailed requirements in relation to recognised in accordance with the requirements of the standard) of the identifiable assets acquired and the liabilities impairment testing of goodwill are contained in Section 27. This assumed. includes the requirement that the acquirer test it for impairment where there is an indication that it may be impaired. 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 assumed b) The non-controlling interest in the acquiree, if any c) For a business combination achieved in stages, the acquirers previously held equity interest in the acquiree d) 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.
Impact assessment
Section 9: Consolidated and separate financial statements

IFRS for SMEs Section 9 Consolidated and Separate Financial Statements
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.
IFRS IAS 27 Consolidated and Separate Financial Statements SIC 12 Consolidation Special Purpose Entities
Impact assessment
Section 9: Consolidated and separate financial statements continued

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 partiallyowned 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 subsidiary acquired with the intention of selling it within one year, provided it is the only subsidiary.
Impact assessment

Definition of control Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. That presumption may be overcome in exceptional circumstances if it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity but it has: a) Power over more than half of the voting rights by virtue of an agreement with other investors b) Power to govern the financial and operating policies of the entity under a statute or an agreement c) Power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body or d) Power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity when there is: a) Power over more than half of the voting rights by virtue of an agreement with other investors b) Power to govern the financial and operating policies of the entity under a statute or an agreement c) Power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body or d) Power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body. The definition in IFRS for SMEs and IFRS is the same.
Impact assessment

Special purpose entities An entity may be created to accomplish a narrow objective (e.g., to effect a lease, undertake research and development activities or securitise financial assets). Such a special purpose entity (SPE) may take the form of a corporation, trust, partnership or unincorporated entity. Often, SPEs are created with legal arrangements that impose strict requirements over the operations of the SPE. An entity must prepare consolidated financial statements that include the entity and any SPEs that are controlled by that entity. In addition to the circumstances described in paragraph 9.5 (see definition of control above), the following circumstances may indicate that an entity controls an SPE (this is not an exhaustive list): a) The activities of the SPE are being conducted on behalf of the entity according to its specific business needs b) The entity has the ultimate decision-making powers over the activities of the SPE even if the day-to-day decisions have been delegated c) The entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE d) The entity retains the majority of the residual or ownership risks related to the SPE or its assets. An SPE must be consolidated when the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by that entity. In addition to the situations described in IAS 27.13 (see definition of control above), the following circumstances, for example, may indicate a relationship in which an entity controls an SPE and consequently should consolidate the SPE (additional guidance is provided in the Appendix to SIC 12): a) In substance, the activities of the SPE are being conducted on behalf of the entity according to its specific business needs so that the entity obtains benefits from the SPEs operation b) In substance, the entity has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an autopilot mechanism, the entity has delegated these decision-making powers c) In substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE or d) In substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities. The conditions in IFRS for SMEs and IFRS are equivalent, although the wording for delegation of decision-making is slightly different.
Impact assessment

Currently exercisable options Control can also be achieved by having options or convertible instruments that are currently exercisable, or by having an agent with the ability to direct the activities for the benefit of the controlling entity. An entity may own share warrants, share call options, or debt or equity instruments that are convertible into ordinary shares. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has the power to govern the financial and operating policies of another entity. IFRS for SMEs and IFRS have similar requirements.
Impact assessment
Consolidation procedures This section includes consolidation procedures, requirements to eliminate intra-group balances and the requirement to have uniform reporting dates and uniform accounting policies. This section includes consolidation procedures, requirements to eliminate intra-group balances and the requirement to have uniform reporting dates and uniform accounting policies. IFRS for SMEs and full IFRS have the same consolidation procedures.

Disposal of subsidiaries The difference between the proceeds from the disposal of the subsidiary and its carrying amount as of the date of disposal, excluding the cumulative amount of any exchange differences that relate to a foreign subsidiary recognised in equity, in accordance with Section 30 Foreign Currency Translation, is recognised in the consolidated statement of comprehensive income (or the income statement, if presented) as the gain or loss on the disposal of the subsidiary. If the parent continues to hold an investment in the entity, it is accounted for as a financial asset, associate or jointly controlled entity depending on the nature of the investment. The carrying amount of the investment at the date it ceases to be a subsidiary is the cost on initial measurement as a financial asset, associate or jointly controlled entity. If a parent loses control of a subsidiary, it: a) Derecognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost b) Derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them) c) Recognises: The fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control If the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution d) Recognises any investment retained in the former subsidiary at its fair value at the date when control is lost e) Reclassifies to profit or loss, or transfers directly to retained earnings if required in accordance with other IFRSs, the amounts identified in paragraph 35 f) Recognises any resulting difference as a gain or loss in profit or loss attributable to the parent. If a parent loses control of a subsidiary, the parent must account for all amounts recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the parent reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. IFRS for SMEs differs from full IFRS in the treatment of the disposal of subsidiaries. The main differences relate to the simplifications in the SME standard and so under IFRS for SMEs, the gain or loss on disposal may differ.
Impact assessment

Non-controlling interests Non-controlling interests must be presented separately from the interests of the owners of the parent. Deficit balances of non-controlling interests are permitted. Separate financial statements If separate financial statements are prepared, a parent, an investor in an associate or a venturer with an interest in a jointly controlled entity must account for its investments in subsidiaries, associates and jointly controlled entities either: a) At cost less impairment or b) At fair value with changes in fair value recognised in profit or loss. The entity must apply the same accounting policy for all investments in a single class (subsidiaries, associates or jointly controlled entities), but it can elect different policies for different classes. If separate financial statements are prepared, a parent, an investor in an associate or a venturer with an interest in a jointly controlled entity must account for its investments in subsidiaries, associates and jointly controlled entities either: a) At cost or b) In accordance with IAS 39. The entity must apply the same accounting policy for each category of investments. There are additional requirement in relation to investments accounted for at cost that are classified as held for sale. There may be significant differences in accounting for investments in subsidiaries, associates and jointly controlled entities. These differences arise because of the differences in accounting for financial instruments under IFRS for SMEs and IFRS. In particular IFRS allows an available for sale category where investments are measured at fair value and movements recognised in equity (subject to impairment). For investments accounted for at cost, there may also be differences as a result of the different impairment requirements under IFRS and IFRS for SMEs. Non-controlling interests must be presented separately from the interests of the owners of the parent. Deficit balances of non-controlling interests permitted. There is no difference between IFRS for SMEs and IFRS.
Impact assessment
Section 15: Investments in joint ventures

IFRS for SMEs Section 15 Investments in Joint Ventures
Scope The section is applicable to accounting for all joint ventures in consolidated financial statements and in financial statements of an investor that is not a parent but has an interest in one or more joint ventures. Accounting for interests in joint ventures in a venturers separate financial statements is covered in Section 9. The standard applies in accounting for all interests in joint ventures regardless of the structures or forms under which the joint venture activities take place. However, the scope excludes interests in jointly controlled entities held by venture capital organisations or mutual funds, unit trusts and similar entities that on initial recognition are designated as at fair value through profit or loss or classified as held for trading under IAS 39. The standard refers to IAS 27 for the requirements on accounting for interests in joint venture entities in a venturers separate financial statements. Definitions A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures can take the form of jointly controlled operations, jointly controlled assets, or jointly controlled entities. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic, financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. The standard identifies three broad types of joint venture jointly controlled operations, jointly controlled assets, or jointly controlled entities. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic, financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). There is no difference between IFRS for SMEs and IFRS. Venture capital organisations or mutual funds, unit trusts and similar entities that hold interests in joint ventures are not exempted from IFRS for SMEs. However, in practice these types of entity are less likely to meet the definition of an SME and therefore often will not be able to apply the standard.
IFRS IAS 31 Interests in Joint Ventures
Impact assessment
Section 15: Investments in joint ventures continued

Jointly controlled operations Jointly controlled operations involve the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturers employees alongside the venturers similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers. In respect of its interests in jointly controlled operations, a venturer must recognise in its financial statements: a) The assets that it controls and the liabilities that it incurs b) The expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture. Jointly controlled operations involve the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturers employees alongside the venturers similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers. In respect of its interests in jointly controlled operations, a venturer must recognise in its financial statements: a) The assets that it controls and the liabilities that it incurs b) The expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture. There are no differences between the definition and accounting requirements in IFRS for SMEs and IFRS.
Impact assessment

Jointly controlled assets There are no differences between the definition and accounting Jointly controlled assets involve the joint control, and often the requirements in IFRS for SMEs and IFRS. joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of the joint venture and dedicated to the purposes of the joint venture. The assets are used to obtain benefits for the venturers. Each venturer may take A venturer must recognise in its financial statements: a share of the output from the assets and each bears an agreed a) Its share of the jointly controlled assets, classified according to share of the expenses incurred. the nature of the assets A venturer must recognise in its financial statements: b) Any liabilities that it has incurred Jointly controlled assets involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of the joint venture and dedicated to the purposes of the joint venture. c) Its share of any liabilities incurred jointly with the other venturers in relation to the joint venture d) Any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture e) Any expenses that it has incurred in respect of its interest in the joint venture. a) Its share of the jointly controlled assets, classified according to the nature of the assets b) Any liabilities that it has incurred c) Its share of any liabilities incurred jointly with the other venturers in relation to the joint venture d) Any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture e) Any expenses that it has incurred in respect of its interest in the joint venture.
Impact assessment
Definition of jointly controlled entities A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity. There are no differences between the definition in IFRS for SMEs A jointly controlled entity is a joint venture that involves the and IFRS. establishment of a corporation, partnership or other entity in which each venturer has an interest. The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

Measurement of jointly controlled entities A venturer must account for all of its interests in jointly controlled A venturer must account for all of its interests in jointly controlled IFRS for SMEs differs from IFRS in that it permits jointly controlled entities to be accounted for using the cost model entities using one of the following: entities using one of the following: (provided a published price quotation is not available) and allows Proportionate consolidation (the financial statements of the The cost model (investment is measured at cost less any use of the fair value model, neither of which is available under venturer include its share of the assets that it controls jointly accumulated impairment losses). This model may not be used IFRS. Furthermore, use of proportionate consolidation to account and of the liabilities for which it is jointly responsible, and its for investments for which there is a published price quotation, share of the income and expenses of the jointly controlled in which case the fair value model must be applied for jointly controlled entities is permitted by IFRS but is not an entity) available option under IFRS for SMEs. The equity method (investment is measured using the The equity method (investment is measured using the method as applied to associates and outlined in As IFRS for SMEs does not contain requirements relating to method applied to associates as outlined in IAS 28). Section 14) assets classified as held for sale, there are no provisions in the The fair value model (investment is initially measured at Interests in jointly controlled entities that are classified as held standard relating to interests in jointly controlled entities transaction price and subsequently remeasured to fair value for sale are accounted for as such in accordance with IFRS 5. classified as held for sale (such as cessation of the use of equity at each reporting date, with changes in fair value recognised in profit or loss). Cost model may be applied to investments accounting). Therefore, the statement of financial position for an for which it is impracticable to measure fair value without SME may differ significantly to that of an entity reporting under undue cost or effort. full IFRS.
Impact assessment

Transactions between a venturer and joint venture When a venturer contributes or sells assets to a joint venture, IFRS for SMEs requires that the recognition of any gain or loss should reflect the substance of the transaction. While the assets are retained by the joint venture, and provided that the venturer has transferred the significant risks and rewards of ownership, the venturer should recognise only that portion of the gain or loss which is attributable to the interests of the other venturers. However, the venturer should recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss. When a venturer purchases assets from a joint venture, the venturer must not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an unrelated third party. A venturer recognises its share of the losses resulting from these transactions in the same way as profits, except that losses should be recognised immediately when they represent an impairment loss. When a venturer contributes or sells assets to a joint venture, IFRS requires that the recognition of any gain or loss should reflect the substance of the transaction. While the assets are retained by the joint venture, and provided that the venturer has transferred the significant risks and rewards of ownership, the venturer should recognise only that portion of the gain or loss which is attributable to the interests of the other venturers. However, the venturer should recognise the full amount of any loss when the contribution or sale provides evidence of a reduction in the net realisable value of current assets or an impairment loss. When a venturer purchases assets from a joint venture, the venturer must not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an unrelated third party. A venturer recognises its share of the losses resulting from these transactions in the same way as profits, except that losses should be recognised immediately when they represent a reduction in the net realisable value of current assets or an impairment loss. Where non-monetary assets are contributed to a jointly controlled entity, the additional guidance in SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers must also be considered. There are no differences between the requirements in IFRS for SMEs and IFRS, after allowing for the terminology differences. IFRS for SMEs defines the term impairment to include inventories rather than using the separate terminology of net realisable value of current assets.
Impact assessment
Section 14: Investments in associates

IFRS for SMEs Section 14 Investments in Associates
Scope The section is applicable to accounting for associates in consolidated financial statements and in financial statements of an investor that is not a parent, but has an interest in one or more associates. Accounting for interests in associates in an investors separate financial statements is covered in Section 9. The standard applies to accounting for investments in associates. However, the scope excludes investments in associates held by venture capital organisations or mutual funds, unit trusts and similar entities that on initial recognition are designated as at fair value through profit or loss or classified as held for trading under IAS 39. The standard refers to IAS 27 for the requirements on accounting for investments in associates in an investors separate financial statements. Definitions An associate is an entity, including an unincorporated entity such as a partnership, over which an investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating decisions of the associate, but is not control or joint control over those policies. Significant influence is presumed where an investor holds 20 per cent or more of the voting power of the associate, unless it can be clearly demonstrated that this is not the case. An associate is an entity, including an unincorporated entity such as a partnership, over which an investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating decisions of the associate, but is not control or joint control over those policies. Significant influence is presumed where an investor holds 20 per cent or more of the voting power of the associate, unless it can be clearly demonstrated that this is not the case. There are no differences between the definitions in IFRS for SMEs and IFRS. Venture capital organisations or mutual funds, unit trusts and similar entities that hold investments in associates are not exempted from IFRS for SMEs. However, in practice these types of entity are less likely to meet the definition of an SME and therefore often will not be able to apply the standard.
IFRS IAS 28 Investments in Associates
Impact assessment
Section 14: Investments in associates continued

Measurement An investor must account for all of its investments in associates using one of the following: The cost model (investment is measured at cost less any accumulated impairment losses). This model may not be used for investments for which there is a published price quotation, in which case the fair value model must be applied. The equity method (investment is initially measured at transaction price and subsequently adjusted to reflect the investors share of profit or loss and other comprehensive income of the associate). The fair value model (investment is initially measured at transaction price and subsequently remeasured to fair value at each reporting date, with changes in fair value recognised in profit or loss). Cost model may be applied to investments for which it is impracticable to measure fair value without undue cost or effort. Equity method adjustments to the carrying amounts The carrying amount of the investment is reduced for distributions received from the associate and adjusted due to changes in equity resulting from items of other comprehensive income. Equity method potential voting rights Potential voting rights are considered when deciding whether significant influence exists. However, share of profit or loss and changes in associates equity are measured based on present ownership interest. Equity method implicit goodwill and fair value adjustments Any difference between the cost of acquisition and the investors share of net identifiable assets of the associate is accounted for as goodwill or discount on acquisition. The investors share of an associates profits or losses is adjusted to account for any additional depreciation/amortisation on the basis of the excess of their fair values over carrying amounts at acquisition of the investment. Any difference between the cost of acquisition and the investors share of net identifiable assets of the associate is accounted for as goodwill or discount on acquisition. The investors share of an associates profits or losses is adjusted to account for any additional depreciation/amortisation on the basis of the excess of their fair values over carrying amounts at acquisition of the investment. While the requirements of IFRS for SMEs and IFRS are the same, the subsequent accounting for goodwill differs as detailed in Section 19. In particular, IFRS for SMEs requires implicit goodwill to be amortised over its useful life (or 10 years if the useful life cannot be reliably estimated). This amortisation is included in the calculation of the investors share of profits or losses of the associate under IFRS for SMEs. Potential voting rights are considered when deciding whether significant influence exists. However, share of profit or loss and changes in associates equity are measured based on present ownership interest. There is no difference between IFRS for SMEs and IFRS. The carrying amount of the investment is reduced for distributions received from the associate and adjusted due to changes in equity resulting from items of other comprehensive income. There is no difference between IFRS for SMEs and IFRS. An investor accounts for all of its investments in associates using the equity method. Investments in associates that are classified as held for sale are accounted for as such in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The equity method requires that the investment is initially recognised at cost and adjusted thereafter for the postacquisition change in the investors share of the net assets of the investee. The profit or loss of the investor includes the investors share of the profit or loss of the investee. IFRS for SMEs differs from IFRS in that it permits associates to be accounted for using the cost model (provided a published price quotation is not available) and allows use of the fair value model, neither of which is available under IFRS. There is no effective difference between the equity method as described under IFRS for SMEs and IFRS (however, see discussion of application of the equity method below). As IFRS for SMEs does not contain requirements relating to assets classified as held for sale, there are no provisions in the standard relating to investments in associates classified as held for sale (such as cessation of the use of equity accounting). Also, the additional exemptions to the use of the equity method provided in IAS 28 are not included in IFRS for SMEs.
Impact assessment

