IFRS For SMEs

INTRODUCTION

Sunday, December 29, 2024 AAU SCHOOL OF COMMERCE 1

 Contents
 International Accounting Standards
 What is IFRS
 History of IFRS
 How IFRSs are developed?
 Existing IFRSs – The Full Version
 IFRS for SMEs
 Who are eligible to use it?
 How does it differ from full IFRSs?
 Benefits of Adopting IFRS for SMEs
 Sections of IFRS for SMEs
 Application of IFRS in Ethiopia.
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International Accounting Standards

International Financial
Reporting Standards (IFRS)
IFRS for Small and Medium-
sized Entities (SMEs)
International Public Sector
Accounting Standards (IPSAS)
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 What is IFRS?
IFRS Stands for International Financial Reporting
Standards.
IFRSs refer to:
 Single set of standards & interpretations applicable to
general purpose financial statements and other financial
reporting's of profit oriented entities.
IFRS = Single set Global Accounting
Standards
(I-GAAP)
 With a demand to harmonize the financial
reporting standards (as a global language);
IFRS is getting momentum.
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 What is IFRS…
IFRSs are issued by International Accounting
Standards Board (IASB.)
The term IFRS comprises:
 IFRS issued by IASB;
 IAS issued by (International Accounting Standards
Committee) IASC; and

 Interpretations issued by the Standing Interpretations

Committee (SIC) and the International Financial
Reporting Interpretations Committee (IFRIC) of the IASB
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How are IFRSs developed?
 IFRS is developed by the IASB
 It is supported by an external:
 IFRS Advisory Council,
Accounting Standards Advisory Forum
(ASAF) of national standard-setters and
IFRS Interpretations Committee
 It follows a thorough, open, participatory
and transparent due process.
 Engages with investors, regulators,
business leaders and the global
accountancy profession at every stage of
the process.
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 Existing IFRSs
 IAS 1 Presentation of Financial Statements
 IAS 2 Inventories
 IAS 7 Statement of Cash Flows
 IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
 IAS 10 Events after the Reporting Period
 IAS 11 Construction Contracts
 IAS 12 Income Taxes
 IAS 16 Property, Plant and Equipment
 IAS 17 Leases
 IAS 18 Revenue
 IAS 19 Employee Benefits
 IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance
 IAS 21 The Effects of Changes in Foreign Exchange
Rates
 IAS 23 BorrowingSunday,
Costs December 29, 2024 AAU SCHOOL OF COMMERCE 10
IFRS … (Cont’d)
 IAS 26 Accounting and Reporting by Retirement Benefit
Plans
 IAS 27 Separate Financial Statements
 IAS 29 Financial Reporting in Hyperinflationary
Economies
 IAS 32 Financial Instruments: Presentation
 IAS 33 Earnings per Share
 IAS 34 Interim Financial Reporting
 IAS 36 Impairment of Assets
 IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
 IAS 38 Intangible Assets
 IAS 39 Financial Instruments: Recognition and
Measurement
 IAS 40 Investment Property
 IAS 41 Agriculture
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IFRS … (Cont’d)
 IFRS 1 First time adoption
 IFRS 2 Share based payment
 IFRS 3 Business combination
 IFRS 4 Insurance contracts
 IFRS 5 Non-current Assets Held for Sale and discontinued
operations
 IFRS 6 Exploration for and Evaluation of Mineral Resources
 IFRS 7 Financial Instruments: Disclosures
 IFRS 8 Operating Segments
 IFRS 9 Financial Instruments
 IFRS 10 Consolidated Financial Statements
 IFRS 11 Joint Arrangements
 IFRS 12 Disclosure of Interests in Other Entities
 IFRS 13 Fair value measures
 IFRS 14 Regulatory deferral accounts
 IFRS 15 Revenue from contracts with customers
 IFRS 16 Leases
 IFRS 17 Insurance Sunday,
Contracts
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 IFRS for SMEs
IFRS for Small and Medium-Sized
Entities
Good Financial Reporting Made Simple.
230 pages
Simplified IFRSs, but built on an IFRS
foundation
Completely stand-alone
Designed specifically for SMEs
Internationally recognized
Final standard issued 9 July 2009
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Who are eligible to use it?
Any entity that does not have
public accountability...
 securities not publicly traded
 not a financial institution
...and is required or chooses to
produce General Purpose
Financial Statements (GPFS) to
external users.

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What are GPFS? 15

General purpose financial

statements are prepared on a
basis that is designed to provide
useful information to a wide
range of users (eg. investors
and creditors) who are not in a
position to demand reports
tailored to meet their particular
needs.

