1 © 2005 iasc foundation, all rights reserved. accounting standards for small and medium-sized...

1© 2005 IASC Foundation, all rights reserved.© 2005 IASC Foundation, all rights reserved.

Accounting Standards for Accounting Standards for Small and Medium-sized Small and Medium-sized EntitiesEntities

Paul Pacter, IASB Director Paul Pacter, IASB Director ofofStandards for SMEsStandards for SMEsNational Accountants National Accountants ConferenceConferenceMalaysian Institute of Malaysian Institute of AccountantsAccountants23 November 200523 November 2005


IASB’s Preliminary ViewsIASB’s Preliminary Views IASB deliberated SME IASB deliberated SME

GAAP during second half of GAAP during second half of 2003 and early 2004:2003 and early 2004:Reached some Reached some preliminary views on preliminary views on approach.approach.

Discussion Paper - Discussion Paper - June 2004.June 2004.

Comments - due Sept Comments - due Sept 2004.2004.

Responses to selected Responses to selected issues follow:issues follow:


IASB’s Preliminary ViewsIASB’s Preliminary Views

PV 1.1: Full IFRSs are PV 1.1: Full IFRSs are

suitable for all entitiessuitable for all entities Full IFRSs means IASs, IFRSs, Full IFRSs means IASs, IFRSs,

SIC Interpretations, & IFRIC SIC Interpretations, & IFRIC

Interpretations.Interpretations.

Responses to DPResponses to DP: :

2/3 disagreed, arguing that IFRSs 2/3 disagreed, arguing that IFRSs are mainly designed for listed are mainly designed for listed companies.companies.



PV 1.2: IASB will develop a set of PV 1.2: IASB will develop a set of financial reporting standards financial reporting standards suitable only for those entities suitable only for those entities that do not have public that do not have public accountability.accountability.


Overwhelmingly (90%) agreed that Overwhelmingly (90%) agreed that IASB should develop SME standards. IASB should develop SME standards. Other 10% would not have separate Other 10% would not have separate set but rather “SME minuses” in full set but rather “SME minuses” in full IFRSs.IFRSs.



PV 2: Objective of IASB PV 2: Objective of IASB standards for SMEs:standards for SMEs:a.a. High quality, understandable, High quality, understandable,

and enforceable standards and enforceable standards suitable for SMEs globally.suitable for SMEs globally.

b.b. Meet user needs.Meet user needs.c.c. Same conceptual framework.Same conceptual framework.d.d. Reduce preparer burden.Reduce preparer burden.e.e. Easy transition to full IFRSs.Easy transition to full IFRSs.


IASB’s Preliminary ViewsIASB’s Preliminary Views PV 2: PV 2:


50% agreed in full.50% agreed in full.

40% concerned about 40% concerned about implications of same implications of same conceptual framework (c).conceptual framework (c).

Many said transition to full Many said transition to full IFRSs (e) is unimportant IFRSs (e) is unimportant (uncommon).(uncommon).



PV 3.1: IASB will describe the PV 3.1: IASB will describe the characteristics of entities for characteristics of entities for which the SME standards are which the SME standards are intended.intended.But no quantified size test.But no quantified size test.National jurisdictions determine National jurisdictions determine which entities that meet IASB’s which entities that meet IASB’s characteristics should be characteristics should be required or permitted to use required or permitted to use IASB Standards for SMEs.IASB Standards for SMEs.



PV 3.2: In principle, an entity PV 3.2: In principle, an entity has public accountability if:has public accountability if: High degree of outside interest High degree of outside interest

from non-management from non-management investors who depend on investors who depend on external financial reporting.external financial reporting.

Essential public service Essential public service responsibility because of the responsibility because of the nature of its operations.nature of its operations.



PV 3.3: Presumptive indicators that PV 3.3: Presumptive indicators that an entity has public accountability:an entity has public accountability:1.1.Has filed financial statements with Has filed financial statements with

securities regulator (or in process)securities regulator (or in process)2.2.Holds assets in fiduciary capacity:Holds assets in fiduciary capacity:

Bank, insurance, securities, Bank, insurance, securities, pension fund, mutual fund, etc.pension fund, mutual fund, etc.

