IFRS For SME's PDF

IFRS for small and
medium-sized entities
A comparison with IFRS the basics
Contents
Introduction 3
Chapter one Preparation and presentation of financial statements 4
Chapter two Business combinations and group financial statements 26
Chapter three Elements of the statement of financial position 52
Chapter four Elements of the statement of comprehensive income 102
Chapter five Transition to the IFRS for SMEs 114
Contents by section 118
Introduction
Shortly after its inception in 2001, the International Accounting Standards Board (IASB) started The sections in the standard have been grouped into similar topics, such as presentation issues,
a project to consider reporting issues for small and medium-sized entities (SMEs). Following a statement of financial position, etc. All IFRS for SMEs sections are compared with the relevant full
Discussion Paper in 2004, and an Exposure Draft in 2007, the IFRS for SMEs standard was issued IFRS standards and interpretations as contained in the 2010 bound version published by the IASB.
in July 2009.
The impact assessment from comparing these two frameworks is based on current documentation
Possibly the greatest shift in the final standard was that the IASB considered this to be a stand- and interpretations. As the IFRS for SMEs standard is new to reporting entities, interpretations
alone standard that is separate from full IFRS (full IFRS is the collective term used for all other and practices will develop over time. This may lead to the identification of additional impacts that
standards and interpretations issued by the IASB). In this guide, we take a top-level review of the should be considered by entities adopting this standard.
IFRS for SMEs standard and provide an overview of the differences between IFRS for SMEs and full
As full IFRS has been compared with many other local GAAPs, it is hoped that this comparison
IFRS. In addition, we provide a commentary of the possible effects that the adoption of IFRS for
may also provide some insight into the implication of transitioning from a reporting entitys local
SMEs may have on a reporting entity, if its previous generally accepted accounting principles
GAAP (if not IFRS) to IFRS for SMEs. In planning a possible move to IFRS for SMEs, it is important
(GAAP) had been full IFRS.
that entities monitor the IASBs agenda in respect of the IFRS for SMEs standard, as well as the
It would be near impossible to produce a publication that compares two broad sets of accounting development of international interpretation and practice.
frameworks and includes all differences that could arise in accounting for the myriad of business
Overall, this guide is intended to help preparers, users and auditors to gain a general
transactions that could possibly occur. The existence of any differences and their materiality to
understanding of the similarities and key differences between IFRS and IFRS for SMEs. We hope
an entitys financial statements depends on a variety of specific factors including: the nature of
you find this guide a useful tool for that purpose.
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
April 2010
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.
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 IFRS

Section 1 Small and Medium-sized Entities IAS 1 Presentation of Financial Statements
Section 2 Concepts and Pervasive Principles Framework for the Preparation and Presentation
of Financial Statements
Section 3 Financial Statement Presentation IAS 1 Presentation of Financial Statements
Section 4 Statement of Financial Position IAS 1 Presentation of Financial Statements
Section 5 Statement of Comprehensive Income IAS 1 Presentation of Financial Statements
and Income Statement
Section 6 Statement of Changes in Equity and IAS 1 Presentation of Financial Statements
Statement of Income and Retained Earnings
Section 7 Statement of Cash Flows IAS 7 Statement of Cash Flows
Section 8 Notes to the Financial Statements IAS 1 Presentation of Financial Statements
Section 10 Accounting Policies, Estimates and IAS 8 Accounting Policies, Changes in Accounting
Errors Estimates and Errors
Section 32 Events after the End of the Reporting IAS 10 Events after the Reporting Period
Period
Section 33 Related Party Disclosures IAS 24 Related Party Disclosures
Section 31 Hyperinflation 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 IFRS Impact assessment
Section 1 Small and Medium-sized Entities IAS 1 Presentation of Financial Statements
Scope
An SME is defined as an entity that: An entity applies IAS 1 when preparing and presenting The scope of IFRS for SMEs restricts its use only to entities that
Does not have public accountability general-purpose financial statements in accordance with IFRS. meet the definition of an SME. The standard clearly states that
and entities that do not meet the definition of an SME cannot claim
Publishes general-purpose financial statements for external compliance with IFRS for SMEs, even if they are permitted or
users. required to do so in their jurisdiction.
Public accountability is further defined as an entity that: Furthermore, guidance is provided in IFRS for SMEs that
Has debt or equity instruments traded in a public market (or it subsidiaries within a group may apply the standard irrespective
is in the process of issuing such instruments) of whether the parent and group report under full IFRS. As this
or potentially would require a dual reporting system for statutory
Holds assets in a fiduciary capacity for a broad group of and group purposes, it may not be favoured by such entities.
outsiders as one of its primary businesses.
6 CHAPTER ONE Preparation and presentation of financial statements

Section 2: Concepts and pervasive principles
Section 2 Concepts and Pervasive Principles Framework for the Preparation and Presentation of
Financial Statements
IAS 1 Presentation of Financial Statements
Objective of financial statements
The objective of the financial statements of an SME is to provide The objective of financial statements is to provide information There is no difference in the objectives of a set of financial
information about the financial position, financial performance about the financial position, financial performance and cash statements under both bases of accounting.
and cash flows of the entity that is useful for economic decision- flows of an entity that is useful to a wide range of users in making
The basis for conclusions states that the users of financial
making by a broad range of users who are not in a position to economic decisions.
statements of an SME have different needs to non-SMEs. In
demand reports tailored to meet their particular information
Financial statements also show the results of managements writing the standard, these differences were taken into account.
needs.
stewardship of the resources entrusted to it.
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 The Framework considers each of the qualitative characteristics
standard are: considerations as IFRS for SMEs. In addition, the Framework in more detail than IFRS for SMEs. However, both IFRS for SMEs
Understandability deals with the following issues: and the Framework are consistent in their underlying messages.
Faithful representation No difference in interpretation would be expected in this regard.
Relevance
Materiality Balance between the qualitative characteristics.
Reliability
Substance over form
Prudence
Completeness
Comparability
Timeliness
Balance between benefit and cost.
Elements of financial statements

In the statement of financial position, the elements are defined In the statement of financial position, the elements are defined IFRS for SMEs is an abbreviated version of the Framework. The
as assets, liabilities and equity. as assets, liabilities and equity. fact that capital maintenance adjustments are not dealt with in
the standard should not pose any problem as specific IFRS
For the purposes of performance, the elements described are For the purposes of performance, the elements described are
standards do not deal with these concepts.
income and expenses. income and expenses.
Overall, no differences would be expected in the interpretation of
Furthermore, the Framework considers capital maintenance
the standards.
adjustments.

Section 2: Concepts and pervasive principles continued
Section 2 Concepts and Pervasive Principles Framework for the Preparation and Presentation of
Financial Statements
IAS 1 Presentation of Financial Statements
Recognition of elements
The underlying recognition criteria of the elements of financial The underlying recognition criteria of the elements of financial IFRS for SMEs follows the IFRS Framework in terms of recognition
statements are that: statements are that: issues, albeit an abbreviated version.
It is probable that any future economic benefit associated It is probable that any future economic benefit associated with No differences would be expected in the application of the
with the item will flow to or from the entity the item will flow to or from the entity sections of the standard compared to the full IFRS standard.
The item has a cost or value that can be measured reliably. The item has a cost or value that can be measured reliably.
The standard further considers the probability of future economic The Framework further considers the probability of future
benefit and reliability of measurement. Thereafter, the economic benefit and reliability of measurement. Thereafter, the
recognition of assets, liabilities, income, expense and total recognition of assets, liabilities, income and expense is
comprehensive income/profit and loss is considered. considered.
Measurement
IFRS for SMEs specifies two common measurement bases, which The Framework considers different measurement bases that may Although the approach taken by IFRS for SMEs is more
are amortised historical cost and fair value. In most cases the be used in the determination of monetary amounts of elements prescriptive than the Framework, in practice, reporters under full
standard specifies which measurement must be used in different in the financial statements. IFRS usually restrict measurement to amortised cost and fair
sections. value.
Accrual basis
An entity must prepare its financial statements, except for cash An entity prepares its financial statements (other than the cash No differences are expected on the application of the accrual
flow information, using the accrual basis of accounting. flow statement) using the accrual basis of accounting. basis.
Offsetting
The standard specifically disallows offsetting of assets and IAS 1 contains specific disclosures in respect of offsetting of No differences would be expected between the two bases of
liabilities, and income and expense, unless required or permitted assets and liabilities, and income and expense. accounting.
in the relevant section.

Section 3: Financial statement presentation
Section 3 Financial Statements Presentation IAS 1 Presentation of Financial Statements
Fair presentation
In considering fair presentation, IFRS for SMEs requires faithful IAS 1 requires fair presentation in the financial statements of an Both bases of accounting have similar requirements when
representation and use of the definitions and recognition criteria entity. Specific reference is made to the definitions and considering fair presentation. No differences would be expected
in section 2. recognition criteria of the Framework in achieving this goal. in terms of fair presentation.
Furthermore, it concludes that application of the standard (with Compliance with the standards would result in fair presentation.
additional disclosures where necessary) would result in fair Furthermore, achieving fair presentation may involve the
presentation if the entity does not have public accountability. 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.
Compliance
Entities that apply this standard must claim compliance with Entities that apply IFRS standards must state compliance This requirement is similar and will ultimately be the
IFRS for SMEs. with IFRS. differentiator between financial statements that are prepared
under full IFRS and IFRS for SMEs.
In extremely rare circumstances when management concludes In extremely rare circumstances when management concludes
that compliance with the standard would be so misleading that it that compliance with a requirement in IFRS would be so It is envisaged that these deviations would be extremely rare, as
would conflict with the objective of financial statements of SMEs, misleading that it would conflict with the objective of financial has been the case under full IFRS.
they must depart from the standard. Special disclosures are statements set out in the Framework, the entity must depart
No differences are expected in the application of these
required. from the standard. Special disclosures are required.
requirements.
Going concern
Entities are required to make an assessment as to whether they Entities are required to make an assessment as to whether they While the requirements appear to be similar, IFRS for SMEs
are a going concern. Any material uncertainties regarding going are a going concern. An entity must prepare its financial (unlike full IFRS) is not specific in its requirements that financial
concern need to be disclosed. If the financial statements are not statements on a going concern basis, unless the assessment statements should be prepared on the going concern basis.
prepared on a going concern basis, this fact and the basis of indicates otherwise. Any material uncertainties regarding going However, in reading the two paragraphs, it would be concluded
preparation needs to be disclosed. concern assessment need to be disclosed. If the financial that this was the intention.
statements are not prepared on a going concern basis, this fact
No differences are expected in this regard.
and the basis of preparation needs to be disclosed.

Section 3: Financial statement presentation continued
Frequency of reporting
Financial statements should be prepared at least annually. Financial statements should be prepared at least annually. No differences are expected in this regard.
Certain disclosures are required if the reporting period is longer Certain disclosures are required if the reporting period is longer
or shorter than a year. or shorter than a year.
Consistency of presentation
The presentation and classification of items in the financial The presentation and classification of items in the financial No differences are expected in this regard.
statements must be consistent from period to period. Changes statements must be consistent from period to period. Changes
may only be made if there is a significant change to the entitys may only be made if there is a significant change to the entitys
operations or the standard requires a change. operations or the standard requires a change.
When presentation and classification is changed, comparatives When presentation and classification is changed, comparatives
should be similarly adjusted, unless impracticable. Specific should be similarly adjusted, unless impracticable. Specific
disclosures are required for such changes. disclosures are required for such changes.
Comparative information
Comparative information is required (unless specifically stated Comparative information is required (unless specifically stated No differences are expected in this regard.
otherwise) for all amounts disclosed. This is also required for otherwise) for all amounts disclosed. This is also required for
narrative and descriptive information when it is relevant to an narrative and descriptive information when it is relevant to an
understanding of the financial statements. understanding of the financial statements.
Materiality and aggregation

Each material class of similar items must be separately disclosed. Each material class of similar items must be separately disclosed. No differences are expected in this regard.
The same is applicable to dissimilar items unless immaterial. The same is applicable to dissimilar items unless immaterial.

Section 3: Financial statement presentation continued
Complete set of financial statements
A complete set of financial statements includes: A complete set of financial statements includes: Essentially a set of financial statements is constructed on the
A statement of financial position A statement of financial position same basis under full IFRS and IFRS for SMEs. The major
difference is the third balance sheet which is a requirement of
A statement of comprehensive income (or a separate income A statement of comprehensive income
statement and statement of comprehensive income) IFRS when retrospective changes have been performed but not
A statement of changes in equity
A statement of changes in equity required by IFRS for SMEs.
A statement of cash flows
A statement of cash flows Notes comprising significant accounting policies and other IFRS for SMEs also provides aggregation or omission of financial
Notes comprising significant accounting policies and other explanatory information statements under certain circumstances. In this, the standard
explanatory information. A statement of financial position at the beginning of the allows for a new concept the statement of income and retained
If the only changes to equity during the periods for which earliest comparative period when a retrospective change in income. Hence, there may be presentational differences in the
financial statements are presented arise from profit or loss, accounting policy, restatement or reclassification occurs. items that constitute a set of financial statements.
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 Clear identification of each of the financial statements is Other than the relief provided in terms of disclosures, there are
required, including the name of the entity, whether the financial required, including the name of the entity, whether the financial no expected differences in this section.
statements are for a single entity or a group of entities, the date statements are for a single entity or a group of entities, the date
of the reporting period, the presentation currency and level of of the reporting period, the presentation currency and level of
rounding. rounding.
Further requirements must be included in respect of domicile, Further requirements must be included in respect of domicile,
incorporation, registered address and a description of operations incorporation, registered address and a description of operations
and principle activities of the entity. and principle activities of the entity, name of parent entities and
details in respect of limited life.
Presentation of additional information

If segment information, earnings per share or interim financial Any other reports or statements presented outside the financial IFRS for SMEs does not require disclosure of certain items
statements are presented, an entity should disclose the basis of statements are outside the scope of IFRS (this would include and therefore the financial statements will appear different in
preparation. environmental reports, etc.). this respect.

Section 4: Statement of financial position
Section 4 Statement of Financial Position IAS 1 Presentation of Financial Statements
Information to be presented
IFRS for SMEs provides a list of items that, as a minimum, should IAS 1 provides a list of items that, as a minimum, should be Although differences exist between these two lists, it would be
be disclosed on the face of a statement of financial position. disclosed on the face of a statement of financial position. expected that, based on materiality and aggregation, the line
Additional line items and subtotals are permitted. Additional line items and subtotals are permitted. items of a statement of financial position under IFRS for SMEs
and full IFRS would be similar.
Current and non-current distinction

The statement of financial position presents current and The statement of financial position presents current and Other than the specific liquidity disclosures under full IFRS,
non-current assets and liabilities separately unless presentation non-current assets and liabilities separately unless presentation no differences exist in respect of the requirements under
in order of liquidity is more reliable and relevant. in order of liquidity is more reliable and relevant. Whichever IFRS for SMEs.
method is employed, disclosure must be made of amounts to be
A definition of current assets and liabilities is provided.
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: Specific disclosures in respect of the following are required: There are certain differences between the requirements for
Sub-classification of certain asset and liabilities Sub-classification of certain asset and liabilities additional disclosures.
Specific share capital details (or changes in capital where Specific share capital details (or changes in capital where In terms of the sub-classification, IFRS for SMEs requires
there are no shares) there are no shares) disclosure related to trade and other payables. This must be
Binding sale agreements for a major disposal of assets Reclassification of puttable instruments. analysed into trade suppliers, amounts due to related parties,
(or group thereof). 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.

Section 5: Statement of comprehensive income and income statement
Section 5 Statement of Comprehensive Income and IAS 1 Presentation of Financial Statements
Income Statement
Presentation of total comprehensive income
A single-statement of total comprehensive income or two A single-statement of total comprehensive income or two Although set out differently, the requirements of both bases of
statements comprising an income statement and a statement of statements comprising an income statement and a statement of accounting should provide similar results for the presentation of
comprehensive income can be presented. Additional line items/ comprehensive income can be presented. Additional line items/ the statement of comprehensive income (or income statement,
sub-totals may be presented if relevant. sub-totals may be presented, if relevant. if presented).
The standard also provides a list of minimum line items in the IAS 1 prescribes the minimum line items that need to be
statements. disclosed in a statement of comprehensive income.
Furthermore, disclosure is required in respect of the non- In addition, non-controlling interests in profit and loss and total
controlling interest in profit and loss and total comprehensive comprehensive income need to be disclosed.
income.
No item may be described as extraordinary.
No item may be disclosed as extraordinary.
Other comprehensive income

There are three types of other comprehensive income: Other comprehensive income comprises items of income and There is a potential mismatch between IFRS for SMEs and full
expense that are not recognised in profit or loss (including IFRS in respect of other comprehensive income, as the definition
Some gains and losses on foreign operations
revaluation surpluses, actuarial gains and losses, gains and implies that there are only three items of other comprehensive
Some actuarial gains and losses losses on foreign operations, gains and losses on available income permitted. However, there may be other types of other
Some changes in fair values of hedging instruments. for sale financial assets and gains and gains or losses on cash comprehensive income that will need to be considered, for
flow hedges). example, the available for sale reserve if the SME elects to follow
full IFRS for financial instruments.
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 An entity may present an analysis of expenses based on the No difference is expected in the application of these
function or nature of the expenses. The decision is based on function or nature of the expenses. The decision is based on requirements.
which methodology provides greater reliability and relevance. which methodology provides greater reliability and relevance.
Material expenses, whether by nature or amount, must be
separately disclosed.

