Full PFRS vs.

PFRS for SMEs

SMEs- Definition
The IASB concluded that, regardless of size, entities whose securities are traded in a public
market should follow full PFRS and not PFRS for SMEs.
SMEs- Qualities of General Features
The PFRS for SMEs and full PFRS share the same provisions on the definition, recognition, and
measurement of the elements of financial statements.
The only significant difference is the measurement of the elements of financial statements.
Under PFRS for SMEs, the measurement bases are two only, namely historical cost and fair
value.
However, under Conceptual Framework for Financial Reporting, the measurement bases are
historical cost, current cost, realizable value and present value.
Full PFRS and PFRS for SMEs have the same provisions on the general features in the
preparation of financial statements.
Under the Conceptual Framework for Financial Reporting the fundamental qualitative
characteristics of useful financial information are:
a. Relevance
b. Faithful representation
To be relevant, financial information must have both predictive values and confirmatory
value.
To be a perfectly faithful representation, a depiction should possess the characteristics of
completeness, neutrality and free from error.
Materiality is a subcharacteristic of relevance.
The Conceptual Framework also mentions the enhancing qualitative characteristic that would
increase the usefulness of financial information, namely:
a. Understandability
b. Comparability
c. Verifiability
d. Timeliness
SMEs- Statement of Financial Position
The components of financial statements of an SME are similar to those provided by full PFRS.
However, a single statement of income and retained earnings is not permitted under full
PFRS. A statement of changes in equity is always required.
In addition, under full PFRS, the third statement of financial position as at the beginning of
earliest comparative period shall be prepared:
a. When an entity applies an accounting policy retrospectively.
b. When an entity makes a retrospective restatement.
c. When an entity reclassifies items in its financial statements.
The third statement of financial position is not required under PFRS for SMEs.
Full PFRS and PFRS for SMEs require practically the same line items to be presented on the
face of the statement of financial position.
However, the following items are required to be presented under full PFRS but not under
PFRS for SMEs:
a. Total of assets classified as held for sale.
b. Total of liabilities included in disposal group classified as held for sale.
Moreover, full PFRS requires presentation of investments in associates but not investment in
joint ventures.
PFRS for SMEs requires presentation of both investments in associates and investments in
joint ventures.
Full PFRS and PFRS for SMEs have the same provision on the current and noncurrent separate
presentation, and the definition of current assets, noncurrent assets, current liabilities and
noncurrent liabilities.
SMEs- Comprehensive Income Cash Flows
Under full PFRS, the components of other comprehensive income include the following:
1. Gain or loss from translation of the financial statements of a foreign operation.
2. “Remeasurements,” including actuarial gain or loss on projected benefit obligation
3. Unrealized gain or loss from derivative contracts designated as cash flow hedge
4. Unrealized gain or loss on equity investment measured at fair value through other
comprehensive income.
5. Unrealized gain or loss on debt investment measured at fair value through other
comprehensive income.
6. Revaluation surplus during the year.
7. The change in fair value attributable to credit risk of a financial liability designated at
fair value through profit or loss.
Full PFRS and PFRS for SMEs have the same provisions on the presentation of total
comprehensive income.
The PFRS for SMEs and full PFRS share the same provisions on the presentation of total
comprehensive income.
SMEs- Notes to Financial Statements Related parties, Events after reporting period
The PFRS for SMEs and full PFRS are the same in the matter of presenting the notes to
financial statements.
The PFRS for SMEs and full PFRS share the same provisions
The PFRS for SMEs and full PFRS share the same principles with respect to related party
disclosures.
The PFRS for SMEs and full PFRS share the same provisions for accounting and reporting
events after the end of reporting period.
SMEs- Accounting Changes
PFRS for SMEs and full PFRS have the same provisions and requirements with respect to the
following:
a. Selection of accounting policies
b. Consistency of accounting policies
c. Changes in accounting policies
d. Changes in accounting estimates
e. Correction of prior period error
SMEs- Inventories and Revenue
The PFRS for SMEs and full PFRS have practically the same provisions related to definition,
measurement, costs of purchase, cost of conversion, other cost and cost formulas for
inventories. SMEs – Basic Financial Instruments
Both the PFRS for SMEs and full PFRS have the same definitions of a financial instrument,
financial asset and financial liability.
SMEs- Associate
The significant difference between the PFRS for SMEs and full PFRS lies in the measurement
of the investment in associate.
Under PFRS for SMEs, all investments in associates are accounted for using any one of the
cost model, equity method or the fair value model.
In other words, only one accounting policy or one model shall be applied in accounting for all
investments in associate.
