SMEs

• The FRSC approved on October 13, 2009 the

adoption of IFRS for SMEs issued by the IASB
as Philippine Financial Reporting Standards for
Small and Medium Sized Entities of PFRS for
SMES.
• The Philippine Securities and Exchange
Commission adopted on December 3, 2009
the PFRS for SMEs.
 Sections
• There are thirty five (35) sections comprising
the PFRS for SMEs.
Definition
Entities that:
a) Do not have public accountability and
b) Publish general purpose financial statements
for external users
 Public Accountability
• An entity has public accountability if:
– Its debt or equity instruments are traded in a
public market or it is in the process of issuing such
instruments for trading in public market
– It holds assets in fiduciary capacity for a broad
group of outsiders as one of its primary
businesses
• The PFRS for SMEs is designed to apply to the general
purpose financial statements and other financial
statements and other financial reporting of profit-
oriented entities that “do not have public
accountability”.
• The objective of general purpose financial
statements prepared in accordance with PFRS for SMEs
is to provide useful information about an entity’s
financial position, performance and cash flows to a
wide range of users who are not in a position to
demand reports tailored to meet their particular
needs.
 SME under Philippine jurisdiction
• The Philippine Securities and Exchange
Commission defines SME as an entity:
• With total assets between P 3,000,000 and P
350,000,000 or with total liabilities between
P3,000,000 and P250,000,000.
• That is not required to file financial
statements under SRC 68.1.
 Definition according to SEC
• That is not in the process of filing financial
statements for the purpose of issuing any class
of instruments in a public market.
• That is not holder of secondary license issued
by a regulatory agency
• That is not a public utility.
 Micro-business entities

• Entities whose total assets or total

liabilities are below the P3,000,000 floor
threshold.
• Accounting options in the preparation of
financial statements:
a) Full PFRS
b) PFRS for SMEs
c) Another acceptable basis of accounting
• .

Exemptions from PFRS for SMEs

 First-time Adopter
• An entity that presents its first annual
statements that conform with PFRS for SMEs
regardless of whether the previous accounting
framework was full PFRS or another set of
generally accepted accounting principles.
 Date of Transition
• The beginning of the earliest period for
which full comparative information is
presented in accordance with PFRS for SMEs
in the first annual financial statements that
conform with PFRS for SMEs.
• Effective for annual periods beginning on
or after January 1, 2010.
 Transition from PFRS for SMEs to full
PFRS
• The entity shall be required to transition to
full PFRS in the next year if the ceiling
threshold is breached or another acceptable
accounting basis if the floor threshold is
breached in the current year.
Opening statement of financial statement
• The opening statement of financial
position is the statement of financial position
on the date of transition to PFRS for SMEs.
• First-time adoption requires full retrospective
application of PFRS for SMEs effective at the
reporting date for an entity’s first annual
financial statements that conform with PFRS
for SMEs with regards to accounting policies.
• The first-time adopter shall recognize
those adjustments directly in retained
earnings or another category of equity, if
appropriate.
 Mandatory exceptions to
retrospective application
• A first-time adopter does not change the
accounting that it followed previously for any of
the following transactions:
• Derecognition of financial assets and financial
liabilities
• Hedge accounting
• Accounting estimates
• Discontinued operations
• Measuring noncontrolling interest
 Reconciliation
A first-time adopter shall make the
following reconciliation on the financial
statements:
• Reconciliation of equity reported under PFRS
for SMEs for both:
– The transition date
 Reconciliation
– The end of the latest period presented in the
entity’s most recent financial statements
• Reconciliation of the profit or loss determined
in accordance with the previous reporting
framework for the latest period in the entity’s
annual financial statements to profit or loss
determined in accordance with PFRS for SMEs
for the same period.
 Chapter 22 SMEs QUALITIES AND
GENERAL FEATURES
• OBJECTIVE OF FINANCIAL STATEMENTS
• To provide information about the financial
position, performance and cash flows of the
entity that is useful for economic decision
making of users.
QUALITATIVE CHARACTERISTICS PFRS for SMEs Full PFRS

Understandability Same Same as PFRS for SMEs

Relevance Same Same.

Materiality Same Same as PFRS for SMEs

Reliability Same Same as PFRS for SMEs

Substance over form Same Same as PFRS for SMEs

Prudence Same Same as PFRS for SMEs

Completeness Same Same as PFRS for SMEs

Same Same as PFRS for SMEs

Comparability
Same Same as PFRS for SMEs
Timeliness
Balance between benefit Financial reporting imposes cost and it is
and cost important that such cost is justified by
the benefits derived from the financial
information

Faithful representation Same Same

ELEMENTS OF FINANCIAL STATEMENTS PFRS for SMEs Full PFRS
Asset Definition :Same Definition: Same of PFRS for SMEs
Recognition : Same
Measurement: Recognition: Same of PFRS for SMEs
1.)Historical cost
2.)Fair Value Measurement:
1.)Historical cost
2.)Current cost
3.)Realizable value
4.)Present Value
Liability Definition: Same. Definition: Same of PFRS for SMEs