Section 6: Statement of changes in equity and statement of income and retained earnings
Section 6 Statement of Changes in Equity and IAS 1 Presentation of Financial Statements
Statement of Income and Retained Earnings
Information to be presented
The statement of changes in equity must show: The statement of changes in equity must show: No differences are expected in the presentation of the statement
Total comprehensive income analysed between owners of the Total comprehensive income analysed between owners of the of changes in equity, other than for dividends per share.
parent and non-controlling interests parent and non-controlling interests
For each component of equity, the effects of retrospective For each component of equity, the effects of retrospective
restatement, profit or loss, items of other comprehensive restatement, profit or loss, items of other comprehensive
income, and any investments by, and dividends and other income, and any investments by, and dividends and other
distributions to, owners distributions to, owners
Changes in ownership interests in subsidiaries that do not Changes in ownership interests in subsidiaries that do not
result in a loss of control. result in a loss of control.
Dividends per share may be presented with this statement or in
the notes to the financial statements.
Statement of income and retained earnings

A statement of income and retained income may be presented in Not applicable. This new statement was included in IFRS for SMEs in order to
place of the statement of comprehensive income and statement assist entities where the only changes in equity are effectively
of changes in equity, if the only changes to equity comprise profit in the retained income component of equity. Where this is the
or loss, payment of dividends, corrections of prior year errors case, the standard combines the statement of comprehensive
and changes in accounting policy. income (including income statement) with the statement of
changes in equity.
If the statement of income and retained earnings is presented, it
must include: Any SME that applies this will present a statement that is not
Retained earnings at the beginning of the period permitted under full IFRS.
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.

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 Generally the concepts of cash equivalents are similar, however
meet short-term cash commitments rather than for investment commitments rather than for investment or other purposes. For full IFRS includes a requirement that there is insignificant risk of
or other purposes. an investment to qualify as a cash equivalent, it must be readily changes in value. Therefore, under IFRS for SMEs, there is the
convertible to a known amount of cash and be subject to an possibility that certain marketable securities may meet the
Bank overdrafts may be included when repayable on demand and
insignificant risk of changes in value. definition of a cash equivalent, but would fail under full IFRS.
are an integral part of the entitys cash management.
However, in practice differences are expected to be rare.
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 Cash flows are presented as either operating, investing or No differences are expected in terms of classification of
financing cash flows. A list of examples is provided for each of financing cash flows. A list of examples is provided for each of cash flows.
these classifications. these classifications.
Cash flows from operating activities

Cash flows from operating activities may be presented using the Cash flows from operating activities may be presented using the No differences are expected in the presentation of operating
indirect or direct methods. indirect or direct methods. cash flows.
Cash flows from investing and financing activities

Major classes of gross cash receipts and cash payments must be Major classes of gross cash receipts and cash payments must be IFRS for SMEs may be more onerous on preparers in respect of
disclosed. disclosed, other than when a net basis of presentation is cash flows from investing and financing cash flows. The benefit of
permitted. The standard provides the situations where a net basis net presentation of certain cash flows under full IFRS has not
The aggregate cash flows on the acquisition or disposal of a
of presentation would be acceptable. been extended to SMEs.
business must be disclosed separately.
The aggregate cash flows on the acquisition or disposal of a Some relief is provided in respect of the disclosures relating to
business must be disclosed separately. the acquisition or disposal of subsidiaries and business units.

Section 7: Statement of cash flows continued
Foreign currency cash flows Foreign currency cash flows
Cash flows from transactions in a foreign currency are translated Cash flows from transactions in a foreign currency are translated No differences are expected in respect of these specific types of
into the functional currency at the exchange rate at the date of into the functional currency at the exchange rate at the date of cash flows.
the cash flow. the cash flow.
Cash flows in a foreign subsidiary are translated at rates between Cash flows in a foreign subsidiary are translated at rates between
the functional currency and foreign currency at the date of the the functional currency and foreign currency at the date of the
cash flow. cash flow.
Interest and dividends Interest and dividends
Cash flows from interest and dividends received or paid are Cash flows from interest and dividends received or paid are
presented separately. These are classified consistently from presented separately. These are classified consistently from
period to period as operating, investing or financing activities. period to period as operating, investing or financing activities.
Income tax Income tax
Cash flows arising from income tax are presented separately. Cash flows arising from income tax are presented separately.
These are classified as cash flows from operating activities unless These are classified as cash flows from operating activities unless
they can be specifically identified with financing and investing they can be specifically identified with financing and investing
activities. activities.
Non-cash transactions
Any investing and financing transactions that do not require the Any investing and financing transactions that do not require the No differences are expected in respect of non-cash transactions.
use of cash or cash equivalents are excluded from the statement use of cash or cash equivalents are excluded from the statement
of cash flows. of cash flows.
Components of cash and cash equivalent

An entity is required to disclose the components of cash and cash An entity is required to disclose the components of cash and cash Other than the disclosure relief on the reconciliation, there
equivalents and reconcile the amounts in the cash flow to the equivalents and reconcile the amounts in the cash flow to the should be no difference between the disclosure of cash and cash
equivalent items in the statement of financial position. No equivalent items in the statement of financial position. equivalents.
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 Any cash or cash equivalents not available to the group No differences are expected.
(together with a commentary by management) must be (together with a commentary by management) must be
disclosed. disclosed.

Section 8: Notes to the financial statements
Section 8 Notes to the Financial Statements IAS 1 Presentation of Financial Statements
Structure of the notes
The notes must: The notes must: There is no difference in respect of the presentation of notes. The
Present information about the basis of preparation of the Present information about the basis of preparation of the primary benefit to SMEs will be that the quantum of disclosures
financial statements and the specific accounting policies used financial statements and the specific accounting policies used required by other sections of the standard will reduce the overall
Disclose the information required by other sections of the Disclose the information required by other IFRS amount of disclosable items.
standard Provide any other relevant information necessary to
Provide any other relevant information necessary to understand the financial statements.
understand the financial statements. Notes should be presented on a systematic basis.
Notes should be presented on a systematic basis.
Accounting policies
Disclosure in the summary of significant accounting policies Disclosure in the summary of significant accounting policies IFRS provides greater guidance in respect of these specific
includes: includes: disclosures. However, this should not give rise to any particular
The measurement basis (or bases) used in preparing the The measurement basis (or bases) used in preparing the differences in respect of these disclosures.
financial statements financial statements
The other accounting policies used that are relevant to an The other accounting policies used that are relevant to an
understanding of the financial statements. understanding of the financial statements.
Disclosure is also required in respect of significant judgments and Disclosure is also required in respect of significant judgments and
major sources of estimation uncertainty. major sources of estimation uncertainty.

Section 10: Selection and application of accounting policies
Section 10 Accounting Policies, Estimates and Errors IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
Selection of accounting policies
Where transactions, events and conditions are specifically dealt Where transactions, events and conditions are specifically dealt The selection of accounting policies that are not covered by
with, the standard must be applied. with in IFRS, the relevant standard must be applied. IFRS for SMEs follows a similar hierarchy to full IFRS. However,
the need to refer to full IFRS is not mandatory. The result may
In the absence of a section that applies, judgment is used to In the absence of a section that applies, judgment is used to
be that an SME could select policies that are not be permitted
develop a policy that is relevant and reliable. develop a policy that is relevant and reliable.
under full IFRS.
In making this judgment, reference is made to: In making this judgment, reference is made to:
This could create a significant difference between financial
Sections of IFRS for SMEs that deal with similar or related IFRSs that deal with similar or related issues statements prepared under IFRS for SMEs and full IFRS.
issues The definitions, recognition and measurement concepts in the
The definitions, recognition and measurement concepts in Framework.
section 2.
Management may also consider recent pronouncements of other
Management may consider full IFRS that deal with similar or standard setters (accounting literature or industry practice) that
related issues. use a similar conceptual framework.
Accounting policies must be applied consistently for similar Accounting policies must be applied consistently for similar
transactions, events or conditions, unless a section specifies transactions, events or conditions, unless IFRS specifies
otherwise. otherwise.
Changes in accounting policy

Changes in accounting policy may only be made: Changes in accounting policy may only be made: Applying a change in policy is generally similar under both
When changes are made to the standard When changes are made to an IFRS accounting bases.
or or
This results in more reliable and relevant information. This results in more reliable and relevant information.
Changes in accounting policy must be applied: 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 this standard
As per the transitional provisions of changes to IAS 39, if an (or IAS 39)
entity has elected to follow it or
Where there are no transitional provisions on a retrospective Where there are no transitional provisions on a retrospective
basis. basis.
A retrospective application is applied to the earliest period A retrospective application is applied to the earliest period
presented and each comparative period as if the policy had presented and each comparative period as if the policy had
always applied. Where it is impracticable to determine the period always applied. Where it is impracticable to determine the period
specific effect, the entity must apply the change in policy to the specific effect, the entity must apply the change in policy to
earliest period that it is practicable. 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.

Section 10: Selection and application of accounting policies continued
Section 10 Accounting Policies, Estimates and Errors IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
Changes in accounting estimates
Changes in accounting estimates are applied prospectively by Changes in accounting estimates are applied prospectively by There is no difference in the application of a change in estimate
including in profit or loss, the effect of the change in: including in profit or loss, the effect of the change in: in the financial statements under full IFRS and IFRS for SMEs.
The period of the change, if it is the only period affected The period of the change, if it is the only period affected
or or
The period of the change and subsequent periods, if the The period of the change and subsequent periods, if the
change affects both. change affects both.
Correction of prior period errors

Errors are corrected, to the extent practicable, on a retrospective Errors are corrected, to the extent practicable, on a retrospective Full IFRS provides additional relief in respect of retrospective
basis by restating the comparative amounts for prior periods basis by restating the comparative amounts for prior periods application of errors when it is impracticable to establish the
presented when the error occurred. If the error occurred before presented when the error occurred. If the error occurred before cumulative effect of an error.
the earliest period presented, opening balances of the affected the earliest period presented, opening balances of the affected
Other than this difference, errors should be accounted for on a
assets, liabilities and equity items are restated. assets, liabilities and equity items are restated.
similar basis.
Where it is impracticable to determine the period specific effects Where it is impracticable to determine the period specific effects
of an error, the entity restates the opening balance of assets, of an error, the entity will restate the opening balance of assets,
liabilities and equity for the earliest period that it is practicable. 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.

Section 32: Events after the end of the reporting period
Section 32 Events after the End of the Reporting IAS 10 Events after the Reporting Period
Period
Definition
Events after the end of the reporting period are classified as: Events after the end of the reporting period are classified as: No differences are expected in the classification of adjusting and
Adjusting events when they provide evidence of a condition Adjusting events when they provide evidence of a condition non-adjusting events after the end of the reporting period.
that existed at the end of the reporting period that existed at the end of the reporting period
Non-adjusting events when they are indicative of conditions Non-adjusting events when they are indicative of conditions
that arose after the end of the reporting period. that arose after the end of the reporting period.
Events after the end of the reporting period would include all Events after the end of the reporting period would include all
events up to the date the financial statements are authorised events up to the date the financial statements are authorised
for issue. for issue.
Recognition and measurement

An entity must adjust the amounts recognised in its financial An entity must adjust the amounts recognised in its financial No differences are expected in the treatment of adjusting and
statements, including related disclosures, to reflect adjusting statements, including related disclosures, to reflect adjusting non-adjusting events.
events after the end of the reporting period. events after the end of the reporting period.
An entity must not adjust the amounts recognised in its financial An entity must not adjust the amounts recognised in its financial
statements to reflect non-adjusting events after the end of the statements to reflect non-adjusting events after the end of the
reporting period. reporting period.
Dividends
If an entity declares dividends to holders of its equity instruments If an entity declares dividends to holders of equity instruments Although it has no effect on overall balances, IFRS for SMEs
after the end of the reporting period, the entity must not after the reporting period, the entity must not recognise those allows for the segregation of retained earnings in respect of
recognise those dividends as a liability at the end of the reporting dividends as a liability at the end of the reporting period. dividends declared after the end of the reporting period (albeit
period. However, the amount may be presented as a segregated that they are not recognised). Unless properly disclosed, this
component of retained earnings. 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).

Section 33: Related party disclosures
Scope
This section requires entities to include in its financial statements The standard must be applied in identifying: No differences are expected in scope.
the disclosures necessary to draw attention to the possibility that a) Related party relationships and transactions
its financial position and profit or loss have been affected by the
b) Outstanding balances between an entity and its related parties
existence of related parties and by transactions and outstanding
c) Circumstances in which disclosure of these items is required
balances with such parties.
d) Disclosures to be made about those items.
Defnition
A related party is a person or entity that is related to the entity A party is related to an entity if: No differences are expected in the identification of related
preparing its financial statements. a) Directly, or indirectly, the party: parties.
a) A person or close member of that persons family is related if Controls, is controlled by, or is under common control
that person: with the entity
Is a member of the key management personnel Has significant influence
Has control over the entity or
or Has joint control
Has joint control or significant influence over the entity. b) The party is an associate of the entity
b) An entity is related to a reporting entity if any of the following c) The party is a joint venture in which the entity is a venturer
apply: d) The party is a member of the key management personnel
The entity and reporting entity are members of the same e) The party is a close member of the family in (a) or (d) above
group
f) The party is an entity that is controlled, jointly controlled or
Either entity is an associate or joint venture of the other significantly influenced by an individual in (d) or (e)
Both entities are joint ventures of a third entity g) The party is a post-employment benefit plan for the benefit of
Either entity is a joint venture of a third entity and the employees of the entity or any related entity.
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.

Section 33: Related party disclosures continued
Subsidiary relationships
Relationships between a parent and its subsidiaries must be Relationships between a parent and its subsidiaries must be No differences are expected in the disclosure of subsidiary
disclosed irrespective of whether there are any related party disclosed irrespective of whether there are any related party relationships.
transactions. transactions.
Entities must disclose the name of the parent and the ultimate Entities must disclose the name of the parent and the ultimate
controlling party. controlling party.
Key management personnel compensation

An entity must disclose key management personnel An entity must disclose key management personnel The disclosure requirements for SMEs are significantly less
compensation in total. compensation in total and for each of the following categories: onerous as there is no requirement to further analyse the total
a) Short-term employee benefits compensation for key management personnel.
b) Post-employment benefits
c) Other long-term benefits
d) Termination benefits
e) Share-based payment.
Disclosures
At a minimum, entities must disclose the following regarding At a minimum, entities must disclose the following regarding No differences are expected in the minimum disclosure
related party transactions: related party transactions: requirements.
a) The amount of the transactions a) The amount of the transactions
b) The amount of outstanding balances including: b) The amount of outstanding balances including:
Their terms and conditions Their terms and conditions
Details of any guarantees Details of any guarantees
c) Provisions for uncollectible receivables c) Provisions for uncollectible receivables
d) The expense recognised in the period for bad or doubtful d) The expense recognised in the period for bad or doubtful
debts. debts.

Section 33: Related party disclosures continued
The above disclosures must be made separately for each of the The above disclosures must be made separately for each of the The related party transactions require less disaggregation for
following categories: following categories: SMEs than under full IFRS, which may reduce the effort required.
a) Entities with control, joint control or significant influence over a) The parent
the entity b) Entities with joint control or significant influence
b) Entities over which the entity has control, joint control or over the entity
significant influence c) Subsidiaries
c) Key management personnel d) Associates
d) Other related parties. e) Joint ventures in which the entity is a venturer
f) Key management personnel
g) Other related parties.
An entity is exempt from the disclosure requirements above in IAS 24 (as amended in November 2009) provides a similar The disclosure requirements for SMEs are less onerous as there
relation to: exemption for state controlled entities. Although the above is no disclosure required in relation to state controlled entities.
a) A state that has control, joint control or significant influence disclosures do not need to be made, the following must be
over the entity disclosed:
b) Another entity that is a related party because the state has a) The name of the government and the nature of its relationship
control, joint control or significant influence over both parties. 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.

Section 31: Hyperinflation
Economies
Scope
Applies to an entity whose functional currency is that of a Applies to the financial statements of any entity whose functional There is no difference in scope between IFRS for SMEs and
hyperinflationary economy. currency is the currency of a hyperinflationary economy. full IFRS.
Indicators of hyperinflation
This section does not establish an absolute rate at which an The standard does not establish an absolute rate at which There is no difference in the judgment of a hyperinflationary
economy is deemed hyperinflationary. An entity must make that hyperinflation is deemed to arise. Hyperinflation is indicated by economy between IFRS for SMEs and full IFRS.
judgment by considering all information available, using the given characteristics of the economic environment of a country. The
indicators of hyperinflation. standard gives a number of indicators of hyperinflation, which
are identical to those included in IFRS for SMEs.
Restatement of financial statements

All amounts in the financial statements of an entity whose The financial statements of an entity whose functional currency The requirements to restate the financial statements are
functional currency is the currency of a hyperinflationary is the currency of a hyperinflationary economy, whether they are the same under IFRS for SMEs and full IFRS.
economy must be restated in terms of the measuring unit current based on a historical cost approach or a current cost approach,
at the end of the reporting period. are stated 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 corresponding figures for the previous period must also be
stated in terms of the measuring unit current at the end of the
The restatement requires the use of a general price index that
reporting period.
reflects changes in general purchasing power.
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 The gain or loss on the net monetary position must be included in There is no difference between IFRS for SMEs and full IFRS.
monetary position. profit or loss and separately disclosed.
The amount of gain or loss on monetary items must be disclosed.

