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PICPA 64th Annual National Convention
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 2
Notice
The information presented herein is the property of Isla Lipana & Co., a
member firm of PricewaterhouseCoopers. Such information is provided forgeneral guidance and not to be used as a substitute for reading the respective
Philippine Financial Reporting Standards, Philippine Standards on Auditing or
Philippine Interpretations and do not constitute any type of professional
advice. Unauthorized use of the information may violate copyright, trademark
and other laws. Should this information be used for presentation purposes,
the user must retain all copyright, trademark, or other similar noticescontained in the original materials on any copies of the material.
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 3
IFRS for SMEs Purpose and scope
Full IFRS was largely designed for the consolidated
statements of listed companies
Some parts of full IFRS are unnecessary, too complex ortoo expensive for other sorts of reporting: e.g.
unconsolidated statements or most unlisted companies
IFRS for SMEs, published in July 2009, is designed forthis other reporting
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 4
IFRS for SMEs Purpose and scope
IFRS for SMEs
Entities
Listed Unlisted
Publicly
accountable
Not publicly
accountable
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 5
IFRS for SMEs Definition of public accountability
Its debt or equity are traded in a public market
It is in the process of issuing instruments for trading in a
public market
It holds assets in a fiduciary capacity (banks, credit
unions, insurance companies, mutual funds, securities
brokers/dealers, investment banks)
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 6
IFRS for SMEs Overview
IFRS for SMEs is 230 pages long (plus illustrative financial
statements, presentation and disclosure checklist and
basis for conclusions)
There are 35 sections on various accounting topics, plus
a preface and a glossary
Amendments are expected every 3 years
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 7
IFRS for SMEs Overview
Topics not relevant for small companies were omitted
- earnings per share;
- interim financial reporting;
- segment reporting; and
- accounting for assets held for sale
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 8
Agenda
Basic Concepts
Assets
Liabilities
Financial Instruments
Revenue and Group Accounting
Transition
IFRS for SMEs
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Basic Concepts
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 10
IFRS for SMEs Fundamental Elements
As with the IFRS Framework, the two fundamental elements of
accounting are:
An assetis a resource controlledby the entity as a result
of past events and from which future economic benefitsare expected to flow to the entity.
A liabilityis apresentobligation of the entity arising from
past events, the settlement of which is expected to result
in an outflow from the entity of resources embodyingeconomic benefits.
Basic Concepts
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 11
IFRS for SMEs Other principles
Going concern assumptions
Frequency of reporting
Consistency
Comparative information
Materiality and aggregation
Substance over form
Basic Concepts
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 12
IFRS for SMEs Financial Statements
Statement of Financial Position (balance sheet)
Statement of Comprehensive Income (can show 1 statement
approach or 2 statement approach)*
Statement of Changes in Equity*
Statement of Cash Flows
Notes to the financial statements
* If an entity only has changes in owners equity, it can show a
Statement of Income and Retained Earnings
Basic Concepts
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 13
IFRS for SMEs Estimates, errors
Changes in estimates corrected prospectively
Errors and changes in accounting policies correctedretrospectively
Basic Concepts
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 14
IFRS for SMEs Subsequent Events
Adjusting events: evidence on conditions that already existed
at the end of the reporting period
Non-adjusting events: conditions that arose after the end of
the reporting period
Basic Concepts
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Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 16
Inventories
Cost Estimated selling price
less costs to complete
and sell
Lower of:
Assets
Inventories
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 17
Inventories
Costs include purchase price, taxes, conversion and other
costs, overhead, but not borrowing costs.
LIFO is prohibited.
Assess impairment at each reporting date.
Impairment assessed on each item or group of similar items
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 18
PP&E
CostRevaluation
Assets
Property, plant and equipment
x
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 19
Property, plant and equipment
Costs include purchase price, taxes, installation, estimate of
dismantling (ARO), but not borrowing costs
Component depreciation
Review residual value, depreciable life, and method only
when there are indications that this is necessary.
Reduced disclosure comparative disclosure on movement
not required.
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 20
Investment Property
Fair Value At cost, but classified as
PPE
FV can be obtained
without undue cost oreffort
Assets
Investment Property
YES NO
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 21
Borrowing Costs
All borrowing costs (on construction or purchase of
qualifying assets or otherwise) are recognized as
expense as incurred.
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 22
Leases
Transfers substantially all therisks and rewards of the assetto the lessee
Expense/income on astraight-line basis,unless payment is inline with expectedinflation.
Leases
Finance lease Operating lease
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 23
Intangible assets
CostRevaluation
Assets
Intangible assets
x
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 24
Intangible assets
Amortization over estimated life, or (if no reliable estimate)maximum of 10 years.