© 2011 IFRS Foundation

Are SMEs statements GPFS? 16
The objective of financial
statements prepared in
accordance with the IFRS for
SMEs is to provide information
about the entity’s financial
position, performance and cash
flows that is useful to a broad
range of users who are not in a
position to demand reports
tailored to meet their particular
information needs. © 2011 IFRS Foundation
Who is the standard aimed
at?
Which entities must produce GPFS
-is a public interest issue
Decided by parliaments and
regulators, not by IASB
Why? There is a public benefit in
good
financial information about
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 How does it differ from full IFRSs?
Tailored for SMEs
 User needs for information about
cash flows, liquidity, and solvency
 Costs and SME capabilities
Much smaller
230 pages vs 3,000 plus in full
IFRSs
Organized by topic
Simplifications from full IFRSs

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 How is it simplified?
1. Some topics in IFRSs omitted
if irrelevant to private entities
2. Where IFRSs have options,
only simpler option included
3. Recognition and measurement
simplifications
4. Reduced disclosures

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Disclosure simplifications

Big reduction in disclosures:

Full IFRSs – more than 3,000
items in the disclosure
checklist
IFRS for SMEs – roughly 300
disclosures Sunday, December 29, 2024 AAU SCHOOL OF COMMERCE 21
 Benefits of Adopting IFRS for
SMEs
Improved access to capital
 This is the priority area for SMEs

Improved comparability
Improved quality of reporting as compared
to existing national GAAP
Less of a burden for entities in jurisdictions
where full IFRSs are now required.

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 What would the audit report say?

 Whatthe unreserved statement of

compliance should state;
The financial statement have been prepared in
accordance with the provision of International
Financial Reporting Standards for Small and
Medium-sized Entities (IFRS for SMEs)
What would the audit report
should state :
“Fairly presents financial position, results of
operations, and cash flows in conformity with
the International Financial Reporting Standards
for Small and Medium-sized Entities”
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 IFRS for SMEs
 Section 1 – Small and Medium sized Entities
 Section 2 – Concepts and Pervasive
Principles
 Section 2 – Financial Statement Presentation
 Section 4 – Statement of Financial Position
 Section 5 – Statement of Comprehensive
 Section 6 – Statement of Changes in Equity
 Section 7 – Statement of Cash Flows
 Section 8 - Notes
 Section 9 - Consolidation
 Section 10 – Accounting Policies
 Section 11 – Basic Financial Instruments
 Section 12 – Complex Financial Instruments
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IFRS … (Cont’d)
 Section 13 – Inventories
 Section 14 – Associates
 Section 15 – Joint Ventures
 Section 16 – Investment Property
 Section 17 – Property, Plant & Equipment
 Section 18 – Intangibles Other than Good will
 Section 19 – Business Combinations and
Good will
 Section 20 – Leases
 Section 21 – Provisions and Contingencies
 Section 22 – Liabilities and Equity
 Section 23 – Revenue
 Section 24 – Government Grants
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 IFRS … (Cont’d)
 Section 25 – Borrowing Costs
 Section 26 – Share Based Payments
 Section 27 – Impairment of Assets
 Section 28 – Employee Benefits
 Section 29 – Income Tax
 Section 30 – Foreign Currency Transaction
 Section 31 – Hyperinflation
 Section 32 – Events After End of Reporting
Period
 Section 33 – Related Party Disclosures
 Section 34 – Specialized Activities(agriculture,
mining, and Service Concession Arrangements)
 Section 35 – First Time Adoption
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THE ADOPTION OF IFRS IN ETHIOPIA
 We had no National GAAP & no
Standard setting body before;
 The Practice was Characterized by:

 Fragmented reporting basis

 Tax base reporting Culture

was dominant
 Lack of consistency and
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The Adoption of IFRS in Ethiopia…

 IFRSs & IPSASs are adopted via

proclamation. No. 847/14 called
“Financial Reporting
Proclamation”;
 Which also endorsed the
establishment of AABE (via
Regulation # 332/14)
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The application of IFRS in Ethiopia …
 Accounting and Audit Board of Ethiopia
(AABE) established and took responsibility
to guide and dictate the implementation of
IFRS
 Adoption: Complete adherence to the IFRS.
(Highly encouraged by IASB)
 Adaptation: Customizing the standard to
specific need of the country. (Highly
discouraged by IASB)

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Accounting and Auditing Board of
Ethiopia
(1)Promoting high quality reporting of financial
and related information by reporting
entities;

(2)Promoting the highest professional

standards among auditors and accountants;

(3)Promoting the quality of accounting and

auditing services;