Section 31: Hyperinflation continued
Economies
Economies ceasing to be hyperinflationary
When an economy ceases to be hyperinflationary, and an entity When an economy ceases to be hyperinflationary, and an entity There is no difference between IFRS for SMEs and full IFRS.
discontinues the preparation and presentation of financial discontinues the preparation and presentation of financial
statements in accordance with this section, it treats the amounts statements in accordance with this standard, it treats the
expressed in the presentation currency at the end of the previous amounts expressed in the measuring unit current at the end of
reporting period as the basis for the carrying amounts in its the previous reporting period as the basis for the carrying
subsequent financial statements. amounts in its subsequent financial statements.

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 IFRS

Section 19 Business Combinations and Goodwill IFRS 3 Business Combinations
Section 9 Consolidated and Separate Financial IAS 27 Consolidated and Separate Financial
Statements Statements
SIC 12 Consolidation Special Purpose Entities
Section 15 Investments in Joint Ventures IAS 31 Interests in Joint Ventures
Section 14 Investments in Associates 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
Scope
This section is applicable to all business combinations, as defined The standard applies to all transactions or other events that meet The scope of the standards is essentially the same except that
in the standard. Furthermore, the section also addresses the definition of a business combination, as defined in the IFRS 3 specifically excludes acquisitions of single assets.
accounting for goodwill at the time of the business combination standard. (While not specifically mentioned in the scope of the However, such assets would generally not meet the definition of a
and subsequently. standard, it also addresses accounting for goodwill.) business in IFRS for SMEs, and therefore their acquisition would
not constitute a business combination.
This section specifically excludes combinations of entities or The standard specifically excludes combinations of entities or
businesses under common control, the formation of joint businesses under common control, the formation of joint
ventures and the acquisition of a group of assets that does not ventures and the acquisition of an asset or group of assets that
constitute a business. does not constitute a business.
Definitions
A business combination is the bringing together of separate A business combination is transaction or other event in which an The definition of a business combination in IFRS for SMEs differs
entities or businesses into one reporting entity. acquirer obtains control of one or more businesses. The from that in IFRS. By referring to obtaining control IFRS has a
definition also includes transactions sometimes referred to as narrower scope than IFRS for SMEs, which refers more broadly to
A business is an integrated set of activities and assets conducted
true mergers or mergers of equals. the bringing together of entities or businesses. However, this
and managed for the purpose of providing a return to investors
impact is modified by differences in the definition of a business.
or lower costs or other economic benefits directly and A business is an integrated set of activities and assets that is
proportionately to policyholders or participants. Furthermore, a capable of being conducted and managed for the purpose of The definition of a business in IFRS is similar to that in IFRS for
business generally consists of inputs, processes applied to those providing a return in the form of dividends, lower costs or other SMEs. The major difference is the reference in IFRS to the assets
inputs and resulting outputs that are or will be used to generate economic benefits directly to investors or other owners, or activities being capable of being conducted or managed for
revenues. If goodwill is present in a transferred set of activities or members or participants. the purpose of providing a return. Furthermore, IFRS for SMEs
assets, the transferred set is presumed to be a business. 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.
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 All business combinations are accounted for using the acquisition The method applied under IFRS for SMEs uses a cost-based
method. method. approach whereby the cost of the acquired entity is allocated
to the assets acquired and liabilities (and provisions for
This method involves identifying the acquirer, measuring the cost This method involves identifying the acquirer, determining the
contingent liabilities) assumed. In contrast, IFRS adopts a
of the combination and allocating that cost to the assets acquired acquisition date, recognising and measuring the identifiable
fair value approach.
and liabilities and provisions for contingent liabilities assumed. assets acquired, the liabilities assumed and any non-controlling
interest in the acquiree and recognising and measuring goodwill Key features of these methods are discussed further below.
or a gain from a bargain purchase.
Identifying the acquirer

The acquirer is the combining entity that obtains control of the The acquirer is the entity that obtains control of the acquiree. There is no practical difference between IFRS for SMEs and IFRS.
other combining entities or businesses. 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 cost of a business combination is not separately defined. IFRS for SMEs differs from IFRS in that it includes directly
The fair values of the assets given, liabilities incurred or However, a component of the measurement of any goodwill or attributable costs as part of the cost of the combination, which in
assumed, and equity instruments issued by the acquirer gain from a bargain purchase is the consideration transferred, turn results in these costs being included in the calculation of the
plus which is calculated as the sum of the fair values of the assets amount of any goodwill (or negative goodwill/discount on
Any costs directly attributable to the business combination. transferred by the acquirer, the liabilities incurred by the acquirer acquisition/gain).
to former owners of the acquiree and the equity interests issued
IFRS requires that these costs be accounted for separately from
by the acquirer.
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 The acquirer recognises the acquisition-date fair value of any Subsequent changes in the amount recognised for contingent
adjustment to the cost of the business combination contingent on contingent consideration as part of the consideration transferred consideration are treated as adjustments to the consideration
future events, the acquirer includes the estimated amount of the in exchange for the acquiree. transferred and are reflected in the carrying amount of goodwill
adjustment in the cost of the combination at the acquisition date under IFRS for SMEs.
The classification of a contingent consideration obligation as
if the adjustment is probable and can be measured reliably.
either a liability or equity is based on the definitions of an equity In contrast, under IFRS, any post acquisition changes in the fair
If the potential adjustment is not recognised at acquisition date, instrument and a financial liability in IAS 32 or other applicable value of contingent consideration that is a liability are recognised
but subsequently becomes probable and can be measured accounting standards. in profit or loss or in other comprehensive income, while
reliably, the additional consideration is treated as an adjustment contingent consideration that is equity is not remeasured
After initial recognition, changes in the fair value of contingent
to the cost of the combination. subsequent to acquisition date.
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 Both IFRS for SMEs and IFRS require recognition of assets
contingent liabilities that can be measured reliably are recognised acquiree are recognised as of the acquisition date, separately and liabilities at fair value. However, IFRS includes some specific
at their acquisition date fair values. from goodwill and measured at fair value as at that date. exemptions, for example, deferred taxes measured under IAS12
Income Taxes, pension assets and liabilities measured under
Any difference between the cost of the business combination and
IAS19 Employee Benefits.
the acquirers interest in the net fair value of the identifiable
assets, liabilities and contingent liabilities must be accounted for The impact of differences in the recognition criteria under the
as goodwill (or negative goodwill). two requirements is discussed below.

Recognition of assets and liabilities
The following criteria must be satisfied for the acquirer to To qualify for recognition, an item acquired or assumed must be: With the two exceptions noted below, the recognition criteria
recognise the acquirees identifiable assets and liabilities and any An asset or liability at the acquisition date (i.e., meet the under IFRS and IFRS for SMEs are substantially the same.
provisions for contingent liabilities at the acquisition date: definitions in the Framework) Intangible assets under IFRS there is no requirement to be
Assets other than an intangible asset the future economic Part of the business acquired (the acquiree) rather than the able to measure reliably the fair value of such assets. Thus,
benefits must be probable and the fair value can be measured result of a separate transaction. under IFRS intangibles are recognised whenever they can be
reliably separately identified (i.e., they are either separable or arise
Liability other than a provision for contingent liability the from contractual or other legal rights).
outflow of resources must be probable and the fair value can Contingent liabilities under IFRS a contingent liability must
be measured reliably meet the definition of a liability (i.e., must be a present
Intangible asset or provision for contingent liability the fair obligation arising from a past event that can be reliably
value can be measured 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 non-
occurrence 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 Retrospective adjustments to provisional amounts recognised in Under IFRS, it is possible that the period during which
initial accounting for a business combination may be made up to initial accounting for a business combination may be made during adjustments to provisional accounting may be made would be
12 months after the acquisition date. the measurement period, which is a period up to a maximum of less than 12 months if the required new information is obtained,
12 months after the acquisition date, where new information is or if it is determined that further information is not available
This time limit does not apply to adjustments to the cost of the
obtained regarding facts and circumstances that existed at before the expiration of the maximum 12 months allowed. There
combination contingent on future events which becomes
acquisition date. The measurement period ends as soon as the is no such limitation under IFRS for SMEs.
probable and can be reliably measured subsequent to acquisition
acquirer receives the information it was seeking or learns that
date. (See discussion under Contingent consideration on
further information is not available.
page 30.)

Non-controlling interests
Where the acquirer obtains less than a 100% interest in the IFRS requires any NCI in an acquiree to be recognised, but Under IFRS, Option 2 for the measurement of NCI is effectively
acquiree, a non-controlling interest (NCI) in the acquiree is provides a choice of two methods for measuring NCI arising in equivalent to the requirements for the measurement of NCI
recognised at the NCIs proportion of the net identifiable assets, a business combination: under IFRS for SMEs. Adoption of Option 1 for the measurement
liabilities and provisions for contingent liabilities of the acquiree Option 1, to measure the non-controlling interest at its of NCI under IFRS is likely to result in recognition of a higher
at their attributed fair values at the date of acquisition; no acquisition-date fair value amount for NCI (and, consequently, a higher amount for
amount is included for any goodwill relating to the NCI. Option 2, to measure the non-controlling interest at the goodwill) than would result under Option 2 and the requirements
proportionate share of the value of net identifiable assets of IFRS for SMEs.
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 Goodwill is defined as an asset representing the future economic There is no practical difference between the definitions of
other assets that are not capable of being individually identified benefits arising from other assets acquired in a business goodwill under IFRS for SMEs and IFRS.
and separately recognised. combination that are not individually identified and separately
recognised.

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 Under both IFRS for SMEs and IFRS, goodwill is measured as a
of the business combination over the acquirers interest in the net as the excess of (a) over (b) below: residual. However, the computations differ due to the focus in
fair value of the identifiable assets, liabilities and contingent a) The aggregate of: IFRS on measuring the components of the business combination
liabilities recognised. at their acquisition date fair values, while IFRS for SMEs adopts a
The consideration transferred (generally measured at
acquisition-date fair value) cost-based approach.
After initial recognition, goodwill is measured at cost less
accumulated amortisation and accumulated impairment losses. The amount of any non-controlling interest in the IFRS for SMEs differs from IFRS by requiring that goodwill be
acquiree amortised over its useful life, or if the useful life cannot be
Goodwill is amortised in accordance with the principles of The acquisition-date fair value of the acquirers previously reliably measured, over 10 years. In addition, it must be tested
amortisation of intangible assets in Section 18. If a reliable held equity interest in the acquiree for impairment where an indicator of possible impairment exists.
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 In contrast, IFRS prohibits amortisation of goodwill, but requires
presumed to be 10 years. Detailed requirements in relation to recognised in accordance with the requirements of the
that it be impairment tested at least annually.
impairment testing of goodwill are contained in Section 27. This standard) of the identifiable assets acquired and the liabilities
includes the requirement that the acquirer test it for impairment assumed. Based on these differing requirements, significantly differing
where there is an indication that it may be impaired. Goodwill acquired in a business combination is not amortised. carrying amounts for goodwill might be expected to arise under
The acquirer measures goodwill acquired in a business IFRS for SMEs and IFRS in post-combination periods.
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.

Bargain purchase
An excess arises where the acquirers interest in the net fair value A bargain purchase arises when the net fair value of the The substance of the requirements in relation to recognition of
of the acquirees identifiable assets, liabilities and provisions for identifiable assets and liabilities exceeds the cost of the an excess/gain (negative goodwill) on a bargain purchase is the
contingent liabilities exceeds the cost of the combination. The combination. same under both IFRS for SMEs and IFRS.
standard recognises that this is sometimes referred to as
Before recognising a gain on a bargain purchase, the acquirer
negative goodwill.
should reassess whether it has correctly identified all of the
Where such an excess arises, the acquirer must: assets acquired and all of the liabilities assumed and recognises
Reassess the identification and measurement of the acquirees any additional assets or liabilities that are identified in that
assets, liabilities and provisions for contingent liabilities and review. The acquirer then reviews the procedures used to
the measurement of the cost of the combination measure the amounts recognised at the acquisition date for all of
Recognise immediately in profit or loss any excess remaining the following:
after that reassessment. 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.

Section 9: Consolidated and separate financial statements
SIC12 Consolidation Special Purpose Entities
Scope
This section defines the circumstances in which an entity This standard must be applied in the preparation and IFRS for SMEs and IFRS have a similar scope for consolidated
presents consolidated financial statements and the procedures presentation of consolidated financial statements for a group financial statements.
for preparing those statements. of entities under the control of a parent.
IFRS for SMEs permits combined financial statements to be
It also includes guidance on separate financial statements and A parent (see discussion of exemptions in the next row), must prepared. Combined financial statements may include entities
combined financial statements. present consolidated financial statements in which it consolidates outside the group or be created from selected entities within the
its investments in subsidiaries in accordance with this standard. group provided they are under common control. Combined
Except as permitted or required by paragraph9.3 (see
financial statements are not addressed in IFRS.
discussion of exemptions), a parent entity must present Consolidated financial statements shall include all subsidiaries of
consolidated financial statements in which it consolidates its the parent.
investments in subsidiaries in accordance with this IFRS.
Consolidated financial statements shall include all subsidiaries
of the parent.

Section 9: Consolidated and separate financial statements continued
Exemption from preparing consolidated financial statements
A parent need not present consolidated financial statements if: A parent need not present consolidated financial statements if Similar exemptions under IFRS for SMEs and IFRS (taking into
Both of the following conditions are met: and only if: account that entities that have their securities listed cannot use
a) The parent is itself a wholly-owned subsidiary, or is a partially- IFRS for SMEs).
The parent is itself a subsidiary
and owned subsidiary of another entity and its other owners, Specific differences include:
Its ultimate parent (or any intermediate parent) produces including those not otherwise entitled to vote, have been
consolidated general purpose financial statements that informed about, and do not object to, the parent not IFRS for SMEs does not require partly-owned parents to seek
comply with full IFRS or with this IFRS or presenting consolidated financial statements permission of other shareholders for the exemption
It has no subsidiaries other than one that was acquired with b) The parents debt or equity instruments are not traded in a The exemption from preparing consolidated financial
the intention of selling or disposing of it within one year. A public market (a domestic or foreign stock exchange or an statements, if the parent already prepares IFRS financial
parent accounts for such a subsidiary: over-the-counter market, including local and regional markets) statements, has been expanded to also include the case where
c) The parent did not file, nor is it in the process of filing, its the parent prepares IFRS for SMEs financial statements
At fair value with changes in fair value recognised in
profit or loss, if the fair value of the shares can be financial statements with a securities commission or other IFRS for SMEs does not require the consolidated financial
measured reliably regulatory organisation for the purpose of issuing any class of statements of the ultimate parent (or any intermediate
or instruments in a public market parent) to be made available for public use in order for the
Otherwise at cost less impairment. d) The ultimate or any intermediate parent of the parent exemption to apply
produces consolidated financial statements available for public IFRS for SMEs permits an additional exemption for a
use that comply with IFRS. subsidiary acquired with the intention of selling it within one
year, provided it is the only subsidiary.

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

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

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

Disposal of subsidiaries
The difference between the proceeds from the disposal of the If a parent loses control of a subsidiary, it: IFRS for SMEs differs from full IFRS in the treatment of the
subsidiary and its carrying amount as of the date of disposal, a) Derecognises the assets (including any goodwill) and liabilities disposal of subsidiaries. The main differences relate to the
excluding the cumulative amount of any exchange differences of the subsidiary at their carrying amounts at the date when simplifications in the SME standard and so under IFRS for SMEs,
that relate to a foreign subsidiary recognised in equity, in control is lost the gain or loss on disposal may differ.
accordance with Section 30 Foreign Currency Translation, is b) Derecognises the carrying amount of any non-controlling
recognised in the consolidated statement of comprehensive interests in the former subsidiary at the date when control is
income (or the income statement, if presented) as the gain or lost (including any components of other comprehensive
loss on the disposal of the subsidiary. income attributable to them)
c) Recognises:
If the parent continues to hold an investment in the entity, it is
The fair value of the consideration received, if any, from
accounted for as a financial asset, associate or jointly controlled the transaction, event or circumstances that resulted in the
entity depending on the nature of the investment. The carrying loss of control
amount of the investment at the date it ceases to be a subsidiary If the transaction that resulted in the loss of control
is the cost on initial measurement as a financial asset, associate involves a distribution of shares of the subsidiary to owners
or jointly controlled entity. 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.

