IFRS for SMEs Institute of Chartered Accountants of the Caribbean, St. Kitts, June 30, 2007 Russell Guthrie Director, Quality Assurance and Member Body

IFRS for SMEs IFRS for SMEs

Institute of Chartered Accountants of the Caribbean, St. Kitts, Institute of Chartered Accountants of the Caribbean, St. Kitts, June 30, 2007June 30, 2007

Russell Guthrie Russell Guthrie Director, Quality Assurance and Member Body Director, Quality Assurance and Member Body

RelationsRelations

ContentContent

1.1. IFRS for SMEsIFRS for SMEs

2.2. SMP/SME Issues – covered in papersSMP/SME Issues – covered in papers

3.3. Strategy – covered in papersStrategy – covered in papers

4.4. Input to Standard Setting Input to Standard Setting – covered in papers– covered in papers

5.5. Practical Support Practical Support – covered in papers– covered in papers

6.6. IFAC Member Body Compliance ProgramIFAC Member Body Compliance Program

1 IFRS for SMEs1 IFRS for SMEsExposure DraftExposure Draft

• On February 15, 2007 IASB issued an Exposure On February 15, 2007 IASB issued an Exposure Draft (ED) of proposed Draft (ED) of proposed International Financial International Financial Reporting Standard for Small and Medium-sized Reporting Standard for Small and Medium-sized EntitiesEntities (I (IFRS for SMEs)FRS for SMEs)

• Deadline for comments is October 1, 2007 Deadline for comments is October 1, 2007

1 IFRS for SMEs1 IFRS for SMEsScopeScope

• SMEs are defined as entities that:SMEs are defined as entities that:• do do notnot have public accountability; have public accountability; butbut

• publish general purpose financial statements publish general purpose financial statements (GPFS) for external users(GPFS) for external users

• IFRS for SMEs is appropriate for an entity with IFRS for SMEs is appropriate for an entity with no public accountability:no public accountability:

• not publicly traded; not publicly traded; oror

• not a financial institutionnot a financial institution

• No quantified size testNo quantified size test

1 IFRS for SMEs1 IFRS for SMEsReasonsReasons

• Self-contained set of principles for SMEs:Self-contained set of principles for SMEs:– based on full IFRSsbased on full IFRSs– modifications based on user needs and cost-benefitmodifications based on user needs and cost-benefit

• Reduction in volume vs. full IFRSsReduction in volume vs. full IFRSs• Enables users to compare SMEs’ financial Enables users to compare SMEs’ financial

performance, financial condition and cash flowsperformance, financial condition and cash flows

1 IFRS for SMEs1 IFRS for SMEsReasonsReasons

• Provide emerging economies with internationally Provide emerging economies with internationally recognized benchmarkrecognized benchmark

• Results in GPFS on which auditor can express an Results in GPFS on which auditor can express an opinionopinion

• Simplified plain English to help preparersSimplified plain English to help preparers • Develop a standard suitable for smallest of SMEs Develop a standard suitable for smallest of SMEs

1 IFRS for SMEs1 IFRS for SMEsDue ProcessDue Process

• World Accounting Standard Setters (Sept. 2003)World Accounting Standard Setters (Sept. 2003)• Discussion paper (June 2004)Discussion paper (June 2004)• Recognition and measurement (R&M) Recognition and measurement (R&M)

questionnaire (April 2005)questionnaire (April 2005)• Public roundtables on R&M (Oct. 2005)Public roundtables on R&M (Oct. 2005)• Deliberations at 30 Board and 6 SAC meetingsDeliberations at 30 Board and 6 SAC meetings• 3 meetings of SME Working Group3 meetings of SME Working Group

1 IFRS for SMEs1 IFRS for SMEsDraftingDrafting

• Developed by extracting fundamental concepts Developed by extracting fundamental concepts from IASB from IASB Framework for the Preparation and Framework for the Preparation and Presentation of Financial StatementsPresentation of Financial Statements

• Modifications in the light of user needs and cost-Modifications in the light of user needs and cost-benefit considerations. benefit considerations.