Equity method impairment The entire carrying amount of an investment in an associate is tested for impairment when there is an indication it may be impaired (i.e., including any goodwill, which is not separately impairment tested). The entire carrying amount of an investment in an associate is tested for impairment when there is an indication it may be impaired (i.e., including any goodwill, which is not separately impairment tested). While the requirements of IFRS for SMEs and IFRS are the same, the requirements relating to impairment testing differ as detailed in Section 27. In particular, for investments in associates, IFRS requires reference to impairment indicators in IAS 39, but impairment testing to be carried out in accordance with IAS 36. IFRS for SMEs requires the application of the general impairment indicators in section 27.
Impact assessment
Equity method investor transactions with associates Unrealised profits and losses arising from both upstream and downstream transactions are eliminated to the extent of the investors interest in the associate. Equity method date of associates financial statements Requires use of financial statements of the associate as of the same date as those of the investor, unless it is impracticable to do so. If it is impracticable, the investor must use the most recent available financial statements of the associate adjusted for significant transactions or events between the accounting period ends. Requires use of the most recent available financial statements of the associate, and where the associates and investors reporting period ends differ, the associate must prepare financial statements as of the same date as the investors financial statements, unless impracticable. Where the associates financial statements are prepared as of a different date to the investor, the associates statements are adjusted for significant transactions or events between the accounting period ends. In any case, the difference between the reporting period ends may be no longer than three months, and the length of the reporting periods and any difference between the ends of the reporting periods must be the same from period to period. IFRS for SMEs is less restrictive than IFRS in relation to the financial statements of the associate that must be used to apply equity accounting. IFRS applies a strict maximum of three months difference in reporting dates which does not apply in IFRS for SMEs. Both IFRS for SMEs and IFRS provide an impracticability exception, which in both cases requires adjustments for significant transactions and events to be made to the associates financial statements. Unrealised profits and losses arising from both upstream and downstream transactions are eliminated to the extent of the investors interest in the associate. There are no differences between the requirements under IFRS for SMEs and IFRS.
Equity method accounting policies If the associates accounting policies differ from those of the investor, the investor must adjust the associates policies to reflect the investors policies unless impracticable. If the associates accounting policies differ from those of the investor for like transactions and events, adjustments must be made to the associates policies to conform to the investors policies. IFRS for SMEs provides an impracticability exemption to the requirement to conform an associates policies to those of the investor, which is not included in IFRS. However, use of this exemption by SMEs is expected to be rare.

Equity method losses in excesses of investment If an investors share of losses of an associate equals or exceeds the carrying amount of its investment in the associate, the investor must discontinue recognising its share of further losses. After the investors interest is reduced to zero, the investor must recognise additional losses by a provision (see Section 21) only to the extent that the investor has incurred legal or constructive obligations or has made payments on behalf of the associate. If the associate subsequently reports profits, the investor must resume recognising its share of those profits only after its share of the profits equals the share of losses not recognised. If an investors share of losses of an associate equals or exceeds its interest in the associate, the investor discontinues recognising its share of further losses. The interest in the associate is the carrying amount of the investment under the equity method plus any long-term interests that, in substance, form part of the investors net investment in the associate. Losses recognised under the equity method in excess of the investors investment in ordinary shares are applied to the other components of the investors interest in an associate in the reverse order of their seniority. After the investors interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associate. If the associate subsequently reports profits, the investor resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. IFRS for SMEs does not refer to inclusion in the investors interest in the associate of long-term interests that in substance are part of the net investment in the associate.
Impact assessment

Discontinuing the equity method An investor must cease using the equity method from the date that significant influence ceases. If the associate becomes a subsidiary or joint venture, the investor remeasures its previously held equity interest to fair value and recognises any resulting gain or loss in profit or loss. If an investor loses significant influence over an associate as a result of a full or partial disposal, it must derecognise that associate and recognise in profit or loss the difference between: The sum of the proceeds received plus the fair value of any retained interest The carrying amount of the investment in the associate at the date significant influence is lost. Thereafter, the investor accounts for any retained interest as a financial asset using Section 11 and Section 12, as appropriate. If an investor loses significant influence for reasons other than a partial disposal of its investment, the investor regards the carrying amount of the investment at that date as a new cost basis and accounts for the investment using Sections 11 and 12, as appropriate. Classification Investments in associates are classified as non-current assets. Investments in associates are classified as non-current assets. There are no differences between the classification under IFRS for SMEs and IFRS. An investor must discontinue use of the equity method from the date it ceases to have significant influence. On loss of significant influence, the investor must measure at fair value any investment the investor retains in the former associate. The investor must recognise in profit or loss any difference between: The fair value of any retained investment and any proceeds from disposing of the part interest in the associate The carrying amount of the investment at the date when significant influence is lost. If the associate becomes a subsidiary or joint venture, the investment is accounted for in accordance with IAS 27 or IAS 31, respectively. Otherwise the investment is accounted for in accordance with IAS 39 and the fair value of the investment at the date when it ceases to be an associate is regarded as its fair value on initial recognition as a financial asset. IFRS for SMEs distinguishes losses of significant influence due to partial disposal of investments and those which arise for other reasons. In the latter case the investment is not remeasured to fair value. IFRS makes no such distinction, requiring remeasurement of the investment to fair value on loss of significant influence irrespective of the reason it arises.
Impact assessment
Chapter three
Elements of the statement of financial position
Executive summary
In this chapter, we consider the elements that make up the statement of financial position and compare the following sections of the IFRS for SMEs with the relevant standard under full IFRS:
IFRS for SMEs Section 17 Property, Plant and Equipment Section 16 Investment Property Section 18 Intangible Assets other than Goodwill Section 20 Leases Section 27 Impairment of Assets Section 13 Inventories Section 29 Income Tax Section 22 Liabilities and Equity Section 11 Basic Financial Instruments Section 12 Other Financial Instruments Issues Section 26 Share-based Payment Section 21 Provisions and Contingencies Section 28 Employee Benefits Section 34 Specialised Activities IFRS IAS 16 Property, Plant and Equipment IAS 40 Investment Property IAS 38 Intangible Assets IAS 17 Leases IAS 36 Impairment of Assets IAS 2 Inventories IAS 12 Income Taxes IAS 32 Financial Instruments: Presentation IAS 39 Financial Instruments: Recognition and Measurement IFRS 2 Share-based Payment IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 19 Employee Benefits IAS 41 Agriculture IFRS 6 Exploration for and Evaluation of Mineral Resources IFRIC 12 Service Concession Arrangements
There are a number of differences in the accounting treatment of items in the statement of financial position. The key differences are as follows: Property, Plant and Equipment there is no option to use a revaluation model. Investment Property must be measured at fair value unless fair value cannot be measured reliably without undue cost or effort. Intangible Assets all internally generated intangibles, including research and development costs, must be expensed, which may be a significant issue for some entities. All intangible assets must be amortised and the useful life is presumed to be 10 years if it cannot be measured reliably. Income Tax whilst the temporary differences approach remains, there are different definitions which may impact the recognition of deferred tax. The recognition and measurement of uncertain tax positions brings in new requirements, not dealt with under IFRS. Entities may find these new requirements difficult to apply in practice and interpretative issues may arise. Financial Instruments IFRS for SMEs gives entities the choice of applying the requirements of the standard or applying IAS 39 Financial Instruments: Recognition and Measurement to the recognition and measurement of financial instruments. In some cases there are significantly different treatments that entities will need to consider before deciding to adopt IFRS for SMEs. Share-based Payments the fair value of share in equity-settled share-based payment arrangements can be measured using the directors best estimate of fair value if observable market prices are not available, which may make valuation easier for SMEs. Employee Benefits entities cannot use the corridor approach. All actuarial gains and losses must be recognised in full either through profit and loss or through other comprehensive income. The requirements regarding the valuation of defined benefit plans are less onerous, which may reduce the compliance costs for some SMEs.
Elements of statement of financial position CHAPTER THREE 53
Section 17: Property, to the IFRS for SMEs Section 35: Transition plant and equipment
IFRS for SMEs Section 17 Property, Plant and Equipment
Scope This section applies to accounting for property, plant and equipment and investment property whose fair value cannot be measured reliably without undue cost or effort. Section 16 Investment Property applies to investment property for which fair value can be measured reliably without undue cost or effort. Definition Property, plant and equipment are tangible assets that are: a) Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes b) Expected to be used during more than one period. Recognition An entity recognises the cost of an item of property, plant and equipment as an asset if, and only if: a) It is probable that future economic benefits associated with the item will flow to the entity b) The cost of the item can be measured reliably. Initial measurement An entity measures an item of property, plant and equipment at initial recognition at its cost. Cost includes: a) Its purchase price b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management c) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Borrowing costs do not form part of the cost of an item of property, plant and equipment. An item of property, plant and equipment that qualifies for recognition as an asset is measured at its cost. The cost comprises: a) Its purchase price b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management c) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. There are no differences between IFRS and IFRS for SMEs, except for borrowing costs, which are capitalised under full IFRS if they are directly attributable to the acquisition, construction or production of a qualifying asset. The cost of an item of property, plant and equipment is recognised as an asset if, and only if: a) It is probable that future economic benefits associated with the item will flow to the entity b) The cost of the item can be measured reliably. There is no difference between IFRS for SMEs and IFRS. Property, plant and equipment are tangible items that are: a) Held for use in the production or supply of goods or services, for rental to others, or for administrative purposes b) Expected to be used during more than one period. There is no difference between IFRS for SMEs and IFRS. This standard must be applied in accounting for property, plant and equipment except when another standard requires or permits a different accounting treatment. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 16 Property, Plant and Equipment
Impact assessment
54 CHAPTER THREE Elements of statement of financial position
Section 17: Property, plant and equipment continued

Subsequent measurement An entity must measure all items of property, plant and equipment after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses. Property, plant and equipment may be valued using either: a) The cost model (cost less accumulated amortisation and impairment losses) or b) The revaluation model (revalued amount less accumulated amortisation and impairment losses). An entity must apply that policy to an entire class of property, plant and equipment. The depreciable amount of an asset must be allocated on a systematic basis over its useful life. Factors such as a change in how an asset is used, significant unexpected wear and tear, technological advancement and changes in market prices may indicate that the residual value or useful life of an asset has changed since the most recent annual reporting date. If such indicators are present, an entity must review its previous estimates and, if current expectations differ, amend the residual value, depreciation method or useful life. If the major components of an item of property, plant and equipment have significantly different patterns of consumption of economic benefits, an entity must allocate the initial cost of the asset to its major components and depreciate each such component separately over its useful life. Other assets must be depreciated over their useful lives as a single asset. The depreciable amount of an asset must be allocated on a systematic basis over its useful life. The residual value and the useful life of an asset must be reviewed at least at each financial year-end. There are no differences between IFRS and IFRS for SMEs. IFRS for SMEs differs from IFRS in that it does not permit the application of the revaluation model to property, plant and equipment
Impact assessment
IFRS for SMEs states that the residual value should be reviewed only if there are indicators that it has changed since the most recent annual reporting date. Under full IFRS, the review should be made at each financial year-end.
Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item must be depreciated separately. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge.
There are no differences between IFRS and IFRS for SMEs.
Section 17: Property, plant and equipment continued

An entity must select a depreciation method that reflects the pattern in which it expects to consume the assets future economic benefits. The possible depreciation methods include the straightline method, the diminishing balance method and a method based on usage such as the units of production method. If there is an indication that there has been a significant change since the last annual reporting date in the pattern of expected consumption, the entity must review its present depreciation method and, if current expectations differ, change the depreciation method to reflect the new pattern. Derecognition An entity must derecognise an item of property, plant and equipment: a) On disposal or b) When no future economic benefits are expected from its use or disposal. An entity must recognise the gain or loss on the derecognition of an item of property, plant and equipment in profit or loss when the item is derecognised. The entity must not classify such gains as revenue. The carrying amount of an item of property, plant and equipment must be derecognised: a) On disposal or b) When no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment must be included in profit or loss when the item is derecognised. Gains must not be classified as revenue. IFRS contains some additional guidance on the gain or loss on disposal. However, the same result would be achieved when applying IFRS for SMEs.

The depreciation method used must reflect the pattern in which the assets future economic benefits are expected to be consumed by the entity. A variety of depreciation methods can be used such as the straight line method, the diminishing balance method and the units of production method. The depreciation method applied to an asset must be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption, the method must be changed to reflect the changed pattern.
Impact assessment
There are no differences between IFRS and IFRS for SMEs, except that a review of the depreciation method for IFRS for SMEs is only required if there is an indication that it has changed. Under IFRS, the depreciation method must be reviewed at least at each financial year-end.
Section 16: Investment property ection 35: Transition topthe IFRS for SMEs
IFRS for SMEs Section 16 Investment Property
Scope This section applies to accounting for investments in land or buildings that meet the definition of investment property. Only investment property whose fair value can be measured reliably without undue cost or effort on an ongoing basis is accounted for in accordance with this section. All other investment property is accounted for as property, plant and equipment in accordance with Section 17 Property, Plant and Equipment. Definition Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both. Initial measurement An entity must measure investment property at its cost at initial recognition. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure such as legal and brokerage fees, property transfer taxes and other transaction costs. If payment is deferred beyond normal credit terms, the cost is the present value of all future payments. An entity must determine the cost of a self-constructed investment property in accordance with Section 17 Property, Plant and Equipment. An investment property must be measured initially at its cost. Transaction costs are included in the initial measurement. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs. There are no differences between IFRS and IFRS for SMEs, except for borrowing costs, which are capitalised under IFRS if they are directly attributable to the acquisition, construction or production of a qualifying asset. Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both. There is no difference in definition between IFRS for SMEs and IFRS. This standard must be applied in the recognition, measurement and disclosure of investment property. IFRS for SMEs explicitly excludes investment property where its fair value cannot be measured reliably without undue cost or effort. Management judgment will be required to determine what is meant by undue cost or effort.
IFRS IAS 40 Investment Property
Impact assessment
Section 16: Investment property continued

IFRS for SMEs Section 16 Investment Property
Subsequent measurement Investment property whose fair value can be measured reliably Investment property may be carried at either: without undue cost or effort must be measured at fair value at Cost less accumulated amortisation and impairment losses or each reporting date with changes in fair value recognised in profit Revalued amount less accumulated amortisation and or loss. If a property interest held under a lease is classified as impairment losses. investment property, the item accounted for at fair value is that interest and not the underlying property. An entity accounts for all other investment property as property, plant and equipment using the cost depreciation impairment model in Section 17. Transfers An entity must transfer a property to, or from, investment property only when the property first meets, or ceases to meet, the definition of investment property. Transfers to, or from, investment property must be made when, and only when, there is a change in use. IFRS contains some additional guidance when a property can be transferred. However, the same result would be achieved when applying IFRS for SMEs. IFRS for SMEs differs from IFRS in that it requires the use of the fair value model, where fair value can be measured reliably without undue cost or effort.
IFRS IAS 40 Investment Property
Impact assessment
Section 18: Intangible assets other than goodwill

