IASB May 2008
The Board began the process of redeliberating the proposals in the exposure draft (ED) of a proposed IFRS for SMEs by considering some of the main issues identified in comment letters and field tests. The staff had previously presented those issues to the Board in educational sessions at the Board meetings in March and April.
The IASB’s Working Group met in April 2008 to discuss the issues raised by respondents to the ED. A summary of the views and recommendations of working group members arising from that meeting was provided to the Board.
At this meeting the Board redeliberated general matters (those not related to a particular section of the ED). It also discussed issues relating to Sections 1─3 of the ED. The outcome from those discussions is summarised below.
General issues not relating to specific sections in the ED
Title of the standard. The title of the standard should be changed to International Financial Reporting Standard for Private Entities, with private entities defined similarly to the definition of SMEs in the ED.
- The standard should be stand-alone, with no cross-references to full IFRSs. Requirements currently available by cross-reference will be either addressed in the standard or eliminated.
- In general, all accounting policy options in full IFRSs should be available to private entities. As in the ED, the body of the standard should include the simpler option. The more complex options would be in a separate appendix. While the appendix will increase the overall size of the standard, the length of the body of the document will be relatively unaffected. An entity choosing only the simpler options would not need to refer to the appendix.
- The standard should address directly the following topics, which the exposure draft addressed by cross-reference to the related full IFRS: lessor accounting for finance leases, share-based payment, fair value of agricultural assets, and hyperinflation. The standard would not address the following topics: segment information, earnings per share and interim reporting; if an entity presented such information it would be required to explain the basis of preparing the data.
Small listed entities. Small listed entities should not be included in the intended scope of the IFRS for Private Entities.
Entities that receive funds in a fiduciary capacity. An entity whose primary business is holding funds in a fiduciary capacity is publicly accountable and hence should be outside the scope of the standard. An entity that holds funds in a fiduciary capacity as a sideline to its principal business, for example a utility company or travel agency that takes deposits, should be permitted to use the standard if it otherwise qualifies.
Restatements. An ‘undue cost or effort’ principle should not be added wherever the standard requires restatement. The exemption for ‘impracticability’ is sufficient.
Fair value measurement. The staff proposed that when a current remeasurement is required, that requirement should clearly describe in simple language what the basis for measurement is rather than use the generic term ‘fair value’. The Board asked the staff to present a proposal for each required measurement at a future Board meeting. The Board asked the staff, in developing the proposal, to consult the IASB staff teams working on fair value measurements and the measurement phase of the conceptual framework project.
Structure of the standard. The standard does not need an overall restructuring.
Post-implementation assessment. The Board decided that an assessment of implementation problems should be undertaken when two years of financial statements using the standard are available for a broad range of entities.
Issues relating to Sections 1─3
Subsidiary of an IFRS entity. The Board decided that if a subsidiary of an IFRS entity uses the recognition and measurement principles in full IFRSs it must provide the disclosures required by full IFRSs, not merely the disclosures required by the IFRS for private entities.
Objective and qualitative characteristics. The objective of financial statements of SMEs and the qualitative characteristics of information in such financial statements, as set out in
Section 2 of the ED, reflect only partially the changes to the IASB Framework proposed in an exposure draft to be published shortly after the meeting. The Board will decide at a future meeting, whether the final IFRS for private entities should reflect those proposed changes.
Concepts and pervasive principles. While acknowledging that some respondents to the ED would prefer the concepts and pervasive principles in Section 2 to be rewritten in a more prescriptive rather than descriptive way, Board members expressed the view that the concepts and broad principles should not be significantly different from those in full IFRSs. Nor should they try to resolve issues that the Board is currently considering in other projects. The Board asked the staff to review Section 2 with that in mind.
Objectives. The Board decided that determination of taxable and distributable income should not be added to the objectives of financial statements of private entities.
Financial statement presentation. The Board decided:
- The standard should not prescribe financial statement formats, titles, subtotals, minimum line items, sequencing, and note disclosures with more specificity than in the ED.
- The standard should incorporate the requirements of IAS 1 Presentation of Financial Statements (as revised in 2007). This would mean, among other things, that SMEs would present a statement of comprehensive income. Also, the final IFRS for Private Entities would use new titles for financial statements used in IAS 1; however, as for entities using full IFRSs, those new titles would not be required in private entities’ financial statements.