IFRS for Private Entities (formerly IFRS for SMEs)

Date recorded:

At this meeting the Board discussed some of the issues that had been deferred at previous meetings and also some new issues relating to areas where respondents requested further guidance, in particular in areas addressed by certain IFRIC interpretations. The Board made the following tentative decisions:


Income taxes

Staff presented two possible approaches for accounting for deferred taxes by private entities to the Board for their consideration:

  • Temporary difference approach with simplifications - Starts from the temporary difference approach as set out in the latest version of a forthcoming exposure draft of revisions to IAS 12 Income Taxes, but makes simplifications in areas considered particularly complex.
  • Taxes-payable-plus approach - Recognising deferred taxes only for those differences between accounting and tax treatment of items of income or expense that are expected to reverse (and therefore affect an entity's cash flows) in a relatively short term.

The Board decided to pursue the temporary difference approach with simplifications in the final IFRS for Private Entities. However the Board disagreed with the staff recommendatiaon that deferred tax assets should not be recognised for unused tax loss and tax credit carryforwards. The Board decided that such deferred tax assets should be recognised, and that the circumstances under which they should be recognised should be restricted in the same way as in IAS 12.

The Board made the following decisions related to accounting for income taxes by private entities:

  • to retain the requirements proposed in the Exposure Draft of an IFRS for SMEs (ED) and existing IAS 12 regarding the measurement of deferred tax when a jurisdiction imposes different tax rates on distributed and undistributed income, rather than follow the forthcoming exposure draft of revisions to IAS 12.
  • to require all deferred tax assets and liabilities to be classified as non-current.
  • to require that current tax assets and liabilities are not discounted.
  • not to require that the initial measurement of assets and liabilities that have a tax basis different from their initial carrying amount should be disaggregated into (i) an asset or liability excluding entity-specific tax effects and (ii) any entity-specific tax advantage or disadvantage.


Share-based Payment (SBP)

The Board decided that private entities should always recognise an expense for equity-settled SBPs issued by private entities and that expense should be measured based on observable market prices, if available, or if not using the directors' best estimate of the fair value of the equity-settled SBPs. Disclosure only, without expense recognition, would not be permitted.

For SBP transactions that give either the entity or the counterparty a choice of settlement in cash or equity instruments, the Board decided that the entity shall account for the transaction as a cash-settled SBP transaction unless either

  • (a) the entity has a past practice of issuing equity instruments or
  • (b) the option to settle in cash has no commercial substance.

In circumstances (a) and (b), the transaction shall be accounted for as equity-settled.

The Board agreed with a number of simplifications to the disclosure requirements for SBPs that were proposed by the staff. However, the Board asked staff to ensure that the disclosure requirements for private entities are sufficient to ensure an understanding of how the amount recognised in profit or loss has been determined, including information on the key assumptions used in measuring SBPs.


Post-employment benefit plans

The Board decided not to adopt the staff proposal to require an entity to measure the defined benefit obligation of a defined benefit plan at the current termination amount (vested benefit obligation) under certain circumstances. However the Board felt that the defined benefit accounting under IAS 19 Employee Benefits should be simplified for private entities. The Board asked the staff to bring back an approach at a future meeting that is more in line with the current IAS 19 approach (for example, it includes consideration of unvested benefits), but would be something that the entities could generally be able to apply themselves without needing to use external specialists. The Board suggested that the staff also consider whether the concept of accumulated benefit obligation in FASB Statement 87 may be suitable.

The Board also made the following decisions related to accounting for post-employment benefit plans by private entities:

  • to retain the requirements for multi-employer plans as proposed in the ED (and IAS 19), ie when sufficient information is not available to use defined benefit accounting for a multi-employer plan that is a defined benefit plan, an entity shall treat the plan as defined contribution plans with appropriate disclosure.
  • to permit subsidiaries to recognise a charge based on a reasonable allocation of the group charge if the parent presents consolidated financial statements under IFRS for Private Entities or full IFRSs.
  • not to require entities to divide the return on assets into an expected return and an actuarial gain or loss.


IFRIC Interpretations

The Board decided guidance from the following IFRIC interpretations should be covered in the IFRS for Private Entities, suitably adapted for private entities.

  • IFRIC 4 Determining Whether an Arrangement Contains a Lease
  • IFRIC 8 Scope of IFRS 2
  • IFRIC 12 Service Concession Arrangements
  • IFRIC 15 Agreements for the Construction of Real Estate


Name of Standard

The Board discussed the issue of the title of the Standard due to some negative reactions received from the change from SME to private entities. The Board decided that the title should describe the types of entities to which the standard would be applicable. As Board members' views were divided on a specific title, the Board decided to invite public comment via the IASB's website or a webcast.


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 one or more future Board meetings. Some of the main outstanding issues relate to restructuring the financial instruments section, concepts and pervasive principle and impairment of goodwill.

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