Non-controlling interests must be presented separately from the Non-controlling interests must be presented separately from the There is no difference between IFRS for SMEs and IFRS.
interests of the owners of the parent. interests of the owners of the parent.
Deficit balances of non-controlling interests are permitted. Deficit balances of non-controlling interests permitted.
Separate financial statements

If separate financial statements are prepared, a parent, an If separate financial statements are prepared, a parent, an There may be significant differences in accounting for
investor in an associate or a venturer with an interest in a jointly investor in an associate or a venturer with an interest in a jointly investments in subsidiaries, associates and jointly controlled
controlled entity must account for its investments in subsidiaries, controlled entity must account for its investments in subsidiaries, entities.
associates and jointly controlled entities either: associates and jointly controlled entities either:
These differences arise because of the differences in accounting
a) At cost less impairment a) At cost for financial instruments under IFRS for SMEs and IFRS. In
or or particular IFRS allows an available for sale category where
b) At fair value with changes in fair value recognised in profit or b) In accordance with IAS39. investments are measured at fair value and movements
loss. The entity must apply the same accounting policy for each recognised in equity (subject to impairment).
The entity must apply the same accounting policy for all category of investments.
investments in a single class (subsidiaries, associates or jointly For investments accounted for at cost, there may also be
controlled entities), but it can elect different policies for different There are additional requirement in relation to investments differences as a result of the different impairment requirements
classes. accounted for at cost that are classified as held for sale. under IFRS and IFRS for SMEs.

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

Section 15: Investments in joint ventures continued
Jointly controlled operations
Jointly controlled operations involve the use of the assets and Jointly controlled operations involve the use of the assets and There are no differences between the definition and accounting
other resources of the venturers rather than the establishment of other resources of the venturers rather than the establishment of requirements in IFRS for SMEs and IFRS.
a corporation, partnership or other entity, or a financial structure a corporation, partnership or other entity, or a financial structure
that is separate from the venturers themselves. Each venturer that is separate from the venturers themselves. Each venturer
uses its own property, plant and equipment and carries its own uses its own property, plant and equipment and carries its own
inventories. It also incurs its own expenses and liabilities and raises inventories. It also incurs its own expenses and liabilities and raises
its own finance, which represent its own obligations. The joint its own finance, which represent its own obligations. The joint
venture activities may be carried out by the venturers employees venture activities may be carried out by the venturers employees
alongside the venturers similar activities. The joint venture alongside the venturers similar activities. The joint venture
agreement usually provides a means by which the revenue from agreement usually provides a means by which the revenue from
the sale of the joint product and any expenses incurred in common the sale of the joint product and any expenses incurred in common
are shared among the venturers. are shared among the venturers.
In respect of its interests in jointly controlled operations, a In respect of its interests in jointly controlled operations, a
venturer must recognise in its financial statements: venturer must recognise in its financial statements:
a) The assets that it controls and the liabilities that it incurs 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 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. earns from the sale of goods or services by the joint venture.

Jointly controlled assets
Jointly controlled assets involve the joint control, and often the Jointly controlled assets involve the joint control, and often the There are no differences between the definition and accounting
joint ownership, by the venturers of one or more assets joint ownership, by the venturers of one or more assets requirements in IFRS for SMEs and IFRS.
contributed to, or acquired for the purpose of the joint venture contributed to, or acquired for the purpose of the joint venture
and dedicated to the purposes 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
b) Any liabilities that it has incurred A venturer must recognise in its financial statements:
c) Its share of any liabilities incurred jointly with the other a) Its share of the jointly controlled assets, classified according to
venturers in relation to the joint venture the nature of the assets
d) Any income from the sale or use of its share of the output of b) Any liabilities that it has incurred
the joint venture, together with its share of any expenses c) Its share of any liabilities incurred jointly with the other
incurred by the joint venture venturers in relation to the joint venture
e) Any expenses that it has incurred in respect of its interest in d) Any income from the sale or use of its share of the output of
the joint venture. 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.
Definition of jointly controlled entities

A jointly controlled entity is a joint venture that involves the A jointly controlled entity is a joint venture that involves the There are no differences between the definition in IFRS for SMEs
establishment of a corporation, partnership or other entity in establishment of a corporation, partnership or other entity in and IFRS.
which each venturer has an interest. The entity operates in the which each venturer has an interest. The entity operates in the
same way as other entities, except that a contractual same way as other entities, except that a contractual
arrangement between the venturers establishes joint control over arrangement between the venturers establishes joint control over
the economic activity of the entity. 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
entities using one of the following: entities using one of the following: controlled entities to be accounted for using the cost model
The cost model (investment is measured at cost less any Proportionate consolidation (the financial statements of the (provided a published price quotation is not available) and allows
accumulated impairment losses). This model may not be used venturer include its share of the assets that it controls jointly use of the fair value model, neither of which is available under
for investments for which there is a published price quotation, and of the liabilities for which it is jointly responsible, and its IFRS. Furthermore, use of proportionate consolidation to account
in which case the fair value model must be applied share of the income and expenses of the jointly controlled for jointly controlled entities is permitted by IFRS but is not an
The equity method (investment is measured using the entity) available option under IFRS for SMEs.
method as applied to associates and outlined in The equity method (investment is measured using the
Section 14) method applied to associates as outlined in IAS 28). As IFRS for SMEs does not contain requirements relating to
The fair value model (investment is initially measured at assets classified as held for sale, there are no provisions in the
Interests in jointly controlled entities that are classified as held
transaction price and subsequently remeasured to fair value standard relating to interests in jointly controlled entities
for sale are accounted for as such in accordance with IFRS 5.
at each reporting date, with changes in fair value recognised classified as held for sale (such as cessation of the use of equity
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.

Transactions between a venturer and joint venture
When a venturer contributes or sells assets to a joint venture, When a venturer contributes or sells assets to a joint venture, There are no differences between the requirements in IFRS for
IFRS for SMEs requires that the recognition of any gain or loss IFRS requires that the recognition of any gain or loss should SMEs and IFRS, after allowing for the terminology differences.
should reflect the substance of the transaction. While the assets reflect the substance of the transaction. While the assets are IFRS for SMEs defines the term impairment to include
are retained by the joint venture, and provided that the venturer retained by the joint venture, and provided that the venturer has inventories rather than using the separate terminology of net
has transferred the significant risks and rewards of ownership, transferred the significant risks and rewards of ownership, the realisable value of current assets.
the venturer should recognise only that portion of the gain or venturer should recognise only that portion of the gain or loss
loss which is attributable to the interests of the other venturers. which is attributable to the interests of the other venturers.
However, the venturer should recognise the full amount of any However, the venturer should recognise the full amount of any
loss when the contribution or sale provides evidence of an loss when the contribution or sale provides evidence of a
impairment loss. 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 When a venturer purchases assets from a joint venture, the
venture from the transaction until it resells the assets to an venturer must not recognise its share of the profits of the joint
unrelated third party. A venturer recognises its share of the venture from the transaction until it resells the assets to an
losses resulting from these transactions in the same way as unrelated third party. A venturer recognises its share of the
profits, except that losses should be recognised immediately losses resulting from these transactions in the same way as
when they represent an impairment loss. 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.

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

Section 14: Investments in associates continued
Measurement
An investor must account for all of its investments in associates An investor accounts for all of its investments in associates using IFRS for SMEs differs from IFRS in that it permits associates to be
using one of the following: the equity method. Investments in associates that are classified accounted for using the cost model (provided a published price
The cost model (investment is measured at cost less any as held for sale are accounted for as such in accordance with quotation is not available) and allows use of the fair value model,
accumulated impairment losses). This model may not be used IFRS 5 Non-current Assets Held for Sale and Discontinued neither of which is available under IFRS. There is no effective
for investments for which there is a published price quotation, Operations. difference between the equity method as described under IFRS
in which case the fair value model must be applied. for SMEs and IFRS (however, see discussion of application of the
The equity method requires that the investment is initially
The equity method (investment is initially measured at equity method below).
recognised at cost and adjusted thereafter for the post-
transaction price and subsequently adjusted to reflect the
investors share of profit or loss and other comprehensive acquisition change in the investors share of the net assets of As IFRS for SMEs does not contain requirements relating to assets
income of the associate). the investee. The profit or loss of the investor includes the classified as held for sale, there are no provisions in the standard
The fair value model (investment is initially measured at investors share of the profit or loss of the investee. relating to investments in associates classified as held for sale
transaction price and subsequently remeasured to fair value (such as cessation of the use of equity accounting). Also, the
at each reporting date, with changes in fair value recognised additional exemptions to the use of the equity method provided
in profit or loss). Cost model may be applied to investments in IAS 28 are not included in IFRS for SMEs.
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 The carrying amount of the investment is reduced for distributions There is no difference between IFRS for SMEs and IFRS.
received from the associate and adjusted due to changes in equity received from the associate and adjusted due to changes in equity
resulting from items of other comprehensive income. resulting from items of other comprehensive income.
Equity method potential voting rights

Potential voting rights are considered when deciding whether Potential voting rights are considered when deciding whether There is no difference between IFRS for SMEs and IFRS.
significant influence exists. However, share of profit or loss and significant influence exists. However, share of profit or loss and
changes in associates equity are measured based on present changes in associates equity are measured based on present
ownership interest. ownership interest.
Equity method implicit goodwill and fair value adjustments

Any difference between the cost of acquisition and the investors Any difference between the cost of acquisition and the investors While the requirements of IFRS for SMEs and IFRS are the same,
share of net identifiable assets of the associate is accounted for share of net identifiable assets of the associate is accounted for the subsequent accounting for goodwill differs as detailed in
as goodwill or discount on acquisition. as goodwill or discount on acquisition. Section 19. In particular, IFRS for SMEs requires implicit goodwill
to be amortised over its useful life (or 10 years if the useful life
The investors share of an associates profits or losses is adjusted The investors share of an associates profits or losses is adjusted
cannot be reliably estimated). This amortisation is included in
to account for any additional depreciation/amortisation on the to account for any additional depreciation/amortisation on the
the calculation of the investors share of profits or losses of the
basis of the excess of their fair values over carrying amounts at basis of the excess of their fair values over carrying amounts at
associate under IFRS for SMEs.
acquisition of the investment. acquisition of the investment.

Equity method impairment
The entire carrying amount of an investment in an associate is The entire carrying amount of an investment in an associate is While the requirements of IFRS for SMEs and IFRS are the same,
tested for impairment when there is an indication it may be tested for impairment when there is an indication it may be the requirements relating to impairment testing differ as detailed
impaired (i.e., including any goodwill, which is not separately impaired (i.e., including any goodwill, which is not separately in Section 27. In particular, for investments in associates, IFRS
impairment tested). impairment tested). 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.
Equity method investor transactions with associates

Unrealised profits and losses arising from both upstream and Unrealised profits and losses arising from both upstream and There are no differences between the requirements under
downstream transactions are eliminated to the extent of the downstream transactions are eliminated to the extent of the IFRS for SMEs and IFRS.
investors interest in the associate. investors interest in the associate.
Equity method date of associates financial statements

Requires use of financial statements of the associate as of the Requires use of the most recent available financial statements of IFRS for SMEs is less restrictive than IFRS in relation to the
same date as those of the investor, unless it is impracticable the associate, and where the associates and investors reporting financial statements of the associate that must be used to apply
to do so. period ends differ, the associate must prepare financial equity accounting. IFRS applies a strict maximum of three
statements as of the same date as the investors financial months difference in reporting dates which does not apply in
If it is impracticable, the investor must use the most recent
statements, unless impracticable. IFRS for SMEs. Both IFRS for SMEs and IFRS provide an
available financial statements of the associate adjusted for
impracticability exception, which in both cases requires
significant transactions or events between the accounting Where the associates financial statements are prepared as of a
adjustments for significant transactions and events to be made to
period ends. different date to the investor, the associates statements are
the associates financial statements.
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.
Equity method accounting policies

If the associates accounting policies differ from those of the If the associates accounting policies differ from those of the IFRS for SMEs provides an impracticability exemption to the
investor, the investor must adjust the associates policies to investor for like transactions and events, adjustments must be requirement to conform an associates policies to those of the
reflect the investors policies unless impracticable. made to the associates policies to conform to the investors investor, which is not included in IFRS. However, use of this
policies. 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 If an investors share of losses of an associate equals or exceeds IFRS for SMEs does not refer to inclusion in the investors interest
the carrying amount of its investment in the associate, the its interest in the associate, the investor discontinues recognising in the associate of long-term interests that in substance are part
investor must discontinue recognising its share of further losses. its share of further losses. The interest in the associate is the of the net investment in the associate.
carrying amount of the investment under the equity method plus
After the investors interest is reduced to zero, the investor must
any long-term interests that, in substance, form part of the
recognise additional losses by a provision (see Section 21) only
investors net investment in the associate. Losses recognised
to the extent that the investor has incurred legal or constructive
under the equity method in excess of the investors investment in
obligations or has made payments on behalf of the associate. If
ordinary shares are applied to the other components of the
the associate subsequently reports profits, the investor must
investors interest in an associate in the reverse order of their
resume recognising its share of those profits only after its share
seniority.
of the profits equals the share of losses not recognised.
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.

Discontinuing the equity method
An investor must cease using the equity method from the date An investor must discontinue use of the equity method from the IFRS for SMEs distinguishes losses of significant influence due to
that significant influence ceases. date it ceases to have significant influence. partial disposal of investments and those which arise for other
reasons. In the latter case the investment is not remeasured to
If the associate becomes a subsidiary or joint venture, the On loss of significant influence, the investor must measure at fair
fair value. IFRS makes no such distinction, requiring
investor remeasures its previously held equity interest to fair value any investment the investor retains in the former associate.
remeasurement of the investment to fair value on loss of
value and recognises any resulting gain or loss in profit or loss. The investor must recognise in profit or loss any difference
significant influence irrespective of the reason it arises.
between:
If an investor loses significant influence over an associate as a
result of a full or partial disposal, it must derecognise that The fair value of any retained investment and any proceeds
associate and recognise in profit or loss the difference between: from disposing of the part interest in the associate
The carrying amount of the investment at the date when
The sum of the proceeds received plus the fair value of any significant influence is lost.
retained interest
If the associate becomes a subsidiary or joint venture, the
The carrying amount of the investment in the associate at the
date significant influence is lost. investment is accounted for in accordance with IAS 27 or
IAS 31, respectively. Otherwise the investment is accounted for
Thereafter, the investor accounts for any retained interest as a
in accordance with IAS 39 and the fair value of the investment at
financial asset using Section 11 and Section 12, as appropriate.
the date when it ceases to be an associate is regarded as its fair
If an investor loses significant influence for reasons other than a value on initial recognition as a financial asset.
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.

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 There are a number of differences in the accounting treatment of items in the statement of
the following sections of the IFRS for SMEs with the relevant standard under full IFRS: financial position. The key differences are as follows:
Property, Plant and Equipment there is no option to use a revaluation model.
IFRS for SMEs IFRS
Investment Property must be measured at fair value unless fair value cannot be measured
Section 17 Property, Plant and Equipment IAS 16 Property, Plant and Equipment
reliably without undue cost or effort.
Section 16 Investment Property IAS 40 Investment Property 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
Section 18 Intangible Assets other than IAS 38 Intangible Assets
assets must be amortised and the useful life is presumed to be 10 years if it cannot be
Goodwill
measured reliably.
Section 20 Leases IAS 17 Leases Income Tax whilst the temporary differences approach remains, there are different
definitions which may impact the recognition of deferred tax. The recognition and
Section 27 Impairment of Assets IAS 36 Impairment of Assets
measurement of uncertain tax positions brings in new requirements, not dealt with under IFRS.
Section 13 Inventories IAS 2 Inventories Entities may find these new requirements difficult to apply in practice and interpretative issues
may arise.
Section 29 Income Tax IAS 12 Income Taxes
Financial Instruments IFRS for SMEs gives entities the choice of applying the requirements of
Section 22 Liabilities and Equity IAS 32 Financial Instruments: Presentation 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
Section 11 Basic Financial Instruments IAS 39 Financial Instruments: Recognition and different treatments that entities will need to consider before deciding to adopt IFRS for SMEs.
Section 12 Other Financial Instruments Issues Measurement
Share-based Payments the fair value of share in equity-settled share-based payment
Section 26 Share-based Payment IFRS 2 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.
Section 21 Provisions and Contingencies IAS 37 Provisions, Contingent Liabilities and
Contingent Assets 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
Section 28 Employee Benefits IAS 19 Employee Benefits income. The requirements regarding the valuation of defined benefit plans are less onerous,
which may reduce the compliance costs for some SMEs.
Section 34 Specialised Activities IAS 41 Agriculture
IFRS 6 Exploration for and Evaluation of Mineral
Resources
IFRIC 12 Service Concession Arrangements
Elements of statement of financial position CHAPTER THREE 53