(4)Ensuring that the accounting profession is

used in the public interest; and

(5)Protecting the professional independence of

accountants and auditors.
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 AABE’S IMPLEMENTATION
ROADMAP
 Issued on April/2016
 Issued basic guide on transition
requirements & phases of

31
implementation
3 mandatory phases of adoption
Disclosure & reporting
Requirements
First Time Adoption Preparation
guides
 Formation of implementation Task
force & Activities.
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IFRS implementation road map (Ethiopia)
Three phase transition over 3 years:
 Phase 1: Significant Public Interest
Entities (Financial Institutions and
public enterprises owned by Federal
or Regional Governments- Adoption
of IFRS)
◦starting at the start of EFY 2010
(Specifically on Hamle 1, 2009);

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IFRS implementation road map (Ethiopia)
Three phase transition over 3 years:
 Phase 2: Other Public Interest Entities (ECX
member companies and reporting entities
that meet PIE quantitative thresholds)
adoption of IFRS and for Charities and
Societies adoption of IPSAS
◦ start adoption of the standards at the start
of EFY 2011 (Specifically Hamle 1, 2010)
 Phase 3: Small and Medium-sized Entities
adoption of the IFRS for SMEs
◦ start adoption of the standards at the start
of EFY 2012 (Specifically Hamle 1, 2011)

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Revised adoption of IFRS/IPSAS in Ethiopia
is scheduled as:

1. እስከ 2015 ዓ.ም/ 2023 G.C / ሙሉ

ደረጃዎችን /Full IFRS/ የሚተገብሩ፡
i. ከፍተኛ የህዝብ ጥቅም ያለባቸዉ
(Significant PIEs)፣
ii. ሌሎች የህዝብ ጥቅም ያለባቸዉ (Other
PIEs) ሲሆኑ

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2. እስከ 2016 ዓ.ም/ 2024 G.C / ሙሉ
ደረጃዎችን የሚተገብሩ፡
i. አነስተኛ እና መካከለኛ ድርጅቶች /IFRS for
SMEs/ ደረጃዎችን እና
ii. የበጎ አድራጎት ድርጅቶች እና ማህበራት
/Accrual IPSASs/ የሚተገብሩ

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If at least two of the following
quantitative threshold is met, the
company falls into Other PIEs
category & required to apply
IFRS.
i. Annual Turnover > Br
300,000,000;
ii. Total Asset > Br 200,000,000;
iii. Total Liability > Br
200,000,000;
iv. Employees >200 employees
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 If at least two of the following
quantitative threshold is met, the
company falls into SMEs category
and required to apply IFRS for SMEs:
i. Annual Turnover = Br 20,000,000 -Br
300,000,000;
ii. Total Asset = Br 20,000,000 - Br
200,000,000;
iii. Total Liability = Br 20,000,000-Br
200,000,000;
iv. Employees = 20-200 employees.

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 Is it publicly accountable?
An entity operates two types of business
from its premises—banking and retail
clothing. Its banking operation takes
deposits from the general public in
return for a promise to pay to its clients
their capital plus a return of 2% of the
amount deposited 90 days after
receiving the cash from them. The entity
uses the funds generated in its banking
operation partially to fund its retail
clothing operations.
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 Is it publicly accountable?
An entity’s only business is earning
interest on money that it lends to its
clients. The entity obtains all of its
funds direct from its two owner-
managers both of whom are
billionaires (ie the entity does not
take deposits from customers).

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Can the bank apply IFRS for
SMEs
A small community bank that takes
deposits from the general public
wishes to apply the IFRS for SMEs
Standard and assert that its
financial statements are prepared
in compliance with its
requirements. The jurisdiction in
which the bank operates has no
formal reporting requirements that
apply to the entity.
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 What do you think?
An entity that does not have public
accountability, chooses to comply with the
IFRS for SMEs Standard, despite not being
required to do so. The entity sends the
financial statements to the entity’s primary
suppliers, bankers and non-manager
owners. The entity makes an explicit and
unreserved statement of compliance with
the IFRS for SMEs Standard in the notes.
The facts are the same as in Example 1.
However, in this example, the financial
statements are not sent to anyone outside
the management of the organisation.
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Does it comply with IFRS for
SMEs?
An entity that does not have public
accountability prepares its financial
statements following the local GAAP of
the jurisdiction in which it operates. The
local GAAP is, except in name, word for
word the same as the IFRS for SMEs
Standard. The entity sends the financial
statements to the entity’s primary
suppliers, bankers and tax authorities.
The entity makes an explicit and
unreserved statement of compliance with
local GAAP in the notes.
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Questions/ Suggestions

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