IFRS for SMEs Section 18 Intangible Assets other than Goodwill
Scope This section is applicable to all intangible assets other than goodwill and intangible assets held for sale in the ordinary course of business. Furthermore, the scope excludes financial assets and mineral rights and mineral reserves. The standard applies to all intangibles other than those within the scope of another standard, financial instruments, exploration and evaluation assets and expenditure on the development and extraction of minerals, oil, natural gas and similar nonregenerative resources. IFRS explicitly excludes all intangible assets that are dealt with under other standards. This would be a natural presumption in Section 18 as other intangible assets, such as lease rights, etc., have their own applicable sections. One difference, for those entities in the oil and mining sectors, is the inclusion of exploration and evaluation intangible assets within the scope of Section 18.
IFRS IAS 38 Intangible Assets
Impact assessment
Definition of an intangible asset An intangible asset is an identifiable non-monetary asset without physical substance. Identifiablility arises when the asset is separable or arises from contractual or other legal rights. Recognition An entity may recognise an intangible asset if it is probable that there are expected future economic benefits, a reliably measurable cost/value and it does not result from expenditure incurred internally on an intangible asset. An intangible asset is recognised if, and only if, it is probable that there are expected future benefits and cost that can be reliable measured. A significant difference exists between IFRS and IFRS for SMEs in that the latter does not allow for any internally generated intangible assets to be capitalised to the balance sheet. This could particularly affect companies that operate in sectors where numerous intangible assets are generated such as the pharmaceutical industry. An intangible asset is an identifiable non-monetary asset without physical substance. Identifiablility arises when the asset is separable or arises from contractual or other legal rights. There is no difference in definition between IFRS for SMEs and IFRS.
Initial measurement Initial measurement is dependant on the manner in which the intangible asset is acquired: Separate acquisition at cost Business combination at fair value at the acquisition date Government grant at the fair value of the grant Exchange of assets at the fair value of the asset or cost when the transaction lacks commercial substance or fair values cannot be reliably measured. Initial measurement is dependant on the manner in which the intangible asset is acquired: Separate acquisition at cost Business combination at fair value at the acquisition date Government grant at the fair value of the grant or at the nominal amount Exchange of assets at the fair value of the asset or cost when the transaction lacks commercial substance or fair values cannot be reliably measured. IFRS for SMEs differs from IFRS in respect of the initial measurement of intangible assets acquired by way of a government grant as under IFRS for SMEs, such assets must be measured at fair value.
Section 18: Intangible assets other than goodwill continued

IFRS for SMEs Section 18 Intangible Assets other than Goodwill
Subsequent measurement Intangible assets are measured at cost less accumulated amortisation and impairment losses. Intangible assets may be carried at either: Cost less accumulated amortisation and impairment losses or Revalued amount less accumulated amortisation and impairment losses. IFRS for SMEs differs for IFRS in that it does not permit the application of the revaluation model to intangible assets.
IFRS IAS 38 Intangible Assets
Impact assessment
Amortisation Intangible assets must be amortised over there useful lives. If the useful life is not determinable then it is presumed to be 10 years. The depreciable amount is allocated over the life of the asset that reflects the pattern in which the assets future economic benefits are expected to be consumed. If the pattern cannot be reliably determined, then the straight-line method is utilised. Intangible assets must be assessed as to whether they have a finite or an indefinite life. Intangible assets with finite lives are amortised over their useful lives. Those with an indefinite life is not amortised and subject to an annual impairment test. The depreciable amount is allocated over the life of the asset that reflects the pattern in which the assets future economic benefits are expected to be consumed. If the pattern cannot be reliably determined, then the straight-line method is utilised. IFRS for SMEs differs from IFRS in that it does not permit intangible assets to be classified as an asset with an indefinite life. A useful life is required to be established for all intangible assets, or it is assumed to be 10 years. There is no difference between IFRS for SMEs and IFRS.
Residual values Residual values are permitted if there is a commitment by a third party to purchase the asset, or there is an active market and residual value can be determined by reference to this market and the market is expected to be in existence at the end of the assets useful life. Review of amortisation The entity will consider at each reporting date whether there are any indicators that there has been a change in useful life, residual amount or amortisation method. If there is an indicator, this will be adjusted as a change in estimate. Derecognition An intangible asset is derecognised on disposal, or when there are no future benefits expected from its use or disposal. An intangible asset is derecognised on disposal, or when there are no future benefits expected from its use or disposal. The gain or loss on disposal is determined as the difference between carrying value and the net disposal proceeds and is recognised in profit or loss. IFRS contains some additional guidance on the gain or loss on disposal. However, the same result would be achieved when applying IFRS for SMEs. The entity will review at each reporting date whether there has been a change in useful life, residual amount or amortisation method. If there is an indicator, this will be adjusted as a change in estimate. IFRS for SMEs differs from IFRS in that there is no requirement to review amortisation method, useful life and residual values at each reporting date. Residual values are permitted if there is a commitment by a third party to purchase the asset, or there is an active market and residual value can be determined by reference to this market and the market is expected to be in existence at the end of the assets useful life. There is no difference between IFRS for SMEs and IFRS.
Section 35: Transition to the IFRS for SMEs 20: Leases

IFRS for SMEs Section 20 Leases
Scope Applies to all leases other than: Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights Measurement of property held by lessees for investment property and by lessors under operating leases Measurement of biological assets by lessees under finance leases and by lessors under operating leases Leases that could lead to a loss as a result of contractual terms unrelated to changes in the price of the leased asset, changes in foreign exchange rates, or default by one of the counterparties Onerous operating leases. Definitions A lease is an agreement that transfers the right to use assets in return for payment. A finance lease transfers substantially all the risks and rewards incidental to ownership and an operating lease does not transfer substantially all the risks and rewards incidental to ownership. Recognition Leases are classified as either finance leases or operating leases at inception based on whether substantially all of the risks and rewards incidental to ownership of the leased asset have been transferred from the lessor to the lessee. Indicators are also used to determine classification. Manufacturer or dealer lessors offer customers a choice to either buy or lease an asset which gives rise to two types of income, profit or loss from the sale of the leased asset and finance income over the lease term. Lessees recognise the rights of use and obligations under finance leases as assets and liabilities in the statement of financial position and lease payments under operating leases as an expense. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Manufacturer or dealer lessors offer customers a choice to either buy or lease an asset which gives rise to two types of income, profit or loss from the sale of the leased asset and finance income over the lease term. Lessees recognise finance leases as assets and liabilities in the statement of financial position and payments under an operating lease as an expense. There is no difference between IFRS for SMEs and IFRS. IFRS includes additional guidance on finance leases for manufacturer or dealer lessors. A lease is is an agreement that transfers the right to use assets in return for payment. A finance lease transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease. There are only minor explanatory differences between IFRS for SMEs and IFRS. The standard applies to all leases other than: Those to explore for or use minerals, oil, natural gas and similar non-regenerative resources Licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights Measurement of property held by lessees for investment property and by lessors under operating leases Measurement of biological assets by lessees under finance leases and by lessors under operating leases. Although the wording of the scope of IFRS for SMEs differs from full IFRS, in practice it generally applies to the same leases. The standards do not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other.
IFRS IAS 17 Leases
Impact assessment
Section 20: Leases continued

Initial measurement Lessees finance leases: Finance leases are initially measured at amounts equal to the fair value of the leased property or, if lower, the present value of minimum lease payments. Lessees operating leases: Operating leases are expensed on a straight-line basis or another Operating lease payments are expensed on a straight line basis basis that represents the use of the asset, unless payments to the over the lease term unless another systematic basis is more lessor increase with expected inflation in which case the representative of the use of the asset. payments are expensed when payable. Lessors finance leases: Leases are presented as receivables at amounts equal to the net investment in the lease, which is the gross investment discounted at the interest rate implicit in the lease. Lessors operating leases: Lessors present assets subject to operating leases in the statement of financial position according to the nature of the asset. Lease income from operating leases is recognised on a straightline basis or another basis that represents the benefit from the asset, unless payments to the lessor increase with expected inflation, in which case the payments are recognised as income when payable. Depreciation is recognised on the same basis as for similar assets. Initial direct costs incurred by lessors in arranging leases are added to the carrying amount of the leased asset and expensed over the lease term on same basis as the lease income. A manufacturer or dealer does not recognise selling profit on entering into an agreement, this is not equivalent to a sale. Lessors present assets subject to operating leases in the statement of financial position according to the nature of the asset. Lease income from operating leases is recognised on a straight-line basis over the lease term, unless another systematic basis is more representative. Depreciation policy is consistent with lessors normal depreciation policy for similar assets. Initial direct costs incurred by lessors in arranging leases are added to carrying amount of leased asset and expensed over lease term on same basis as lease income. Manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is not the equivalent of a sale. IFRS for SMEs allows recognition of structured payments relating to inflation. Lessors recognise assets under a finance lease in statement of financial position as a receivable equal to net investment in lease. There is no difference between IFRS for SMEs and IFRS. IFRS for SMEs includes additional guidance on the treatment of an operating lease by a lessee, where payments payable to the lessor are structured to increase with inflation. Finance leases are initially measured at amounts equal to the fair value of the leased property or, if lower, the present value of minimum lease payments. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 17 Leases
Impact assessment
Section 20: Leases continued

Sale and leaseback finance leases: If the leaseback is a finance lease, the seller/lessee defers any gain and amortises it over the lease term. If a sale and leaseback transaction results in finance lease, the excess of sale proceeds over carrying amount is deferred and amortised over the lease term by the seller/lessee. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 17 Leases
Impact assessment
Sale and leaseback operating leases: If a leaseback is an operating lease and the sale takes place at or in excess of fair value, profit or loss is recognised immediately. When the sale price is below fair value, profit or loss is recognised immediately, except if compensated for by future below market price payments, which are deferred and amortised. If the sale price was in excess of fair value, the excess is deferred and amortised over the period the asset is expected to be used. Subsequent measurement Lessees finance leases: Minimum lease payments are apportioned between finance charges and reduction of the liability using the effective interest method. An asset is depreciated over the shorter of the lease term and the useful life of the asset. Lessors finance leases: Finance income reflects a constant rate of return on net investment. Payments are applied against the gross investment to reduce both the principal and unearned finance income. Derecognition Leases are classified at inception of the lease and this is not changed during the term unless there is agreement between the lessee and lessor, in which case the classification is re-evaluated. Lease classification is made at inception of the lease. If at any time the lessee and lessor agree to change the provisions of lease, other than changes in circumstances or estimates, the revised agreement is regarded as new agreement over its term. There is no difference between IFRS for SMEs and IFRS. Finance income is allocated over lease term reflecting constant periodic rate of return on lessors net investment. There is no difference between IFRS for SMEs and IFRS. Minimum lease payments are apportioned between finance charges and reduction of liability allocated to produce a constant periodic rate of interest. An asset is depreciated over the shorter of the lease term and the useful life of the asset. There is no difference between IFRS for SMEs and IFRS. If a sale and leaseback results in an operating lease and the transaction was at fair value, profit or loss is recognised immediately. If the sales price is below fair value, profit or loss is recognised immediately unless compensated for by future below market price payments, which are deferred and amortised. If the sale price was in excess of the fair value, the excess is deferred and amortised. There is no difference between IFRS for SMEs and IFRS.
Section 27: Impairment of assets

IFRS for SMEs Section 27 Impairment of Assets
Scope Applies in accounting for the impairment of all assets other than: Deferred tax assets Assets arising from employee benefits Financial assets Investment property measured at fair value Biological assets. Applies in accounting for the impairment of all assets other than: Deferred tax assets Assets arising from employee benefits Financial assets Investment property measured at fair value Biological assets Inventories Assets arising from construction contracts Deferred acquisition costs and intangible assets arising from an insurers contractual rights Non-current assets classified as held for sale. Although the wording of the scope requirements differs, in practice there is no difference between IFRS for SMEs and IFRS.
IFRS IAS 36 Impairment of Assets
Impact assessment
General principles If, and only if, the recoverable amount of an asset is less than its carrying amount, the entity must reduce the carrying amount of the asset to its recoverable amount. The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use. An entity must recognise an impairment loss immediately in profit or loss. An asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of an asset or a cash generating unit is the higher of its fair value less costs to sell and its value in use. There is no difference between IFRS for SMEs and IFRS.
An impairment loss must be recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another standard. Any impairment loss of a revalued asset must be treated as a revaluation decrease in accordance with that other standard.
IFRS for SMEs differs from IFRS in that it does not permit the application of revaluation models and therefore all losses are immediately recognised in profit or loss.
Section 27: Impairment of assets continued

Indicators of impairment An entity must assess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity must estimate the recoverable amount of the asset. If there is no indication of impairment, it is not necessary to estimate the recoverable amount. In assessing whether there is any indication that an asset may be impaired, an entity must consider, as a minimum, external and internal sources of information. An entity must assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity must estimate the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, an entity must also: a) Test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount b) Test goodwill acquired in a business combination for impairment annually. In assessing whether there is any indication that an asset may be impaired, an entity must consider, as a minimum, external and internal sources of information. Fair value less costs to sell Fair value less costs to sell is the amount obtainable from the sale of an asset less the costs of disposal. The best evidence of the fair value less costs to sell is a price in a binding sale agreement in an arms length transaction, or a market price in an active market. If there is no binding sale agreement or active market for an asset, fair value less costs to sell is based on the best information available to reflect the amount that an entity could obtain, at the reporting date, from the disposal of the asset after deducting the costs of disposal. Value in use Value in use is the present value of the future cash flows expected to be derived from an asset. Value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. There is no difference between IFRS for SMEs and IFRS. The best evidence of an assets fair value less costs to sell is a price in a binding sale agreement in an arms length transaction, adjusted for incremental costs that would be directly attributable to the disposal of the asset. If there is no binding sale agreement but an asset is traded in an active market, fair value less costs to sell is the assets market price less the costs of disposal. There is no difference between IFRS for SMEs and IFRS. IFRS for SMEs differs from IFRS in that it does not require an annual impairment test for intangible assets and goodwill. Instead these assets are tested for impairment only if there are indicators that an impairment may exist. There is no difference between IFRS for SMEs and IFRS.
Impact assessment
Section 27: Impairment of assets continued

Goodwill impairment Goodwill acquired in a business combination must be allocated to each of the acquirers cash-generating units that is expected to benefit from the synergies of the combination. Goodwill acquired in a business combination is allocated to each of the acquirers cash-generating units that is expected to benefit from the synergies of the combination. There is no difference between IFRS for SMEs and IFRS.
Impact assessment
If goodwill cannot be allocated to individual cash-generating units Each unit or group of units to which the goodwill is so allocated on a non-arbitrary basis, then for the purposes of testing goodwill must: the entity tests the impairment of goodwill by determining the a) Represent the lowest level within the entity at which the recoverable amount of: goodwill is monitored for internal management purposes b) Not be larger than an operating segment determined in a) The acquired entity in its entirety accordance with IFRS 8 Operating Segments. or b) The entire group of entities. An impairment loss recognised for goodwill must not be reversed in a subsequent period. If the estimated recoverable amount of the cash-generating unit exceeds its carrying amount, that excess is a reversal of an impairment loss. The entity must allocate the amount of that reversal to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets, subject to some limitations. An impairment loss recognised for goodwill must not be reversed in a subsequent period. A reversal of an impairment loss for a cash generating unit must be allocated to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets. IFRS contains some additional guidance and distinction on reversal of impairment losses. However, the same result would be achieved when applying IFRS for SMEs.
Section 13: Inventories

IFRS for SMEs Section 13 Inventories
Scope The section applies to all inventories except work in progress arising under construction contracts, financial instruments, biological assets related to agricultural activity and agricultural produce at the point of harvest. The section does not apply to the measurement of inventories held by producers of agricultural and forest products, and commodity brokers and dealers to the extent that their inventories are measured at fair value less costs to sell through profit and loss. Definition Inventories are assets: a) Held for sale in the ordinary course of business b) In the process of production for such sale or c) In the form of materials or supplies to be consumed in the production process or in the rendering of services. Measurement Lower of cost and estimated selling price less costs to complete and sell. Lower of cost and net realisable value. Net realisable value is the estimated selling price less costs of completion and costs necessary to make the sale. Although there are some differences in wording, in substance, there is no difference between IFRS for SMEs and IFRS. Inventories are assets: a) Held for sale in the ordinary course of business b) In the process of production for such sale or c) In the form of materials or supplies to be consumed in the production process or in the rendering of services. There is no difference between IFRS for SMEs and IFRS. The standard applies to all inventories except work in progress arising under construction contract, financial instruments, biological assets related to agricultural activity and agricultural produce at the point of harvest. The section does not apply to the measurement of inventories held by producers of agricultural and forest products, and commodity brokers and dealers to the extent that their inventories are measured at fair value less costs to sell through profit and loss. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 2 Inventories
Impact assessment
Cost of inventories All costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. All costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. There is no difference between IFRS for SMEs and IFRS. Both IFRS for SMEs and IAS 2 include further descriptions of what is included in costs of purchase, costs of conversion and other costs.
Section 13: Inventories continued