• While drafting staff had in mind a typical SME While drafting staff had in mind a typical SME with about 50 employeeswith about 50 employees

• No mandatory fallback to full IFRSsNo mandatory fallback to full IFRSs

1 IFRS for SMEs1 IFRS for SMEsModificationsModifications

• Material not relevant to typical SME omitted, Material not relevant to typical SME omitted, with cross-references to full IFRSs if needed:with cross-references to full IFRSs if needed:

• Hyperinflation Hyperinflation

• Equity-settled share-based paymentEquity-settled share-based payment

• Determining FV of agricultural assetsDetermining FV of agricultural assets

• Extractive industriesExtractive industries

• Interim reportingInterim reporting

• Lessor finance leasesLessor finance leases

• Recoverable amount of goodwillRecoverable amount of goodwill

• EPS and segment reportingEPS and segment reporting


• Only simpler of options in full IFRS are included Only simpler of options in full IFRS are included while other (s) cross-referenced:while other (s) cross-referenced:– Cost for investment propertyCost for investment property

– Cost for PP&E and intangiblesCost for PP&E and intangibles

– Expense all borrowing costsExpense all borrowing costs

– Indirect operating cash flowsIndirect operating cash flows

– One method for all grantsOne method for all grants


• Recognition and measurement simplifications:Recognition and measurement simplifications:• Financial instruments:Financial instruments:

– Two classifications, not fourTwo classifications, not four

– Drop “continuing involvement approach” for de-Drop “continuing involvement approach” for de-recognitionrecognition

– Much simplified hedge accountingMuch simplified hedge accounting

• Goodwill impairment – indicator approachGoodwill impairment – indicator approach

• Expense all R&DExpense all R&D

• Cost method for associates and JVsCost method for associates and JVs


• Recognition and measurement simplifications:Recognition and measurement simplifications:• Less fair value for agriculture – only if “readily Less fair value for agriculture – only if “readily

determinable without undue cost or effort”determinable without undue cost or effort”

• Defined benefit plans – principle approach, no Defined benefit plans – principle approach, no corridor testscorridor tests

• Share-based payment – intrinsic valueShare-based payment – intrinsic value

• First-time adoption – less prior dataFirst-time adoption – less prior data

• Leases – simplified calculationsLeases – simplified calculations

1 IFRS for SMEs1 IFRS for SMEsMaintenance and OrganizationMaintenance and Organization

• Organized by topicOrganized by topic

• Update IFRS for SMEs every 2 yearsUpdate IFRS for SMEs every 2 years

• Omnibus Exposure DraftOmnibus Exposure Draft

1 IFRS for SMEs1 IFRS for SMEsNext StepsNext Steps

• Exposure period ends October 1, 2007Exposure period ends October 1, 2007• Final Standard – 1H 2008Final Standard – 1H 2008• Continued round-tables with SMEs, SMPs and Continued round-tables with SMEs, SMPs and

national standard settersnational standard setters• Field tests – deadline of October 31, 2007Field tests – deadline of October 31, 2007

1 IFRS for SMEs1 IFRS for SMEsIFAC’s RoleIFAC’s Role

• IFAC is highly supportive of projectIFAC is highly supportive of project• Responding to EDResponding to ED• Helping IASB conduct field testsHelping IASB conduct field tests• Encouraging member bodies and regional Encouraging member bodies and regional

accountancy organizations to participateaccountancy organizations to participate• Organizations present should seriously Organizations present should seriously

consider participatingconsider participating• Challenge is to get SMEs and SMPs engaged Challenge is to get SMEs and SMPs engaged

1 IFRS for SMEs1 IFRS for SMEsSMP Committee’s ViewsSMP Committee’s Views

• Followed and input to SME project since 2003Followed and input to SME project since 2003• Globally applicable standard, consistently Globally applicable standard, consistently

implementedimplemented• Favorable cost-benefit outcomeFavorable cost-benefit outcome• Significant milestone for global accountancy Significant milestone for global accountancy

professionprofession


• Scope Scope • Users and user needsUsers and user needs• Cost-benefitCost-benefit• Micro-entitiesMicro-entities• Stand-aloneStand-alone• Measurement basisMeasurement basis• Recognition and measurements simplificationsRecognition and measurements simplifications


