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Comprehensive review of IFRS for SMEs

Date recorded:

Introduction

The objectives of this discussion (which followed discussions during the March and April 2013 IASB meetings) were to discuss:

  1. the remaining new and revised IFRSs issued since the IFRS for SMEs was published;
  2. additional issues raised in response to the IASB’s Request for Information (RFI) issued in 2012:
    1. where the Staff is proposing changes and
    2. where the Staff is not proposing changes.

The following timetable is anticipated for the comprehensive review of the IFRS for SMEs:

  • third quarter of 2013 – the IASB issues an exposure draft
  • first half of 2013 – the IASB issued final revisions to the IFRS for SMEs
  • target date in 2015 – effective date of revisions.

New and revised IFRSs

At its April 2013 meeting the IASB considered how to apply the five new or revised standards with the potential most significant impact: IFRS 3, IFRS 10, IFRS 11, IFRS 13 and IAS 19 (amended).  The IASB tentatively agreed not to amend the IFRS for SMEs for these standards.

At its April 2013 meeting the IASB tentatively agreed to incorporate the rebuttable presumption for the recovery of investment properties from IAS 12 into the IFRS for SMEs.

During its May 2013 meeting the IASB discussed the following new and revised standards that were issued since the IFRS for SMEs was published; the table also includes the Staff proposals on whether to change the IFRS for SMEs for the new guidance (for various reasons provided in the Staff paper):

 

Standard

Change IFRS for SMEs?

Three amendments to IFRS 1:

 

1. Limited Exemption from Comparative IFRS

no

2. Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (December 2010)

yes

    3. Government Loans (March 2012)

    yes

    IFRS 7 (amendment) Disclosures: Transfers of Financial Assets (October 2010)

    no

    IFRS 10 (amendment) Investment Entities (October 2012)

    no

    The other three standards in the consolidation suite issued with IFRS 10 and IFRS 11 (May 2011):

     

      1. IFRS 12 Disclosures of Interests in Other Entities

      no

        2. IAS 27 (amendment) Separate Financial Statements

        no

          3. IAS 28 (amendment) Investments in Associates and Joint Ventures

          no

          IAS 1 (amendment) Presentation of Items of Other Comprehensive Income (June 2011)

          no

          IAS 32 (amendment) Classification of Rights Issues (October 2009)

          yes

          IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities (December 2011)

          no

          IFRIC 14 (amendment) Prepayments of Minimum Funding Requirement (November 2009)

          no

          IFRIC 19 Extinguishing Financial Liabilities and Equity Instruments (November 2009)

           

           

          yes

          with cost-benefit exemption for FV measurement

          IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (October 2011)

          no

          Annual Improvements to IFRSs issued in May 2010 and May 2012

           

           

           

          some – yes (6 in total)

          some – no

          (Appendix A of  Paper 8A)

           

          There was some discussion on whether the amendment of IAS 1 (regarding the presentation of items in OCI) should be incorporated in the IFRS for SMEs given that there might be more OCI items in the future. However, there was not much support for this amendment as it was not considered as that important.

          The Board agreed with the Staff proposals for changes to the IFRS for SMEs.

          Issues from RFI – changes proposed by Staff

          Reasons for adding these issues to the IFRS for SMEs are stated in Staff Paper 8B; the Paper also includes proposed amendments:

          1. Undue cost and effort (in several sections of the IFRS for SMEs) – include more exemptions
          2. Uniform reporting dates for consolidation purposes (Section 9) – what to do if the difference is more than 3 months
          3. Definition of a basic financial instrument(Section 11) – how to treat bank loans with loans covenants and loans in foreign currency
          4. Intangible assets acquired in a business combination (Sections 18/19) – ‘undue cost or effort’ exemption to recognise intangible assets separately
          5. Exceptions from fair value measurement on allocation of the cost of a business combination (Section 19) – e.g. for deferred tax, pensions should also be included in the IFRS for SMEs
          6. Common control exemption (Section 22) – include
          7. Related party definition (Section 33) – should be consistent with IAS 24
          8. Extractive activities (Section 34) – more guidance is required so that the guidance is easier understood (i.e. no change in accounting)
          9. Unlisted equity instruments (Section 11-12) – add ‘undue cost or effort’ exemption

          There has not been much discussion on the Staff proposals because they were generally supported. Two drafting issues were raised both of which related to disclosures:

          • Issue 1 – at the moment if the entity uses the ‘undue cost and effort exemption’ it is not required to disclose reasons for the used exemption, but should it disclose the fact that the disclosure was issued in the first place? There was an agreement, that the entity should disclose that fact.
          • Issue 6 – at the moment there is only one measurement basis (i.e. fair value); with the amendment as proposed there will be two measurement options. Therefore, should we add a disclosure requirement so that it is clear which basis is used? There was an agreement, that the entity should disclose the measurement basis.

          The Board agreed with the Staff proposals for changes to the IFRS for SMEs (as modified with the drafting comments).

           

          Issues from RFI – changes NOT proposed by Staff

          Reasons for not adding these issues to the IFRS for SMEs are stated in Staff Paper 8C:

          1. The revised IFRS Conceptual Framework (Section 2) – whether it should be incorporated (currently incomplete)
          2. Other comprehensive income (Section 5) – whether OCI should be removed from the IFRS for SMEs
          3. Hedging instruments (Section 12) – the types of hedging instruments permitted are too limited
          4. Accounting for investment property (Section 16) – provide an accounting policy choice (FV or cost) that is currently available in IAS 40
          5. Accounting for biological assets (Section 34) – a cost model should be permitted
          6. Further reduction in disclosure requirements (several sections)
          7. Reduced disclosure framework for subsidiaries
          8. Size-related reliefs – e.g. for disclosures
          9. Name of the Standard
          10. Barter transactions (Section 23) – whether additional guidance is required

          There has not been much discussion on the Staff proposals because they were generally supported.  A limited discussion was held about Issue 10; namely whether the new standard on Revenue Recognition would affect accounting for the barter transactions. It was considered unnecessary to address this concern as the new standard was not effective yet.

          The Board agreed with the Staff proposals not to proceed with the changes in respect of the above issues.

          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.