IFRS for SMEs Section 13 Inventories IFRS IAS 2 Inventories Impact assessment
Standard cost method, the retail method or most recent purchase Standard cost method, the retail method or most recent purchase There is no difference between IFRS for SMEs and IFRS. price for measuring the cost of inventories if the result price for measuring the cost of inventories if the result approximates cost. approximates cost. First-in, first-out (FIFO) or weighted average cost formula. The same cost formula must be used for all inventories having a similar nature and use. Different cost formulas may be justified if the inventories are of different nature or use. The last-in, first-out method (LIFO) is not permitted. Impairment Assess at the end of each reporting period whether any inventories are impaired, i.e., the carrying amount is not fully recoverable (e.g., because of damage, obsolescence or declining selling prices). If inventory is impaired, it is measure at its selling price less costs to complete and sell. The impairment loss is recognised in profit or loss. A reversal of a prior impairment in some circumstances is required. Derecognition When inventories are sold, the entity must recognise the carrying amount of those inventories as an expense in the period in which the related revenue is recognised. When inventories are sold, the entity must recognise the carrying amount of those inventories as an expense in the period in which the related revenue is recognised. There is no difference between IFRS for SMEs and IFRS. If inventories are damaged, have become wholly or partially obsolete, or selling prices have declined, the inventories are written down to net realisable value. A reversal of a prior impairment in some circumstances is required. IFRS contains some additional guidance on the estimates of net realisable value. However, the same result would be achieved when applying IFRS for SMEs. First-in, first-out (FIFO) or weighted average cost formula. The same cost formula must be used for all inventories having a similar nature and use. Different cost formulas may be justified if the inventories are of different nature or use. The last-in, first-out method (LIFO) is not permitted.
Section 29: Income taxes

IFRS for SMEs Section 29 Income Tax
Scope Income tax includes all domestic and foreign taxes that are based on taxable profit. It also includes taxes payable by a subsidiary, associate or joint venture on distributions to the reporting entity. The standard applies to accounting for income taxes, which include all domestic and foreign taxes that are based on taxable profits. It also includes taxes such as withholding taxes which are payable by the subsidiary, associate or joint venture on distributions to the reporting entity. Taxes that are not income taxes (such as value-added taxes) are accounted for according to the accounting standards governing the balance sheet or income statement item they are contained in. Tax base The tax base of an asset is determined by the tax consequences that would arise if it were recovered for its carrying amount through sale at the reporting date. The tax base of a liability is determined by the tax consequences that would arise if it were settled for its carrying amount at the reporting date. The tax base of an asset or is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods. An entitys expectation as to the manner in which it will recover the carrying amount of an asset or settle the carrying amount of a liability can affect the tax base. For example, if an entity were to pay a different amount of tax depending on whether an asset is consumed in the business or sold, the entity measures deferred tax according to the expected method of realisation. This effectively makes deferred tax under IAS 12 a function of managements intent. IFRS for SMEs eliminates management intent from the determination of the tax base since it is determined assuming an entity sells or settles all its assets and liabilities at each reporting date. This may cause practical difficulties for preparers as more work may be required to calculate the tax base as hypothetical tax calculations will need to be done to determine the tax base. There is no difference between IFRS for SMEs and IFRS with respect to scope.
IFRS IAS 12 Income Taxes
Impact assessment
Section 29: Income taxes continued

Recognition of deferred tax assets Deferred tax assets must be recognised for all temporary differences that are expected to reduce taxable profit in the future as a total amount. An entity must recognise a valuation allowance against deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be recovered based on current or future taxable profit. An entity must review the net carrying amount of a deferred tax asset at each reporting date and adjust the valuation allowance to reflect the current assessment of future taxable profits. Such adjustment is recognised in profit or loss, except that an adjustment attributable to an item of income or expense recognised in accordance with this IFRS as other comprehensive income is recognised in other comprehensive income. A deferred tax asset must be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. IAS 12 also requires an entity to reassess the recognition of deferred tax assets and recognise previously unrecognised deferred tax assets at each balance sheet date to the extent it has become probable tht the asset will be recovered. A deferred tax asset is not reported gross, less a valuation allowance, but as an amount representing the amount of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. Movements in deferred tax assets are recognised in profit or loss, unless the tax relates to items outside profit or loss. Deferred tax assets that were previously not recorded under IAS 12 will now have to be recorded under IFRS for SMEs with offsetting valuation allowances. For SMEs, this will require additional tracking and documentation for each deferred tax asset and its related valuation allowances when compared with IAS 12.
Impact assessment
Uncertain tax positions An entity must measure current and deferred tax assets and liabilities using the probability-weighted average amount of all the possible outcomes, assuming that the tax authorities will review the amounts reported and have full knowledge of all relevant information. Changes in the probability-weighted average amount of all possible outcomes must be based on new information, not a new interpretation by the entity of previously available information. There is no probability threshold applied to the recognition of an uncertain tax position implying an entity needs to review and measure all its uncertain tax positions. It also does not define how, or at what level of detail, or unit of account, a tax position is to be analysed. IAS 12 currently does not explicitly address the recognition and measurement of uncertain tax positions. IAS 12 indicates that tax assets and liabilities should be measured at the amount expected to be paid. However, it notes that, while IAS 37 Provisions, Contingent Liabilities and Contingent Assets generally excludes income taxes from its scope, its principles are relevant to the disclosure of tax-related contingent assets and contingent liabilities, such as unresolved disputes with taxing authorities. Since there is no direct guidance on this topic in IAS 12, there are some variations on how entities currently account for uncertain tax positions in practice. Some adopt a one-step approach which recognises all uncertain tax positions at an expected value. Others adopt a two-step approach which recognises only those uncertain tax positions that are considered more likely than not to result in a cash outflow. The requirements of IFRS for SMEs for the measurement of uncertain tax positions apply to current and deferred taxes alike, since an uncertain tax position may not simply affect the amount of current tax payable or receivable. For example, where an entity has claimed a deduction for an item in its tax return which is subject to uncertainty, the uncertainty may determine not only the measurement of current tax, but also that of the tax basis of any associated asset or liability and, therefore, deferred tax. The uncertain tax positions requirements of IFRS for SMEs will have far-reaching data gathering, documentation and support implications for an entity and could potentially affect its dealings with tax authorities worldwide. SMEs will require significant effort (compared to users of IAS 12) to identify, document, measure and disclose their uncertain tax positions following these explicit requirements.

Backward tracing An entity must recognise tax expense in the same component of total comprehensive income or equity as the transaction or other event that resulted in the tax expense. IAS 12 requires current tax and deferred tax to be charged or credited in other comprehensive income (OCI) or directly in equity if the tax relates to items that were credited or charged, whether in the current or previous period, in OCI or directly in equity. Subsequent changes to those amounts are also allocated to OCI or equity as applicable. Although IFRS for SMEs has the same approach to backward tracing, the wording is not exactly the same as that contained in IAS 12. It remains to be seen if any variations in practice develop in this regard over time.
Impact assessment
Initial recognition exemption An entity must not recognise a deferred tax liability for a temporary difference associated with the initial recognition of goodwill. IAS 12 currently requires a deferred tax asset or liability to be recognised for all deductible or taxable temporary differences, except for: A deferred tax liability arising from the initial recognition of goodwill or A deferred tax asset or liability arising from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit nor taxable profit or loss. This rule is generally referred to as the initial recognition exception or IRE. IFRS for SMEs does not describe how to account for temporary differences on the initial recognition of items that are not goodwill. Therefore, entities will need to develop an accounting policy to deal with these differences.

Investments An entity must not recognise a deferred tax asset or liability for temporary differences associated with unremitted earnings from foreign subsidiaries, branches, associates and joint ventures to the extent that the investment is essentially permanent in nature, unless it is apparent that the temporary difference will reverse in the foreseeable future. IAS 12 currently requires an entity to recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures except to the extent that both of the following conditions are satisfied: a) The parent, investor or venturer is able to control the timing of the reversal of the temporary difference b) It is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates and interests in joint ventures, is not recorded, except to the extent that, and only to the extent that, it is probable that: The temporary difference will reverse in the foreseeable future Taxable profit will be available against which the temporary difference can be utilised. Classification When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its statement of financial position, it must not classify any deferred tax assets (liabilities) as current assets (liabilities). IAS 12 follows the requirements of IAS 1 Presentation of Financial Statements which requires all deferred tax assets and liabilities to be classified as non-current, regardless of the classification of the underlying asset and liability giving rise to the temporary difference. There is no difference between IFRS for SMEs and IFRS. By limiting the exception to foreign subsidiaries, branches, associates and joint ventures, IFRS for SMEs will involve more work because deferred taxes will now have to be calculated on investments in many domestic entities in the group, that may not be required under IAS 12.
Impact assessment

Applicable tax rate An entity must measure current and deferred taxes at the tax rate applicable to undistributed profits until the entity recognises a liability to pay a dividend. When the entity recognises a liability to pay a dividend, it must recognise the resulting current or deferred tax liability (asset) and the related tax expense (income). An entity must measure a deferred tax liability (asset) using the tax rates and laws that have been enacted or substantively enacted by the reporting date. Disclosures IFRS for SMEs does not contain all the disclosures currently contained in IAS 12, yet introduces some new disclosures not currently in IAS 12, including: The effect on deferred tax expense arising from a change in the effect of the possible outcomes of a review by the tax authorities Adjustments to deferred tax expense arising from a change in the tax status of the entity or its shareholders (it is notable that IFRS for SMEs doesnt provide guidance on when or how to recognise the effect of the change in status, but requires disclosure of the effect) Any change in the valuation allowance An explanation of the significant differences in amounts presented in the statement of comprehensive income and amounts reported to tax authorities. IAS 12 has a number of specific disclosure requirements. IFRS for SMEs may have more onerous disclosure requirements than IAS 12, particularly for uncertain tax positions. Entities will need to consider the information required to fulfil those requirements. An entity must measure tax assets and liabilities using the tax rate applicable to undistributed profits. Deferred taxes are measured based on the tax rates and tax laws that are enacted or substantively enacted at the reporting date. There is no difference between IFRS for SMEs and IFRS.
Impact assessment
Section 22: Liabilities and equity

IFRS for SMEs Section 22 Liabilities and Equity
Scope The section establishes classification of financial instruments as either liabilities or equity and addresses accounting for equity instruments issued to individuals as investors in equity instruments. The standard applies to all financial instruments. The scope however does not extend (in brief) to: Although the wording of the scoping section differs to full IFRS, in most cases for the types of financial instruments that SMEs have, the scope will be principally in line with full IFRS. While IFRS for SMEs does not exclude insurance liabilities in this section of the standard, they are excluded in the section dealing with the measurement of financial instruments. Unlike IAS 32, IFRS for SMEs provides no application guidance when applying this section of the standard.
IFRS IAS 32 Financial Instruments: Presentation
Impact assessment
Interests in subsidiaries, associates or joint ventures Employers rights and obligations under employee benefit plans Furthermore, the scope is applied when classifying all types of Insurance contracts and financial instruments with financial instruments except: discretionary participation features within IFRS 4 Interests in subsidiaries, associates and joint ventures Contracts and obligations under share-based payment Employers rights and obligations under employee benefit transactions to which IFRS 2 applies, except: plans Contracts for non-financial items that can be settled net Contracts for contingent consideration in a business and are not part of the entitys normal purchase, sale or combination usage requirements Financial instruments, contracts and obligations under Treasury shares purchased in connection with employee share-based transactions except application to treasury shares share plans. purchased, sold, issued or cancelled in connection with employee share option plans, employee share purchase plans and all other share-based payment arrangements.
Section 22: Liabilities and equity continued

Definitions a) A contractual obligation: To deliver cash or another financial asset a) A contractual obligation: or To deliver cash or another financial asset To exchange financial assets or financial liabilities or under unfavourable conditions To exchange financial assets or financial liabilities or under unfavourable conditions b) A contract that will or may be settled in the entitys own equity or instruments and is: b) A contract that will or may be settled in the entitys own equity A non-derivative for which the entity is or may be instruments and: obliged to deliver a variable number of the entitys The entity is or may be obliged to deliver a variable number own equity instruments of its own equity instruments or or A derivative that will or may be settled other than by the Will or may be settled other than by the exchange of a fixed exchange of a fixed amount of cash or another financial amount of cash or another financial asset for a fixed asset for a fixed number of the entitys own equity number of the entitys own equity instruments. For this instruments. For this purpose the entitys own equity purpose, the entitys own equity instruments do not include instruments do not include puttable financial instruments instruments that are contracts for the future receipt or and instruments that impose on the entity an obligation to delivery of the entitys own equity instruments. deliver a pro rata share of the net assets on liquidation, or Equity is the residual interest in the assets of an entity after instruments that are contracts for the future receipt or deducting all of its liabilities. delivery of the entitys own equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The appendix to IFRS for SMEs contains the definition of a financial liability as any liability that is: A financial liability is any liability that is: Under IFRS for SMEs, definitions of financial instrument and a financial liability are contained in the appendix to the standard. A user of the standard would refer to these definitions when applying this section to financial instruments. Financial liabilities definitions are similar, with the only essential difference being puttable financial instruments. These are dealt with later in the financial instruments sections in IFRS for SMEs. An equity instrument is not defined. However, the generic definition of equity is provided and it is assumed that equity instruments would be included.
Impact assessment

Classification as a liability or equity Equity is the residual interest in the assets of an entity after deducting all its liabilities. A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Some financial instruments that meet the definition of a liability are classified as equity because they represent the residual interest in the net assets of the entity: a) A puttable instrument that gives holder right to sell back to issuer or is automatically repurchased by issuer on occurrence of uncertain future event, death or retirement b) Instruments subordinated to all other classes classified as equity if obligation to deliver share of net assets only on liquidation c) Members shares in co-operative entities (and similar) are equity if the entity has an unconditional right to refuse redemption, or redemption is unconditionally prohibited by local law, regulation or the entitys governing charter. IAS 32 provides the principle that the issuer of a financial instrument classifies the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions. Some financial instruments that meet the definition of a liability are classified as equity because they represent the residual interest in the net assets of the entity: a) A puttable instrument that gives holder right to sell back to issuer or is automatically repurchased by issuer on occurrence of uncertain future event, death or retirement b) Instruments subordinated to all other classes classified as equity if obligation to deliver share of net assets only on liquidation. IFRIC 2 deals with members shares in co-operative entities (and similar) and concludes that these are equity instruments if it meets the requirements of puttable financial instruments; or if the entity has an unconditional right to refuse redemption, or redemption is unconditionally prohibited by local law, regulation or the entitys governing charter. Others issues that IAS 32 considers include: Reclassification of puttable instruments Contractual obligations to deliver cash Settlement in the equity owns equity Contingent settlement provisions Settlement options. Overall IFRS for SMEs tries to provide similar concepts to those that are provided in full IFRS. However, very little guidance is provided in IFRS for SMEs. This may result in different interpretations of the standard and the manner in which its definitions being applied. Hence, similar instruments may be presented differently by SME reporting entities.
Impact assessment

Equity transactions An entity recognises the issue of shares or other equity instruments as equity (including sale of options, rights and warrants) when the other party is obliged to provide cash or other resources in exchange for the instruments. The entity measure these instruments at the fair value of cash or resources received or receivable, net of any transaction costs (net of any tax benefit). Presentation in statement of financial position is determined by applicable laws of the jurisdiction. Capitalisation issues, bonus issues and share splits that are performed on a pro rata basis do not change equity. Equity would, however, be reclassified in such instances in terms of applicable laws. Where treasury shares are reacquired, the entity deducts the fair value of the consideration given from equity no gain or loss is recognised in profit or loss. Convertible debt When convertible debt or similar compound financial instruments are issued, proceeds are allocated between liability and equity components. The basis of allocation is to value the liability on the same basis as a similar liability without the equity component and the residual to the equity instrument. Allocations are not revised in subsequent periods. The entity then recognises the difference between liability component and the principal amount payable on maturity using effective interest method. The appendix to this section illustrates the principles. The issuer of a non-derivative financial instrument must evaluate the terms of the financial instrument to determine whether it contains both a liability and an equity component. Such components are classified separately as financial liabilities, financial assets or equity instruments. Classification of the liability and equity components of a convertible instrument is not revised. Equity instruments are instruments that evidence a residual interest in the net assets of an entity. Therefore, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. No differences exist in concept between full IFRS and IFRS for SMEs. Again, the lack of application guidance in IFRS for SMEs may, however, allow different interpretations to be applied. If an entity reacquires its own equity instruments, these instruments (treasury shares) are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of an entitys own equity instruments. IFRS for SMEs provides greater detail in respect of transactions with holders of equity instruments. The requirements of the standard are similar to those that are required under full IFRS and no particular difference in application is expected. Options and warrants are, however, dealt with in greater detail in IAS 32 in its Illustrative Examples. This form of application guidance is missing in IFRS for SMEs and hence may allow different interpretations to be applied when accounting for these types of financial instruments.
Impact assessment

