Guidelines PFRS For SMEs

AB 2019-07: July 29, 2019
Assurance Bulletin
Financial Reporting Framework
Certified Public Accountants

Punongbayan & Araullo is a member firm of Grant Thornton International Ltd
Internal use only
Philippine Financial Reporting Standard for Small Entities

(PFRS for SEs)
Introduction
This Assurance Bulletin is issued to impart the key differences between the three
different financial reporting frameworks according to Part I, Section 2 of SRC Rule
68, as amended, namely: the full PFRS, PFRS for Medium-sized Entities (MEs),
and PFRS for SEs.
In response to the government’s efforts to transform the country’s economy to

make it more inclusive, and to encourage micro entrepreneurs to comply with
the reportorial requirements using a simplified financial reporting, the
Association of Certified Public Accountants in Public Practice (ACPAPP) drafted
PFRS for SEs which is effective for annual periods beginning on or after January
1, 2019.
Engagement partners and managers need to evaluate applicability of PFRS for

SEs to their respective assignment engagements. Engagement teams should
communicate within August 2019 any possible change in the financial
reporting framework in FY 2019 to the management and/or those charged with
governance of their audit client.
Scope of the Financial Reporting Frameworks

With the implementation of PFRS for SEs, the Philippine Securities and Exchange
Commission (SEC) redefined the criteria on when to use the three financial
reporting framework available to its covered entities:
Full PFRS PFRS for SMEs PFRS for SEs

Covered Large entities Medium-sized Small and/or
entities Listed entities and/or non-publicly non-publicly
Publicly-accountable accountable accountable
entities (including entities entities
financial institutions
and holders of
secondary licenses)
Threshold* Assets (> P350M) Assets (P100M- Assets (P3M-

Liabs (> P250M) P350M) P100M)
Liabs (P100M- Liabs (P3M-P100M)
P250M)
* Effective January 1, 2019, PFRS for SEs will be adopted by those entities that
qualify the quantitative thresholds, and medium-sized entities will now have a
new threshold. For further details of the criteria, please refer to attached SEC
Memo Circular No. 5-2018, Adoption of Philippine Financial Reporting Standards
for Small Entities.
Key Differences
As the PFRS for SEs aims to simplify a number of requirements under Full PFRS
and PFRS for SMEs, there are key differences between the three financial
reporting frameworks.
Some of the key simplifications introduced by PFRS for SEs are as follows:
 Leases – Under PFRS for SEs, there is no distinction between operating and
finance leases. All receipts and payments on lease arrangements will be
recognized as income and expense as earned and incurred.
 Employment Benefits – Under PFRS for SEs, the measurement of a post-

employment benefit plan shall use the accrual approach in calculating
benefit obligations in accordance with Republic Act (RA) 7641, The
Philippine Retirement Pay Law, or company policy (if superior than RA
7641). Accrual approach is applied by calculating the expected liability as
of reporting date using the current salary of the entitled employees and
the employees' years of service, without consideration of future changes
in salary rates and service periods.
 Inventories – Under PFRS for SEs, inventories are to be subsequently

valued at the lower of cost and market value (i.e., the probable selling
price to willing buyers as of reporting date) unlike Full PFRS and PFRS for
MEs which require inventories to be subsequently valued at lower of cost
and net realizable value.
 Share-based Payment Transactions – Under PFRS for SEs, an entity shall

measure the goods or services received, and the corresponding increase in
equity, with reference to the net asset value of the equity instruments
granted. Net asset value is derived by dividing the total assets of the
entity less any liabilities, by the number of shares outstanding at
measurement date.
 Comprehensive Income – PFRS for SEs does not have the concept of other
comprehensive income and does not require entities to present a
statement of comprehensive income. Any cumulative effect of changes in
accounting policies and correction of prior period errors shall be
recognized as an adjustment to the opening balance of retained earnings
of the current period.
 Deferred Taxes – SEs are given a policy choice of not recognizing deferred
taxes in the financial statements. An entity can make an accounting
policy choice to account for income taxes using either the taxes payable
method where in current tax liability is recognized for tax payable on
taxable profit for the current and past periods, or deferred income taxes
method which recognizes current and future tax consequences, hence, will
comprise current and deferred tax.
For a more detailed comparison of the three accounting frameworks, please refer
to Full PFRS vs. SMEs vs. SEs presentation file uploaded in KHub.
Questions about this communication should be referred to the members of the TSQC – Accounting
Principles and Regulations Group.
© 2019 Punongbayan &. Araullo. All rights reserved.

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Guidelines PFRS For SMEs

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AB 2019-07: July 29, 2019

Certified Public Accountants

Philippine Financial Reporting Standard for Small Entities

In response to the government’s efforts to transform the country’s economy to

Engagement partners and managers need to evaluate applicability of PFRS for

Scope of the Financial Reporting Frameworks

Full PFRS PFRS for SMEs PFRS for SEs

Threshold* Assets (> P350M) Assets (P100M- Assets (P3M-

 Employment Benefits – Under PFRS for SEs, the measurement of a post-

 Inventories – Under PFRS for SEs, inventories are to be subsequently

 Share-based Payment Transactions – Under PFRS for SEs, an entity shall

© 2019 Punongbayan &. Araullo. All rights reserved.

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