Section 35:
Section 17: Transition
Property, plant
to theand equipment
IFRS for SMEs
Scope
This section applies to accounting for property, plant and This standard must be applied in accounting for property, plant There is no difference between IFRS for SMEs and IFRS.
equipment and investment property whose fair value cannot be and equipment except when another standard requires or
measured reliably without undue cost or effort. Section 16 permits a different accounting treatment.
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: Property, plant and equipment are tangible items that are: There is no difference between IFRS for SMEs and IFRS.
a) Held for use in the production or supply of goods or services, a) Held for use in the production or supply of goods or services,
for rental to others, or for administrative purposes for rental to others, or for administrative purposes
b) Expected to be used during more than one period. b) Expected to be used during more than one period.
Recognition
An entity recognises the cost of an item of property, plant and The cost of an item of property, plant and equipment is There is no difference between IFRS for SMEs and IFRS.
equipment as an asset if, and only if: recognised as an asset if, and only if:
a) It is probable that future economic benefits associated with a) It is probable that future economic benefits associated with
the item will flow to the entity the item will flow to the entity
b) The cost of the item can be measured reliably. b) The cost of the item can be measured reliably.
Initial measurement
An entity measures an item of property, plant and equipment at An item of property, plant and equipment that qualifies for There are no differences between IFRS and IFRS for SMEs, except
initial recognition at its cost. Cost includes: recognition as an asset is measured at its cost. The cost for borrowing costs, which are capitalised under full IFRS if they
a) Its purchase price comprises: are directly attributable to the acquisition, construction or
a) Its purchase price production of a qualifying asset.
b) Any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of b) Any costs directly attributable to bringing the asset to the
operating in the manner intended by management location and condition necessary for it to be capable of
c) The initial estimate of the costs of dismantling and removing operating in the manner intended by management
the item and restoring the site on which it is located. c) The initial estimate of the costs of dismantling and removing
Borrowing costs do not form part of the cost of an item of the item and restoring the site on which it is located.
property, plant and equipment.
54 CHAPTER THREE Elements of statement of financial position

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

Section 17: Property, plant and equipment continued
An entity must select a depreciation method that reflects the The depreciation method used must reflect the pattern in which There are no differences between IFRS and IFRS for SMEs, except
pattern in which it expects to consume the assets future economic the assets future economic benefits are expected to be that a review of the depreciation method for IFRS for SMEs is
benefits. The possible depreciation methods include the straight- consumed by the entity. only required if there is an indication that it has changed. Under
line method, the diminishing balance method and a method based IFRS, the depreciation method must be reviewed at least at each
A variety of depreciation methods can be used such as the
on usage such as the units of production method. If there is an financial year-end.
straight line method, the diminishing balance method and the
indication that there has been a significant change since the last
units of production method. The depreciation method applied to
annual reporting date in the pattern of expected consumption, the
an asset must be reviewed at least at each financial year-end
entity must review its present depreciation method and, if current
and, if there has been a significant change in the expected
expectations differ, change the depreciation method to reflect the
pattern of consumption, the method must be changed to reflect
new pattern.
the changed pattern.
Derecognition
An entity must derecognise an item of property, plant and The carrying amount of an item of property, plant and equipment IFRS contains some additional guidance on the gain or loss on
equipment: must be derecognised: disposal. However, the same result would be achieved when
a) On disposal a) On disposal applying IFRS for SMEs.
or or
b) When no future economic benefits are expected from its use b) When no future economic benefits are expected from its use
or disposal. or disposal.
An entity must recognise the gain or loss on the derecognition of The gain or loss arising from the derecognition of an item of
an item of property, plant and equipment in profit or loss when property, plant and equipment must be included in profit or loss
the item is derecognised. The entity must not classify such gains when the item is derecognised. Gains must not be classified as
as revenue. revenue.

Section 16: Investment property ection 35: Transition topthe IFRS for SMEs
Section 16 Investment Property IAS 40 Investment Property
Scope
This section applies to accounting for investments in land or This standard must be applied in the recognition, measurement IFRS for SMEs explicitly excludes investment property where its
buildings that meet the definition of investment property. and disclosure of investment property. fair value cannot be measured reliably without undue cost or
effort. Management judgment will be required to determine what
Only investment property whose fair value can be measured
is meant by undue cost or effort.
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 Investment property is property (land or a building, or part of a There is no difference in definition between IFRS for SMEs
building, or both) held by the owner or by the lessee under a building, or both) held by the owner or by the lessee under a and IFRS.
finance lease to earn rentals or for capital appreciation or both. finance lease to earn rentals or for capital appreciation or both.
Initial measurement
An entity must measure investment property at its cost at An investment property must be measured initially at its cost. There are no differences between IFRS and IFRS for SMEs,
initial recognition. Transaction costs are included in the initial measurement. except for borrowing costs, which are capitalised under IFRS if
they are directly attributable to the acquisition, construction or
The cost of a purchased investment property comprises its The cost of a purchased investment property comprises its
production of a qualifying asset.
purchase price and any directly attributable expenditure such purchase price and any directly attributable expenditure.
as legal and brokerage fees, property transfer taxes and other Directly attributable expenditure includes, for example,
transaction costs. If payment is deferred beyond normal credit professional fees for legal services, property transfer taxes
terms, the cost is the present value of all future payments. An and other transaction costs.
entity must determine the cost of a self-constructed investment
property in accordance with Section 17 Property, Plant and
Equipment.

Section 16: Investment property continued
Section 16 Investment Property IAS 40 Investment Property
Investment property whose fair value can be measured reliably Investment property may be carried at either: IFRS for SMEs differs from IFRS in that it requires the use of the
without undue cost or effort must be measured at fair value at Cost less accumulated amortisation and impairment losses or fair value model, where fair value can be measured reliably
each reporting date with changes in fair value recognised in profit without undue cost or effort.
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 Transfers to, or from, investment property must be made when, IFRS contains some additional guidance when a property can be
property only when the property first meets, or ceases to meet, and only when, there is a change in use. transferred. However, the same result would be achieved when
the definition of investment property. applying IFRS for SMEs.

Section 18: Intangible assets other than goodwill
Section 18 Intangible Assets other than Goodwill IAS 38 Intangible Assets
Scope
This section is applicable to all intangible assets other than The standard applies to all intangibles other than those within IFRS explicitly excludes all intangible assets that are dealt with
goodwill and intangible assets held for sale in the ordinary course the scope of another standard, financial instruments, exploration under other standards. This would be a natural presumption in
of business. Furthermore, the scope excludes financial assets and and evaluation assets and expenditure on the development and Section 18 as other intangible assets, such as lease rights, etc.,
mineral rights and mineral reserves. extraction of minerals, oil, natural gas and similar non- have their own applicable sections.
regenerative resources.
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.
Definition of an intangible asset

An intangible asset is an identifiable non-monetary asset without An intangible asset is an identifiable non-monetary asset without There is no difference in definition between IFRS for SMEs
physical substance. Identifiablility arises when the asset is physical substance. Identifiablility arises when the asset is and IFRS.
separable or arises from contractual or other legal rights. separable or arises from contractual or other legal rights.
Recognition
An entity may recognise an intangible asset if it is probable that An intangible asset is recognised if, and only if, it is probable A significant difference exists between IFRS and IFRS for SMEs
there are expected future economic benefits, a reliably that there are expected future benefits and cost that can be in that the latter does not allow for any internally generated
measurable cost/value and it does not result from expenditure reliable measured. intangible assets to be capitalised to the balance sheet.
incurred internally on an intangible asset.
This could particularly affect companies that operate in sectors
where numerous intangible assets are generated such as the
pharmaceutical industry.
Initial measurement
Initial measurement is dependant on the manner in which the Initial measurement is dependant on the manner in which the IFRS for SMEs differs from IFRS in respect of the initial
intangible asset is acquired: intangible asset is acquired: measurement of intangible assets acquired by way of a
Separate acquisition at cost Separate acquisition at cost government grant as under IFRS for SMEs, such assets must be
measured at fair value.
Business combination at fair value at the acquisition date Business combination at fair value at the acquisition date
Government grant at the fair value of the grant Government grant at the fair value of the grant or at the
Exchange of assets at the fair value of the asset or cost nominal amount
when the transaction lacks commercial substance or fair Exchange of assets at the fair value of the asset or cost
values cannot be reliably measured. when the transaction lacks commercial substance or fair
values cannot be reliably measured.

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

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

Section 20: Leases continued
Initial measurement
Lessees finance leases:
Finance leases are initially measured at amounts equal to the fair Finance leases are initially measured at amounts equal to the fair There is no difference between IFRS for SMEs and IFRS.
value of the leased property or, if lower, the present value of value of the leased property or, if lower, the present value of
minimum lease payments. 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 IFRS for SMEs includes additional guidance on the treatment of
basis that represents the use of the asset, unless payments to the over the lease term unless another systematic basis is more an operating lease by a lessee, where payments payable to the
lessor increase with expected inflation in which case the representative of the use of the asset. lessor are structured to increase with inflation.
payments are expensed when payable.
Lessors finance leases:

Leases are presented as receivables at amounts equal to the net Lessors recognise assets under a finance lease in statement of There is no difference between IFRS for SMEs and IFRS.
investment in the lease, which is the gross investment discounted financial position as a receivable equal to net investment in lease.
at the interest rate implicit in the lease.
Lessors operating leases:

Lessors present assets subject to operating leases in the Lessors present assets subject to operating leases in the IFRS for SMEs allows recognition of structured payments relating
statement of financial position according to the nature of the statement of financial position according to the nature of the to inflation.
asset. asset. Lease income from operating leases is recognised on a
straight-line basis over the lease term, unless another systematic
Lease income from operating leases is recognised on a straight-
basis is more representative.
line basis or another basis that represents the benefit from the
asset, unless payments to the lessor increase with expected Depreciation policy is consistent with lessors normal
inflation, in which case the payments are recognised as income depreciation policy for similar assets.
when payable.
Initial direct costs incurred by lessors in arranging leases are
Depreciation is recognised on the same basis as for similar added to carrying amount of leased asset and expensed over
assets. lease term on same basis as lease income.
Initial direct costs incurred by lessors in arranging leases are Manufacturer or dealer lessor does not recognise any selling
added to the carrying amount of the leased asset and expensed profit on entering into an operating lease because it is not the
over the lease term on same basis as the lease income. equivalent of a sale.
A manufacturer or dealer does not recognise selling profit on
entering into an agreement, this is not equivalent to a sale.

Section 20: Leases continued
Sale and leaseback finance leases:
If the leaseback is a finance lease, the seller/lessee defers any If a sale and leaseback transaction results in finance lease, the There is no difference between IFRS for SMEs and IFRS.
gain and amortises it over the lease term. excess of sale proceeds over carrying amount is deferred and
amortised over the lease term by the seller/lessee.
Sale and leaseback operating leases:

If a leaseback is an operating lease and the sale takes place at or If a sale and leaseback results in an operating lease and the There is no difference between IFRS for SMEs and IFRS.
in excess of fair value, profit or loss is recognised immediately. transaction was at fair value, profit or loss is recognised
When the sale price is below fair value, profit or loss is recognised immediately. If the sales price is below fair value, profit or loss is
immediately, except if compensated for by future below market recognised immediately unless compensated for by future below
price payments, which are deferred and amortised. If the sale market price payments, which are deferred and amortised. If the
price was in excess of fair value, the excess is deferred and sale price was in excess of the fair value, the excess is deferred
amortised over the period the asset is expected to be used. and amortised.
Lessees finance leases:
Minimum lease payments are apportioned between finance Minimum lease payments are apportioned between finance There is no difference between IFRS for SMEs and IFRS.
charges and reduction of the liability using the effective interest charges and reduction of liability allocated to produce a constant
method. periodic rate of interest.
An asset is depreciated over the shorter of the lease term and An asset is depreciated over the shorter of the lease term and
the useful life of the asset. the useful life of the asset.
Lessors finance leases:

Finance income reflects a constant rate of return on net Finance income is allocated over lease term reflecting constant There is no difference between IFRS for SMEs and IFRS.
investment. Payments are applied against the gross investment periodic rate of return on lessors net investment.
to reduce both the principal and unearned finance income.
Derecognition
Leases are classified at inception of the lease and this is not Lease classification is made at inception of the lease. If at any There is no difference between IFRS for SMEs and IFRS.
changed during the term unless there is agreement between the time the lessee and lessor agree to change the provisions of
lessee and lessor, in which case the classification is re-evaluated. lease, other than changes in circumstances or estimates, the
revised agreement is regarded as new agreement over its term.

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

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

Section 27: Impairment of assets continued
Goodwill impairment
Goodwill acquired in a business combination must be allocated to Goodwill acquired in a business combination is allocated to each There is no difference between IFRS for SMEs and IFRS.
each of the acquirers cash-generating units that is expected to of the acquirers cash-generating units that is expected to benefit
benefit from the synergies of the combination. from the synergies of the combination.
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
a) The acquired entity in its entirety b) Not be larger than an operating segment determined in
or accordance with IFRS 8 Operating Segments.
b) The entire group of entities.
An impairment loss recognised for goodwill must not be reversed An impairment loss recognised for goodwill must not be reversed IFRS contains some additional guidance and distinction on
in a subsequent period. in a subsequent period. reversal of impairment losses. However, the same result would be
achieved when applying IFRS for SMEs.
If the estimated recoverable amount of the cash-generating unit A reversal of an impairment loss for a cash generating unit must
exceeds its carrying amount, that excess is a reversal of an be allocated to the assets of the unit, except for goodwill, pro rata
impairment loss. The entity must allocate the amount of that with the carrying amounts of those assets.
reversal to the assets of the unit, except for goodwill, pro rata
with the carrying amounts of those assets, subject to some
limitations.

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

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

Section 29: Income taxes
Scope
Income tax includes all domestic and foreign taxes that are based The standard applies to accounting for income taxes, which There is no difference between IFRS for SMEs and IFRS with
on taxable profit. It also includes taxes payable by a subsidiary, include all domestic and foreign taxes that are based on taxable respect to scope.
associate or joint venture on distributions to the reporting entity. 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 The tax base of an asset or is the amount that will be deductible IFRS for SMEs eliminates management intent from the
that would arise if it were recovered for its carrying amount for tax purposes against any taxable economic benefits that determination of the tax base since it is determined assuming
through sale at the reporting date. will flow to an entity when it recovers the carrying amount of an entity sells or settles all its assets and liabilities at each
the asset. 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 The tax base of a liability is its carrying amount, less any amount This may cause practical difficulties for preparers as more work
reporting date. that will be deductible for tax purposes in respect of that liability may be required to calculate the tax base as hypothetical tax
in future periods. calculations will need to be done to determine the tax base.
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.

Section 29: Income taxes continued
Recognition of deferred tax assets
Deferred tax assets must be recognised for all temporary A deferred tax asset must be recognised for all deductible Deferred tax assets that were previously not recorded under
differences that are expected to reduce taxable profit in the temporary differences to the extent that it is probable that IAS 12 will now have to be recorded under IFRS for SMEs with
future as a total amount. taxable profit will be available against which the deductible offsetting valuation allowances. For SMEs, this will require
temporary difference can be utilised. additional tracking and documentation for each deferred tax
An entity must recognise a valuation allowance against deferred
asset and its related valuation allowances when compared
tax assets so that the net carrying amount equals the highest IAS 12 also requires an entity to reassess the recognition of
with IAS 12.
amount that is more likely than not to be recovered based on deferred tax assets and recognise previously unrecognised
current or future taxable profit. deferred tax assets at each balance sheet date to the extent it
has become probable tht the asset will be recovered.
An entity must review the net carrying amount of a deferred tax
asset at each reporting date and adjust the valuation allowance A deferred tax asset is not reported gross, less a valuation
to reflect the current assessment of future taxable profits. allowance, but as an amount representing the amount of income
Such adjustment is recognised in profit or loss, except that taxes recoverable in future periods in respect of deductible
an adjustment attributable to an item of income or expense temporary differences, the carry forward of unused tax losses
recognised in accordance with this IFRS as other comprehensive and the carry forward of unused tax credits.
income is recognised in other comprehensive income.
Movements in deferred tax assets are recognised in profit or loss,
unless the tax relates to items outside profit or loss.
Uncertain tax positions

An entity must measure current and deferred tax assets and IAS 12 currently does not explicitly address the recognition and The requirements of IFRS for SMEs for the measurement of
liabilities using the probability-weighted average amount of all measurement of uncertain tax positions. IAS 12 indicates that uncertain tax positions apply to current and deferred taxes alike,
the possible outcomes, assuming that the tax authorities will tax assets and liabilities should be measured at the amount since an uncertain tax position may not simply affect the amount
review the amounts reported and have full knowledge of all expected to be paid. However, it notes that, while IAS 37 of current tax payable or receivable. For example, where an entity
relevant information. Provisions, Contingent Liabilities and Contingent Assets generally has claimed a deduction for an item in its tax return which is
excludes income taxes from its scope, its principles are relevant subject to uncertainty, the uncertainty may determine not only
Changes in the probability-weighted average amount of all
to the disclosure of tax-related contingent assets and contingent the measurement of current tax, but also that of the tax basis of
possible outcomes must be based on new information, not a new
liabilities, such as unresolved disputes with taxing authorities. any associated asset or liability and, therefore, deferred tax.
interpretation by the entity of previously available information.
Since there is no direct guidance on this topic in IAS 12, there The uncertain tax positions requirements of IFRS for SMEs will
There is no probability threshold applied to the recognition of an
are some variations on how entities currently account for have far-reaching data gathering, documentation and support
uncertain tax position implying an entity needs to review and
uncertain tax positions in practice. implications for an entity and could potentially affect its dealings
measure all its uncertain tax positions. It also does not define
with tax authorities worldwide.
how, or at what level of detail, or unit of account, a tax position Some adopt a one-step approach which recognises all uncertain
is to be analysed. tax positions at an expected value. Others adopt a two-step SMEs will require significant effort (compared to users of
approach which recognises only those uncertain tax positions IAS 12) to identify, document, measure and disclose their
that are considered more likely than not to result in a cash uncertain tax positions following these explicit requirements.
outflow.

