 Does include true and fair override but

PFRS for SMEs this should be extremely rare

 PFRS for SMEs presumes the reporting
Section 1 – Small and Medium-sized entity is a going concern
Entities  SMEs shall present a complete set of
 The standard does not contained a limit financial statements at least annually
on the size of an entity that may use the  At least one year comparative prior
PFRS for SMEs provided that it does not period financial statements and note data
have public accountability (take note  Presentation and classification of items
that in the Philippines, the SEC prescribes should be consistent from one period to
PFRS for SMEs for certain Corporations) the next
 Nor is there a restriction on its use by a
public utility, not-for-profit entity, or
public sector entity (take note that a
public utility entity is not allowed to use
the PFRS for SMEs in the Philippines)  Must justify and disclose any change in
 A subsidiary whose parent or group uses presentation or classification of items in
full PFRSs may use the PFRS for SMEs if financial statements
the subsidiary itself does not have public  Materiality: an omission or misstatement is
accountability material if it could influence economic.
 The standard does not require any  Complete set of financial statements:
special approval by the owners of an SME o Statement of financial position
for it to be eligible to use the PFRS for o Either a single statement of
SME comprehensive income, or two
 Listed companies, no matter how small, statements: an income statement and a
may not use the PFRS for SMEs statement of comprehensive income
o Statement of changes in equity
Section 2 – Concepts and Pervasive o Statement of cash flows
Principles o Notes
 Objective of SMEs’ Financial statements:  If the only changes to equity arise from profit
to provide information about Financial or loss, payment of dividends, correction of
position, performance, cash flows errors, and changes in accounting policy, an
 Also shows results of stewardship of entity may present a single (combine)
management over resources statement of the separate statements of
 Qualitative characteristics comprehensive income and of changes in
(understandability, relevance, materiality, equity (see Section 6)
reliability, substance over form,  An entity may present only an income
prudence, completeness, comparability, statement (no statement of comprehensive
timeliness, balance between benefit and income) if it has no items of other
cost) comprehensive income (OCI)
 Basic recognition concept- an item that  The only OCI items under the PFRS for SMEs
meets the definition of an Asset, Liability, are:
Income, or Expense is recognized in the o Some foreign exchange gains and losses
financial statements if: relating to a net investment in a foreign
o It is probable that future benefits operation (see Section 30)
associated with the item will flow to o Some changes in fair values of hedging
or from the entity, and instruments – in a hedge of variable
o The item has cost or value that can interest rate risk of a recognized financial
be measured reliably instrument, foreign exchange risk or
 Basic measurement concepts commodity price risk in a firm commitment
o Historical cost and fair value are or highly probable forecast transaction, or
described a net investment in a foreign operation
o Basic financial assets and liabilities (see Section 12)
are generally measured at amortized o Some actuarial gains and losses (see
cost Section 28)
o Other financial assets and liabilities
are generally measured at fair value Section 4 – Statement of Financial
through profit or loss Position
o Non-financial assets are generally  May still be include ‘Balance Sheet’
measure using a cost-based measure  Current/Non-Current split is not required if the
o Non-financial liabilities are generally entity concludes that a liquidity approach
measured at settlement amount produces more relevant information
 Concepts of profit or loss and total  Some minimum line items required. These
comprehensive income include:
 Offsetting of assets and liabilities or of o Cash and equivalents
income and expenses is prohibited unless o Receivables
expressly required or permitted o Financial assets
o Inventories
Section 3 – Financial Statement o Property, Plant, and Equipment
Presentation o Investment property at fair Value
 Fair presentation: presumed to result of o Intangible Assets
the PFRS for SMEs is followed
o Biological Assets at cost
 State compliance with PFRS for SMEs only
o Biological Assets at fair Value
if the financial statements comply in full
o Investment in Associates
o Investment in joint Venture
 o Payables -bottom line is profit or loss (as
o Financial Liabilities above)
o Current tax Assets and Liabilities o Statement of Comprehensive
o Deferred tax assets and liabilities income:
o Provisions -Begins with profit or loss
o Non-controlling Interest -Shows each item of other
o Equity of owners of parent comprehensive income
 And some required items may be presented in -Bottom line is Total
the statement or in the notes Comprehensive income
o Categories of Property, plant and
Section 6 – statement of Changes in