3.3.Public utility:Public utility: Electric, gas, water, phone, etc.Electric, gas, water, phone, etc.

4.4.Economically significant in its home Economically significant in its home country.country.



Responses to DPResponses to DP: : 80% supported a 80% supported a “characteristics approach” “characteristics approach” ̶̶ no quantified size.no quantified size.

Most found “public Most found “public accountability” a sensible accountability” a sensible dividing point.dividing point.

Many other comments.Many other comments.



PV 3.4: All owners must agree to PV 3.4: All owners must agree to using SME standards.using SME standards.


82% disagreed – 82% disagreed – “inappropriate and “inappropriate and impractical”. One dissident impractical”. One dissident shareholder could thwart the shareholder could thwart the will of great majority.will of great majority.



PV 3.5: The IASB intends to PV 3.5: The IASB intends to include all entities that do not include all entities that do not have public accountability as have public accountability as potential adopters of IASB potential adopters of IASB Standards for SMEs.Standards for SMEs. Not focused only on the Not focused only on the

large ones or only on the large ones or only on the small ones.small ones.


70% felt “one size can fit all” 70% felt “one size can fit all” SMEs.SMEs.


IASB’s Preliminary ViewsIASB’s Preliminary Views PV 3.6: If a subsidiary, joint PV 3.6: If a subsidiary, joint

venture, or associate of an entity venture, or associate of an entity with public accountability with public accountability prepares IFRS financial prepares IFRS financial information to meet the information to meet the requirements of its parent or requirements of its parent or investor, it should comply with investor, it should comply with full IFRSs in its separate full IFRSs in its separate statements.statements. No extra cost or burden.No extra cost or burden.



PV 3.6: PV 3.6:


70% disagreed. 70% disagreed. Circumstances of the Circumstances of the sub, not its parent, sub, not its parent, should determine which should determine which standards the sub standards the sub follows.follows.

Also different Also different materiality.materiality.



PV 4: Mandatory fallback to PV 4: Mandatory fallback to IFRS if SME Standards do IFRS if SME Standards do not address a particular not address a particular accounting recognition or accounting recognition or measurement issue that is measurement issue that is addressed in an IFRS.addressed in an IFRS. Company would continue to Company would continue to

use Standards for SMEs for use Standards for SMEs for the remainder of its the remainder of its reporting.reporting.



PV 4: PV 4:


67% agreed with 67% agreed with “mandatory fallback” to “mandatory fallback” to full IFRSs.full IFRSs.

The other 33% felt it The other 33% felt it imposes full IFRSs on imposes full IFRSs on SMEs instead of SME SMEs instead of SME standards.standards.


IASB’s Preliminary ViewsIASB’s Preliminary Views PV 5: If an IASB Standard for SMEs PV 5: If an IASB Standard for SMEs

provides an exemption or provides an exemption or simplification from a recognition or simplification from a recognition or measurement requirement in the measurement requirement in the related IFRS, an entity that uses IASB related IFRS, an entity that uses IASB Standards for SMEs could choose to Standards for SMEs could choose to apply the IFRS while otherwise apply the IFRS while otherwise continuing to use IASB Standards for continuing to use IASB Standards for SMEs.SMEs. Must follow the entire related Must follow the entire related

IFRS, not just parts of it.IFRS, not just parts of it.



PV 5: PV 5:


60% opposed the “optional 60% opposed the “optional fallback” to full IFRSs. fallback” to full IFRSs. Concerned about pick-and-Concerned about pick-and-mix, cherry picking, and mix, cherry picking, and large number of large number of permutations of SME GAAP.permutations of SME GAAP.


IASB’s Preliminary ViewsIASB’s Preliminary Views PV 6: Development of IASB PV 6: Development of IASB

Standards for SMEs should start Standards for SMEs should start by extracting the concepts and by extracting the concepts and principles from IFRSs (including principles from IFRSs (including interpretations).interpretations).