Under full PFRS, the investor has no accounting policy choice. The investments in associates
shall be accounted for using the equity method only.
Moreover, areas covered under full PFRS but not in PFRS for SMEs include the following:
a. Guidance on significant influence.
b. Consequences when an investment ceases to be an associate.
 c. Profit and loss from upstream and downstream transactions.
SMEs- Investment Property
Under PFRS for SMEs, investment property is measured at fair value if the fair value can be
measured reliably without undue cost or effort on an ongoing basis.
Otherwise, the investment property is accounted for as property, plant and equipment using
the cost-depreciation-impairment model.
Full PFRS allows accounting policy choice of either fair value model or cost model.
If the entity follows the cost model, the fair value of the property must be disclosed.
However, when an investment property is held by a lessee under an operating lease, the
entity must follows the fair value model for all of the investment properties.
SMEs- Property, Plant and Equipment
Full PFRS provides that an entity shall choose the cost model or revaluation model as an
accounting policy and shall apply that policy to an entire class of property, plant and
equipment.
Under PFRS for SMEs, property, plant and equipment shall be measured using the cost model
only.
The PFRS for SMEs and full PFRS are the same with respect to other matters related to
property, plant and equipment, such as depreciation method, useful life, residual value,
depreciation of significant components, impairment and derecognition.
SMEs- Government Grant Borrowing Cost
The significant differences between PFRS for SMEs and full PFRS with respect to government
grant are as follows:
1.)Under full PFRS, government grant is recognized when there is a reasonable assurance
that the entity will comply with the specified conditions.
Under PFRS for SMEs, a government grant is recognized when the conditions are
actually satisfied.
2.)Under full PFRS, a government grant is recognized as income over the periods
necessary to match the grant with the related cost for which it is intended to
compensate.
PFRS for SMEs does not allow an entity to match the grant with the expense for which
it is intended to compensate or the cost of the asset that it is used to finance
3.)Under full PFRS, grant related to asset may be treated either as deferred income or a
reduction in the carrying amount of the asset.
There is no such option under PFRS for SMEs.
Under PFRS for SMEs, the grant is a deferred income until the condition are actually
satisfied.
SMES- Intangible Assets
The significant differences between PFRS for SMEs and full PFRS are as follows:
1.)Under PFRS for SMEs, all research and development costs are recognized as expenses
when incurred.
Under full PFRS, research costs are expensed when incurred.
However, development costs may be capitalized when specific criteria are met,
particularly when technological feasibility has already been established.
2.)Under PFRS for SMEs, intangible assets are measured subsequently using either the
cost model only.
Under full PFRS, intangible assets are measured subsequently using either cost model
or revaluation model.
3.)Under PFRS for SMEs, the useful life of an intangible asset is considered to be finite.
As a matter of fact, if the useful life if an intangible asset cannot be estimated reliably,
it is assumed to be 10 years.
Under full PFRS, the useful life of an intangible asset is either finite or infinite.
If the useful life cannot be estimated reliably, there is no assumption of 10 years.
4.)Under PFRS for SMEs, all intangible assets, including goodwill, are amortized.
Under full PFRS, intangible assets with a finite useful life are amortized over the useful
life and intangible assets with intangible assets with indefinite assets with indefinite
useful life are not amortized but tested for impairment.
5.)Under PFRS for SMEs, intangible assets are tested for impairment when there is an
indication that the asset may be impaired.
Under full PFRS, intangible assets with a finite useful life are tested for impairment
when there is an indication that the asset may be impaired.
Intangible assets with indefinite useful life are tested for impairment annually and
whenever there is an indication that the asset may be impaired.
SMEs- Impairment of Assets
Full PFRS and PFRS for SMEs are practically the same with respect to the following:
a. Recognition and measurement of impairment loss
b. Definition of fair value less cost of disposal value in use
c. Internal and external indicators of impairment
d. Reversal of impairment
The notable difference is as follows:
Under PFRS for SMEs, assets, including goodwill, are tested for impairment when there is an
indication that the asset may be impaired.
Under full PFRS, assets with a finite useful life are tested for impairment when there is an
indication that the asset may be impaired.
However, the following assets are tested for impairment annually and when there is an
indication that the asset may be impaired:
a.) Goodwill
b.) Intangible assets with an indefinite useful life on an intangible asset not yet available
for use.
SMEs- Provisions and Contingencies
There are no significant differences between PFRS for SMEs and full PFRS with respect to
provisions and contingencies.
The PFRS for SMEs and full PFRS share the same principles for accounting and reporting
provision and for disclosing contingent liabilities and contingent assets.
SMEs- Leases
PFRS for SMEs and full PFRS are practically the same with respect to the accounting and
reporting the leases.