• Phase 1 – Information PaperPhase 1 – Information Paper• Micro-Entity Financial Reporting: Perspectives Micro-Entity Financial Reporting: Perspectives

of Preparers and Users, of Preparers and Users, December 2006December 2006• Inform debate and prompt discussionInform debate and prompt discussion• Summary of research evidence Summary of research evidence • Disproportionate regulatory burden on microsDisproportionate regulatory burden on micros• Lack of researchLack of research


• Phase 2 - fPhase 2 - focus group interviews of owners, ocus group interviews of owners, preparers, and financierspreparers, and financiers

• Fieldwork completed in UK, Kenya, Poland and Fieldwork completed in UK, Kenya, Poland and Uruguay; Italy, India and Malaysia to followUruguay; Italy, India and Malaysia to follow

• Identify any changes to ensure IFRS for SMEs Identify any changes to ensure IFRS for SMEs suits micro-entitiessuits micro-entities

ICAC 25ICAC 25thth Annual Accountants Conference Annual Accountants ConferenceJune 30, 2007June 30, 2007

IFAC Member Body Compliance IFAC Member Body Compliance ProgramProgram

Russell Guthrie – Director – Quality Assurance Russell Guthrie – Director – Quality Assurance and Member Relationsand Member Relations

Part 2 UpdatePart 2 UpdateResponse status

Completed

Part 2 responses published 141

Part 2 with members / associates for final review 6

Part 2 completed and under Staff review 77

Subtotal Part 2 completed 154

Excused (Iraq) 1

Total Members and Associates 155

IFAC Compliance ProgramIFAC Compliance Program

Parts 1 and 2Parts 1 and 2• High level of external interestHigh level of external interest

– 380,000+ Page views on IFAC website (1-05 to 4-07)380,000+ Page views on IFAC website (1-05 to 4-07)

– IOSCOIOSCO

– EGAOB – Assessment of Auditor OversightEGAOB – Assessment of Auditor Oversight

– WB/RDBsWB/RDBs

– National regulators (FRC, IRBA)National regulators (FRC, IRBA)

– E-Standards Forum E-Standards Forum • Emphasize to members importance of transparency and Emphasize to members importance of transparency and

updating of informationupdating of information


Part 3Part 3• Development of “Policy Recommendations” by Development of “Policy Recommendations” by

IFAC Staff based on Part 2 responsesIFAC Staff based on Part 2 responses• Member Bodies develop Action Plans based on the Member Bodies develop Action Plans based on the

aboveabove• Action plans must be:Action plans must be:

– RealisticRealistic– Specific (time frame and responsibility)Specific (time frame and responsibility)– ““Owned” by the member bodyOwned” by the member body


Part 3 – Key aspectsPart 3 – Key aspects• Buy in by member body is essential to successBuy in by member body is essential to success

– Board/CouncilBoard/Council– Technical CommitteesTechnical Committees– ManagementManagement– Key VolunteersKey Volunteers


Part 3 – Key aspectsPart 3 – Key aspects• Iterative processIterative process

• Confirm RecommendationsConfirm Recommendations

– 3 months3 months• Prepare Action PlanPrepare Action Plan

– 6 months6 months• Monitoring Progress and Updating InfoMonitoring Progress and Updating Info

– Every 6 monthsEvery 6 months


Why is this important?Why is this important?• Increased interest and focus on program by IFAC Increased interest and focus on program by IFAC

BoardBoard

• Increasing level of regulatory body interestIncreasing level of regulatory body interest

• Increased attention, observation and priority by Increased attention, observation and priority by Public Interest Oversight BoardPublic Interest Oversight Board

• Support from World Bank and Regional Support from World Bank and Regional Development BanksDevelopment Banks


Why is this important?Why is this important?• Opportunities:Opportunities:

– For the profession to demonstrate leadership For the profession to demonstrate leadership and pro-activity and pro-activity

– To engage country stakeholders who must also To engage country stakeholders who must also assistassist

– To obtain resources to make the necessary To obtain resources to make the necessary changeschanges


www.ifac.orgwww.ifac.org

Documents

IFRS for SMEs Institute of Chartered Accountants of the Caribbean, St. Kitts, June 30, 2007 Russell Guthrie Director, Quality Assurance and Member Body