Distributions to owners An entity reduces equity for amounts of distributions to owners. When non-cash assets are to be distributed, a liability is recognised. The liability is stated at fair value at the end of each reporting period and at date of settlement. Changes are recognised in equity as adjustments to the amount of the distribution. Interest, dividends, losses and gains relating to a financial instrument or a component that is a financial liability are recognised as income or expense in profit or loss. Distributions to holders of an equity instrument are recognised directly in equity, net of any related income tax benefit. Full IFRS required an interpretation (IFRIC 17) for distributions of non-cash assets. This guidance has been incorporated into the IFRS for SMEs. The major difference between IFRIC 17 and the IFRS for SMEs requirements is that IFRIC 17 scopes out entities under control. As these transactions often occur when a group of commonly controlled entities are reorganised, IFRS for SMEs may be more prescriptive than full IFRS in this regard.
Impact assessment
Non-controlling interests In consolidated financial statements, a non-controlling interest in the net assets of a subsidiary is included in equity. An entity treats changes in controlling interest in a subsidiary that does not result in a loss of control, as transactions with equity holders in their capacity as shareholders. Any differences between the consideration paid or received and the fair value is recognised in equity. No gains or losses are recognised on such transactions. In consolidated financial statements, a non-controlling interest in the net assets of a subsidiary is presented in equity, separately from the equity of the owners of the parent. Changes in a parents ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. IFRS for SMEs has aligned itself to the principles that are contained in IAS 27 (revised 2008) see excerpts in IFRS column. After the effective date of the revised IAS 27, differences between IFRS for SMEs and full IFRS should be minimal.
Section 11: Basic financial instruments and Section 12: Other financial instrument issues
IFRS for SMEs Section 11 Basic Financial Instruments Section 12 Other Financial Instrument Issues
Accounting policy An entity makes a policy choice to either: Comply with Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues of IFRS for SMEs or Use the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and apply the disclosure requirements of IFRS for SMEs. An entity will comply with the provisions of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement and make disclosures in terms of IFRS 7 Financial Instruments: Disclosures. This is the only direct link that is created between IFRS for SMEs and full IFRS. If the choice to follow IAS 39 is adopted, the provisions of IAS 32 are not taken into account as IFRS for SMEs has its own section that considers debt and equity instruments issued. This may create some conflict with IAS 39. Relief is provided to SMEs, as the onerous disclosures of IFRS 7 are not required. An SME would make its financial instrument disclosures in terms of this standard. Looking forward, the issue of IFRS 9 will eventually cause the withdrawal of IAS 39. IFRS for SMEs currently does not cater for an early adoption of IFRS 9 or the withdrawal of IAS 39. Presumably, consequential adjustments to the standard will be required when the current IFRS 9 project is completed.
IFRS IAS 39 Financial Instruments: Recognition and Measurement
Impact assessment
Section 11: Basic financial instruments and Section 12: Other financial instrument issues continued
Scope Section 11 applies to all basic financial instruments except for: Investments in subsidiaries associates and joint ventures Instruments that meet the definition of the entitys own equity Leases (other than derecognition of lease receivables) and Employers rights and obligations under employee plans. Section 12 applies to all financial instruments except for: Basic financial instruments in Section 11 Interests in subsidiaries, associates and joint ventures Employers rights and obligations under employee benefit plans Rights under insurance contracts (with certain exceptions) Own equity instruments Leases (with certain exceptions) Contracts for contingent consideration in a business combination. IAS 39 is applied to all financial instruments except: Interests in subsidiaries, associates and joint ventures Rights and obligations under leases (with certain exceptions) Employers rights and obligations under employee benefit plans Own equity instruments Rights and obligations arising under an insurance contract(with certain exceptions) Forward contracts between an acquirer and shareholder that will result in a future business combination Loan commitments other than those included in the standard Financial instruments, contracts and obligations under share-based payment transactions Rights to reimbursement of a provision. While the scoping provisions are similar, there are differences between the two standards. Share-based contracts are scoped out of IAS 39, but included within the scope of IFRS for SMEs. Furthermore, there are issues that are scoped out of IFRS for SMEs Section 12 which are not dealt with elsewhere in the standard (e.g., insurance contracts), as would be the case under full IFRS.
Impact assessment
The standard is applied to contracts to buy or sell a non-financial item that can be settled net, as if the contracts were financial instruments, with the exception of contracts that were entered Contracts to buy and sell a non-financial item are also excluded into (and continue to be held) for the purpose of the entitys unless they impose risks not typical of such contracts. In addition, expected purchase, sale or usage requirements. if contracts to buy or sell a non-financial item can be net settled they are included in Section 12, except those that are held for normal purchase, sale and usage requirements.
Embedded derivatives There is no concept of embedded derivatives under IFRS for SMEs. An embedded derivative is separated from the host contract and accounted for as a derivative under IAS 39 if: a) The economic characteristics and risks of the embedded derivative are not closely related to those of the host b) A separate instrument with the same terms would meet the definition of a derivative and c) The hybrid is not measured at fair value through profit or loss. Classification The following are basic financial instruments for the purposes of Section 11: Cash A debt instrument that satisfies specific criteria A commitment to receive a loan that Cannot be settled net in cash and When the commitment is executed, is expected to meet the conditions of a debt instrument above An investment in non-convertible preference shares and non-puttable ordinary shares or preference shares. Other financial instruments would include all other financial instruments that are within the scope of Section 12 but not within the scope of Section 11. IAS 39 requires that financial instruments be classified into the following groups. Financial assets are grouped as: Fair value through profit and loss Loans and receivables Held to maturity and Available for sale. Financial liabilities are grouped as: Fair value through profit and loss Other liabilities. Specific guidance is also provided as to when an entity may reclassify financial instruments between categories. The approach taken by IFRS for SMEs is significantly different to that contained in IAS 39. As all accounting is based on the classification of the instrument, the two standards diverge at this point, although ultimately, the measurement of the instrument may result in the same amount in the financial statements. Reclassification was introduced into IAS 39 during 2008 in response to the global financial crisis and is not considered under IFRS for SMEs. Under IAS 39, the separation of an embedded derivative could have allowed the host to be accounted for at amortised cost and the derivative at fair value. No bifurcation is permitted in IFRS for SMEs. Such hybrid instruments would be carried at fair value.
Impact assessment
Recognition Basic and other financial assets and liabilities are recognised when the entity becomes a party to the contracts. Initial measurement Basic financial instruments are measured at their transaction price including transactions costs. When a financial instrument is recognised initially, an entity measures it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, If the contract constitutes a financing arrangement it is measured transaction costs that are directly attributable to the acquisition at the present value of future payments discounted at a market or issue of the financial asset or financial liability. rate of interest for a similar instrument (this is not applicable to assets and liabilities classified as current, unless they incorporate a finance arrangement). If interest is not at a market rate, the fair value would be future payments discounted at a market rate of interest. Other financial instruments are initially measured at fair value, which is usually their transaction price. This will exclude transaction costs. There are differences in the initial measurement of financial instruments. IFRS for SMEs has simplified the initial measurement for basic financial insruments by basing it on the transaction price. IFRS for SMEs recognises that financing arrangements need to be taken into account. The issue of low interest rate loans will be particularly important for intra-group loans, which are often carried at cost under non-IFRS GAAPs. Full IFRS considers transaction price as a proxy for fair value, and if necessary, adjusts this price. This introduces the concepts of Day-1 gains/losses. Other financial instruments would be measured on the same basis by IFRS for SMEs. It should be noted that the IFRS for SME standard does not consider Day-1 gains and losses and hence an IFRS for SMEs reporter would have to develop an accounting policy to deal with these items. An entity recognises a financial instrument when the entity becomes a party to the contractual provisions of the instrument. There is no difference in recognition between IFRS for SMEs and full IFRS.
Impact assessment
Subsequent measurement For basic financial instruments, at the end of each reporting period: Debt instruments are measured at amortised cost using the effective interest rate Commitments to receive a loan are measured at cost less impairment Investments in non-convertible preference shares and non-puttable ordinary, and preference shares that are publically traded or their fair value can otherwise be reliably measured, are measured at fair value through profit and loss if a public market exists, otherwise at cost less impairment. All other financial instruments are measured at fair value at reporting date. The only exception are equity instruments (and related contracts that would result in delivery of such instruments) that are not publically traded and whose fair value cannot be reliably determined are measured at cost less impairment. After initial recognition, an entity measures financial assets at their fair values, excluding transaction costs, except for the following financial assets: Loans and receivables and held-to-maturity investments are measured at amortised cost using the effective interest method Investments in equity instruments (and related derivatives) that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. After initial recognition, an entity measures all financial liabilities at amortised cost using the effective interest method, except for: Financial liabilities at fair value through profit or loss that are measured at fair value Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, financial guarantee contracts, commitments to provide a loan at a below-market interest rate all have their own particular requirements for subsequent measurement. The two basic forms of measurement, fair value and amortised cost at the effective interest rates are used by both standards. Application of these methodologies is based on the financial instruments classification. The instrument may be carried at the same/similar amount only if the measurement requirements of the classifications selected under the two frameworks coincide.
Impact assessment
Amortised cost The effective interest method is used to calculate the amortised cost of a financial asset or a financial liability and to allocate the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate future credit losses are excluded. Fees, transaction costs and other premiums or discounts are amortised over the life of the instrument (or shorter if they relate to a shorter period). The effective interest method is used to calculate the amortised cost of a financial asset or a financial liability and to allocate the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, an entity estimates cash flows considering all contractual terms of the financial instrument (for example, pre-payment, call and similar options), but does not consider future credit losses. The calculation includes all fees and points paid or received that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. Both frameworks have a similar definition of the effective interest rate methodology. Both methodologies also deal with changes in estimates on a similar basis. No differences are expected on the application of this methodology.
Impairment of basic financial instruments At each reporting date, an assessment is made as to whether there is objective evidence of a possible impairment. The standard provides examples of possible loss events. The impairment loss of basic financial instruments at amortised cost is the difference between carrying value and the revised cash flows discounted at the original effective interest rate. The impairment of basic financial instruments at cost less impairment is the difference between the carrying value and best estimate of the amount that would be received if the asset were sold at the reporting date. Reversal of impairments on basic financial instruments is permitted. Impairment of other financial instruments Other financial instruments carried at cost less impairment are impaired on the same basis as basic financial instruments measured in the same manner. Fair value The standard makes use of a fair value hierarchy. This is quoted prices in an active market, prices in recent transactions for the identical assets (adjusted if necessary), and use of a valuation technique (that reflects how the market would expect to price the asset and the inputs reasonably represent market expectations). Fair value, where there is no active market, is only considered reliable if the variability in the range of fair values is not significant and the probabilities of various estimates can be reasonably assessed. Section 12 states that the fair value of a liability cannot be below the amount in a demand feature discounted to the reporting date. IAS 39 contains application guidance on the determination of fair value. Likewise, this standard also makes use of a fair value hierarchy. This makes use of quoted prices in an active market, prices in recent transactions for the identical assets (adjusted) and the use of valuation techniques. Fair value, where there is no active market, is only considered reliable if the variability in the range of fair values is not significant and the probabilities of various estimates can be reasonably assessed. IAS 39 also contains provisions that the fair value of a liability cannot be less than the instruments demand feature, discounted to the reporting date. There are no differences of principle between the two frameworks on the determination of fair value. However, IAS 39 provides considerable application guidance on the issue. The determination of fair value can be difficult for reporting entities and entities applying IFRS for SMEs may have to develop their own policies in light of the minimal application guidance provided. An entity assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the entity applies the specific provisions for financial assets carried at amortised cost, for financial assets carried at cost or for available-for-sale financial assets to determine the amount of any impairment loss. For instruments carried at amortised cost, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. Reversals of impairments are permitted if specific criteria are met. Reversals of impairments of available-for-sale equity instruments is not permitted. Both frameworks contain similar provisions for impairments and apply an incurred loss model to impairments. That is, impairments are triggered by the occurrence of loss events. IAS 39 is clear that future credit loss events are not taken into account when estimating future cash flows. However, IFRS for SMEs does not consider this point. As this is an incurred loss model IFRS for SMEs should also ignore future loss events when calculating an impairment loss.
Impact assessment
Derecognition An entity derecognises 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 substantially all of the risks and rewards of ownership of the financial asset The entity, despite having retained some significant risks and rewards of ownership, has transferred control of the asset to another party and the other party has the practical ability to sell the asset in its entirety to an unrelated third party. The entity derecognises a financial liability when extinguished. An entity derecognises a financial asset when: The contractual rights to the cash flows expire It transfers the financial asset in a manner that allows for derecognition. When an asset is transferred: It is derecognised if the entity transfers substantially all the risks and rewards of ownership It continues to be recognised if the entity retains substantially all the risks and rewards of ownership If the entity neither transfers nor retains substantially all the risks and rewards of ownership, the entity derecognises the financial asset (and separately recognises any rights and obligations). Alternatively the asset is not derecognised if the entity continues to retained control. An entity derecognises a financial liability when it is extinguished. Hedge accounting To qualify for hedge accounting, an entity must meet the following conditions: The entity designates and documents the hedging relationship, clearly identifying the risk being hedged, the hedged item and hedging instrument The hedged risk is one of the specified risks in the standard (see below) The hedging instrument is as specified in the standard (see below) The entity expects the hedge to be highly effective. To qualify for hedge accounting, an entity must meet the following conditions: At inception of the hedge there is formal designation and documentation of the hedging relationship, the entitys risk management objective and strategy for the hedge The hedge is expected to be highly effective For cash flow hedges, a forecast transaction is highly probable The effectiveness can be reliably measured The hedge is assessed on an ongoing basis and `determined to have been actually effective. IFRS for SMEs has similar requirements to full IFRS regarding the need to document and designate the hedging relationship. However, the requirements under IFRS for SMEs are less onerous, although as explained below, SMEs are more restricted in the circumstances in which they can apply hedge accounting. Both frameworks retain the same risks and rewards principles for the purposes of derecognition of financial assets. No differences would be expected between the frameworks. IAS 39 provides additional guidance on derecognition. In the absence of further guidance, entities reporting under IFRS for SMEs may need to consider how the requirements will be applied in practice.
Impact assessment
Hedged risks IFRS for SMEs only permits hedge accounting when the hedged risk is one of the following 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. IAS 39 permits the following hedge relationships: Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, which is attributable to a particular risk and could affect profit or loss Cash flow hedge: a hedge of the exposure to variability in cash flows that: Is attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and Could affect profit or loss Hedge of a net investment in a foreign operation as defined in IAS 21. IFRS for SMEs restricts the ability for an entity to use hedge accounting to the four identified risks in the standard.
Impact assessment
Hedging instrument The Hedge accounting is only permitted if the hedging instrument meets all of the following: It is an interest rate swap, a foreign currency swap, a foreign currency forward exchange contract or a commodity forward exchange contract that is expected to be highly effective It involves a party external to the reporting entity Its notional amount equals the designated amount of the hedged item It has a specified maturity date not later than: The maturity of the hedged item The expected settlement of the commodity commitment The occurrence of the highly probable forecast transaction It has no prepayment of early termination or extension features. IAS 30 does not restrict the circumstances in which a derivative may be a hedging instrument, except for some written options. A non-derivative financial instrument can only be designated as a hedge of a foreign currency risk. Only instruments that involve a party external to the reporting entity can be designated as hedging instruments. IFRS for SMEs is much more restrictive concerning what can be designated as a hedging instrument.
Hedge of a fixed interest rate risk If the hedged risk is the exposure to a fixed interest rate risk of a debt instrument measured at amortised cost or a commodity price risk, the entity: Recognises the hedging instrument as an asset or liability and changes in the fair value are recognised in profit or loss Recognises the change in fair value of the hedged item in profit or loss and as an adjustment to its carrying amount. Hedge of a variable interest rate risk If the hedged risk is: The variable interest rate risk in a debt instrument at amortised cost The foreign exchange risk in a firm commitment or highly probable forecast transaction The commodity price risk in a firm commitment or highly probable forecast transaction The foreign exchange risk in a net investment in a foreign operation the entity recognises the effective portion of the change in fair value of the hedging instrument in other comprehensive income. Any ineffectiveness is recognised in profit or loss. The gain or loss is reclassified to profit or loss when the hedged item is recognised in profit or loss or the hedging relationship ends. Discontinuing hedge accounting Hedge accounting is discontinued when: The hedging instrument expires or is sold The hedge no longer meets the conditions for hedge accounting In the hedge of a forecast transaction, when the transaction is no longer highly probable The entity revokes the designation. Hedge accounting is discontinued when: The hedging instrument expires or is sold The hedge no longer meets the conditions for hedge accounting In the hedge of a forecast transaction, when the transaction is no longer highly probable The entity revokes the designation. The criteria for discontinuing hedge accounting are the same under both IFRS for SMEs and full IFRS. Most hedges of a variable interest rate risk would be cash flow hedges under full IFRS. Cash flow hedges are accounted for as follows: The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income The ineffective portion is recognised in profit or loss. Hedges of a variable interest rate risk are treated in a similar way to cash flow hedges under full IFRS. IAS 39 has difference definitions for the types of hedge. However, Hedges of a fixed interest rate risk are treated in a similar way to most hedges of fixed interest rate risk would be fair value hedges. fair value hedges under full IFRS. Fair value hedges are accounted for as follows: The gain or loss on remeasuring the hedging instrument at fair value is recognised in profit or loss The gain or loss on the hedged item is adjusted against its carrying amount and recognised in profit or loss.
Impact assessment
Section 26: Share-based payments