Recognition: Same Recognition: Same of PFRS for SMEs

Measurement: Measurement:
1.)Historical cost 1.)Historical cost
2.)Fair Value 2.)Current cost
3.)Realizable value
4.)Present Value

Equity Definition: Same Definition: Same of PFRS for SMEs

Recognition: Same Recognition: Same of PFRS for SMEs

Measurement:
1.)Historical cost Measurement:
2.)Fair Value 1.)Historical cost
2.)Current cost
3.)Realizable value
4.)Present Value
 Definition: Same of PFRS for SMEs

Recognition:
Definition: Same
Same of PFRS for SMEs
Recognition: Same

Income Measurement:
Measurement:
1.)Historical cost
1.)Historical cost
2.)Current cost
2.)Fair Value
3.)Realizable value
4.)Present Value

Definition: Same of PFRS for SMEs

Definition: Same
Recognition: Same of PFRS for SMEs

Recognition:
Measurement:
Expense
1.)Historical cost
Measurement:
2.)Current cost
1.)Historical cost
3.)Realizable value
2.)Fair Value
4.)Present Value
 PFRS for SMEs Full PFRS

Recognition Same Same as IFRS for SMEs

The process of
A) Historical cost
determining the
B) Current cost.
monetary amounts at
“Current purchase
which an entity
exchange price.”
measures asset, liability,
C) Realizable value.
Measurement income and expense
“Current sale
exchange price”
A) Historical cost. “Past
D) Present value.
purchase exchange
“Future exchange
price”
price”
B) Fair value.
 General Features of
PFRS for SMEs Full PFRS
Financial Statement

Fair Presentation Same Same of PFRS for SMEs

Compliance with PFRS for SMEs Same Same of PFRS for SMEs

Going concern Same Same of PFRS for SMEs

Accrual Basis Same Same of PFRS for SMEs

Materiality and aggregation Same Same of PFRS for SMEs

Offsetting Same Same of PFRS for SMEs

Frequency of Reporting Same Same of PFRS for SMEs

Comparative Information Same Same of PFRS for SMEs

Same
Consistency of presentation Same of PFRS for SMEs
Chapter 23 – Statement of Financial
Position
Category SMEs Full PFRS

Components 1. (A single statement of income and (A single statement of income

retained earnings can be presented.)
2. A third statement of financial
position is not required.
and retained earnings is not
permitted.)
1. Statement of changes in equity
is always required.
2. Third statement of financial
position

Identification (It is the same.) (It is the same.)

Statement There is no prescribed format for the
of Financial statement position of an SME.
Position Required minimum line items presented:
a. Cash and cash equivalents
b. Trade and other receivables
c. Financial assets, excluding amounts
shown under letters a, b, j, k.
d. Inventories
e. Property, plant and equipment
f. Investment property carried at fair
value through profit or loss
g. Intangible assets
h. Biological assets carried at cost less
accumulated depreciation and
impairment
i. Biological assets carried at fair value
through profit or loss
j. Investments in associates
k. Investment in joint ventures
Minimum line items
a. Cash and cash equivalents
b. Trade and other receivables
c. Financial assets (other than a, b,
j)
d. Inventories
e. Property, plant and equipment
f. Investment property
g. Intangible assets
h. Biological assets
i. Total assets classified as held for
sale and assets included in
disposal group classified as held
for sale
j. Investment in associates using
the equity method
l. Trade and other payables
m. Financial liabilities, excluding amounts shown
under letter l and p
n. Current tax assets and current tax liabilities
o. Deferred tax assets and deferred tax liabilities
(always shown as noncurrent liabilities)
p. Provisions
q. Noncontrolling interest
r. Equity attributable to the owners of the
parent
The following items are not required under
PFRS for SMEs but required for full PFRS:
a. Total assets classified for sale
b. Total of liabilities included in disposal group
classified as held for sale
The presentation of both investments in
associates and investments in joint ventures are
required.
Same provision on the current and noncurrent
presentation, and the definition of current assets,
current liabilities and noncurrent liabilities.
k. Trade and other payables
l. Financial liabilities (other than k and o)
m. Current tax assets and current tax
liabilities
n. Deferred tax assets and deferred tax
liabilities
o. Provisions
p. Noncontrolling interest
q. Share capital and reserves
The presentation of investments in
associates are required but not investments
in joint ventures.
Same provision on the current and
noncurrent presentation, and the definition
of current assets, current liabilities and
noncurrent liabilities.
Choice of An SME shall , either in the statement of
presentation financial position or in the notes, the
following subclassifications of line items
presented:
1. Property, plant and equipment
2. Trade and other receivables,showing
separately amounts due from related
parties, amounts due from other
parties and accrued income not yet
billed
3. Inventories with the following
subclassifications:
a) Raw materials
b) Work in process
c) Finished goods
4. Trade and other payables, showing
separately the amounts payable to
trade suppliers, payable to related
parties, deferred income and accruals
5. Provisions for employee benefits and
other provisions
6. Classes of equity such as share capital,
share premium, retained earnings and
items of other comprehensive income.