Responses to DPResponses to DP: : 80% agreed. Other 20% 80% agreed. Other 20% felt IASB should approach felt IASB should approach SME standards with a SME standards with a clean slate clean slate ̶̶ based on SME based on SME user needs.user needs.



PV 7.1: Any modifications to the PV 7.1: Any modifications to the concepts or principles in IFRSs concepts or principles in IFRSs must be based on the identified must be based on the identified needs of users of SME financial needs of users of SME financial statements or cost-benefit statements or cost-benefit analyses.analyses.


90% agreed.90% agreed.



PV 7.2: It is likely that disclosure PV 7.2: It is likely that disclosure and presentation modifications and presentation modifications will be justified based on user will be justified based on user needs and cost benefit analyses.needs and cost benefit analyses. Some disclosures may be Some disclosures may be

added, not just deleted.added, not just deleted.


98% supported disclosure 98% supported disclosure and presentation and presentation modifications.modifications.


IASB’s Preliminary ViewsIASB’s Preliminary Views PV 7.3: There would be a rebuttable PV 7.3: There would be a rebuttable

presumption that no modifications presumption that no modifications would be made to the recognition and would be made to the recognition and measurement principles in IFRSs.measurement principles in IFRSs. Such modifications could be Such modifications could be

justified only on the basis of user justified only on the basis of user needs or a cost benefit analysis.needs or a cost benefit analysis.

Recognition modifications are less Recognition modifications are less likely than measurement ones, likely than measurement ones, because they would mean different because they would mean different definitions of assets and liabilities.definitions of assets and liabilities.



PV 7.3: PV 7.3:


65% did not agree. Felt 65% did not agree. Felt recognition and measurement recognition and measurement modifications are needed. modifications are needed. Concerned that IASB is Concerned that IASB is prejudging. Cited growing prejudging. Cited growing measurement complexities in measurement complexities in IFRSs.IFRSs.


January 2005 DecisionsJanuary 2005 Decisions

Board discussed responses Board discussed responses 4Q 2004 and in Jan. 2005 - 4Q 2004 and in Jan. 2005 - made tentative decisions:made tentative decisions:1.1. Clear demand for IASB SME Clear demand for IASB SME

standards.standards.2.2. Focus on non-publicly Focus on non-publicly

accountable entities that accountable entities that publish general purpose publish general purpose financial statements for financial statements for external users.external users.



3.3. Each jurisdiction should develop Each jurisdiction should develop detailed guidelines on which detailed guidelines on which entities are eligible to use.entities are eligible to use.

4.4. Board will consider recognition Board will consider recognition and measurement and measurement simplifications – based on user simplifications – based on user needs and cost/benefit.needs and cost/benefit.

5.5. ““Mandatory fallback” – Yes.Mandatory fallback” – Yes.6.6. ““Optional fallback” – No.Optional fallback” – No.



7.7. Clear disclosure that full IFRSs Clear disclosure that full IFRSs are not being followed.are not being followed.

8.8. Organise topically, with cross-Organise topically, with cross-references to IASs/IFRSs.references to IASs/IFRSs.

9.9. Add preparers and users to Add preparers and users to Advisory Group. Advisory Group. [Done][Done]

10.10. Conduct round tables with Conduct round tables with preparers and users. preparers and users. [Done][Done]


Mandatory FallbackMandatory Fallback Different meanings:Different meanings:

SME standards omit an issue because it is SME standards omit an issue because it is expected to have limited applicability to expected to have limited applicability to SMEs and the Board concludes that SME SMEs and the Board concludes that SME should look to full IFRS.should look to full IFRS.

SME standards only include the simpler of SME standards only include the simpler of two policy choices allowed in IFRSs, but the two policy choices allowed in IFRSs, but the Board concludes that the other choice should Board concludes that the other choice should also be available to SMEs.also be available to SMEs.

SME standards simply do not address an SME standards simply do not address an issue. Then?issue. Then?

Fallback to IFRSs required?Fallback to IFRSs required? Look to hierarchy in SME version of IAS 8?Look to hierarchy in SME version of IAS 8?