equipment
Equity and Statement of
o Info about assets with binding sale
Comprehensive Income and Retained
agreements
Earnings
o Categories of receivable
 Shows all changes to equity including
o Categories of Inventories
o Total comprehensive income
o Categories of payables
o Owners’ investment
o Employee benefit obligations
o Dividends
o Classes of equity, including OCI and
o Owners’ withdrawal of capita
reserves
o Treasury share transactions
o Details about share capital
 Can omit the statement of changes in
 Sequencing, format, and titles are not
equity if the entity has no owner
mandated
investments or withdrawals other than
dividends and elects to present a
combined statement of comprehensive
income and retained earnings

Section 7 – Statement of Cash Flows

Section 5- Statement of Comprehensive
 Presents information about an entity’s
Income and Income Statement
changes in cash and cash equivalents for
 One-statement or two-statement
a period
approach – either a single statement of
comprehensive income, or two  Cash flows are classified as operating,
statement: an income statement and a investing, and financing cash flows
statement of comprehensive income  Option to use the indirect method or the
direct method to present operating cash
 Must segregate discontinued operations
flows
 Must present ‘profit or loss’ subtotal if the
entity has any items of other  Separate disclosure is required of some
comprehensive income non-cash investing and financing
transactions (for example, acquisition of
 Bottom line (‘profit or loss’ in the income
assets by issue of debt)
statement and ‘total comprehensive
 Reconciliation of components of cash
income’ in the statement of
comprehensive income) is before
allocating those amounts to non-
controlling interest and owners of the
parent
Section 8 – Notes to the Financial
 No item may be labelled ‘extraordinary’
Statements
o But unusual items can be separately
 Notes are normally in this sequence:
presented
o Basis of preparation (ie PFRS for SMEs)
o Expenses may be presented by
o Summary of significant accounting policies,
nature (depreciation, purchases of
materials, transport costs, employee including
benefits, etc.) or by function (cost of -information about judgments
sales, distribution costs, -information about key sources of
administrative costs, etc.) either on estimation uncertainty
face of the statement of o Supporting information for items in financial
comprehensive income ( or income statements
statement) or in the notes o Other disclosures
 Single statement of comprehensive  Comparative prior period amounts are required
income: by Section 3 (unless another section allows
o Revenue omission of prior period amounts)
o Expenses, showing separately:
Section 9 – Consolidated and Separate
- Finance costs
Financial Statements
- Profit or loss from associates
 Consolidated financial statement are required
and jointly controlled entities
when a parent company controls another
- Tax expense
entity (a subsidiary).
- Profit or loss (may omit if no
 Must consolidate all controlled special-purpose
OCI)
entities(SPEs)
- Items of other comprehensive
 Consolidation procedures
income
o Eliminate intracompany transactions and
- Total comprehensive income
balances
(may label profit or loss if no
o Uniform reporting date unless
OCI)
impracticable
 Separate statements of income and
o Uniform accounting policies
comprehensive income:
o Income statement:
 o Non-controlling interest is presented as o Investment in nonconvertible and non-
part of equity puttable ordinary and preference share
o Losses are allocated to a subsidiary even if o Most commitments to receive loan
non-controlling interest goes negative  Initial measurement:
Guidance on separate financial statements (but o Basic financial assets and financial
they are not required). liabilities are initially measure at the
o In a parent’s separate financial transaction price (including transaction
statements, it may account for costs except in the initial
subsidiaries, associates, and joint ventures measurement of financial assets and
that are not held for sale at cost or fair liabilities that are measured at fair
value through profit or loss. value through profit or loss) unless the
Guidance on combined financial statements arrangements constitutes, in effect, a
(but they are not required). financing transaction. A financing
If investor loses control but continues to hold transaction may be indicated in
some investment: relation to the sale of goods or
o If the subsidiary becomes associate, services, for example, if payment is
follow section 14 deferred beyond normal business
o If the subsidiary becomes a jointly terms or is financed at a rate of
controlled, follow section 15 interest that is not a market rate. If the
o If investment does not qualify as an arrangement constitute a financing
associate or jointly controlled entity, treat transaction, measure the financial
it as financial asset under section 11 and asset or financial liability at the
12 present value of the future payments
discounted at a market rate of interest
SECTION 10 – ACCOUNTING POLICIES, for a similar debt instrument.