Backward tracing
An entity must recognise tax expense in the same component of IAS 12 requires current tax and deferred tax to be charged or Although IFRS for SMEs has the same approach to backward
total comprehensive income or equity as the transaction or other credited in other comprehensive income (OCI) or directly in tracing, the wording is not exactly the same as that contained in
event that resulted in the tax expense. equity if the tax relates to items that were credited or charged, IAS 12. It remains to be seen if any variations in practice develop
whether in the current or previous period, in OCI or directly in in this regard over time.
equity. Subsequent changes to those amounts are also allocated
to OCI or equity as applicable.
Initial recognition exemption

An entity must not recognise a deferred tax liability for a IAS 12 currently requires a deferred tax asset or liability to be IFRS for SMEs does not describe how to account for temporary
temporary difference associated with the initial recognition recognised for all deductible or taxable temporary differences, differences on the initial recognition of items that are not
of goodwill. except for: goodwill. Therefore, entities will need to develop an accounting
A deferred tax liability arising from the initial recognition policy to deal with these differences.
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.

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

Applicable tax rate
An entity must measure current and deferred taxes at the tax An entity must measure tax assets and liabilities using the tax There is no difference between IFRS for SMEs and IFRS.
rate applicable to undistributed profits until the entity recognises rate applicable to undistributed profits.
a liability to pay a dividend. When the entity recognises a liability
Deferred taxes are measured based on the tax rates and tax laws
to pay a dividend, it must recognise the resulting current or
that are enacted or substantively enacted at the reporting date.
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 IAS 12 has a number of specific disclosure requirements. IFRS for SMEs may have more onerous disclosure requirements
contained in IAS 12, yet introduces some new disclosures not than IAS 12, particularly for uncertain tax positions. Entities will
currently in IAS 12, including: need to consider the information required to fulfil those
The effect on deferred tax expense arising from a change in requirements.
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.

Section 22: Liabilities and equity
Section 22 Liabilities and Equity IAS 32 Financial Instruments: Presentation
Scope
The section establishes classification of financial instruments as The standard applies to all financial instruments. The scope Although the wording of the scoping section differs to full IFRS, in
either liabilities or equity and addresses accounting for equity however does not extend (in brief) to: most cases for the types of financial instruments that SMEs have,
instruments issued to individuals as investors in equity Interests in subsidiaries, associates or joint ventures the scope will be principally in line with full IFRS.
instruments.
Employers rights and obligations under employee benefit While IFRS for SMEs does not exclude insurance liabilities in this
Furthermore, the scope is applied when classifying all types of plans section of the standard, they are excluded in the section dealing
financial instruments except: Insurance contracts and financial instruments with with the measurement of financial instruments.
discretionary participation features within IFRS 4
Interests in subsidiaries, associates and joint ventures Unlike IAS 32, IFRS for SMEs provides no application guidance
Contracts and obligations under share-based payment
Employers rights and obligations under employee benefit transactions to which IFRS 2 applies, except: when applying this section of the standard.
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
The appendix to IFRS for SMEs contains the definition of a A financial liability is any liability that is: Under IFRS for SMEs, definitions of financial instrument and a
financial liability as any liability that is: a) A contractual obligation: financial liability are contained in the appendix to the standard.
a) A contractual obligation: To deliver cash or another financial asset A user of the standard would refer to these definitions when
or applying this section to financial instruments.
To deliver cash or another financial asset
or To exchange financial assets or financial liabilities Financial liabilities definitions are similar, with the only essential
To exchange financial assets or financial liabilities under unfavourable conditions difference being puttable financial instruments. These are dealt
under unfavourable conditions or
with later in the financial instruments sections in IFRS for SMEs.
or b) A contract that will or may be settled in the entitys own equity
b) A contract that will or may be settled in the entitys own equity instruments and is: An equity instrument is not defined. However, the generic
instruments and: A non-derivative for which the entity is or may be definition of equity is provided and it is assumed that equity
The entity is or may be obliged to deliver a variable number obliged to deliver a variable number of the entitys instruments would be included.
of its own equity instruments own equity instruments
or or
Will or may be settled other than by the exchange of a fixed A derivative that will or may be settled other than by the
amount of cash or another financial asset for a fixed exchange of a fixed amount of cash or another financial
number of the entitys own equity instruments. For this asset for a fixed number of the entitys own equity
purpose, the entitys own equity instruments do not include instruments. For this purpose the entitys own equity
instruments that are contracts for the future receipt or instruments do not include puttable financial instruments
delivery of the entitys own equity instruments. and instruments that impose on the entity an obligation to
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.

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

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

Distributions to owners
An entity reduces equity for amounts of distributions to owners. Interest, dividends, losses and gains relating to a financial Full IFRS required an interpretation (IFRIC 17) for distributions
When non-cash assets are to be distributed, a liability is instrument or a component that is a financial liability are of non-cash assets. This guidance has been incorporated into the
recognised. The liability is stated at fair value at the end of each recognised as income or expense in profit or loss. Distributions to IFRS for SMEs. The major difference between IFRIC 17 and the
reporting period and at date of settlement. Changes are holders of an equity instrument are recognised directly in equity, IFRS for SMEs requirements is that IFRIC 17 scopes out entities
recognised in equity as adjustments to the amount of the net of any related income tax benefit. under control. As these transactions often occur when a group of
distribution. commonly controlled entities are reorganised, IFRS for SMEs may
be more prescriptive than full IFRS in this regard.
In consolidated financial statements, a non-controlling interest in In consolidated financial statements, a non-controlling interest in IFRS for SMEs has aligned itself to the principles that are
the net assets of a subsidiary is included in equity. the net assets of a subsidiary is presented in equity, separately contained in IAS 27 (revised 2008) see excerpts in IFRS
An entity treats changes in controlling interest in a subsidiary from the equity of the owners of the parent. column. After the effective date of the revised IAS 27,
that does not result in a loss of control, as transactions with differences between IFRS for SMEs and full IFRS should be
Changes in a parents ownership interest in a subsidiary that do
equity holders in their capacity as shareholders. Any differences minimal.
not result in a loss of control are accounted for as equity
between the consideration paid or received and the fair value is transactions.
recognised in equity. No gains or losses are recognised on such
transactions.

Section 11: Basic financial instruments and Section 12: Other financial instrument issues
Section 11 Basic Financial Instruments IAS 39 Financial Instruments: Recognition
Section 12 Other Financial Instrument Issues and Measurement
Accounting policy
An entity makes a policy choice to either: An entity will comply with the provisions of IAS 32 Financial This is the only direct link that is created between IFRS for SMEs
Comply with Section 11 Basic Financial Instruments Instruments: Presentation and IAS 39 Financial Instruments: and full IFRS. If the choice to follow IAS 39 is adopted, the
and Section 12 Other Financial Instruments Issues of Recognition and Measurement and make disclosures in terms of provisions of IAS 32 are not taken into account as IFRS for SMEs
IFRS for SMEs IFRS 7 Financial Instruments: Disclosures. has its own section that considers debt and equity instruments
or issued. This may create some conflict with IAS 39.
Use the recognition and measurement provisions of
Relief is provided to SMEs, as the onerous disclosures of IFRS 7
IAS 39 Financial Instruments: Recognition and Measurement
and apply the disclosure requirements of IFRS for SMEs. 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.

Section 11: Basic financial instruments and Section 12: Other financial instrument issues continued
Scope
Section 11 applies to all basic financial instruments except for: IAS 39 is applied to all financial instruments except: While the scoping provisions are similar, there are differences
Investments in subsidiaries associates and joint ventures Interests in subsidiaries, associates and joint ventures between the two standards. Share-based contracts are scoped
out of IAS 39, but included within the scope of IFRS for SMEs.
Instruments that meet the definition of the entitys own equity Rights and obligations under leases (with certain exceptions)
Furthermore, there are issues that are scoped out of IFRS for
Leases (other than derecognition of lease receivables) Employers rights and obligations under employee benefit
and plans SMEs Section 12 which are not dealt with elsewhere in the
standard (e.g., insurance contracts), as would be the case under
Employers rights and obligations under employee plans. Own equity instruments
full IFRS.
Section 12 applies to all financial instruments except for: Rights and obligations arising under an insurance
contract(with certain exceptions)
Basic financial instruments in Section 11
Forward contracts between an acquirer and shareholder that
Interests in subsidiaries, associates and joint ventures will result in a future business combination
Employers rights and obligations under employee benefit Loan commitments other than those included in the standard
plans
Financial instruments, contracts and obligations under
Rights under insurance contracts (with certain exceptions) share-based payment transactions
Own equity instruments Rights to reimbursement of a provision.
Leases (with certain exceptions) The standard is applied to contracts to buy or sell a non-financial
Contracts for contingent consideration in a business item that can be settled net, as if the contracts were financial
combination.
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 An embedded derivative is separated from the host contract and Under IAS 39, the separation of an embedded derivative could
IFRS for SMEs. accounted for as a derivative under IAS 39 if: have allowed the host to be accounted for at amortised cost
a) The economic characteristics and risks of the embedded and the derivative at fair value. No bifurcation is permitted
derivative are not closely related to those of the host in IFRS for SMEs. Such hybrid instruments would be carried at
b) A separate instrument with the same terms would meet fair value.
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 IAS 39 requires that financial instruments be classified into the The approach taken by IFRS for SMEs is significantly different
Section 11: following groups. to that contained in IAS 39. As all accounting is based on the
Cash classification of the instrument, the two standards diverge at this
Financial assets are grouped as:
point, although ultimately, the measurement of the instrument
A debt instrument that satisfies specific criteria
Fair value through profit and loss may result in the same amount in the financial statements.
A commitment to receive a loan that
Loans and receivables
Cannot be settled net in cash Reclassification was introduced into IAS 39 during 2008 in
Held to maturity
and response to the global financial crisis and is not considered
and
When the commitment is executed, is expected to under IFRS for SMEs.
Available for sale.
meet the conditions of a debt instrument above
An investment in non-convertible preference shares Financial liabilities are grouped as:
and non-puttable ordinary shares or preference shares. Fair value through profit and loss
Other financial instruments would include all other financial Other liabilities.
instruments that are within the scope of Section 12 but not Specific guidance is also provided as to when an entity may
within the scope of Section 11. reclassify financial instruments between categories.

Recognition
Basic and other financial assets and liabilities are recognised An entity recognises a financial instrument when the entity There is no difference in recognition between IFRS for SMEs
when the entity becomes a party to the contracts. becomes a party to the contractual provisions of the instrument. and full IFRS.
Initial measurement
Basic financial instruments are measured at their transaction When a financial instrument is recognised initially, an entity There are differences in the initial measurement of financial
price including transactions costs. measures it at its fair value plus, in the case of a financial asset instruments.
or financial liability not at fair value through profit or loss,
If the contract constitutes a financing arrangement it is measured IFRS for SMEs has simplified the initial measurement for basic
transaction costs that are directly attributable to the acquisition
at the present value of future payments discounted at a market financial insruments by basing it on the transaction price.
or issue of the financial asset or financial liability.
rate of interest for a similar instrument (this is not applicable to IFRS for SMEs recognises that financing arrangements need to
assets and liabilities classified as current, unless they incorporate be taken into account. The issue of low interest rate loans will be
a finance arrangement). particularly important for intra-group loans, which are often
carried at cost under non-IFRS GAAPs.
If interest is not at a market rate, the fair value would be future
payments discounted at a market rate of interest. Full IFRS considers transaction price as a proxy for fair value, and
if necessary, adjusts this price. This introduces the concepts of
Other financial instruments are initially measured at fair
Day-1 gains/losses. Other financial instruments would be
value, which is usually their transaction price. This will
measured on the same basis by IFRS for SMEs. It should be noted
exclude transaction costs.
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.

For basic financial instruments, at the end of each reporting After initial recognition, an entity measures financial assets at The two basic forms of measurement, fair value and amortised
period: their fair values, excluding transaction costs, except for the cost at the effective interest rates are used by both standards.
Debt instruments are measured at amortised cost using the following financial assets:
Application of these methodologies is based on the financial
effective interest rate Loans and receivables and held-to-maturity investments are instruments classification. The instrument may be carried at the
Commitments to receive a loan are measured at cost less measured at amortised cost using the effective interest same/similar amount only if the measurement requirements of
impairment method
the classifications selected under the two frameworks coincide.
Investments in non-convertible preference shares and Investments in equity instruments (and related derivatives)
non-puttable ordinary, and preference shares that are that do not have a quoted market price in an active market
publically traded or their fair value can otherwise be reliably and whose fair value cannot be reliably measured are
measured, are measured at fair value through profit and loss measured at cost.
if a public market exists, otherwise at cost less impairment. After initial recognition, an entity measures all financial liabilities
All other financial instruments are measured at fair value at at amortised cost using the effective interest method, except for:
reporting date. The only exception are equity instruments
Financial liabilities at fair value through profit or loss that are
(and related contracts that would result in delivery of such measured at fair value
instruments) that are not publically traded and whose fair Financial liabilities that arise when a transfer of a financial
value cannot be reliably determined are measured at cost asset does not qualify for derecognition, financial guarantee
less impairment. contracts, commitments to provide a loan at a below-market
interest rate all have their own particular requirements for
subsequent measurement.
Amortised cost
The effective interest method is used to calculate the amortised The effective interest method is used to calculate the amortised Both frameworks have a similar definition of the effective
cost of a financial asset or a financial liability and to allocate the cost of a financial asset or a financial liability and to allocate the interest rate methodology. Both methodologies also deal with
interest income or interest expense over the relevant period. interest income or interest expense over the relevant period. changes in estimates on a similar basis. No differences are
expected on the application of this methodology.
The effective interest rate is the rate that exactly discounts The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected estimated future cash payments or receipts through the expected
life of the financial instrument or, when appropriate, a shorter life of the financial instrument or, when appropriate, a shorter
period, to the carrying amount of the financial asset or financial period to the net carrying amount of the financial asset or
liability. When calculating the effective interest rate future credit financial liability. When calculating the effective interest rate, an
losses are excluded. Fees, transaction costs and other premiums entity estimates cash flows considering all contractual terms of
or discounts are amortised over the life of the instrument (or the financial instrument (for example, pre-payment, call and
shorter if they relate to a shorter period). 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.

Impairment of basic financial instruments
At each reporting date, an assessment is made as to whether An entity assesses at the end of each reporting period whether Both frameworks contain similar provisions for impairments
there is objective evidence of a possible impairment. The there is any objective evidence that a financial asset or group of and apply an incurred loss model to impairments. That is,
standard provides examples of possible loss events. financial assets is impaired. If any such evidence exists, the entity impairments are triggered by the occurrence of loss events.
applies the specific provisions for financial assets carried at
The impairment loss of basic financial instruments at amortised IAS 39 is clear that future credit loss events are not taken
amortised cost, for financial assets carried at cost or for
cost is the difference between carrying value and the revised into account when estimating future cash flows. However,
available-for-sale financial assets to determine the amount of
cash flows discounted at the original effective interest rate. IFRS for SMEs does not consider this point. As this is an
any impairment loss.
incurred loss model IFRS for SMEs should also ignore future
The impairment of basic financial instruments at cost less
For instruments carried at amortised cost, the amount of the loss events when calculating an impairment loss.
impairment is the difference between the carrying value and
loss is measured as the difference between the assets carrying
best estimate of the amount that would be received if the asset
amount and the present value of estimated future cash flows
were sold at the reporting date.
discounted at the financial assets original effective interest rate.
Reversal of impairments on basic financial instruments is Reversals of impairments are permitted if specific criteria are met.
permitted.
Reversals of impairments of available-for-sale equity instruments
Impairment of other financial instruments is not permitted.
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 IAS 39 contains application guidance on the determination of There are no differences of principle between the two
prices in an active market, prices in recent transactions for the fair value. Likewise, this standard also makes use of a fair value frameworks on the determination of fair value.
identical assets (adjusted if necessary), and use of a valuation hierarchy. This makes use of quoted prices in an active market,
However, IAS 39 provides considerable application guidance on
technique (that reflects how the market would expect to price prices in recent transactions for the identical assets (adjusted)
the issue. The determination of fair value can be difficult for
the asset and the inputs reasonably represent market and the use of valuation techniques.
reporting entities and entities applying IFRS for SMEs may have
expectations).
Fair value, where there is no active market, is only considered to develop their own policies in light of the minimal application
Fair value, where there is no active market, is only considered reliable if the variability in the range of fair values is not guidance provided.
reliable if the variability in the range of fair values is not significant and the probabilities of various estimates can be
significant and the probabilities of various estimates can be reasonably assessed.
reasonably assessed.
IAS 39 also contains provisions that the fair value of a liability
Section 12 states that the fair value of a liability cannot be cannot be less than the instruments demand feature, discounted
below the amount in a demand feature discounted to the to the reporting date.
reporting date.

