The Board continued its discussions of a draft Exposure Draft of an IFRS for Small and Medium-sized Entities (SMEs). The Board had begun its discussion of that topic yesterday. Many of the comments given were drafting comments.

Incorporating changes to IFRSs in the IFRS for SMEs. The Board agreed that generally, the text of the IFRS for SMEs should be based on existing IFRSs and should not reflect changes that have been proposed in Exposure drafts. The Board also agreed that each time an IFRS is exposed, that Exposure Draft should also address how, if at all, the changes would be incorporated into the IFRS for SMEs. This approach would enable SMEs to early adopt standards and would minimise inconsistencies between IFRSs and the IFRS for SMEs.

Definitions. The Board noted that in the Draft ED, some of the definitions in the glossary differ from those in the 2006 Bound Volume of IFRSs. They should be conformed, or the difference should be explained.

Business combinations. Material on business combinations will be removed from the IFRS for SMEs and, instead, will be addressed by cross-reference to IFRS 3 Business Combinations.

Statement of income and retained earnings. Previously, the Board had concluded that if the only changes to an SME's equity during a period arise from profit and loss and payment of dividends, the SME may present a combined statement of income and retained earnings instead of separate income and equity statements. The Board clarified that an SME is eligible to present a combined statement of income and retained earnings if its equity changes due to (a) correction of a prior period error or (b) changes in accounting policy, in addition to changes due to profit and loss and dividends.

Expensing all development cost. The draft ED will include an option for an SME to charge all development cost to expense. An SME that wishes to capitalise development cost would be cross-referred to the requirements of IAS 38 Intangible Assets.

Combined financial statements. A better description of these is needed. Further, clarify that if an entity chooses to present combined financial statements, it must comply in full with the IFRS for SMEs.

Model financial statements. Staff noted that a comprehensive model set of financial statements for SMEs was being developed based on the IFRS for SMEs. Those statements would include actual figures (rather than X's for numbers).

True and fair override. The Board discussed whether a fair presentation override should be permitted for SMEs. The Board concluded that such an override should only be allowed when requirements of the IFRS for SMEs would conflict with local law or regulation.

Financial instruments. Most of the remaining discussion centred around the section dealing with financial assets and financial liabilities. Whilst there was general agreement that the full requirements of IAS 39 should not be included in the SME standard, Board members noted that in simplifying the requirements, there were sometimes unwanted inconsistencies or complications. Areas of particular discussion were:

• which financial assets should be accounted for at fair value, and how to determine fair value; and
• reclassifications of financial assets.

Staff will discuss how this section should be redrafted with particular Board members.

Income taxes. The Board agreed that the exemptions in IAS 12 from recognising the tax effects of certain temporary differences should be included in the IFRS for SMEs. There was also a general discussion about whether to bring in some of the definitions in the proposed amendments to IAS 12, as this might help clarify and simplify certain situations.