ESTIMATES AND ERRORS  Measurement subsequent to initial
 If the PFRS for SMEs addresses an issue, the recognition:
entity must follow the PFRS for SMEs o Debt instruments at amortized cost
 If the PFRS for SMEs does not address an issue: using the effective interest method
o Choose policy that results in the most o Debt instruments that are classified as
relevant and reliable information current assets or current liabilities are
o Try to analogise from standards in the measured at the undiscounted amount
PFRS for SMEs of the cash or other consideration
o Or use the concept and pervasive expected to be paid or received (ie net
principles in section 2 of impairment) unless the arrangement
o Entity may look to guidance in full PFRSs constitute a financing transaction. If
the arrangement constitute a financing
(nut not required)
transaction, the entity shall measure
 Change in accounting policy:
the debt instrument at the present
o If mandated, follow the transition
value of the future payments
guidance as mandated discounted at a market rate of interest
o If voluntary, retrospective for a similar debt instrument.
 Change in accounting estimate: PROSPECTIVE o Investment in non-convertible
 Correction of prior period error: RESTATE preference shares and non-puttable
PRIOR PERIODS IF PRACTICABLE ordinary or preference shares:
- if the shares are publicly traded or
SECTION 11 – BASIC FINANCIAL their fair value can otherwise be
NSTRUMENTS measured reliably, measure at fair
 PFRS for SMEs has two sections on financial value with changes in fair value
instruments: recognized in profit or loss
o Sec. 11 on BASIC FINANCIAL - measure all other such investments
INSTRUMENTS at cost less impairment
o Sec. 12 on OTHER FI TRANSACTIONS  must test all amortized cost instruments
 Option to follow PAS 39 instead of sec. 11 and for impairment or uncollectibility
12  previously recognized impairment is
 Even if PAS 39 is followed, make sec. 11 and 12 reversed if an event occurring after the
disclosure (not PFRS 7 disclosure) impairment was first recognized causes
 Essentially, sec 11 is an amortized historical the original impairment loss to decrease
cost model  Guidance is provided on determining fair
values of financial instruments
o The most reliable is quoted price in an
active market
o When a quoted price is not available
o Except for equity investment with the most recent transaction price
quoted price or readily determinable provides evidence of fair value
fair value. These are measured at fair o If there is no active market or recent
value through profit or loss. market transactions, a valuation
 Scope of section 11 includes: technique may be used
o Cash  Guidance is provided on the effective
o Demand and fixed deposit interest method
o Commercial paper bills
o Accounts and notes receivable and
payable
o Debt instruments where returns to the
holder are fixed or referenced to an  Derecognize a financial asset when:
observable rate
 o The contractual rights to the cash flows  Inventory cost excludes abnormal waste
from the financial asset expire or are and storage, administrative, and selling
settled; costs
o The entity transfer to another party all of  If a production process creates joint products
the significant risks and rewards relating to and /or by-products, the costs are allocated on
the financial asset; or a consistent and rational basis
o The entity, despite having retained some  A manufacturer allocates fixed production
significant risk and rewards relating to the overheads to inventories based on normal
financial asset, has transferred the ability to capacity
sell the asset on its entirety to an unrelated
third party who is able to exercise that
ability unilaterally and without needing to
impose additional restrictions on the
transfer.  Standard costing, retail method, and
Derecognize a financial liability when the most recent purchase price may be used
obligation is discharged, cancelled, or expires only if the result approximates actual
Disclosures: cost
o Categories of financial instruments  Impairment – write down to net realizable
o Details of debt and other instruments value (selling price less costs to complete
o Details of derecognitions and sell- see section 27)
o Collateral
o Defaults and breaches on loans payable SECTION 14 – INVESTMENT IN
o Items of income and expense ASSOCIATES
 Option to use:
SECTION 12 – ADDITIONAL FINANCIAL o Cost-impairment model (except if
NSTRUMENTS ISSUES there is a published quotation – then
Financial instruments not covered by section must use fair value through profit or
11 (and, therefore, are within section 12) are loss)
measured at fair value through profit or loss. o Equity method (investor recognizes
This includes: its share of profit or loss of the
o Investment in convertible and puttable associate - detailed guidance is
ordinary and preference shares provided)
o Options, forwards, swaps and other o Fair value through profit or loss
derivatives  Investment in associates are always
o Financial assets that would otherwise be in classified as non-current assets
section 11 but that have ‘exotic’ provisions