Working Definition of SMEWorking Definition of SME

SME: IASB usageSME: IASB usage Does not have public accountability:Does not have public accountability:

Not publicly traded.Not publicly traded. Not financial institution.Not financial institution. Not essential public service.Not essential public service. Not economically significant in its Not economically significant in its home country.home country.

Publishes general purpose financial Publishes general purpose financial statements for external users.statements for external users.


Recognition and Measurement Recognition and Measurement QuestionnaireQuestionnaire

1 April 2005:1 April 2005: Brief questionnaire was sent to Brief questionnaire was sent to

all DP respondents, SAC, all DP respondents, SAC, Working Group, and posted for Working Group, and posted for public response. public response.

To identify recognition and To identify recognition and measurement issues for measurement issues for discussion at round tables.discussion at round tables.

101 responses received.101 responses received.



28 June 2005:28 June 2005: Discussed responses with SAC Discussed responses with SAC

and received views.and received views. 29-30 June 2005:29-30 June 2005:

IASB SME Working Group met.IASB SME Working Group met. Discussed responses.Discussed responses. Prepared recommendations for Prepared recommendations for

the Board.the Board.



26 September26 September Discussion with World Discussion with World

Standard Setters from over 40 Standard Setters from over 40 countries.countries.

13-14 October 2005:13-14 October 2005: Round-table discussions of Round-table discussions of

possible recognition and possible recognition and measurement simplifications.measurement simplifications.

45 groups participated.45 groups participated.


QuestionnaireQuestionnaire Questionnaire identified areas for Questionnaire identified areas for possible recognition and possible recognition and measurement simplification:measurement simplification:

Income taxesIncome taxes Pensions/OPEBsPensions/OPEBs

Goodwill impairmentGoodwill impairment DerecognitionDerecognition

PP&E impairmentPP&E impairment Hedge accountingHedge accounting

Inventory costInventory cost FV under IAS 39FV under IAS 39

Effective interestEffective interest Share-based paymentShare-based payment

% completion% completion Intangibles costsIntangibles costs

ProvisionsProvisions Equity methodEquity method

LeasesLeases ConsolidationConsolidation


QuestionnaireQuestionnaire Questionnaire asked respondents:Questionnaire asked respondents:

What is the specific problem for SME?What is the specific problem for SME? Why is it a problem?Why is it a problem? How to fix while keeping to the How to fix while keeping to the

principle in the IFRS (if appropriate)?principle in the IFRS (if appropriate)?

Example: Share-based paymentExample: Share-based payment Problem: “Measuring FV of a Problem: “Measuring FV of a

share option for unlisted share option for unlisted company”.company”.

This is not specific enough!This is not specific enough! Problem: “Determining volatility Problem: “Determining volatility

factor for unlisted company”.factor for unlisted company”.


Some Working Group ViewsSome Working Group Views

IFRSs should consist of:IFRSs should consist of: Full IFRSs – designed for entities Full IFRSs – designed for entities

with public accountability.with public accountability. IFRSs for SMEs – designed for IFRSs for SMEs – designed for

entities without public entities without public accountability.accountability.

National jurisdictions decide who National jurisdictions decide who uses. uses.

Full IFRSs should have some Full IFRSs should have some disclosure exemptions for unlisted disclosure exemptions for unlisted entities with public accountability.entities with public accountability.



In developing IFRSs for SMEs, In developing IFRSs for SMEs, IASB should have in mind IASB should have in mind non-publicly accountable non-publicly accountable entities with about:entities with about: 50 employees, and 50 employees, and Annual revenue of €10M.Annual revenue of €10M.

IASB aim toward SME IASB aim toward SME standards totalling 200 A5 standards totalling 200 A5 pages in length.pages in length.



No general mandatory fallback.No general mandatory fallback. But yes to specific fallbacks where But yes to specific fallbacks where

items of limited SME applicability are items of limited SME applicability are intentionally omitted. intentionally omitted.

Generally, where IFRS allows an Generally, where IFRS allows an accounting policy choices, SME accounting policy choices, SME standard should include only the standard should include only the simpler choice.simpler choice. Where appropriate allow SME to use Where appropriate allow SME to use

the more complex choice in full IFRS.the more complex choice in full IFRS.