Straight-line unless another pattern is more reliable
Residual value is zero unless there is evidence of value
Review amortization periods and methods only when there is
indication of significant changes in circumstances.
All R&D costs are expensed as incurred.
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 25
Impairment of Assets
Inventories assessed at each reporting date
Other assets measured at cost are assessed for impairment
only when there is an indication of impairment
Indications include: obsolescence or physical damage,
adverse changes to entity, fall in value of asset
Impairment losses charged to P&L
Impairment losses can be reversed (except goodwill) if
circumstances change
Assets
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 26
Biological assets
Fair Value Cost less depreciation
and amortization
FV can be obtained
without undue cost oreffort
Assets
Agriculture
YES NO
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Liabilities
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 28
Liabilities vs. Equity
Liabilities include some shares, for example:
- mandatory dividend, or
- mandatory redemption, or
- optional redemption by holder for fixed amount
Convertible debt shall be split by issuer into liability and equity
components
Treasury shares shown as deduction from equity
Liabilities
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Isla Lipana & Co., a member firm of PricewaterhouseCoopersDecember 1, 2009
Slide 29
Provisions
Liabilities of uncertain timing or amount are recognized when:
- past event
- present obligation
- future outflow that
- is probable and
- can be estimated reliably
Liabilities
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 30
Defined Benefit Plans
PUC, actuarial
methodSimpler method; certain
assumptions are ignored
Actuarial can be obtained
without undue cost oreffort
Liabilities
Employee Benefits
YES NO
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 31
Employee Benefits
No corridor approach for actuarial gains or losses
Discount rate to be used similar with PAS 19
Does not require an actuary to be engaged
Past service costs, curtailment or settlements are recognized
in P&L in the period in which they occur.
Actuarial may not be necessary annually. Roll-forward
method is allowed, taking into account changes in number of
employees and salaries, without changing other assumptions
like turn-over or mortality rates.
Liabilities
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Financial Instruments
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 33
Financial Instruments
IFRS for SMEs IAS 39
Financial Instruments
Financial Instruments
or
Basic Others
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 34
Financial Instruments, continued
Basic instruments include:
- cash
- receivables and payables
- bonds (fixed amount & fixed or variable return)
- non-puttable ordinary or preference shares
Others include:
- derivatives, such as options, forward contracts or interest rate swaps
- investments in convertible debt
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 35
Financial Instruments - basic
Initial measurement:
- transaction price (including costs, except for items held at fair value)
- DCF for financing transactions
Subsequent measurement:
- current assets/liabilities: undiscounted flows
- debt at amortized cost
- shares at fair value if listed or reliable fair value (changes to P&L)
- others at cost
Impairment applies, except to those at fair value
IFRS for SMEs
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 36
Financial Instruments - Others
Initial measurement at fair value (normally transaction priceexcluding costs)
Subsequent measurement at fair value, except equity
instruments with no reliable fair value
Gains and losses to profit or loss
Financial Instruments
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Revenue and Group Accounting
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers December 1, 2009Slide 38
Revenue
Revenue is measured as fair value of consideration receivedor receivable, net of sales taxes.
For deferred inflows, the fair value is discounted receipts.
Sales of goods recognized on transfer of the significant risks
and rewards to buyer.
When outcome can be measured reliably, revenue on service
transactions and construction contracts should be taken bystage of completion.
Revenue and Group Accounting
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers
December 1, 2009
Slide 39
Investments in associates and joint ventures
Measured either at:
- Cost
- Equity Method
- Fair value
All investments in quoted shares (listed) should be carried at
FV
Revenue and Group Accounting
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers
December 1, 2009
Slide 40
Business Combinations
All business combinations are treated using purchase methodof accounting
Cost of combination is the FV of consideration plus costs
Goodwill is the difference between cost and FV of net assets
and contingent liabilities acquired
Goodwill should be amortized over its useful life or 10 years if
no reliable estimate
Negative goodwill in P&L immediately
Revenue and Group Accounting
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Transition
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers
December 1, 2009
Slide 42
Transition
Considered as first-time adopter of IFRS for SMEs
Apply to opening B/S at date of transition
Generally retrospective except: estimates, derecognition offinancial liabilities, and hedge accounting
Optional exemptions (business combinations, share-based
payments)
Provide a reconciliation from previous equity and profit and
loss
Transition
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2009 Isla Lipana & Co. All rights reserved. Isla Lipana & Co. is the Philippine member firm of the
PricewaterhouseCoopers global network. PricewaterhouseCoopers refers to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Thank you
Isla Lipana & Co.
A member firm of
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Isla Lipana & Co., a member firm of PricewaterhouseCoopers
December 1, 2009
Slide 44
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