The PFRS for SMEs applies to all leases, except the following:
a.)Leases in the exploration industry
b.)Licensing agreement for such items as motion picture films, video recording, plays,
manuscripts, patents and copyrights
c.) Investment property
d.)Biological assets
e.)Leases that could result in a loss to either party as a result of contractual terms that are
unrelated to changes in the price of leased assets, changes in foreign changes rate or
a default by one of the counterparties
f.) Onerous operating leases
SMEs-Employee Benefits
Full PFRS and PFRS for SMEs share the same principles for the recognition and measurement
of the following:
a.)Short-term employee benefits
b.)Defined contribution plans
c.) Other long-term employee benefits
d.)Termination benefits
Full PFRS and PFRS for SMEs also share many of the principles for the recognition and
measurement of defined benefit plans.
 1.)Under both full PFRS and PFRS for SMEs, all past service costs are now registered as
expense immediately regardless of vesting.
2.)Under full PFRS, all remesurements of defined benefit plans, including actuarial gain
and loss are recognized through other comprehensive income.
However, amounts recognized in other comprehensive income are not subsequently
recycled to profit or loss but may be transferred within equity or retained earnings.
Under PFRS for SMEs, actuarial gain and loss are:
a.)Recognized immediately in profit or loss
b.)Recognized immediately in other comprehensive income The SMEs has an
accounting policy choice.
3.)Under full PFRS, the projected unit credit method must be used in measuring the
defined benefit liability.
Under PFRS for SMEs, the projected unit credit method is used in measuring the
defined benefit liability if the information that is needed to make such calculation is
already available or can be obtained without undue cost or effort.
4.)Under both PFRS for SMEs and full SMEs, the defined benefit liability is the net total of
the following:
a.)Present value of benefit obligation at year-end
b.)Minus the fair value of plan assets at year-end
5.)Under both PFRS for SMEs and full PFRS, there is no more concept of expected return.
Under PFRS for SMEs, all changes in the fair value of plan assets are recognized in
profit or loss.
Under full PFRS, the interest income on the fair value of plan assets at the beginning
of the period is included in profit or loss as component of employee benefit expense.
The difference between actual return on plan assets and the interest income is
recognized as a “remeasurement” through other comprehensive income.
SMEs- Income Tax
Full PFRS and PFRS for SMEs share many of the basic principles in accounting for income tax.
The significant differences between full PFRS and PFRS for SMEs are as follows:
1.)Under PFRS for SMEs, a valuation allowance is recognized for a deferred tax asset so
that its carrying amount equals the highest amount that is more likely than not to be
recovered.
Under full SMEs, the concept of valuation allowance is not applicable.
Instead, deferred tax asset is only recognized to the extent that it is probable that
there will be sufficient future taxable against which the deferred tax asset can be
used.
 2.)Under PFRS for SMEs, an SME shall not recognized a deferred tax asset or liability for
temporary differences associated with unremitted earnings from foreign investments
in subsidiaries, branches, associates and joint ventures to the extent that the
investments are essentially permanent in duration.
Under full PFRS, the same prohibition applies but it is applicable to all investments in
subsidiaries, branches, associates and joint ventures, whether domestic or foreign.
SMEs- Equity
The PFRS for SMEs and full PFRS are practically the same with respect to the recording of
equity instruments, treasury shares; compound financial instruments, dividends and other
related equity matters.
SMEs- Share-Based Payment
Under PFRS for SMEs, the share options must be measured at fair value on the date of grant.
The intrinsic value of share option is not mentioned as an alternative.
Under full PFRS, the share options shall be measured at fair value on the date of grant.
However, if the fair value of the share options cannot be measured reliably, the intrinsic
value of the share options is used.
The intrinsic value is the excess of the market price of the share over the option price.
SMEs- Specialized Activities Hyperinflation
PFRS for SMEs and full PFRS practically have the same principles for the recognition and
measurement of biological assets and agricultural produce.
Under full PFRS, an entity must develop its own policy for recognition of an exploration and
evaluation asset.
If an entity’s accounting policy results in the recognition of an exploration and evaluation
asset, such asset shall be measured initially at cost.
Like the requirement of PFRS for SMEs, the exploration and evaluation asset may be classified
as tangible asset or intangible asset.
Subsequently, exploration and evaluation asset shall be measurement using either the cost
model or fair value model.
Under PFRS for SMEs, an exploration expenditure shall be measured subsequently using the
cost model only.
PFRS for SMEs and full PFRS are the same in all aspects of accounting for an entity whose
functional currency is the currency of hyperinflationary economy.