IFRS for Private Entities (formerly IFRS for SMEs)

Date recorded:

The Board continued its redeliberations of the proposals in the February 2007 Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities (the ED). In this session the Board discussed the key issues relating to sections 20 to 27 excluding any disclosure issues and requests for additional implementation guidance. The main decisions are outlined below.

Provisions and contingencies (section 20)

The Board decided not to simplify the measurement requirements for provisions. However, the Board agreed to a staff proposal that most issues raised by respondents could be mitigated by adding examples to the implementation guidance.

Equity (section 21)

The Board decided to retain the requirement of split accounting for compound instruments, i.e. that equity and debt components of compound instruments need to be separated. However, the Board agreed to add examples as implementation guidance to assist entities in accounting for compound instruments.

The Board deferred its decision on debt-equity classification for certain types of entities, such as cooperatives and partnerships. The staff noted that comment letters and reports of the field tests were prepared before the changes made to IAS 32 Financial Instruments: Presentation regarding classification of puttable instruments and obligations arising on liquidation were finalised. The staff intends to present their recommendations in this regard at a future Board meeting.

Revenue (section 22)

The Board decided to retain the percentage of completion method and to add examples as implementation guidance.

Government grants (section 23)

The Board agreed to remove the option in paragraph 23.3(b) of the ED to apply IAS 20 Accounting for Government Grants and Disclosure of Government Assistance for those government grants not related to assets measured at fair value through profit or loss. Consequently, only the 'IFRS for SME model' will be allowed for these assets. Some Board members noted that IAS 20 is a standard that 'needs fixing' and that removing the option to follow IAS 20 would therefore be appropriate.

Borrowing costs (section 24)

The Board decided to retain both the expense model and the capitalisation model as accounting policy options. The Board noted that as a consequence of retaining the options there is no need for simplifying the capitalisation model, for example, by allowing the application of an average borrowing rate.

Share-based payment (section 25)

No decisions were made at this meeting because the staff is currently researching measurement of equity-settled share-based payments by private entities. The staff will present their recommendations at a future Board meeting.

Impairment of non-financial assets (section 26)

Several respondents and field test entities disagreed with the proposal in the ED requiring impairment to be measured by comparing the carrying amount to fair value less cost to sell and suggested reinstating the notion of 'value in use'. The Board decided that the approach for determining an impairment loss should be similar to IAS 36 Impairment of Assets and, consequently, Section 26 should include the concepts of 'recoverable amount' and 'value in use'. In addition, the Board decided to include the concept of 'cash generating units'.

The Board deferred its decision regarding the requirements for allocating goodwill to components of an entity. The staff was asked to further elaborate this issue by focussing on entities that do not manage their business based on cash-generating units.

Employee benefits (section 27)

The Board decided to retain the requirement in the ED that all actuarial gains and losses and past service costs should be recognised immediately in profit or loss.

Several constituents noted that in some cases information to apply the projected unit credit method (such as data about demographic and financial variables) would not be available. No decision was made whether private entities might be allowed to measure defined benefit obligation at a current liquidation amount rather than using the projected unit credit method in such situations. The staff was asked to prepare for discussion at a future meeting an analysis under which circumstances the use of a current liquidation amount would be appropriate.

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