Working group is concerned Working group is concerned about 2 conditions in IASB about 2 conditions in IASB SME definition:SME definition: If entity provides “essential If entity provides “essential

public service” must use full public service” must use full IFRSs regardless of size.IFRSs regardless of size.

Economic significance in home Economic significance in home country.country.

WG view is let each jurisdiction WG view is let each jurisdiction decide.decide.


Possible SimplificationsPossible Simplifications

Next slides present “Next slides present “General General viewsviews” which are: ” which are: Combination of questionnaire Combination of questionnaire

responses and Working Group (WG).responses and Working Group (WG).

Ideas for the Board to consider.Ideas for the Board to consider. ““No major simplification needed” No major simplification needed”

still means should be substantial still means should be substantial reduction in text from full IFRS.reduction in text from full IFRS.



IAS 2 Measuring the cost of IAS 2 Measuring the cost of inventoriesinventories General viewGeneral view: No major : No major

simplification needed.simplification needed. Some responses wanted Some responses wanted

measurement simplifications.measurement simplifications. Various ones proposed (eg Various ones proposed (eg measure at selling price measure at selling price less normal profit).less normal profit).



IAS 7 – Cash flow statementIAS 7 – Cash flow statement General viewGeneral view: Continue to : Continue to

require SME to include cash flow require SME to include cash flow statement.statement. No major change needed. No major change needed.

Some responses would:Some responses would: Make it optional.Make it optional. Simplify the format.Simplify the format. Conduct a study of user needs.Conduct a study of user needs.



IAS 8 – Accounting policy IAS 8 – Accounting policy changeschanges General viewGeneral view: No major : No major

simplification needed.simplification needed. Some responses: For SME, all Some responses: For SME, all

changes prospective.changes prospective.



IAS 10 – Events after balance IAS 10 – Events after balance sheet datesheet date General viewGeneral view: No major : No major

simplification needed.simplification needed. Some respondents: For SME, all Some respondents: For SME, all

are non-adjusting (disclosure are non-adjusting (disclosure only, no recognition).only, no recognition).



IAS 11 Construction contractsIAS 11 Construction contracts General viewGeneral view: No major : No major

simplification needed. simplification needed. Some responses wanted Some responses wanted

measurement simplifications measurement simplifications (generally completed contract (generally completed contract with loss recognition).with loss recognition).


Possible SimplificationsPossible Simplifications IAS 12 Deferred income taxesIAS 12 Deferred income taxes

General viewsGeneral views:: Major simplification neededMajor simplification needed Board should consider flow-Board should consider flow-through for SMEs (no through for SMEs (no deferred taxes).deferred taxes).

If deferred taxes retained, If deferred taxes retained, many measurement many measurement simplifications were suggested.simplifications were suggested.



IAS 16 – DepreciationIAS 16 – Depreciation General viewGeneral view: No major : No major

simplification needed.simplification needed. Some respondents:Some respondents:

Use rates allowed for income tax Use rates allowed for income tax purposes.purposes.

No component approach – No component approach – depreciate individual items only.depreciate individual items only.



IAS 16 – Depreciation – IAS 16 – Depreciation – requirement to review useful requirement to review useful life, depreciation rate, life, depreciation rate, residual value annually:residual value annually: General viewGeneral view: No major : No major

simplification needed.simplification needed.



IAS 16 – Revaluation modelIAS 16 – Revaluation model General viewGeneral view: Prohibit : Prohibit

reval model for SMEs.reval model for SMEs. Some WG and respondents Some WG and respondents

would retain the reval would retain the reval model via optional fallback model via optional fallback to IAS 16.to IAS 16.


Possible SimplificationsPossible Simplifications IAS 17 LeasesIAS 17 Leases

General viewsGeneral views:: Major simplification needed.Major simplification needed. All operating (with extra All operating (with extra disclosure).disclosure).

Some favour capitalise all.Some favour capitalise all. Some favour retaining both Some favour retaining both

operating and capital leases but operating and capital leases but simplified measurements.simplified measurements.



