Applying IFRS for SMEs

500 Pages·2011·4.461 MB·English

by  Bruce Mackenzie, Allan Lombard, Danie Coetsee, Tapiwa Njikizana, Raymond Chamboko

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WILEY
Applying
I F R S
for
SMEs
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WILEY
Applying
I F R S
for
SMEs
Bruce Mackenzie
Danie Coetsee
Tapiwa Njikizana
Raymond Chamboko
Edwin Selbst
Allan Lombard
JOHNWILEY&SONS,INC.
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Copyright(cid:1)C 2011byJohnWiley&Sons.Allrightsreserved.
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CONTENTS
Foreword vii
Preface xi
ListofAbbreviations xiii
Chapter1 Scopeofthe IFRSforSMEs 1
Chapter2 ConceptsandPervasivePrinciples 7
Chapter3 FinancialStatementPresentation 21
Chapter4 StatementofCashFlows 41
Chapter5 ConsolidatedandSeparateFinancialStatements 51
Chapter6 BusinessCombinations andGoodwill 69
Chapter7 AccountingPolicies,Estimates,andErrors 85
95
Chapter8 Inventories
Chapter9 Investments inAssociates 107
Chapter10 InvestmentsinJointVentures 121
Chapter11 InvestmentProperty 127
Chapter12 Property,Plant,andEquipment 141
Chapter13 Intangible AssetsOtherthanGoodwill 167
Chapter14 ImpairmentofAssets 187
v
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vi Contents
Chapter15 Provisions andContingencies 205
223
Chapter16 LiabilitiesandEquity
Chapter17 FinancialInstruments 243
Chapter18 Leases 293
Chapter19 Share-BasedPayment 319
Chapter20 Employee Benefit 337
Chapter21 IncomeTax 359
Chapter22 Revenue 379
Chapter23 GovernmentGrants 401
Chapter24 BorrowingCosts 407
409
Chapter25 ForeignCurrencyTranslation
Chapter26 Hyperinflatio 423
Chapter27 EventsaftertheEndoftheReporting Period 431
Chapter28 RelatedPartyDisclosures 437
Chapter29 SpecializedActivities 445
Chapter30 Transitiontothe IFRSforSMEs 459
Index 467
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FOREWORD
Smallandmedium-sizedentities(SMEs)pervadethebusinessworld.Invirtually
every jurisdiction, from the largest economies down to the smallest, over 99% of
companieshasfewerthan50employees.
Inmostjurisdictions,thelawrequiresallormanyofthesecompaniestoprepare
financia statements and, often, to have them audited. In the European Union alone,
for example, over fve million of the 21 million business entities have a statutory
reportingobligation.
WHYANIFRSFORSMEsISNEEDED
Which accounting standards do SMEs follow in preparing their financia state-
ments? The global trend, in the past decade, has been for jurisdictions to adopt In-
ternational Financial Reporting Standards (IFRS) directly, or to merge their local
standards with IFRS. For listed companies today, over 110 jurisdictions mandate
IFRS. IFRS is designed to meet the needs of public capital markets, and conse-
quently address complex transactions, provide extensive detailed guidance, include
a range of fair value and present value measurements, and require thousands of dis-
closures, many intended to meet the needs of long-term equity investors. The 2009
boundvolumeofIFRShasgrownto2,855pages.
In many jurisdictions, this complexity has been pushed down to SMEs due to
convergence of local accounting standards and IFRS, or direct adoption of IFRS.
Smallcompaniesfrequentlysaytheyfin fullIFRSburdensome–theresultingfinan
cialstatementsareoff-targetintermsoftheusersoftheirfinancia statementswhoare
moreinterestedininformationaboutshort-termcashfl ws,liquidity,andsolvency.
South Africa is a perfect case in point. In October 2007, following a period of
consultation, the Accounting Practices Board (APB) of the South African Institute
of Chartered Accountants (SAICA) adopted the International Accounting Standards
Board’s (IASB), then-proposed IFRS for SMEs as a fina (though intentionally in-
terim) Statement of Generally Accepted Accounting Practice (GAAP) for SMEs.
Why? By 2007, South African GAAP had become fully converged with IFRS, and
many SMEs were struggling to use those standards. They found them burdensome
and too complex for their needs. A change in South African company law earlier in
2007 had made provisions for differential reporting for limited interest companies
(SMEs),andSAICAactedonit.
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viii Foreword
South Africa’s experience using the IASB’s proposed standard was successful.
Andso,inAugust2009,theAPBactedagain,makingSouthAfricathefirs country
intheworldtoadoptthefina IFRSforSMEsasitsnationalSMEstandard.
A reality in some countries is that the quality of implementation of full IFRS
(or converged local equivalents) is sub-standard. And, where jurisdictions have de-
veloped their own SME standards, these often have serious limitations from a user
perspective, are not readily understood by lenders and other capital providers (par-
ticularlyacrossborders),havelimitedsupport(suchastextbooksandsoftware),and
sometimesareweaklyenforced.WorldBankstudiesof83developingandemerging
jurisdictions found that most have significan shortcomings in financia reporting by
SMEs–shortcomingsthatimpedeeconomicgrowth.
Ifcapitalandcreditprovidersdonotunderstandorhaveconfidenc inthefinan
cialinformationtheyreceive,aSME’saccesstocapitalsuffers,aswellasitscost.
HOWDOESTHEIFRSFORSMEsCOMPARETOFULLIFRS?
TheIFRSforSMEs,issuedbytheIASBinJuly2009,respondstotheseconcerns.
It is self-contained, 230 pages long (less than 10% of full IFRS), tailored for the
needs and capabilities of smaller businesses, and is understandable across borders.
Compared with full IFRS (and many national GAAPs), the IFRS for SMEs is less
complexinanumberofways:
(cid:1)
Topics not relevant for SMEs are omitted. For example, earnings per share,
interimfinancia reporting,andsegmentreporting.
(cid:1)
WherefullIFRSallowsaccountingpolicychoices,theIFRSforSMEsallows
onlytheeasieroption.Forexample,nooptiontorevalueproperty,equipment,
or intangibles; a cost-depreciation model for investment property unless fair
valueisreadilyavailablewithoutunduecostoreffort;no‘corridorapproach’
foractuarialgainsandlosses.
(cid:1)
Manyprinciplesforrecognizingandmeasuringassets,liabilities,incomeand
expensesinfullIFRSaresimplified Forexample,amortizegoodwill;expense
allborrowingandR&Dcosts;costmodelforassociatesandjointly-controlled
entities;noavailable-for-saleorheld-to-maturityclassesoffinancia assets.
(cid:1)
Significantl fewerdisclosuresarerequired(roughly300vs3,000).
(cid:1)
AndtheStandardhasbeenwritteninclear,easilytranslatablelanguage.
To further reduce the burden for SMEs, revisions to the IFRS will be limited
to once every three years. You can download the Standard at http://go.iasb.org/
IFRSforSMEs.
The Standard is available for any jurisdiction to adopt, whether or not it has
adopted full IFRS. Each jurisdiction must determine which entities should use the
Standard. IASB’s only restriction is that listed companies and financia institutions
shouldnotuseit.Itwaseffectiveimmediatelyonissue.