Derecognition
An entity derecognises a financial asset when: An entity derecognises a financial asset when: Both frameworks retain the same risks and rewards principles for
The contractual rights to the cash flows from the financial The contractual rights to the cash flows expire the purposes of derecognition of financial assets. No differences
asset expire or are settled would be expected between the frameworks.
It transfers the financial asset in a manner that allows
The entity transfers to another party substantially all of the for derecognition. IAS 39 provides additional guidance on derecognition. In
risks and rewards of ownership of the financial asset When an asset is transferred: the absence of further guidance, entities reporting under
The entity, despite having retained some significant risks and IFRS for SMEs may need to consider how the requirements
rewards of ownership, has transferred control of the asset to It is derecognised if the entity transfers substantially all the
risks and rewards of ownership will be applied in practice.
another party and the other party has the practical ability to
sell the asset in its entirety to an unrelated third party. It continues to be recognised if the entity retains substantially
The entity derecognises a financial liability when extinguished. 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 To qualify for hedge accounting, an entity must meet the IFRS for SMEs has similar requirements to full IFRS regarding the
following conditions: following conditions: need to document and designate the hedging relationship.
The entity designates and documents the hedging At inception of the hedge there is formal designation and However, the requirements under IFRS for SMEs are less onerous,
relationship, clearly identifying the risk being hedged, documentation of the hedging relationship, the entitys risk although as explained below, SMEs are more restricted in the
the hedged item and hedging instrument management objective and strategy for the hedge circumstances in which they can apply hedge accounting.
The hedged risk is one of the specified risks in the standard The hedge is expected to be highly effective
(see below) For cash flow hedges, a forecast transaction is highly probable
The hedging instrument is as specified in the standard (see The effectiveness can be reliably measured
below)
The hedge is assessed on an ongoing basis and `determined
The entity expects the hedge to be highly effective. to have been actually effective.

Hedged risks
IFRS for SMEs only permits hedge accounting when the hedged IAS 39 permits the following hedge relationships: IFRS for SMEs restricts the ability for an entity to use hedge
risk is one of the following risks: Fair value hedge: a hedge of the exposure to changes in fair accounting to the four identified risks in the standard.
Interest rate risk of a debt instrument measured at value of a recognised asset or liability or an unrecognised firm
amortised cost commitment, which is attributable to a particular risk and
Foreign exchange or interest rate risk in a firm commitment could affect profit or loss
or a highly probable forecast transaction Cash flow hedge: a hedge of the exposure to variability in cash
Price risk of a commodity that it holds or in a firm flows that:
commitment or highly probable forecast transaction to Is attributable to a particular risk associated with
purchase or sell a commodity a recognised asset or liability or a highly probable
Foreign exchange risk in a net investment in a foreign forecast transaction
operation. and
Could affect profit or loss
Hedge of a net investment in a foreign operation as defined
in IAS 21.
Hedging instrument
The Hedge accounting is only permitted if the hedging IAS 30 does not restrict the circumstances in which a derivative IFRS for SMEs is much more restrictive concerning what can be
instrument meets all of the following: may be a hedging instrument, except for some written options. A designated as a hedging instrument.
It is an interest rate swap, a foreign currency swap, a foreign non-derivative financial instrument can only be designated as a
currency forward exchange contract or a commodity forward hedge of a foreign currency risk.
exchange contract that is expected to be highly effective
Only instruments that involve a party external to the reporting
It involves a party external to the reporting entity entity can be designated as hedging instruments.
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.

Hedge of a fixed interest rate risk
If the hedged risk is the exposure to a fixed interest rate risk of a 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
debt instrument measured at amortised cost or a commodity most hedges of fixed interest rate risk would be fair value hedges. fair value hedges under full IFRS.
price risk, the entity: Fair value hedges are accounted for as follows:
Recognises the hedging instrument as an asset or liability and The gain or loss on remeasuring the hedging instrument at
changes in the fair value are recognised in profit or loss fair value is recognised in profit or loss
Recognises the change in fair value of the hedged item in The gain or loss on the hedged item is adjusted against its
profit or loss and as an adjustment to its carrying amount. carrying amount and recognised in profit or loss.
Hedge of a variable interest rate risk

If the hedged risk is: Most hedges of a variable interest rate risk would be cash flow Hedges of a variable interest rate risk are treated in a similar way
The variable interest rate risk in a debt instrument at hedges under full IFRS. Cash flow hedges are accounted for as to cash flow hedges under full IFRS.
amortised cost follows:
The foreign exchange risk in a firm commitment or highly The effective portion of the gain or loss on the hedging
probable forecast transaction instrument is recognised in other comprehensive income
The commodity price risk in a firm commitment or highly The ineffective portion is recognised in profit or loss.
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: Hedge accounting is discontinued when: The criteria for discontinuing hedge accounting are the same
The hedging instrument expires or is sold The hedging instrument expires or is sold under both IFRS for SMEs and full IFRS.
The hedge no longer meets the conditions for hedge The hedge no longer meets the conditions for hedge
accounting accounting
In the hedge of a forecast transaction, when the transaction is In the hedge of a forecast transaction, when the transaction is
no longer highly probable no longer highly probable
The entity revokes the designation. The entity revokes the designation.

Section 26: Share-based payments
Section 26 Share-based Payment IFRS 2 Share-based Payment
Scope
This section specifies the accounting for all share-based payment This IFRS applies to all share-based payment transactions for the While both IFRS for SMEs and full IFRS deal with the acquisition
transactions for the acquisition of goods or services, including acquisition of goods and services, whether or not the entity can of goods and services by an entity by means of a share-based
those that are equity-settled and those that are cash-settled or a identify specifically some or all of the goods or services received. payment arrangement, the scope of the frameworks are
choice of either equity or cash. These include equity-settled, cash-settled and transactions that different. The principle difference is that IFRS 2 specifically
provide for settlement either by cash or equity instruments. includes within its scope those transactions settled by another
Where an award is granted by a parent entity to the employees
group entity (or shareholder). Under IFRS for SMEs it is
of a subsidiary and the parent presents consolidated financial A share-based payment transaction may be settled by another
voluntary to account for an award made by the parent entity.
statements using either the IFRS for SMEs or full IFRS, the group entity (or a shareholder of any group entity) on behalf of
subsidiary may recognise and measure the share-based payment the entity receiving or acquiring the goods or services. Hence, the treatment of group share-based payment
expense based on a reasonable allocation of the expense arrangements will be different under full IFRS compared to
recognised for the group. IFRS for SMEs.
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.

Section 26: Share-based payments continued
Recognition
The entity recognises the goods or services received or acquired The goods or services received or acquired in a share-based There is no difference in the general recognition principles of the
in a share-based payment transaction when it obtains the goods payment transaction are recognised when the entity obtains the frameworks.
or as the services are received. goods or receives the services.
The entity recognises a corresponding increase in equity if the The entity also recognises a corresponding increase in equity
goods or services were received in an equity-settled share-based if the goods or services were received in an equity-settled
payment transaction, or a liability if the goods or services were share-based payment transaction, or a liability if the goods or
acquired in a cash-settled share-based payment transaction. 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. When the goods or services received do not qualify for
recognition as assets they are recognised as an expense.
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 Although only given in the context of employees, the principles
counterparty completes a specified period of service, the entity of recognition where there are vesting conditions is the same
The principle applied is that if the share-based payments do not
shall presume that the services will be received in the future, under both frameworks.
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.

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

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

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

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

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

Section 28: Employee benefits continued
Post-employment benefit plans
Post-employment benefit plans are classified as either defined Post-employment benefit plans are classified as either defined There is no difference in the classification of post retirement
contribution plans or defined benefit plans. contribution plans or defined benefit plans, depending on the plans under the two frameworks.
economic substance of the plan as derived from its principal
Defined contribution plans are post-employment benefit plans
terms and conditions.
under which an entity pays fixed contributions into a separate
entity and has no obligation to pay further contributions. 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. 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 An entity classifies a multi-employer plan as a defined contribution
the plan. However, if sufficient information is not available to use plan or a defined benefit plan under the terms of the plan.
defined benefit accounting for a multi-employer plan that is a
When sufficient information is not available to use defined
defined benefit plan, an entity accounts for the plan as if it was a
benefit accounting for a multi-employer plan that is a defined
defined contribution plan.
benefit plan, an entity accounts for the plan as if it were a defined
contribution plan.
Defined contribution plans

An entity recognises the contribution payable for a period: An entity recognises the contribution payable for a period: Other than the provisions for discounting under full IFRS, the
As a liability, after deducting any amount already paid As a liability, after deducting any amount already paid requirements of both frameworks are the same.
As an expense, unless another section requires the cost to be As an expense, unless another section requires the cost to be
part of the cost of an asset. 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 The amount recognised as a defined benefit liability is: Considerable differences exist in the recognition and the
The present value of the defined benefit obligation at the end measurement of post-retirement defined benefit plans.
An entity recognises:
of the reporting period less IFRS for SMEs allows the projected credit unit method to be
A liability for its obligations under defined benefit plans net
Any actuarial gains/losses not recognised simplified if its application would result in undue cost or effort.
of plan assets
and Any past service cost not yet recognised This may be of considerable benefit to reporters that use this
The net change in that liability during the period as the cost The fair value at the end of the reporting period of plan standard.
of its defined benefit plans during the period. assets.

An entity measures a defined benefit liability at the net total of An asset is measured at the lower of: The second major difference lies in the recognition of actuarial
the following amounts: The amount above gains and losses. Under IFRS for SMEs all actuarial gains and
The present value of its obligations under defined benefit or losses must be recognised in full. However, entities have a choice
plans at the reporting date less The total of any cumulative unrecognised net actuarial losses of recognising them in profit or loss or in other comprehensive
The fair value at the reporting date of plan assets and past service cost; and the present value of any economic income.
benefits available in the form of refunds from the plan or
An entity recognises a plan surplus as an asset only to the extent
reductions in future contributions to the plan.
that it is able to recover the surplus either through reduced
An entity recognises the net total of the following amounts in
contributions in the future or through refunds from the plan.
profit or loss:
The present value of an entitys obligations reflects the

Current service cost
discounted estimated amount of benefit that employees have

Interest cost
earned in return for their service in the current and prior periods.

The expected return on any plan assets
This requires the entity to determine how much benefit is
attributable to the current and prior periods based on the
Actuarial gains and losses recognised in profit and loss
plans benefit formula and to make actuarial assumptions
Past service cost
about demographic and financial variables.
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
benefit liability to reflect the change and recognises the In profit or loss on a systematic basis faster than the corridor
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 An entity recognises a liability for other long-term employee The requirements to recognise a liability are the same under both
benefits measured at: benefits at: frameworks.
The present value of the benefit obligation at the The present value of the benefit obligation at the However, IFRS for SMEs does not specify how the defined benefit
reporting date reporting date obligation is measured. Therefore, it is assumed that a the
less less
projected credit unit method is not required, which leads to a
The fair value at the reporting date of any plan assets. The fair value at the reporting date of any plan assets. difference between the two frameworks.
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 An entity recognises termination benefits as a liability and an The general principles of termination benefits are similar under
expense only when the entity is demonstrably committed either: expense when the entity is demonstrably committed to either: both frameworks, other than the greater guidance provided in
To terminate the employment of an employee or group Terminate the employment of an employee or group determining demonstrable commitment.
of employees before the normal retirement date of employees before the normal retirement date
or or
To provide termination benefits as a result of an offer Provide termination benefits because of an offer made
made in order to encourage voluntary redundancy. in order to encourage voluntary redundancy
An entity is demonstrably committed to a termination only when An entity is demonstrably committed to a termination when, the
the entity has a detailed formal plan for the termination and is entity has a detailed formal plan (without realistic possibility of
without realistic possibility of withdrawal from the plan. 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.

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

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

Section 34: Specialised activities extractive industries
Section 34 Specialised Activities Extractive IFRS 6 Exploration for and Evaluation of
Industries Mineral Resources
An entity that is engaged in the exploration for, evaluation or IFRS 6 specifies the accounting for exploration and evaluation of Under IFRS for SMEs, any expenditure that does not meet the
extraction of mineral resources accounts for expenditure on mineral resources. It allows entities to develop an accounting recognition criteria of Section 17 and Section 18 would not be
the acquisition or development of tangible or intangible assets policy for these costs without specifically considering IAS 8 recognised as an asset. This may cause significant differences to
by applying Section 17 Property, Plant and Equipment and Accounting Policies, Changes in Accounting Estimates and Errors, full IFRS as costs such as exploration and evaluation expenditures
Section 18 Intangible Assets other than Goodwill, respectively. which may allow entities to continue recognising assets on that may not be recognised as assets under these sections will
adoption of IFRS that would not otherwise be permitted. have to be expensed by SMEs but may be capitalised under
When an entity has an obligation to dismantle or remove an item,
full IFRS.
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.

Section 34: Specialised activities service concession arrangements
Section 34 Specialised Activities Service Concession IFRIC 12 Service Concession Arrangements
Arrangements
Scope
A service concession arrangement is an arrangement whereby a IFRIC 12 applies to public-to-private service concession Both frameworks have a similar scope.
government or other public sector body contracts with a private arrangements if:
operator to develop, operate and maintain the grantors a) The grantor controls or regulates what services the
infrastructure assets. operator must provide with the infrastructure, to whom it
must provide them and at what price
In service concession arrangements the grantor controls or
and
regulates what services the operator must provide using the
b) The grantor controls through ownership, beneficial
assets, to whom, and at what price and also controls any
entitlement or otherwise any significant residual interest in
significant residual interest in the assets at the end of the term of the infrastructure at the end of the term of the arrangement.
the arrangement.
Concession arrangements
The two categories of service concession arrangements are: Infrastructure within the scope of IFRIC 12 is not recognised The principle categories of service concession assets are the
The operator receives a financial asset an unconditional as property, plant and equipment of the operator. same under both frameworks.
contractual right to receive a specified or determinable The operator recognises a financial asset to the extent that it has
amount of cash from the government
an unconditional contractual right to receive cash or another
The operator receives an intangible asset a right to charge financial asset from or at the direction of the grantor.
for use of a public sector asset.
The operator recognises an intangible asset to the extent that it
receives a right (a licence) to charge users of the public service.
Financial asset model

The operator initially measures the financial asset at its fair The amount due from or at the direction of the grantor is The considerable differences exist between Sections 11 and 12
value. Thereafter, it follows Section 11 Basic Financial accounted for in accordance with IAS 39 Financial Instruments: and IAS 39. These are dealt with specifically under financial
Instruments and Section 12 Other Financial Instruments Issues Recognition and Measurement as a loan or receivable, an instruments.
in accounting for the financial asset. available-for-sale financial asset, or if so designated upon initial
recognition, a financial asset at fair value through profit or loss.
Intangible asset model

The operator shall initially measure the intangible asset at fair The consideration is recognised at fair value. No differences in measurement would be expected in the
value. Thereafter, it shall follow Section 18 Intangible Assets intangible asset model, as the requirements of section 18 for
other than Goodwill in accounting for the intangible asset, IAS 38 Intangible Assets applies to the measurement of any
such assets are similar to the requirements of IAS 38.
measuring it at cost less amortisation and impairment losses. intangible asset recognised and it is measured at cost less
amortisation and impairment losses.

