IFRS for Private Entities (formerly IFRS for SMEs)

Date recorded:

The Board resumed its redeliberation of the proposals in the exposure draft (ED) of a proposed IFRS for SMEs. At this meeting th Board discussed issues relating to Sections 28 - 38 of the ED. The staff presented the Board with the following issues and its recommendations:


Income taxes

The Board considered but rejected a taxes payable with disclosure approach for deferred tax. The Board had a considerable and, in part, emotional debate on how users of IFRS for private entities financial statements are served best. Some Board members had very strong views on this topic and highlighted that deferred tax liabilities and assets would provide useful information. Many other Board members had sympathy with the many respondents that said the temporary difference approach prescribed by IAS 12 Income Taxes (and essentially as proposed in the ED) is too difficult for many private entities. It was highlighted by some that requiring the conceptually right approach will not be accepted by many jurisdictions and hence, if the Board could not agree on a consensus position taking into accounts concerns raised that could potentially put at stake the success of the project. The Board discussed possible ways to simplify deferred tax recognition and measurement that take into account the needs of users of private entity financial statements and cost-benefit considerations. The Board asked the staff to develop the following two approaches and present their recommendation at a future meeting:

  • A new approach that would aim to approximate the amounts recognised under IAS 12 but remove many of its complexities by recognising only those deferred taxes relating to book-tax differences in items of income or expense that are expected to reverse (and therefore affect an entity's cash flows) in a relatively short term.
  • Starting from the temporary difference approach in IAS 12, but making simplifications in areas considered particularly complex.

The Board expects to issue an ED on income taxes later in 2008 One of the aims of that ED is to enhance understandability by substantially rewriting IAS 12. The staff will take this redrafting into account when rewriting Section 28.


Hyperinflationary economies

The staff asked the Board whether to change the ED to include all of the characteristics that indicate hyperinflation as listed in paragraph 3 of IAS 29 Financial Reporting in Hyperinflationary Economies in the final IFRS for Private Entities.

The Board agreed.


Foreign currency translation

The staff proposed to the Board that the final version of the IFRS for Private Entities should prohibit entities from recycling through profit or loss any cumulative exchange differences that were previously recognised in equity on disposal of a foreign operation to reduce the administrative burden of detailed tracking.

The Board agreed.

However, on the second issue that private entities should be allowed simply to elect to deem their local currency as their functional currency if the law requires that financial statements be presented in the local currency, the Board disagreed with the staff recommendation that this 'deemed' functional currency approach should be allowed.


Related parties

The staff proposed that the final amendments to IAS 24 Related Party Disclosures, currently in exposure draft phase, should be reflected in the final standard.

The Board agreed.



The Board was presented with an proposal that the cost model should not be added as an accounting policy choice for private entities since the addition of an 'undue cost or effort' exception to the requirement to apply fair value measurement, as proposed in the ED, is considered a sufficient simplification.

The Board agreed.


Assets held for sale

The staff proposed that there should be no 'held for sale' classification for non-financial assets, or groups of assets, and the requirements for assets held for sale should be dropped from the final standard. Instead the decision to sell an asset should be added as an impairment indicator.

The Board agreed


Discontinued operations

It was proposed that private entities should be required to identify and segregate amounts for discontinued operations in the statement of comprehensive income for the current and all prior periods presented in the financial statements, unless impracticable.

The Board agreed.

The staff informed that Board that the definition of a discontinued operation currently refers to components of an entity that are classified as held for sale and, hence, will need to be amended due to the Board's decision directly above.


First-time adoption

The staff presented a proposal that all of the IFRS 1 optional exemptions for first time adopters (for example, parent and subsidiary adopt at different times, and deemed cost for investment property and intangibles) should be added to Section 38 so they are available to private entities adopting the IFRS for Private Entities for the first time.

The Board agreed

In addition, the staff proposed that an entity should not be allowed to benefit from the special measurement and restatement exemptions available under Section 38 more than once.

The Board agreed.


Outstanding issues

The staff noted that there are still a few outstanding issues that have been deferred at previous meetings, and staff recommendations on these will be brought to the Board at the October and November Board meetings. Some of the main outstanding issues relate to restructuring the financial instruments section, concepts and pervasive principles, classification of equity and debt, measurement of equity-settled share-based payments, accounting for defined benefit plans, impairment of goodwill, and lessee recognition of rent expense under an operating lease.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.