IAS 18 Recognition of service IAS 18 Recognition of service revenuerevenue General viewGeneral view: No major : No major

simplification needed. simplification needed. A few responses wanted A few responses wanted

measurement simplificationsmeasurement simplifications Especially for service revenueEspecially for service revenue



IAS 19 Pensions etc.IAS 19 Pensions etc. General viewsGeneral views: :

Major simplification needed. Major simplification needed. Treat all pensions as defined Treat all pensions as defined

contribution, with disclosures.contribution, with disclosures. WG view: Retain all IAS 19 options WG view: Retain all IAS 19 options

re actuarial gains and losses, re actuarial gains and losses, including corridor, until IASB including corridor, until IASB revises IAS 19.revises IAS 19.



IAS 23 – Capitalisation of IAS 23 – Capitalisation of borrowing costsborrowing costs General viewGeneral view: SME standard : SME standard

should provide only for should provide only for expensing, but allow optional expensing, but allow optional fallback to IAS 23 if SME fallback to IAS 23 if SME wants to capitalise.wants to capitalise.



IAS 27 SubsidiariesIAS 27 Subsidiaries General viewGeneral view (including most WG (including most WG

members):members): Measure investment in sub at cost Measure investment in sub at cost

with impairment (no consolidation).with impairment (no consolidation). Other views:Other views:

Limit consolidation to only if: (i) cross Limit consolidation to only if: (i) cross collateralisation, (ii) sub is not operated collateralisation, (ii) sub is not operated stand-alone, or (iii) central treasury.stand-alone, or (iii) central treasury.

Measure investment in sub as IAS 39 AFS Measure investment in sub as IAS 39 AFS (FV change to equity) with impairment.(FV change to equity) with impairment.

Option to consolidate.Option to consolidate.



IAS 28 Associates and IAS 31 IAS 28 Associates and IAS 31 Joint VenturesJoint Ventures General viewGeneral view: Simplification : Simplification

needed.needed. Measure at cost less Measure at cost less impairment.impairment.


Possible SimplificationsPossible Simplifications IAS 36 and IFRS 3 - GoodwillIAS 36 and IFRS 3 - Goodwill

General viewGeneral view is do not consolidate. Carry is do not consolidate. Carry sub at cost less impairment:sub at cost less impairment:

In which case goodwill goes away.In which case goodwill goes away. If that is not done, require amortisation of If that is not done, require amortisation of

goodwill (10, 12, 20 years?) instead of goodwill (10, 12, 20 years?) instead of annual impairment test.annual impairment test.

If impairment approach retained, assess If impairment approach retained, assess ‘every few years’ rather than annually or ‘every few years’ rather than annually or only if impairment is ‘very obvious’ (clear only if impairment is ‘very obvious’ (clear under-usage, damage, intent to sell).under-usage, damage, intent to sell).

FV rather than value in use.FV rather than value in use.



IAS 36 – PP&EIAS 36 – PP&E General viewGeneral view: Major : Major

measurement simplifications measurement simplifications needed, but keep principle that needed, but keep principle that assets not carried at more than assets not carried at more than recoverable amountrecoverable amount Recognise impairment only Recognise impairment only when clear under-usage, when clear under-usage, damage, intent to sell.damage, intent to sell.

Simplify calculations – FV Simplify calculations – FV only, not value-in-use.only, not value-in-use.


Possible SimplificationsPossible Simplifications IAS 37 - ProvisionsIAS 37 - Provisions

WG did not discuss due to current IAS WG did not discuss due to current IAS 37 ED.37 ED.

Most responses recommended Most responses recommended measurement simplifications:measurement simplifications: No discounting.No discounting. Assess in the aggregate by segment.Assess in the aggregate by segment. Lower degree of measurement Lower degree of measurement

reliability.reliability. Limit indicators of impairment.Limit indicators of impairment. Higher recognition threshold than Higher recognition threshold than

‘more likely than not’.‘more likely than not’.



IAS 38 – Internally generated IAS 38 – Internally generated intangiblesintangibles General viewGeneral view was divided: was divided:

Some say “commercial Some say “commercial viability” test for capitalising viability” test for capitalising development costs is not development costs is not burdensome.burdensome.