that could cause gain/loss to the holder or SECTION 15 – INVESTMENT IN JOINT
issuer VENTURE
Hedge accounting involves matching the gains  For investment in jointly controlled
and losses on a hedging instruments and entities, there is an option for the venture
hedged item. to use:
o It is allowed only for the following kinds of o Cost model (except if there is a
risk: published quotation – then must use
- Interest rate risk of a debt instrument fair value through profit or loss)
measured at amortized cost o Equity method (using the guidance
- Foreign exchange or interest rate risk in sin section 14)
a firm commitment or a highly probable o Fair value through profit or loss
forecast transaction  Proportionate consolidation is published
- Price risk of a commodity that it holds  For jointly controlled operations, the
or in a firm commitment or highly venturer should recognize assets that it
probable forecast transaction to controls and liabilities it incurs as well as
purchase or sell a commodity its share of income earned and expenses
- Foreign exchange risk in a net that are incurred
investment in a foreign operation  For jointly controlled assets, the venturer
o Section 12 defines the type of hedging should recognize its share of the assets
instrument required for hedge accounting and liabilities it incurs as well as income
o Hedges must be documented up front to it earns and expenses that are incurred
qualify for hedge accounting
o Section 12 provides guidance for ISECTION 16 – INVESTMENT
measuring assessing effectiveness PROPERTY
o Special disclosure are required  Investment property is investment in
land, buildings (or part of a building), and
SECTION 13 – INVENTORIES some property interests in finance leases
Measured at the lower cost and estimated held to earn rentals or for capital
selling price less costs to complete and sell appreciation or both
Cost is determined using:  Property interest that are held under an
o Specific identification is required for large operating lease may be classified as an
items investment property provided the
o Option to choose FIFO or weighted average property would otherwise have met the
definition of an investment property
for others
o LIFO is not permitted  Mixed use property must be separated
between investment and operating
Inventory cost includes costs to purchase, costs
property
of conversion, and costs to bring the asset to
 If fair value can be measured reliably
present location and condition
without undue cost or effort, use the fair
value through profit or loss model.
  Otherwise, an entity must treat o An acquirer must always be identified
investment property as property, plant o The cost of the business combination is
and equipment using section 17 measured. Cost is the fair value of assets
given, liabilities incurred or assumed, and
SECTION 17 – PROPERTY, PLANT AND equity instruments issued, plus costs
EQUIPMENT directly attributable to the combination
 Historical cost-depreciation-impairment o At the acquisition date, the cost is
model only allocated to the assets acquired and
 The revaluation model (as in IAS 16 ) is liabilities and provisions for contingent
not permitted liabilities assumed. The identifiable assets
 Section 17 applies to most investment acquired and liabilities and provisions for
property as well (but if fair value of contingent liabilities assumed are
investment property can be measured measured at their fair values. Any
reliably without undue cost or effort then difference between cost and amounts
the fair value model in section 16 applies) allocated to identifiable assets and
 Section 17 applies to property held for liabilities (including provisions) is
sale – there is no special section on recognized as goodwill or so called
assets held for sale. For sale is an ‘negative goodwill’.
indicator of possible impairment  All goodwill must be amortized. If the entity is
 Measurement is initially at cost, including unable to estimate useful life, then use 10
costs to get the property ready for its years.
intended use subsequent to acquisition,  ‘Negative goodwill’ – first reassess original
the entity uses the cost-depreciation- accounting. If that is ok, then immediate credit
impairment model, which recognizes to profit or loss
depreciation and impairment of the  Impairment testing of goodwill –follow section
carrying amount 27
 Reversal of goodwill impairment is not
permitted
The carrying amount of an asset, less
estimated residual value, is depreciated over SECTION 20 – LEASES
the assets anticipated useful life. The method  Scope includes arrangements that contain a
of depreciation shall be the method that best lease (IFRIC 4)
reflects the consumption of the assets benefits  Leases are classified as either finance leases or
over its life. Separate significant components operating leases.
should be depreciated separately o Finance leases result in substantially all
Components depreciation only if major parts of the risks and rewards incidental to
an item of PPE have significantly different ownership being transferred between the
patterns of consumption of economic benefits parties, while operating leases do not.