IFRS for SMEs Section 26 Share-based Payment
Scope This section specifies the accounting for all share-based payment transactions for the acquisition of goods or services, including those that are equity-settled and those that are cash-settled or a choice of either equity or cash. Where an award is granted by a parent entity to the employees of a subsidiary and the parent presents consolidated financial statements using either the IFRS for SMEs or full IFRS, the subsidiary may recognise and measure the share-based payment expense based on a reasonable allocation of the expense recognised for the group. In some jurisdictions, equity investors are able to acquire equity without providing goods or services that can be specifically identified (or at less than fair value of the equity granted). These are treated as equity-settled share-based payment transactions within the scope of this section. This IFRS applies to all share-based payment transactions for the acquisition of goods and services, whether or not the entity can identify specifically some or all of the goods or services received. These include equity-settled, cash-settled and transactions that provide for settlement either by cash or equity instruments. A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. While both IFRS for SMEs and full IFRS deal with the acquisition of goods and services by an entity by means of a share-based payment arrangement, the scope of the frameworks are different. The principle difference is that IFRS 2 specifically includes within its scope those transactions settled by another group entity (or shareholder). Under IFRS for SMEs it is voluntary to account for an award made by the parent entity. Hence, the treatment of group share-based payment arrangements will be different under full IFRS compared to IFRS for SMEs.
IFRS IFRS 2 Share-based Payment
Impact assessment
Section 26: Share-based payments continued

Recognition The entity recognises the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity recognises a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction. When the goods or services received do not qualify for recognition as an asset, the entity recognises an expense. The goods or services received or acquired in a share-based payment transaction are recognised when the entity obtains the goods or receives the services. The entity also recognises a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction. When the goods or services received do not qualify for recognition as assets they are recognised as an expense. There is no difference in the general recognition principles of the frameworks.
Impact assessment
Recognition of vesting conditions IFRS for SMEs only considers vesting in the context of employees. If the equity instruments granted do not vest until the counterparty completes a specified period of service, the entity The principle applied is that if the share-based payments do not shall presume that the services will be received in the future, vest until the completion of a specified period of service, the during the vesting period. entity presumes the services rendered by the counterparty will be received during the vesting period. Hence, the entity recognises the share-based payment for those services received during the vesting period. Although only given in the context of employees, the principles of recognition where there are vesting conditions is the same under both frameworks.

Measurement For equity-settled share-based payment transactions, the entity measures the goods or services received and the corresponding increase in equity at the fair value of the goods or services received. If this fair value cannot be estimated reliably (includes employee transactions), the entity measures the transaction by reference to the fair value of the equity instruments granted. The fair value of the equity instruments is measured at grant date. The standard differentiates between a market vesting condition and a non-market vesting condition for the purposes of measurement. Non-market vesting conditions are not taken into account to determine the fair value of the award. These conditions are used to determine the number of shares that are expected to vest. Market vesting conditions are used to determine the value of the award at grant date. For cash-settled share-based payment transactions, the entity measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity remeasures the fair value of the liability, with any changes in fair value recognised in profit or loss for the period. For share-based transactions in which either the entity or the counterparty has the choice of whether settlement is in cash or equity instruments, the entity accounts for that transaction as a cash-settled share-based payment transaction if the entity has incurred a liability. The transaction is accounted for as an equity-settled share-based payment transaction if the entity has a past practice of settling in shares or the option to receive cash has no commercial substance. For equity-settled share-based payment transactions, the entity measures the goods or services received and the corresponding increase in equity at the fair value of the goods or services received. If the entity cannot estimate reliably the fair value of the goods or services received, the entity measures the transaction by reference to the fair value of the equity instruments granted. The fair value of equity instruments issued in transactions with employees is measured at grant date. The standard differentiates between a market vesting condition and a non-market vesting condition for the purposes of measurement. Non-market vesting conditions are not taken into account to determine the fair value of the award. These conditions are used to determine the number of shares that are expected to vest. Market vesting conditions are used to determine the value of the award at grant date. For cash-settled share-based payment transactions, the entity measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity remeasures the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. For share-based transactions in which either the entity or the counterparty has the choice of whether settlement is in cash or equity instruments, the entity accounts for that transaction as a cash-settled share-based payment transaction if the entity has incurred a liability. The transaction is accounted for as an equity-settled share-based payment transaction if no such liability has been incurred. The general measurement principles are the same between both frameworks other than when there is optionality in the manner of settlement. Although both frameworks default for classification in these instances as being cash settled, the criteria for classifying a transaction as equity settled differ between the standards.
Impact assessment

Fair value of equity instruments IFRS for SMEs uses a hierarchy to determine the fair value of shares issued based on: Observable market prices If unobservable, entity specific observable market data, such as a recent transaction in the instruments or a recent independent valuation of the entity If the fair value is not observable and obtaining entity specific market data is impracticable, the directors should use their judgment to apply the most appropriate valuation methodology. Modifications and cancellations If an entity modifies the award to the employee, the modification is accounted for as follows: If the modification results in an increase in fair value of the award at modification date, the incremental increase in fair value is included in the measurement of the amount recognised for services received over the period from the modification date to vesting date If the modification does not result in an incremental increase in fair value at the date of the modification, the modification is ignored. The cancellation or settlement of an award is accounted for as an acceleration of the remaining vesting periods. An entity recognises, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition. The effects of any modifications to the terms and conditions on which the equity instruments were granted, that increases the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee, are recognised by the entity. An entity accounts for a cancellation or settlement as an acceleration of the vesting period. The general principles of modification and cancellation are similar in both frameworks. No differences would be expected in the application of this section. An entity measures the fair value of equity instruments granted at the measurement date, based on market prices if available, taking into account the terms and conditions of the grant. If market prices are not available, an entity estimates the fair value of the equity instruments granted using a valuation technique to derive an estimate of the price of the equity instruments in an arms length transaction between knowledgeable, willing parties. While both frameworks require measurement of the equity instruments at fair value, IFRS for SMEs allows the use of a directors valuation when the fair value is not observable. However, it is not clear under what circumstances determining an entity specific value will be deemed impracticable. Therefore in practice, the determination of an appropriate methodology may well result in a fair value similar to that under full IFRS.
Impact assessment
Section 21: Provisions and contingencies

IFRS for SMEs Section 21 Provisions and Contingencies
Scope This section applies to all provisions, contingent liabilities and contingent assets other than those relating to construction contracts, executory contracts unless they are onerous, employee benefit obligations, income tax and leases. The standard applies to all provisions contingent liabilities and contingent assets, other than those from executory contracts unless onerous, and those covered by another standard, such as construction contracts, income taxes, leases, employee benefits and insurance contracts. There are only minor explanatory differences between IFRS for SMEs and full IFRS.
IFRS IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Impact assessment
Definitions A provision is a liability of uncertain timing or amount. A provision is a liability of uncertain timing or amount. There is no difference between IFRS for SMEs and IFRS.
A liability is a present obligation of the entity arising from past A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. from the entity of resources embodying economic benefits. Recognition An entity recognises a provision only when it has an obligation at the reporting date as a result of a past event; it is probable (i.e., more likely than not) that the entity will be required to transfer economic benefits in settlement and the amount of the obligation can be estimated reliably. Initial measurement An entity measures a provision at the best estimate of the amount required to settle the obligation at the reporting date, which is the amount it would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time. When the effect of the time value of money is material, the amount of a provision is the present value of the amount expected to be required to settle the obligation at a pre-tax discount rate that reflects current market assessments of time value of money. The amount recognised as a provision is the best estimate of the There is no difference between IFRS for SMEs and IFRS. expenditure required to settle the present obligation at the end of the reporting period, which is the amount that it would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time. Where the effect of the time value of money is material, the amount of provision is the present value of expenditures expected to be required to settle the obligation at a pre-tax discount rate that reflects current market assessments of time value of money and risks specific to liability. An entity recognises a provision only when it has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. There are only minor explanatory differences between IFRS for SMEs and IFRS.
Section 21: Provisions and contingencies continued

IFRS for SMEs Section 21 Provisions and Contingencies
Subsequent measurement An entity reviews provisions at each reporting date and adjusts to reflect the current best estimate of the amount required to settle the obligation. The unwinding of the discount is recognised as finance cost in profit or loss in the period in which it arises. A provision is only used for expenditures for which it was originally recognised. Contingent liabilities A contingent liability is either a possible but uncertain obligation that is not recognised because it fails to meet either the probability that economic benefits will transfer or the amount cannot be reliably estimated. Contingent liabilities are not recognised except for those of the acquiree in a business combination. Contingent liabilities are disclosed unless the possibility of payment is remote. Contingent assets An entity does not recognise a contingent asset. However, when the inflow of resources is virtually certain, an asset is recognised. Derecognition A provision is derecognised when all obligations are settled. A provision is derecognised when no more resources are required settling any obligations. There are only minor explanatory differences between IFRS for SMEs and IFRS. An entity does not recognise a contingent asset. However, when the inflow of resources is virtually certain, an asset is recognised. There is no difference between IFRS for SMEs and IFRS. A contingent liability is either a possible but uncertain obligation that is not recognised because it fails to meet either the probability that economic benefits will transfer, or the amount cannot reliably be estimated. Contingent liabilities are disclosed unless the possibility of outflow of resources is remote. There is no difference between IFRS for SMEs and IFRS in the definition of contingent liabilities. The treatment of contingent liabilities in a business combination is different under IFRS for SMEs compared to IFRS. This is explained in more detail in the section on Business Combinations. Provisions shall be reviewed at the end of each reporting date and adjusted to reflect the current best estimate of the provision. Where discounting is used, the increase in each period to reflect the passage of time is recognised as borrowing cost. A provision is only used for expenditures for which it was originally recognised. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 37 Provisions, Contingent Liabilities and Contingent Assets
Impact assessment
Section 28: Employee benefits

IFRS for SMEs Section 28 Employee Benefits
Scope Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees, including directors and management. This section applies to all employee benefits, except for share-based payment transactions. Recognition An entity recognises the cost of all employee benefits to which its employees have become entitled during the reporting period: As a liability, after deducting amounts that have been paid either directly to the employees or as a contribution to an employee benefit fund. An entity recognises any asset to the extent that the pre-payment will lead to a reduction in future payments or a cash refund As an expense, unless another section requires the cost to be recognised as part of an asset. Short-term employee benefits When an employee has rendered service to an entity during the reporting period, the entity recognises these in terms of the general principle. These benefits are measured at the undiscounted amount of the benefits expected to be paid. When an employee has rendered service to an entity during an accounting period, the entity recognises the undiscounted amount of short-term employee benefits as a liability (accrued expense), after deducting any amount already paid. An asset is recognised to the extent that the prepayment will lead to a reduction in future payments or a cash refund. An expense is recognised, unless another standard requires or permits the cost as part of the cost of an asset. No differences exist in the recognition and measurement of short-term benefits. The examples of compensated absences and profit share bonuses are the same under both frameworks. IAS 19 Employee Benefits considers the following types of employee benefit separately: Short-term employee benefits Post-employment benefits Other long-term employee benefits Termination benefits. The differences are considered in more detail below. This standard is applied by an employer in accounting for all employee benefits, except those to which IFRS 2 applies. There is no difference in scope between IFRS for SMEs and IFRS.
IFRS IAS 19 Employee Benefits
Impact assessment
Section 28: Employee benefits continued

Post-employment benefit plans Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans. Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity and has no obligation to pay further contributions. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Multi-employer plans and state plans are classified as defined contribution plans or defined benefit plans based on the terms of the plan. However, if sufficient information is not available to use defined benefit accounting for a multi-employer plan that is a defined benefit plan, an entity accounts for the plan as if it was a defined contribution plan. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions. Under defined contribution plans the entitys obligation is limited to the amount that it agrees to contribute to the fund. Defined benefit plans are post-employment benefit plans other than defined contribution plans. An entity classifies a multi-employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan. When sufficient information is not available to use defined benefit accounting for a multi-employer plan that is a defined benefit plan, an entity accounts for the plan as if it were a defined contribution plan. There is no difference in the classification of post retirement plans under the two frameworks.
Impact assessment
Defined contribution plans An entity recognises the contribution payable for a period: As a liability, after deducting any amount already paid As an expense, unless another section requires the cost to be part of the cost of an asset. An entity recognises the contribution payable for a period: As a liability, after deducting any amount already paid As an expense, unless another section requires the cost to be part of the cost of an asset. Where contributions to a defined contribution plan do not fall due wholly within 12 months after the end of the period in which the employees render the related service, they are discounted. Defined benefit plans An entity recognises: A liability for its obligations under defined benefit plans net of plan assets and The net change in that liability during the period as the cost of its defined benefit plans during the period. The amount recognised as a defined benefit liability is: The present value of the defined benefit obligation at the end of the reporting period less Any actuarial gains/losses not recognised Any past service cost not yet recognised The fair value at the end of the reporting period of plan assets. Considerable differences exist in the recognition and the measurement of post-retirement defined benefit plans. IFRS for SMEs allows the projected credit unit method to be simplified if its application would result in undue cost or effort. This may be of considerable benefit to reporters that use this standard. Other than the provisions for discounting under full IFRS, the requirements of both frameworks are the same.

An entity measures a defined benefit liability at the net total of the following amounts: The present value of its obligations under defined benefit plans at the reporting date less The fair value at the reporting date of plan assets An entity recognises a plan surplus as an asset only to the extent that it is able to recover the surplus either through reduced contributions in the future or through refunds from the plan. The present value of an entitys obligations reflects the discounted estimated amount of benefit that employees have earned in return for their service in the current and prior periods. This requires the entity to determine how much benefit is attributable to the current and prior periods based on the plans benefit formula and to make actuarial assumptions about demographic and financial variables.