Others say it is burdensome. Others say it is burdensome. Simplify by not capitalising Simplify by not capitalising R&D at all.R&D at all.



IAS 38 – Revaluation model IAS 38 – Revaluation model for intangiblesfor intangibles General viewGeneral view: Prohibit : Prohibit

reval model for SMEs.reval model for SMEs. Some WG and respondents Some WG and respondents

would retain the reval would retain the reval model via optional fallback model via optional fallback to IAS 38.to IAS 38.



IAS 39 – Effective interest methodIAS 39 – Effective interest method General viewGeneral view: Simplification : Simplification

needed for SMEs.needed for SMEs. Straight-line measurement Straight-line measurement instead.instead.

Only require effective interest Only require effective interest method for cash flows that method for cash flows that extend beyond two years extend beyond two years from balance sheet date.from balance sheet date.



IAS 39 – Fair value measurementIAS 39 – Fair value measurement General viewGeneral view: Major : Major

simplification needed.simplification needed. Many proposals, but basically Many proposals, but basically FV only if: (a) observable FV only if: (a) observable market price and either (b) market price and either (b) can easily be sold or (c) can easily be sold or (c) intent to sell.intent to sell.



IAS 39 – HedgingIAS 39 – Hedging General viewGeneral view: Simplification of : Simplification of

hedge accounting needed. Views hedge accounting needed. Views divided:divided:

In SME standards deal only with FX In SME standards deal only with FX forwards (possibly also simple interest forwards (possibly also simple interest hedging).hedging).

Some would have fallback to IAS 39 for Some would have fallback to IAS 39 for other hedges. Others would substitute other hedges. Others would substitute disclosure for fallback.disclosure for fallback.

Some would recognise derivatives only Some would recognise derivatives only at settlement (deferral of FV change on at settlement (deferral of FV change on hedging instrument), unless speculative.hedging instrument), unless speculative.



IAS 39 – DerecognitionIAS 39 – Derecognition General viewGeneral view: Major : Major

simplification needed.simplification needed. Need examples of factoring.Need examples of factoring. No “continuing involvement No “continuing involvement approach”. Instead, no approach”. Instead, no derecognition if any derecognition if any continuing involvement.continuing involvement.



IAS 40 – Investment propertyIAS 40 – Investment property General viewGeneral view: No major : No major

simplification needed.simplification needed.



IAS 41 – AgricultureIAS 41 – Agriculture General viewGeneral view: FV through P&L : FV through P&L

model is a burden for SMEs.model is a burden for SMEs. Allow cost model option.Allow cost model option. Only cost model.Only cost model. Restrict FV model to Restrict FV model to observable market prices.observable market prices.

If FV model required, simplify If FV model required, simplify measurements (eg use measurements (eg use national average FVs).national average FVs).



IFRS 1 – First time adoptionIFRS 1 – First time adoption General viewGeneral view: Retrospective : Retrospective

is difficult for SME. is difficult for SME. Simplification needed.Simplification needed.



IFRS 2 – Share-based paymentIFRS 2 – Share-based payment General viewGeneral view: Find simpler : Find simpler

valuation model. Examples:valuation model. Examples: SME use market average SME use market average

volatility.volatility. SME use intrinsic value method.SME use intrinsic value method. SME use minimum value method SME use minimum value method

(no volatility).(no volatility).



IFRS 5 – Assets held for saleIFRS 5 – Assets held for sale General viewGeneral view: Major : Major

simplification needed.simplification needed. General rule should be assets General rule should be assets held for sale at FV only if held for sale at FV only if observable market price.observable market price.

Some would exempt SMEs from Some would exempt SMEs from IFRS 5. Just follow IAS 36.IFRS 5. Just follow IAS 36.


Next StepsNext Steps

Please understand that these Please understand that these dates are tentative:dates are tentative: Exposure Draft – 1Exposure Draft – 1stst half of 2006 half of 2006 Field tests?Field tests? Final Standard – 1Final Standard – 1stst half of 2007 half of 2007 Effective – 2008Effective – 2008


Thank you.Thank you.

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