Introduction to Accounting for

SMEs
As defined by the International Accounting
Standards Board, Small and Medium-sized
entities are:
Entities that do not have public accountability
Entities that publish general purpose financial
statements for external users.
An entity as public accountability when:
Its debt or equity instruments are traded in a
public market; or in the process of issuing it.
It holds assets in fiduciary capacity for a broad
group of outsiders as one of its primary businesses.
Basis: SEC En Banc Resolution, Aug 13. 2009
1. Total Assets between P3,000,000 and P350,000,000;
total liabilities for the same amount.
2. Entities that are not required to file financial statements
under SRC Rule no. 68 I
3. Those not in the process of issuing its financial
statements for the purpose of issuing instruments
in the public market.
4. That is not a holder of a secondary license issued by a
regulatory agency, such as a bank (all types of banks),
an investment house, a finance company, an insurance
company, a securities broker/dealer, a mutual fund and
a pre-need company
5. Non-public utility companies
It is a subsidiary of a parent company reporting
under the full PFRS.
It is a subsidiary of a foreign parent company that will be
moving towards IFRS pursuant to the foreign countrys
published convergence plan.
It is a subsidiary of a foreign parent company that has
been applying the standards for a non-publicly
accountable entity for local reporting purposes, and is
considering moving to full PFRS instead of the PFRS for
SMEs to align its policies with the expected move to full
IFRS by its foreign parent company pursuant to its
countrys published convergence plan.

It has short-term projections that show that it
will breach the quantitative thresholds set in the
criteria for an SME, and the breach is expected
to be significant and continuing due to its long-
term effect on the companys asset or liability
size.
It is part of a group, either as a significant joint
venture or an associate, that is reporting under
the full PFRS.
It is a branch office of a foreign company
reporting under the full IFRS.

It has concrete plans to conduct an initial
public offering within the next two years.
It has a subsidiary that is mandated to report
under the full PFRS.
It has been preparing financial statements using
full PFRS and has decided to liquidated its
assets.

Is the company required to adopt PFRS for
SMEs or full PFRS?
Assuming that the company is acquired by Brain
Transportation Company, which is a listed
company, what accounting standard shall it
adopt?
Amazing Race is also planning to list its
securities with the PSE. What accounting
standards will it apply?
IFRS
Under the full PFRS, there
are four categories of
financial instruments:
a. financial asset or financial
liability at fair value through
profit or loss
b. held-to-maturity
investments (carried at
amortized cost)
c. loans and receivables
(carried at amortized cost)
d. available-for-sale financial
assets (carried at fair value)

IFRS for SME
Under PFRS for SMEs,
basic financial
instruments are
categorized as either
measured at:
a. amortized cost or cost
less impairment
b. fair value with changes
in fair value recognized in
profit or loss
IFRS
Equity Method
IFRS FOR SME
Either at cost, equity or
fair value method
IFRS
Option to measure asset
at:
(a) cost-depreciation-
impairment model
(b) fair value model

IFRS FOR SME
Must be accounted for at
fair value if such a value
is available without
undue cost or effort. Cost
model should be used
only when fair value is
not available.
Measurement at cost or
fair value is driven by
circumstances rather
than by choice.

IFRS
Option to measure asset
at: (a) the cost model; or
(b) revaluation model

IFRS for SME
Requires use of the cost-
depreciation-impairment
model
No revaluation option

IFRS
Development costs are
capitalized where the six
specific criteria are met.
Option to measure asset at:
(a) the cost model
(b) revaluation model
Intangible asset with infinite
life is not amortized but
impairment testing is
required annually, and
whenever indicator of
impairment exists.

IFRS for SME
All research and
development costs, are
expensed.
Requires subsequent
measurement at cost less
accumulated amortization
and impairment losses
No revaluation option for
capitalized intangible assets
All intangible assets are
considered to have a finite
life
If there is no reliable
estimate of useful life,
presumed life is ten years.

IFRS
Borrowing costs directly
attributable to acquisition,
construction or
production of a qualifying
asset are capitalized.
Other borrowing costs
are expensed when
incurred.

IFRS for SME
All borrowing costs are
expensed.