An asset is measured at the lower of: The amount above or The total of any cumulative unrecognised net actuarial losses and past service cost; and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. An entity recognises the net total of the following amounts in profit or loss:
Impact assessment
The second major difference lies in the recognition of actuarial gains and losses. Under IFRS for SMEs all actuarial gains and losses must be recognised in full. However, entities have a choice of recognising them in profit or loss or in other comprehensive income.
Current service cost Interest cost The expected return on any plan assets Actuarial gains and losses recognised in profit and loss Past service cost The effect of any curtailments or settlements and An entity is required to use the projected unit credit method unless The effect of the limit on the recognition of the asset. this would require undue cost or effort, in which case, the entity An entity determines the present value of its defined benefit makes the following simplifications: obligations and the related current service cost and, where Ignore estimated future salary increases applicable, past service cost using the projected unit credit Ignore future service of current employees method. Ignore possible in-service mortality of current employees. Actuarial gains and losses are recognised: If a defined benefit plan has been introduced or changed in In profit or loss using the corridor approach the current period, the entity increases or decreases its defined In profit or loss on a systematic basis faster than the corridor benefit liability to reflect the change and recognises the approach increase or decrease in measuring profit or loss. If a plan has or been curtailed or settled the defined benefit obligation is In the period in which they occur in other comprehensive decreased or eliminated and the gain recognised in profit income. or loss. Past service costs are recognised as an expense on a straight-line Entities must select an accounting policy for recognition of basis over the average period until the benefits become vested. actuarial gains and losses. They are recognised in their entirety, Gains or losses on curtailment or settlement are recognised when either in profit or loss or in other comprehensive income. the curtailment or settlement occurs. Gains or losses on curtailment or settlement are recognised when the curtailment or settlement occurs.

Other long-term employee benefits An entity recognises a liability for other long-term employee benefits measured at: The present value of the benefit obligation at the reporting date less The fair value at the reporting date of any plan assets. An entity recognises a liability for other long-term employee benefits at: The present value of the benefit obligation at the reporting date less The fair value at the reporting date of any plan assets. The present value of the defined benefit obligation at the end of the reporting period is measured on the projected credit unit methodology. Termination benefits An entity recognises termination benefits as a liability and an expense only when the entity is demonstrably committed either: To terminate the employment of an employee or group of employees before the normal retirement date or To provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. An entity is demonstrably committed to a termination only when the entity has a detailed formal plan for the termination and is without realistic possibility of withdrawal from the plan. An entity recognises termination benefits as a liability and an expense when the entity is demonstrably committed to either: Terminate the employment of an employee or group of employees before the normal retirement date or Provide termination benefits because of an offer made in order to encourage voluntary redundancy An entity is demonstrably committed to a termination when, the entity has a detailed formal plan (without realistic possibility of withdrawal) for the termination. This would include: The location, function and approximate number of employees whose services are to be terminated The termination benefits for each job classification or function and The time at which the plan will be implemented. The general principles of termination benefits are similar under both frameworks, other than the greater guidance provided in determining demonstrable commitment. The requirements to recognise a liability are the same under both frameworks. However, IFRS for SMEs does not specify how the defined benefit obligation is measured. Therefore, it is assumed that a the projected credit unit method is not required, which leads to a difference between the two frameworks.
Impact assessment
Section 34: Specialised activities agriculture

IFRS for SMEs Section 34 Specialised Activities Agriculture
Scope The subsection applies to agricultural activity undertaken by an entity. While the scope deals with biological assets, the recognition and measurement of agricultural produce at the point of harvest is also dealt with under recognition and measurement. Definitions Agricultural activity is defined as the management by an entity of the biological transformation of biological assets for sale, into agricultural produce or into additional biological assets. Agricultural produce is defined as the harvested product of the entitys biological assets. A biological asset is defined as a living animal or plant. Agricultural activity is the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets. Agricultural produce is the harvested product of the entitys biological assets. A biological asset is a living animal or plant. Recognition An entity may recognise a biological asset or agricultural produce when: The entity controls the asset as a result of past events It is probable that future economic benefits associated with the asset will flow to the entity and The fair value or cost of the asset can be measured reliably without undue cost or effort. A biological asset or agricultural produce is recognised when: The entity controls the asset as a result of past events It is probable that future economic benefits associated with the asset will flow to the entity and The fair value or cost of the asset can be measured reliably. The only difference between full IFRS and IFRS for SMEs is the exemption provided in the third criterion, i.e., undue cost or effort. There is no difference between IFRS for SMEs and IFRS on the three basic definitions. The standard applies to biological assets, agricultural produce at the point of harvest and related government grants. This standard does not apply to land related to agricultural activity and intangible assets related to agricultural activity. Although not identical, the scoping paragraphs are sufficiently similar that an entity will identify similar assets to which the sub-section and standard are applicable.
IFRS IAS 41 Agriculture
Impact assessment
Section 34: Specialised activities agriculture continued

IFRS for SMEs Section 34 Specialised Activities Agriculture
Measurement An entity measures a biological asset on initial recognition and at each reporting date at its fair value less costs to sell unless fair value cannot be reliably measured without undue cost or effort. Changes in fair value less costs to sell are recognised in profit or loss. A biological asset is measured on initial recognition and at the end of each reporting period at its fair value less costs to sell, except in cases where the presumption to establish fair value is rebutted. In such cases, biological assets are measured at cost less accumulated depreciation and impairments. Both standards have similar measurement requirements, albeit that the cost model may be initiated at possibly a lower threshold in IFRS for SMEs. IFRS for SMEs considers various possible sources of information that could be used to establish fair value. This is similar to the guidance provided in IAS 41, although not in as much detail. Further IFRS for SMEs provides no guidance on costs to sell for such assets. Although unlikely, this may result in different carrying values being assigned to assets by the two standards.
IFRS IAS 41 Agriculture
Impact assessment
When the fair value is not readily determinable without undue Agricultural produce harvested from an entitys biological assets cost or effort, the entity applies the cost model and measures the are measured at its fair value less costs to sell at the point of asset at cost less any accumulated depreciation and impairments. harvest (thereafter they are treated as inventories or under other applicable standards). Agricultural produce harvested from an entitys biological assets are measured at their fair value less costs to sell at the point Gains and losses on initial recognition (and subsequent of harvest under both models (thereafter they are treated as remeasurement) of biological assets and agricultural produce inventory). are recognised in profit and loss. Grants Grants that do not impose future performance conditions are recognised in income when they are receivable. Grants that do impose future performance conditions are recognised when the conditions are met. All grants are measured at the fair value of the asset receivable. Unconditional grants are recognised when they become receivable. Conditional grants are recognised when the conditions are met. The grants are measured at the fair value less costs to sell of the asset receivable.
The recognition of government grants is the same under each standard. However, there will be differences in measurement if the costs to sell are significant as these costs are deducted under full IFRS.
Section 34: Specialised activities extractive industries

IFRS for SMEs Section 34 Specialised Activities Extractive Industries
An entity that is engaged in the exploration for, evaluation or extraction of mineral resources accounts for expenditure on the acquisition or development of tangible or intangible assets by applying Section 17 Property, Plant and Equipment and Section 18 Intangible Assets other than Goodwill, respectively. When an entity has an obligation to dismantle or remove an item, or to restore the site, such obligations and costs are accounted for in accordance with Section 17 Property, Plant and Equipment and Section 21 Provisions and Contingencies.
IFRS IFRS 6 Exploration for and Evaluation of Mineral Resources

IFRS 6 specifies the accounting for exploration and evaluation of mineral resources. It allows entities to develop an accounting policy for these costs without specifically considering IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which may allow entities to continue recognising assets on adoption of IFRS that would not otherwise be permitted.
Impact assessment
Under IFRS for SMEs, any expenditure that does not meet the recognition criteria of Section 17 and Section 18 would not be recognised as an asset. This may cause significant differences to full IFRS as costs such as exploration and evaluation expenditures that may not be recognised as assets under these sections will have to be expensed by SMEs but may be capitalised under full IFRS.
Section 34: Specialised activities service concession arrangements

IFRS for SMEs IFRS Section 34 Specialised Activities Service Concession IFRIC 12 Service Concession Arrangements Arrangements
Scope A service concession arrangement is an arrangement whereby a government or other public sector body contracts with a private operator to develop, operate and maintain the grantors infrastructure assets. In service concession arrangements the grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price and also controls any significant residual interest in the assets at the end of the term of the arrangement. Concession arrangements The two categories of service concession arrangements are: The operator receives a financial asset an unconditional contractual right to receive a specified or determinable amount of cash from the government The operator receives an intangible asset a right to charge for use of a public sector asset. Infrastructure within the scope of IFRIC 12 is not recognised as property, plant and equipment of the operator. The operator recognises a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor. The operator recognises an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. The principle categories of service concession assets are the same under both frameworks. IFRIC 12 applies to public-to-private service concession arrangements if: a) The grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them and at what price and b) The grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the term of the arrangement. Both frameworks have a similar scope.
Impact assessment
Financial asset model The operator initially measures the financial asset at its fair value. Thereafter, it follows Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues in accounting for the financial asset. The amount due from or at the direction of the grantor is accounted for in accordance with IAS 39 Financial Instruments: Recognition and Measurement as a loan or receivable, an available-for-sale financial asset, or if so designated upon initial recognition, a financial asset at fair value through profit or loss. The considerable differences exist between Sections 11 and 12 and IAS 39. These are dealt with specifically under financial instruments.
Intangible asset model The operator shall initially measure the intangible asset at fair value. Thereafter, it shall follow Section 18 Intangible Assets other than Goodwill in accounting for the intangible asset, measuring it at cost less amortisation and impairment losses. The consideration is recognised at fair value. IAS 38 Intangible Assets applies to the measurement of any intangible asset recognised and it is measured at cost less amortisation and impairment losses. No differences in measurement would be expected in the intangible asset model, as the requirements of section 18 for such assets are similar to the requirements of IAS 38.
Chapter four
Elements of the statement of comprehensive income
Executive summary
In this chapter, we consider the elements that make up the income statement and statement of comprehensive income and compare the following sections of the IFRS for SMEs with the relevant standard under full IFRS:
IFRS for SMEs Section 23 Revenue Section 30 Foreign Currency Translation Section 25 Borrowing Costs Section 24 Government Grants IFRS IAS 18 Revenue IAS 11 Construction Contracts IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
The principles of revenue recognition and foreign currency translation are the same under IFRS for SMEs. However, there is generally significantly less guidance in IFRS for SMEs, which may result in different entities taking different interpretations of the requirements in some cases. The requirements for borrowing costs are significantly different to full IFRS, as IFRS for SMEs requires all borrowing costs to be expensed as they are incurred. For some entities, particularly in the construction industry this may result in significant expenses being recognised in profit or loss. IFRS for SMEs does not give a choice of accounting policy for government grants, all grants are measured at fair value and recognised in profit or loss.
Elements of statement of comprehensive income CHAPTER FOUR 103
Section 23: Revenue

IFRS for SMEs Section 23 Revenue
Scope The section applies in accounting for revenue arising from the following: The sale of goods The rendering of services Construction contracts in which the entity is the contractor The use by others of entity assets yielding interest, royalties or dividends. IAS 18 Revenue applies to accounting for revenue arising from the sale of goods, the rendering of services and the use by others of entitys assets that yield interest, royalties and dividends. IAS 11 Construction Contracts applies in accounting for construction contracts in the financial statements of contractors. The IFRS for SMEs combines rules on revenue recognition and construction contracts as well as on customer loyalty programmes and the construction of real estate in one section.
IFRS IAS 18 Revenue IAS 11 Construction Contracts
Impact assessment
Definition of revenue Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. Definition of a construction contract A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. Recognition It must be probable that the economic benefits associated with the transaction will flow to the entity and that the revenue and costs can be measured reliably. Additional recognition criteria apply to the different categories as presented below. Measurement Revenue must be measured at the fair value of the consideration received or receivable. The fair value of the consideration received or receivable takes into account the amount of any trade discounts, prompt settlement discounts and volume rebates allowed by the entity. Revenue must be measured at the fair value of the consideration received or receivable. The amount of revenue arising on a transaction is usually determined by agreement between the entity and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity. There is no difference between IFRS for SMEs and IFRS. It must be probable that the economic benefits associated with the transaction will flow to the entity and that the revenue and costs can be measured reliably. Additional recognition criteria to the different categories as presented below. There is no difference between IFRS for SMEs and IFRS. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. There is no difference between IFRS for SMEs and IFRS. Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. There is no difference between IFRS for SMEs and IFRS.
104 CHAPTER FOUR Elements of statement of comprehensive income
Section 23: Revenue continued

Sale of goods In addition to the general recognition criteria, an entity must recognise revenue from the sale of goods when: The entity has transferred to the buyer the significant risks and rewards of ownership of the goods The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold The costs incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue must be recognised by reference to the stage of completion of the transaction at the end of the reporting period. If the services are performed by an indeterminate number of acts over a specified period of time, revenue may be recognised on a straight-line basis. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, an entity must recognise revenue only to the extent of the expenses recognised that are recoverable. Interest, royalties and dividends Interest recognised using the effective interest rate method. Royalties recognised on an accrual basis in accordance with the substance of the relevant agreement. Dividends recognised when the shareholders right to receive payment is established. Interest recognised using the effective interest rate method. Royalties recognised on an accrual basis in accordance with the substance of the relevant agreement. Dividends recognised when the shareholders right to receive payment is established. There is no difference between IFRS for SMEs and IFRS. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue must be recognised by reference to the stage of completion of the transaction at the end of the reporting period. If the services are performed by an indeterminate number of acts over a specified period of time, revenue may be recognised on a straight-line basis. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, an entity must recognise revenue only to the extent of the expenses recognised that are recoverable. There is no difference between IFRS for SMEs and IFRS. In addition to the general recognition criteria, an entity must recognise revenue from the sale of goods when: The entity has transferred to the buyer the significant risks and rewards of ownership of the goods The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold The costs incurred or to be incurred in respect of the transaction can be measured reliably. There is no difference between IFRS for SMEs and IFRS.
Impact assessment

Construction contracts When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract must be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (percentage of completion method). Reliable estimation of the outcome requires reliable estimates of the stage of completion, future costs and collectability of billings. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract must be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period (percentage of completion method). Reliable estimation of the outcome requires reliable estimates of contract revenue, the stage of completion, future costs and collectability of billings. There is no difference between IFRS for SMEs and IFRS. However, IAS 11 Construction Contracts provides additional detailed guidance on fixed price and cost-plus contracts.
Impact assessment
Percentage of completion method The stage of completion of a transaction or contract is determined using the method that measures most reliably the work performed. Possible methods include: The proportion of costs incurred for work performed to date, but not including costs relating to future activity, such as materials or prepayments Surveys of work performed Completion of physical proportion of the service transaction or contract work Any costs for which recovery is not probable are recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably: Revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable and Contract costs must be recognised as an expense in the period in which they are incurred. The stage of completion of a contract may be determined in a variety of ways. The entity uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include: The proportion of contract costs incurred for work performed to date compared to the estimated total contract costs Survey of work performed Completion of a physical proportion of contract work. An expected loss on the construction contract must be recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably: Revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable and Contract costs must be recognised as an expense in the period in which they are incurred. There is no difference between IFRS for SMEs and IFRS.