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 IFRS
Section 23 Revenue IAS 18 Revenue

IAS 11 Construction Contracts
Section 30 Foreign Currency Translation IAS 21 The Effects of Changes in Foreign

Exchange Rates
Section 25 Borrowing Costs IAS 23 Borrowing Costs
Section 24 Government Grants 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
Scope
The section applies in accounting for revenue arising from the IAS 18 Revenue applies to accounting for revenue arising from The IFRS for SMEs combines rules on revenue recognition and
following: the sale of goods, the rendering of services and the use by others construction contracts as well as on customer loyalty
The sale of goods of entitys assets that yield interest, royalties and dividends. programmes and the construction of real estate in one section.
The rendering of services IAS 11 Construction Contracts applies in accounting for
Construction contracts in which the entity is the contractor construction contracts in the financial statements of contractors.
The use by others of entity assets yielding interest, royalties
or dividends.
Definition of revenue
Revenue is the gross inflow of economic benefits during the Revenue is the gross inflow of economic benefits during the There is no difference between IFRS for SMEs and IFRS.
period arising in the course of the ordinary activities of an entity period arising in the course of the ordinary activities of an entity
when those inflows result in increases in equity, other than when those inflows result in increases in equity, other than
increases relating to contributions from equity participants. increases relating to contributions from equity participants.
Definition of a construction contract

A construction contract is a contract specifically negotiated for A construction contract is a contract specifically negotiated for There is no difference between IFRS for SMEs and IFRS.
the construction of an asset or a combination of assets that are the construction of an asset or a combination of assets that are
closely interrelated or interdependent in terms of their design, closely interrelated or interdependent in terms of their design,
technology and function or their ultimate purpose or use. technology and function or their ultimate purpose or use.
Recognition
It must be probable that the economic benefits associated with It must be probable that the economic benefits associated with There is no difference between IFRS for SMEs and IFRS.
the transaction will flow to the entity and that the revenue and the transaction will flow to the entity and that the revenue and
costs can be measured reliably. Additional recognition criteria costs can be measured reliably. Additional recognition criteria to
apply to the different categories as presented below. the different categories as presented below.
Measurement
Revenue must be measured at the fair value of the consideration Revenue must be measured at the fair value of the consideration There is no difference between IFRS for SMEs and IFRS.
received or receivable. The fair value of the consideration received or receivable. The amount of revenue arising on a
received or receivable takes into account the amount of any trade transaction is usually determined by agreement between the
discounts, prompt settlement discounts and volume rebates entity and the buyer or user of the asset. It is measured at the
allowed by the entity. fair value of the consideration received or receivable taking into
account the amount of any trade discounts and volume rebates
allowed by the entity.
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 In addition to the general recognition criteria, an entity must There is no difference between IFRS for SMEs and IFRS.
recognise revenue from the sale of goods when: recognise revenue from the sale of goods when:
The entity has transferred to the buyer the significant risks The entity has transferred to the buyer the significant risks
and rewards of ownership of the goods and rewards of ownership of the goods
The entity retains neither continuing managerial involvement The entity retains neither continuing managerial involvement
to the degree usually associated with ownership nor effective to the degree usually associated with ownership nor effective
control over the goods sold control over the goods sold
The costs incurred or to be incurred in respect of the The costs incurred or to be incurred in respect of the
transaction can be measured reliably. transaction can be measured reliably.
Rendering of services
When the outcome of a transaction involving the rendering of When the outcome of a transaction involving the rendering of There is no difference between IFRS for SMEs and IFRS.
services can be estimated reliably, revenue must be recognised services can be estimated reliably, revenue must be recognised
by reference to the stage of completion of the transaction at the by reference to the stage of completion of the transaction at the
end of the reporting period. end of the reporting period.
If the services are performed by an indeterminate number of acts If the services are performed by an indeterminate number of acts
over a specified period of time, revenue may be recognised on a over a specified period of time, revenue may be recognised on a
straight-line basis. straight-line basis.
When the outcome of the transaction involving the rendering of When the outcome of the transaction involving the rendering of
services cannot be estimated reliably, an entity must recognise services cannot be estimated reliably, an entity must recognise
revenue only to the extent of the expenses recognised that are revenue only to the extent of the expenses recognised that are
recoverable. recoverable.
Interest, royalties and dividends

Interest recognised using the effective interest rate method. Interest recognised using the effective interest rate method. There is no difference between IFRS for SMEs and IFRS.
Royalties recognised on an accrual basis in accordance with Royalties recognised on an accrual basis in accordance with the
the substance of the relevant agreement. substance of the relevant agreement.
Dividends recognised when the shareholders right to receive Dividends recognised when the shareholders right to receive
payment is established. payment is established.

Construction contracts
When the outcome of a construction contract can be estimated When the outcome of a construction contract can be estimated There is no difference between IFRS for SMEs and IFRS.
reliably, contract revenue and contract costs associated with the reliably, contract revenue and contract costs associated with the However, IAS 11 Construction Contracts provides additional
construction contract must be recognised as revenue and construction contract must be recognised as revenue and detailed guidance on fixed price and cost-plus contracts.
expenses respectively by reference to the stage of completion of expenses respectively by reference to the stage of completion of
the contract activity at the end of the reporting period the contract activity at the end of the reporting period
(percentage of completion method). (percentage of completion method).
Reliable estimation of the outcome requires reliable estimates of Reliable estimation of the outcome requires reliable estimates of
the stage of completion, future costs and collectability of billings. contract revenue, the stage of completion, future costs and
collectability of billings.
Percentage of completion method

The stage of completion of a transaction or contract is The stage of completion of a contract may be determined in a There is no difference between IFRS for SMEs and IFRS.
determined using the method that measures most reliably variety of ways. The entity uses the method that measures
the work performed. Possible methods include: reliably the work performed. Depending on the nature of the
The proportion of costs incurred for work performed to date, contract, the methods may include:
but not including costs relating to future activity, such as The proportion of contract costs incurred for work
materials or prepayments performed to date compared to the estimated total
Surveys of work performed contract costs
Completion of physical proportion of the service transaction Survey of work performed
or contract work Completion of a physical proportion of contract work.
Any costs for which recovery is not probable are recognised as an An expected loss on the construction contract must be
expense immediately. recognised as an expense immediately.
When the outcome of a construction contract cannot be When the outcome of a construction contract cannot be
estimated reliably: estimated reliably:
Revenue is recognised only to the extent of contract costs Revenue is recognised only to the extent of contract costs
incurred that it is probable will be recoverable incurred that it is probable will be recoverable
and and
Contract costs must be recognised as an expense in the period Contract costs must be recognised as an expense in the period
in which they are incurred. in which they are incurred.

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

Agreements for the construction of real estate
An entity that undertakes the construction of real estate and that Agreements for the construction of real estate are dealt with in There is no difference between IFRS for SMEs and IFRIC 15.
enters into an agreement with one or more buyers accounts for IFRIC 15 Agreements for the Construction of Real Estate. An
the agreement as a sale of services using the percentage-of- entity that undertakes the construction of real estate and enters
completion method if: into an agreement with one or more buyers accounts for the
The buyer is able to specify the major structural elements agreement as a sale of services using the percentage-of-
of the design of the real estate before construction begins completion method if:
and/or specify major structural changes once construction The buyer is able to specify the major structural elements
is in progress of the design of the real estate before construction begins
or and/or specify major structural changes once construction
The buyer acquires and supplies construction materials and is in progress
the entity provides only construction services. or
If the entity is required to provide services together with The buyer acquires and supplies construction materials and
construction materials in order to perform its contractual the entity provides only construction services.
obligation to deliver real estate to the buyer, the agreement If the entity is required to provide services together with
must be accounted for as the sale of goods. In this case, the construction materials in order to perform its contractual
buyer does not obtain control or the significant risks and obligation to deliver real estate to the buyer, the agreement
rewards of ownership of the work in progress in its current must be accounted for as the sale of goods. In this case, the buyer
state as construction progresses. Rather, the transaction occurs does not obtain control or the significant risks and rewards of
only on delivery of the completed real estate to the buyer. 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.
Customer loyalty programmes

If an entity grants, as part of a sales transaction, its customer a Customer loyalty programmes are dealt with in IFRIC 13 There is no difference between IFRS for SMEs and IFRIC 13.
loyalty award that the customer may redeem in the future for Customer Loyalty Programmes. If an entity grants, as part of a
free or discounted goods or services, the entity must account for sales transaction, its customer a loyalty award that the customer
the award credits as separately identifiable component of the may redeem in the future for free or discounted goods or
initial sales transaction. The entity must allocate the fair value of services, the entity must account for the award credits as
the consideration received or receivable in respect of the initial separately identifiable component of the initial sales transaction.
sale between the award credits and the other components of the The entity must allocate the fair value of the consideration
sale. The consideration allocated to the award credits must be received or receivable in respect of the initial sale between the
measured by reference to their fair value, i.e., the amount for award credits and the other components of the sale. The
which the award credits could be sold separately. 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.

Section 30: Foreign currency translation
Section 30 Foreign Currency Translation IAS 21 The Effect of Changes in Foreign
Exchange Rates
Definitions
Functional currency the currency of the primary economic Functional currency the currency of the primary economic There is no difference between IFRS for SMEs and IFRS.
environment in which the entity operates. environment in which the entity operates.
Presentation currency the currency in which the financial Presentation currency the currency in which the financial
statements are presented. statements are presented.
Functional currency
All components of the financial statements are measured in the All components of the financial statements are measured in the There is no difference between IFRS for SMEs and IFRS.
functional currency. All transactions entered into in currencies functional currency. All transactions entered into in currencies
other than the functional currency are treated as transactions in other than the functional currency are treated as transactions in
a foreign currency. a foreign currency.
Foreign currency transactions

A foreign currency transaction must be recorded on initial A foreign currency transaction must be recorded, on initial There is no difference between IFRS for SMEs and IFRS.
recognition in the functional currency using the spot exchange recognition in the functional currency, by applying to the foreign
rate at the date of transaction. For practical reasons, average currency amount the spot exchange rate between the functional
rates may be used if they do not fluctuate significantly. currency and the foreign currency at the date of the transition.
For practical reasons, a rate that approximates the actual rate at
At the end of each reporting period:
the date of the transaction might be used if it does not fluctuate
Foreign currency monetary balances must be translated using significantly.
the exchange rate at the closing rate
Non-monetary balances that are measured in terms of At the end of each reporting period:
historical cost in a foreign currency must be translated using Foreign currency monetary items must be translated using the
the exchange rate at the date of the transaction closing rate
Non-monetary items that are measured at fair value in a Non-monetary items that are measured in terms of historical
foreign currency must be translated using the exchange rates cost in a foreign currency must be translated using the
at the date when the fair value was determined. 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.

Section 30: Foreign currency translation continued
Section 30 Foreign Currency Translation IAS 21 The Effect of Changes in Foreign
Exchange Rates
Recognition of exchange differences
Exchange differences on monetary items are recognised in profit Exchange differences arising on the settlement of monetary There is no difference between IFRS and IFRS for SMEs in relation
or loss for the period except for those differences arising on a items or on translating monetary items at rates different from to the recognition of exchange differences. However, under IAS
monetary investment in a foreign entity (subject to strict criteria those at which they were translated on initial recognition during 21, exchange differences on a monetary item that forms part of
of what qualifies as net investment). In the consolidated financial the period or in previous financial statements are recognised in a net investment in a foreign operation are reclassified from
statements, such exchange differences are recognised in other profit or loss in the period in which they arise. equity to profit or loss on disposal of the foreign operation.
comprehensive income and reported as a component of equity. Therefore, an SME will recognise a different gain or loss on
Exchange differences on a monetary item that forms part of a
disposal of a foreign operation.
Recycling through profit or loss of any cumulative exchange net investment in a foreign operation are reclassified from equity
differences that were previously recognised in equity on disposal to profit or loss on disposal of the foreign operation.
of a foreign operation is not permitted.
Change in functional currency

A change in functional currency is justified only if there are A change in functional currency is justified only if there are There is no difference between IFRS for SMEs and IFRS.
changes in underlying transactions, events and conditions that changes in underlying transactions, events and conditions that
are relevant to the entity. are relevant to the entity.
The effect of a change in functional currency must be accounted The effect of a change in functional currency must be accounted
for prospectively from the date of the change. for prospectively from the date of the change.
Presentation currency
An entity may choose to present its financial statements in any An entity may choose to present its financial statements in any There is no difference between IFRS for SMEs and IFRS.
currency. If the presentation currency differs from the functional currency. If the presentation currency differs from the functional
currency, an entity translates its items of income and expense currency, an entity translates its items of income and expense
and financial position into the presentation currency. and financial position into the presentation currency.

Section 25: Borrowing costs
Section 25 Borrowing Costs IAS 23 Borrowing Costs
Scope
Borrowing costs are interest and other costs that an entity incurs Borrowing costs are interest and other costs that an entity incurs There is no difference between IFRS for SMEs and IFRS.
in connection with the borrowing of funds and include: in connection with the borrowing of funds and may include:
IFRS for SMEs does not include a similar scope exemption
Interest expense calculated using the effective interest Interest expense calculated using the effective interest because of the required accounting treatment explained below.
method method
Finance charges in respect of finance leases Finance charges in respect of finance leases
Exchange differences arising from foreign currency Exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an borrowings to the extent that they are regarded as an
adjustment to interest costs. 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 Borrowing costs that are directly attributable to the acquisition, Expensing borrowing costs is a major difference between IFRS for
which they are incurred. construction or production of a qualifying asset as part of the SMEs and full IFRS. For many entities this will be simpler to apply
cost of that asset are capitalised. All other borrowing costs as SMEs will not need to calculate the borrowing costs to be
are expensed. 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.

Section 24: Government grants
Scope
This section applies to all government grants. This standard applies to accounting for government grants and There are no differences between IFRS for SMEs and full IFRS in
the disclosure of government assistance. terms of the definition of government grants. The main
Government grants are assistance by the government in the form
difference in scope is that IFRS for SMEs applies to government
of transfers of resources to an entity in return for past or future Government grants are assistance by government in the form of
grants related to agriculture, which are dealt with in a separate
compliance with certain conditions relating to the operation transfers of resources to an entity in return for past or future
standard under full IFRS.
activities of the entity. compliance with certain conditions relating to the operation
activities of the entity. Generally the disclosure requirements of IFRS for SMEs are less
Government grants exclude those forms of government
than under full IFRS and therefore disclosure of government
assistance that cannot reasonably have a value placed upon them IAS 20 does not apply to:
assistance is not dealt with in IFRS for SMEs.
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

Recognition and measurement
An entity shall recognise government grants according to the Government grants, including non-monetary grants, shall not be The IFRS for SMEs approach to account for government grants
nature of the grant as follows: recognised until there is a reasonable assurance that: simplifies the rules of IAS 20. The most significant difference is
A grant that does not impose specified future performance The entity will comply with the conditions attached to that under IFRS for SMEs, grants of non-monetary assets must
conditions on the recipient is recognised in income when the the grants be measured at the fair value of the asset receivable.
grant proceeds are receivable and
A grant that is imposes specified future performance The grants will be received.
conditions on the recipient is recognised in income only when Government grants are recognised in profit or loss on a
the performance conditions are met
systematic basis over the periods in which the entity recognises
Grants received before the income recognition criteria are
as expenses the related costs for which the grants are intended
satisfied are recognised as a liability and released to income
when all attached conditions have been complied with. to compensate.
Grants are measured at the fair value of the asset received or A government grant that becomes receivable as compensation
receivable. 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.

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 6
2 Concepts and pervasive principles 7
3 Financial statement presentation 9
4 Statement of financial position 12
5 Statement of comprehensive income and income statement 13
6 Statement of changes in equity and statement of income and retained earnings 14
7 Statement of cash flows 15
8 Notes to the financial statements 17
9 Consolidated and separate financial statements 36
10 Accounting policies, estimates and errors 18
11 Basic financial instruments 79
12 Other financial instruments issues 79
13 Inventories 67
14 Investments in associates 47
15 Investments in joint ventures 42
16 Investment property 57
17 Property, plant and equipment 54
18 Intangible assets other than goodwill 59
118 Contents by section

19 Business combinations and goodwill 28
20 Leases 61
21 Provisions and contingencies 92
22 Liabilities and equity 74
23 Revenue 104
24 Government grants 112
25 Borrowing costs 111
26 Share-based payment 88
27 Impairment of assets 64
28 Employee benefits 94
29 Income tax 69
30 Foreign currency translation 109
31 Hyperinflation 24
32 Events after the end of the reporting period 20
33 Related party disclosures 21
34 Specialised activities 98
35 Transition to the IFRS for SMEs 116
Contents by section 119

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IFRS for small and

Preparation and presentation of

IFRS for SMEs IFRS

Preparation and presentation of financial statements CHAPTER ONE 5

6 CHAPTER ONE Preparation and presentation of financial statements

Elements of financial statements

Preparation and presentation of financial statements CHAPTER ONE 7

8 CHAPTER ONE Preparation and presentation of financial statements

Preparation and presentation of financial statements CHAPTER ONE 9

Materiality and aggregation

10 CHAPTER ONE Preparation and presentation of financial statements

Identification of financial statements

Presentation of additional information

Preparation and presentation of financial statements CHAPTER ONE 11

Current and non-current distinction

Additional information to be disclosed

12 CHAPTER ONE Preparation and presentation of financial statements

Other comprehensive income

Preparation and presentation of financial statements CHAPTER ONE 13

Statement of income and retained earnings

14 CHAPTER ONE Preparation and presentation of financial statements

Statement of cash flows

Cash flows from operating activities

Cash flows from investing and financing activities

Preparation and presentation of financial statements CHAPTER ONE 15

Components of cash and cash equivalent

16 CHAPTER ONE Preparation and presentation of financial statements

Preparation and presentation of financial statements CHAPTER ONE 17

Changes in accounting policy

18 CHAPTER ONE Preparation and presentation of financial statements

Correction of prior period errors

Preparation and presentation of financial statements CHAPTER ONE 19

Recognition and measurement

20 CHAPTER ONE Preparation and presentation of financial statements

Preparation and presentation of financial statements CHAPTER ONE 21

Key management personnel compensation

22 CHAPTER ONE Preparation and presentation of financial statements

Preparation and presentation of financial statements CHAPTER ONE 23

Restatement of financial statements

Gain or loss on net monetary position

24 CHAPTER ONE Preparation and presentation of financial statements

Preparation and presentation of financial statements CHAPTER ONE 25

Business combinations and

IFRS for SMEs IFRS

Business combinations and group financial statements CHAPTER TWO 27

28 CHAPTER TWO Business combinations and group financial statements

Identifying the acquirer

Cost of a business combination

Business combinations and group financial statements CHAPTER TWO 29

Allocating the cost of a business combination

30 CHAPTER TWO Business combinations and group financial statements

Business combinations and group financial statements CHAPTER TWO 31

32 CHAPTER TWO Business combinations and group financial statements

Business combinations and group financial statements CHAPTER TWO 33

34 CHAPTER TWO Business combinations and group financial statements

Business combinations and group financial statements CHAPTER TWO 35

36 CHAPTER TWO Business combinations and group financial statements

Business combinations and group financial statements CHAPTER TWO 37

38 CHAPTER TWO Business combinations and group financial statements

Business combinations and group financial statements CHAPTER TWO 39

40 CHAPTER TWO Business combinations and group financial statements

Separate financial statements

Business combinations and group financial statements CHAPTER TWO 41