Review useful life, residual value, depreciation o Substantially all risks and rewards of
rate only if there is a significant change in the ownership are presumed transferred if:
asset or how it is used. Any adjustment is a - The lease transfer ownership of the
change in estimate (prospective) asset to the lessee by the end of the
Impairment testing and reversal –follow section lease term
27 - The lessee has a ‘bargain purchase
option’
SECTION 18 – INTANGIBLE ASSETS OTHER
THAN GOODWILL
No recognition of internally generated
intangible assets. Therefore: - the lease term is for the major part of
o Charge all research and development cost the economic life of the asset even if
to expense title is not transferred
o Charge the following items to expense - at the inception of the lease the present
when incurred: costs of internally value of the minimum lease payments
generated brands, logos and masthead, amounts to at least substantially all of
start-up costs, training costs, advertising, the fair value of the leased asset
and relocating of a division or entity - the leased assets are of such a
Amortization model for intangibles that are specialized nature that only the lessee
purchased separately, acquired in a business can use them without major
combination, acquired by grant, and acquired modifications
by exchange of other assets - the lessee bears the lessor losses if
Amortize over useful life. If the entity is unable cancelled
to estimate useful life, then use 10 years. - a secondary rental period at below
Review useful life, residual value, depreciation market rates
rate only if there is a significant change in the - The residual value risk is borne by the
asset or how it is used. Any adjustment if a lessee.
change in estimate (prospective)  Lessees - finance lease:
Impairment testing – follow section 27 o The rights and obligations are to be
Any revaluation of intangible assets is recognized as assets and liabilities at
prohibited fair value, or, if lower, the present
value of the minimum lease payments.
SECTION 19 – BUSINESS COMBINATIONS Any direct costs of the lessee are
AND GOODWILL added to the asset amount recognized.
Section does not apply to combinations of Subsequently, payments are to be split
entities under common control between a finance charge and
Acquisition (purchase) method. Under this reduction of the liability. The asset
method:
 should be depreciated either over the o Lessors retain the assets on their balance
useful life or the lease term sheet and payments are to be recognized as
 Lessees – operating leases: income on the straight line basis, unless
o Payments are to be recognized as an payments are structured to increase in line
expense on the straight line basis, with expected general inflation or another
unless payments are structured to systematic basis is better representative of
increase in line with expected general the tine pattern of the user’s benefit
inflation or another systematic basis is  Sale and leaseback:
better representative of the time o If a sale and leaseback results in a finance
pattern of the user’s benefit lease, the seller should not recognize any
 Lessors- finance leases: excess as a profit, but recognize the
o The rights are to be recognized as excess over the lease term
assets held, i.e. as a receivable at an o If a sale and leaseback results in an
amount equal to the net investment in operating lease, and the transaction was
the lease. The net investment in a at fair value, the seller shall recognize any
lease is the lessor’s gross investment profits immediately.
in the lease (including unguaranteed
residual value) discounted at the SECTION 21 – PROVISIONS AND
interest rate implicit in the lease CONTINGENCIES
o For finance leases other than those
involving manufacturer or dealer
lessors, initial direct costs are included
in the initial measurement of the
finance lease receivable and reduce
the amount of income recognized over
the lease term.
o If there is an indication that the
estimated unguaranteed residual value
used in computing the lessors gross
investment in the lease has change
significantly, the income allocation
over the lease term is revised, and any
reduction in respect of amounts
accrued is recognized immediately in
profit or loss.
 Lessors – finance leases by a
manufacturer or dealer:
o a finance lease of an asset by a
manufacturer or dealer lessor gives
rise to two types of income:
- profit or loss equivalent to the
profit or loss resulting from an
outright sale of the asset being
leased, at normal selling prices,
reflecting any applicable volume or
trade discounts; and
- Finance income over the lease
term.
o The sales revenue recognized at the
commencement of the lease term by a
manufacturer or dealer lessor is the
fair value of the asset or, if lower, the
present value of the minimum lease
payments accruing to the lessor,
computed at a market rate of interest.
o The cost of sale recognized at the
commencement of the lease term is
the cost, or carrying amount if
different, of the leased property less
the present value of the unguaranteed
residual value. The difference between
the sales revenue and the cost of sale
is the selling profit, which is recognized
in accordance with the entity’s policy
for outright sales

o If artificially low rates of interest are quoted,

selling profit shall be restricted to that
which would apply if a market rate of
interest were charged. Costs incurred by
manufacturer or dealer lessors in
connection with negotiating and arranging a
lease shall be recognized as an expense
when the selling profit is recognized.
Lessors – operating leases: