In an all-day session, the Board discussed a revised draft Exposure Draft of an International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). Among the broad range of decisions made by the Board were the following:

• Definition of an SME. In defining SMEs, an entity that is economically significant in its home country would not automatically be regarded as publicly accountable. Each jurisdiction should decide.
• Pervasive measurement principles. The draft ED includes some pervasive principles for recognising assets, liabilities, income, and expenses, based on the IASB Framework, and also some specially developed pervasive measurement principles not in the Framework. The Board asked the staff to redraft the measurement principles in consultation with a small group of Board members.
• Maintaining the IFRS for SMEs. Approximately every two years, the Board will publish an 'omnibus' Exposure Draft of proposed amendments to the IFRS for SMEs based on new and amended IFRSs adopted during those two years.
• Sections of the draft ED that require significant rewriting. The draft has 40 topical sections. Based on Board discussions, only the following are likely to require substantial rewriting:
  • financial instruments
  • provisions
  • employee benefits
  • income taxes
  • business combinations.
• Financial instruments. The Board discussed proposals for simplification of IAS 39 Financial Instruments: Recognition and Measurement for SMEs in three important areas:
  • Classification of financial instruments. The ED would provide for two categories of financial instruments - fair value through profit or loss and cost/amortised cost.
  • Derecognition. The draft Exposure Draft imposes a high hurdle for derecognition - only when substantially all risks and rewards have been transferred. The major benefit of this derecognition requirement is that an SME will not have to refer to the complex derecognition provisions of IAS 39. A drawback would be that the SME standard would not derecognise securitisations whereas IAS 39 would.
  • Limited relief from hedge accounting focussed on the two kinds of hedging that an SME is likely to do.
  The Board expressed general agreement with the proposals and identified several matters for which revision or amplification is needed.
• Cash flow statement. Add guidance on cash and cash equivalents. Add guidance on when cash flows can be reported net. Disclose total taxes paid. Disclose the effect of exchange rate changes on cash and cash equivalents separately from operating, investing, and financing activities. Add guidance on reporting cash flows from acquisitions and disposals of subsidiaries.
• Accounting policies.
  • When an entity has adopted an accounting policy for an event or circumstance for which the IFRS for SMEs allows an accounting policy choice, disclosure of the chosen policy is required.
  • State that inappropriate accounting policies are not rectified by disclosure.
  • Clarify that it is inappropriate to make, or leave uncorrected, immaterial departures from the IFRS for SMEs to achieve a particular presentation of an entity's financial position, performance, or cash flows.
  • Explain that a change in measurement basis is a change in accounting policy.
• Model financial statements. Michelle Fisher of Deloitte Hong Kong was credited with preparing the model financial statements included in the draft Exposure Draft. The Board welcomed the model financial statements. The Board decided that the illustrative balance sheet should show assets and liabilities in a 'current followed by non-current' sequence, rather than the other way around.
• Invitation to comment. Ask a question about the adequacy of guidance and which specific areas need additional guidance.
• Consolidation. The Board concluded that the standards for consolidation should be included in the IFRS for SMEs rather than incorporated by cross-reference of IAS 27 Consolidated and Separate Financial Statements. One Board member will work with the staff to develop a shortened version of the consolidation guidance in IAS 27.
• Business combinations. Details of the purchase method should be included in the IFRS for SMEs rather than addressed by cross-reference to IFRS 3 Business Combinations. Add guidance on reverse takeovers and common control transactions. Define minority interest.
• Government grants. The section on government grants should reflect the principles in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance. Grants related to agricultural assets measured at fair value through profit and loss should be addressed in the section on Agriculture.
• Leases. Discussion of lessor accounting for finance leases should be deleted and replaced by a cross-reference to IAS 17 Leases.
• Agriculture. Circumstances in which an SME would fall back to the cost model should be less restrictive than those currently in IAS 41 Agriculture. In general, for an SME, if fair value is not readily determinable, then the cost model should be followed.
• Internally generated intangible assets other than goodwill. The expense model (charge costs to expense when incurred) will be in the IFRS for SMEs. An SME wishing to follow the capitalisation model (to the extent provided under IAS 38 Intangible Assets) would be cross-referred to IAS 38 for guidance.
• Impairment of assets. The section on impairment should be titled Impairment of Non-financial Assets.
• Employee benefits. Because many SMEs provide benefits under voluntary or government-mandated programmes that are similar to defined plans, include guidance on defined benefit plan accounting in the IFRS for SMEs rather than by cross-reference to IAS 19 Employee Benefits.
• Interim financial reporting. If an entity does not routinely prepare interim financial statements, but is required to do so on a one-time basis (perhaps in connection with a business combination), allow its prior annual financial statements to be comparatives, if it is impracticable to prepare financial statements for the comparable prior interim period.
• Inventories. Clarify that borrowing cost can be part of the cost of inventory under certain conditions if the entity chooses the option of capitalising borrowing cost.
• Opening balance sheet. A balance sheet at the beginning of the period will not be required as part of a complete set of financial statements of an SME.
• The Board deleted the following disclosures:
  • Dividends per share
  • Amount of retained earnings legally available for distribution to shareholders.
  • An entity's objectives, policies, and processes for managing capital.
  • Disclosures about amendments to the IFRS for SMEs that have not been early-adopted.
• Receivables from sale of an entity's own equity. Clarify that these should be shown as an offset in the equity section of the balance sheet, not as an asset.