Barter transactions When goods are sold or services are exchanged for dissimilar goods or services in a transaction that has commercial substance, the transaction must be measured at: The fair value of the goods or services received adjusted by the amount of any cash or cash equivalents transferred If the fair value of the goods or services received cannot be measured reliably, then it is measured at the fair value of the goods and services given up adjusted by the amount of any cash or cash equivalents transferred or If the fair value of neither the asset received nor the asset given up can be measured reliably, then at the carrying amount of the asset given up adjusted by the amount of any cash or cash equivalents transferred. No revenue is recognised for an exchange of goods and services that are of a similar nature and value or for an exchange of dissimilar goods where the transaction lacks commercial substance. Discounting of revenues Discounting of revenues to present value is required in instances where the inflow of cash or cash equivalents is deferred. In such instances, an imputed interest rate is used for determining the amount of revenue to be recognised, as well as the separate interest income component to be recorded over time. The imputed rate of interest is the more clearly determinable of either: The prevailing rate for a similar instrument of an issuer with a similar credit rating or A rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services. When the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable. If an arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The imputed rate of interest is the more clearly determinable of either: The prevailing rate for a similar instrument of an issuer with a similar credit rating or A rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services. The difference between the fair value and the nominal amount of the consideration is recognised as interest revenue. There is no difference between IFRS for SMEs and IFRS. An exchange of dissimilar goods or services is regarded as a transaction that generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of cash or cash equivalents transferred. An exchange of similar goods or services is not regarded as a transaction that generates revenue. There is no difference between IFRS for SMEs and IFRS.
Impact assessment

Agreements for the construction of real estate An entity that undertakes the construction of real estate and that enters into an agreement with one or more buyers accounts for the agreement as a sale of services using the percentage-ofcompletion method if: The buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress or The buyer acquires and supplies construction materials and the entity provides only construction services. If the entity is required to provide services together with construction materials in order to perform its contractual obligation to deliver real estate to the buyer, the agreement must be accounted for as the sale of goods. In this case, the buyer does not obtain control or the significant risks and rewards of ownership of the work in progress in its current state as construction progresses. Rather, the transaction occurs only on delivery of the completed real estate to the buyer. Agreements for the construction of real estate are dealt with in IFRIC 15 Agreements for the Construction of Real Estate. An entity that undertakes the construction of real estate and enters into an agreement with one or more buyers accounts for the agreement as a sale of services using the percentage-ofcompletion method if: The buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress or The buyer acquires and supplies construction materials and the entity provides only construction services. If the entity is required to provide services together with construction materials in order to perform its contractual obligation to deliver real estate to the buyer, the agreement must be accounted for as the sale of goods. In this case, the buyer does not obtain control or the significant risks and rewards of ownership of the work in progress in its current state as construction progresses. Rather, the transaction occurs only on delivery of the completed real estate to the buyer. There is no difference between IFRS for SMEs and IFRIC 15.
Impact assessment
Customer loyalty programmes If an entity grants, as part of a sales transaction, its customer a loyalty award that the customer may redeem in the future for free or discounted goods or services, the entity must account for the award credits as separately identifiable component of the initial sales transaction. The entity must allocate the fair value of the consideration received or receivable in respect of the initial sale between the award credits and the other components of the sale. The consideration allocated to the award credits must be measured by reference to their fair value, i.e., the amount for which the award credits could be sold separately. Customer loyalty programmes are dealt with in IFRIC 13 Customer Loyalty Programmes. If an entity grants, as part of a sales transaction, its customer a loyalty award that the customer may redeem in the future for free or discounted goods or services, the entity must account for the award credits as separately identifiable component of the initial sales transaction. The entity must allocate the fair value of the consideration received or receivable in respect of the initial sale between the award credits and the other components of the sale. The consideration allocated to the award credits must be measured by reference to their fair value, i.e., the amount for which the award credits could be sold separately. There is no difference between IFRS for SMEs and IFRIC 13.
Section 30: Foreign currency translation

IFRS for SMEs Section 30 Foreign Currency Translation
Definitions Functional currency the currency of the primary economic environment in which the entity operates. Presentation currency the currency in which the financial statements are presented. Functional currency All components of the financial statements are measured in the functional currency. All transactions entered into in currencies other than the functional currency are treated as transactions in a foreign currency. Foreign currency transactions A foreign currency transaction must be recorded on initial recognition in the functional currency using the spot exchange rate at the date of transaction. For practical reasons, average rates may be used if they do not fluctuate significantly. At the end of each reporting period: Foreign currency monetary balances must be translated using the exchange rate at the closing rate Non-monetary balances that are measured in terms of historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction Non-monetary items that are measured at fair value in a foreign currency must be translated using the exchange rates at the date when the fair value was determined. A foreign currency transaction must be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transition. For practical reasons, a rate that approximates the actual rate at the date of the transaction might be used if it does not fluctuate significantly. At the end of each reporting period: Foreign currency monetary items must be translated using the closing rate Non-monetary items that are measured in terms of historical cost in a foreign currency must be translated using the exchange rate at the date of the transaction Non-monetary items that are measured at fair value in a foreign currency must be translated using the exchange rates at the date when the fair value was determined. There is no difference between IFRS for SMEs and IFRS. All components of the financial statements are measured in the functional currency. All transactions entered into in currencies other than the functional currency are treated as transactions in a foreign currency. There is no difference between IFRS for SMEs and IFRS. Functional currency the currency of the primary economic environment in which the entity operates. Presentation currency the currency in which the financial statements are presented. There is no difference between IFRS for SMEs and IFRS.
IFRS IAS 21 The Effect of Changes in Foreign Exchange Rates
Impact assessment
Section 30: Foreign currency translation continued

IFRS for SMEs Section 30 Foreign Currency Translation
Recognition of exchange differences Exchange differences on monetary items are recognised in profit or loss for the period except for those differences arising on a monetary investment in a foreign entity (subject to strict criteria of what qualifies as net investment). In the consolidated financial statements, such exchange differences are recognised in other comprehensive income and reported as a component of equity. Recycling through profit or loss of any cumulative exchange differences that were previously recognised in equity on disposal of a foreign operation is not permitted. Change in functional currency A change in functional currency is justified only if there are changes in underlying transactions, events and conditions that are relevant to the entity. The effect of a change in functional currency must be accounted for prospectively from the date of the change. Presentation currency An entity may choose to present its financial statements in any currency. If the presentation currency differs from the functional currency, an entity translates its items of income and expense and financial position into the presentation currency. An entity may choose to present its financial statements in any currency. If the presentation currency differs from the functional currency, an entity translates its items of income and expense and financial position into the presentation currency. There is no difference between IFRS for SMEs and IFRS. A change in functional currency is justified only if there are changes in underlying transactions, events and conditions that are relevant to the entity. The effect of a change in functional currency must be accounted for prospectively from the date of the change. There is no difference between IFRS for SMEs and IFRS. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognised in profit or loss in the period in which they arise. Exchange differences on a monetary item that forms part of a net investment in a foreign operation are reclassified from equity to profit or loss on disposal of the foreign operation. There is no difference between IFRS and IFRS for SMEs in relation to the recognition of exchange differences. However, under IAS 21, exchange differences on a monetary item that forms part of a net investment in a foreign operation are reclassified from equity to profit or loss on disposal of the foreign operation. Therefore, an SME will recognise a different gain or loss on disposal of a foreign operation.
IFRS IAS 21 The Effect of Changes in Foreign Exchange Rates
Impact assessment
Section 25: Borrowing costs

IFRS for SMEs Section 25 Borrowing Costs
Scope Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds and include: Interest expense calculated using the effective interest method Finance charges in respect of finance leases Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds and may include: Interest expense calculated using the effective interest method Finance charges in respect of finance leases Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. IAS 23 does not apply to borrowing costs relating to the acquisition, construction or production of: A qualifying asset measured at fair value, e.g., a biological asset or Inventories that are manufactured or otherwise produced, in large quantities on a repetitive basis. Recognition All borrowing costs are expensed in profit or loss in the period in which they are incurred. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset are capitalised. All other borrowing costs are expensed. Expensing borrowing costs is a major difference between IFRS for SMEs and full IFRS. For many entities this will be simpler to apply as SMEs will not need to calculate the borrowing costs to be capitalised. However, in some industries, such as the real estate industry, expensing borrowing costs may be disadvantageous as the costs will be recognised in profit or loss in the period in which they are incurred, which may lead to greater volatility in earnings. Therefore, entities will need to consider whether this is a significant factor for their business before deciding to adopt IFRS for SMEs. There is no difference between IFRS for SMEs and IFRS. IFRS for SMEs does not include a similar scope exemption because of the required accounting treatment explained below.
IFRS IAS 23 Borrowing Costs
Impact assessment
Section 24: Government grants

IFRS for SMEs Section 24 Government Grants
Scope This section applies to all government grants. Government grants are assistance by the government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operation activities of the entity. This standard applies to accounting for government grants and the disclosure of government assistance. Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operation activities of the entity. There are no differences between IFRS for SMEs and full IFRS in terms of the definition of government grants. The main difference in scope is that IFRS for SMEs applies to government grants related to agriculture, which are dealt with in a separate standard under full IFRS. Generally the disclosure requirements of IFRS for SMEs are less than under full IFRS and therefore disclosure of government assistance is not dealt with in IFRS for SMEs.
IFRS IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
Impact assessment
Government grants exclude those forms of government assistance that cannot reasonably have a value placed upon them IAS 20 does not apply to: and transactions with government that cannot be distinguished Government assistance that is provided for an entity in the from the normal trading transactions of the entity. form of benefits that are available in determining taxable profit or tax loss, or are determined or limited on the basis of The section on government grants does not cover government income tax liability. Examples of such benefits are income tax assistance that is provided for an entity in the form of benefits holidays, investment tax credits, accelerated depreciation that are available in determining taxable profit or tax loss, or are allowances and reduced income tax rates determined or limited on the basis of income tax liability. Government participation in the ownership of the entity Examples of such benefits are income tax holidays, investment Government grants covered by IAS 41 Agriculture. tax credits, accelerated depreciation allowances and reduced income tax rates.
Section 24: Government grants continued

IFRS for SMEs Section 24 Government Grants
Recognition and measurement An entity shall recognise government grants according to the nature of the grant as follows: A grant that does not impose specified future performance conditions on the recipient is recognised in income when the grant proceeds are receivable A grant that is imposes specified future performance conditions on the recipient is recognised in income only when the performance conditions are met Grants received before the income recognition criteria are satisfied are recognised as a liability and released to income when all attached conditions have been complied with. Grants are measured at the fair value of the asset received or receivable. Government grants, including non-monetary grants, shall not be recognised until there is a reasonable assurance that: The entity will comply with the conditions attached to the grants and The grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable. Grants in the form of the transfer of a non-monetary asset can be measured either at the fair value of the asset received or at nominal amount. The IFRS for SMEs approach to account for government grants simplifies the rules of IAS 20. The most significant difference is that under IFRS for SMEs, grants of non-monetary assets must be measured at the fair value of the asset receivable.
IFRS IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
Impact assessment
Chapter five
Transition to the IFRS for SMEs
Executive summary
In this chapter, we consider the transition requirements for the first-time adoption of IFRS for SMEs. The transition rules apply equally to all entities whether they have previously applied IFRS or another GAAP. The rules are based on the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards but in some cases the section has been altered to make the transition requirements easier to apply. Under the transition rules, restatements of the opening statement of financial position do not need to be made if it is impractical to do so. In some cases this may relieve the need for restatement, although the ability to meet the impracticability hurdle may prove difficult.
Transition to the IFRS for SMEs CHAPTER FIVE 115
Section 35: Transition to the IFRS for SMEs

IFRS for SMEs Section 35 Transition to the IFRS for SMEs
Scope The section applies to a first-time adopter of IFRS for SMEs, whether its previous accounting framework was full IFRS or another set of GAAP. An entitys first financial statements that conform to IFRS for SMEs are the first annual financial statements in which the entity makes an explicit and unreserved statement in those financial statements of compliance with the IFRS for SMEs. Recognition An entitys date of transition to the IFRS for SMEs is the beginning of the earliest period for which the entity presents full comparative information in accordance with this IFRS in its first financial statements that conform to this IFRS. Accounting policies in the opening statement of financial position In the opening statement of financial position, entities must: a) Recognise all assets and liabilities whose recognition is required by the IFRS for SMEs b) Not recognise items as assets or liabilities if this IFRS does not permit such recognition c) Reclassify items recognised under a previous financial reporting framework as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under this IFRS d) Apply this IFRS in measuring all recognised assets and liabilities. Recognition of adjustments Adjustments, resulting from different accounting policies in the previous GAAP, are recognised directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to this IFRS.
116 CHAPTER FIVE Transition to the IFRS for SMEs
Section 35: Transition to the IFRS for SMEs continued

IFRS for SMEs Section 35 Transition to the IFRS for SMEs
Exceptions to retrospective application Entities must not retrospectively change the previous accounting for any of the following: Derecognition of financial instruments Hedge accounting Accounting estimates Discontinued operations Measuring non-controlling interests.
Voluntary exemptions from retrospective application Business combinations Share-based payment transactions Fair value as deemed cost Revaluation as deemed cost Cumulative translation differences Separate financial statements Compound financial instruments Deferred income tax Service concession arrangements Extractive activities Arrangements containing a lease Decommissioning liabilities included in the cost of property, plant and equipment.
Exemptions from retrospective application If it is impracticable for an entity to restate the opening statement of financial position at the date of transition for one or more of the adjustments, the entity must apply the requirements for such adjustments in the earliest period for which it is practicable to do so, and must identify the data presented for prior periods that are not comparable with data for the period in which it prepares its first financial statements that conform to this IFRS. If it is impracticable for an entity to provide any disclosures required by this IFRS for any period before the period in which it prepares its first financial statements that conform with this IFRS, the omission must be disclosed.
Transition to the IFRS for SMEs CHAPTER FIVE 117
Contents by section
Section 1 Small and medium-sized entities 2 Concepts and pervasive principles 3 Financial statement presentation 4 Statement of financial position 5 Statement of comprehensive income and income statement 6 Statement of changes in equity and statement of income and retained earnings 7 Statement of cash flows 8 Notes to the financial statements 9 Consolidated and separate financial statements 10 Accounting policies, estimates and errors 11 Basic financial instruments 12 Other financial instruments issues 13 Inventories 14 Investments in associates 15 Investments in joint ventures 16 Investment property 17 Property, plant and equipment 18 Intangible assets other than goodwill 6 7 9 12 13 14 15 17 36 18 79 79 67 47 42 57 54 59
118 Contents by section
19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Business combinations and goodwill Leases Provisions and contingencies Liabilities and equity Revenue Government grants Borrowing costs Share-based payment Impairment of assets Employee benefits Income tax Foreign currency translation Hyperinflation Events after the end of the reporting period Related party disclosures Specialised activities Transition to the IFRS for SMEs
28 61 92 74 104 112 111 88 64 94 69 109 24 20 21 98 116
Contents by section 119
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IFRS For SMEs Comparison

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IFRS For SMEs Comparison

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IFRS for small and medium-sized entities

A comparison with IFRS the basics

Preparation and presentation of financial statements CHAPTER ONE 5

Section 1: Small and medium-sized entities

IFRS IAS 1 Presentation of Financial Statements

6 CHAPTER ONE Preparation and presentation of financial statements

Section 2: Concepts and pervasive principles

Preparation and presentation of financial statements CHAPTER ONE 7

Section 2: Concepts and pervasive principles continued

8 CHAPTER ONE Preparation and presentation of financial statements

Section 3: Financial statement presentation

IFRS IAS 1 Presentation of Financial Statements

Preparation and presentation of financial statements CHAPTER ONE 9

Section 3: Financial statement presentation continued

IFRS IAS 1 Presentation of Financial Statements

10 CHAPTER ONE Preparation and presentation of financial statements

Section 3: Financial statement presentation continued

IFRS IAS 1 Presentation of Financial Statements

Preparation and presentation of financial statements CHAPTER ONE 11

Section 4: Statement of financial position

IFRS IAS 1 Presentation of Financial Statements

12 CHAPTER ONE Preparation and presentation of financial statements

Section 5: Statement of comprehensive income and income statement

IFRS IAS 1 Presentation of Financial Statements

Preparation and presentation of financial statements CHAPTER ONE 13

IFRS IAS 1 Presentation of Financial Statements

14 CHAPTER ONE Preparation and presentation of financial statements

Section 7: Statement of cash flows

IFRS IAS 7 Statement of Cash Flows

Preparation and presentation of financial statements CHAPTER ONE 15

Section 7: Statement of cash flows continued

IFRS IAS 7 Statement of Cash Flows

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

16 CHAPTER ONE Preparation and presentation of financial statements

Section 8: Notes to the financial statements

IFRS IAS 1 Presentation of Financial Statements

Preparation and presentation of financial statements CHAPTER ONE 17

Section 10: Selection and application of accounting policies

IFRS IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

18 CHAPTER ONE Preparation and presentation of financial statements

Section 10: Selection and application of accounting policies continued

IFRS IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Preparation and presentation of financial statements CHAPTER ONE 19

Section 32: Events after the end of the reporting period

IFRS IAS 10 Events after the Reporting Period

20 CHAPTER ONE Preparation and presentation of financial statements

Section 33: Related party disclosures

IFRS IAS 24 Related Party Disclosures

Preparation and presentation of financial statements CHAPTER ONE 21

Section 33: Related party disclosures continued

IFRS IAS 24 Related Party Disclosures

22 CHAPTER ONE Preparation and presentation of financial statements

Section 33: Related party disclosures continued

IFRS IAS 24 Related Party Disclosures

Preparation and presentation of financial statements CHAPTER ONE 23

Section 31: Hyperinflation

IFRS IAS 29 Financial Reporting in Hyperinflationary Economies

24 CHAPTER ONE Preparation and presentation of financial statements

Section 31: Hyperinflation continued

IFRS IAS 29 Financial Reporting in Hyperinflationary Economies

Preparation and presentation of financial statements CHAPTER ONE 25

Business combinations and group financial statements CHAPTER TWO 27