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International Federation of Accountants

International Federation of Accountants. IFRS for Private Entities (formerly IFRS for SMEs) Ali Cherif , Partner, Mazars , OECT IFAC SMP Forum 2008 Abuja, Nigeria, October 13, 2008. Content. Why an IFRS for Private Entities? IFRS for SMEs ED Next Steps

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International Federation of Accountants

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  1. International Federation of Accountants IFRS for Private Entities (formerly IFRS for SMEs) Ali Cherif, Partner, Mazars, OECT IFAC SMP Forum 2008 Abuja, Nigeria, October 13, 2008

  2. Content • Why an IFRS for Private Entities? • IFRS for SMEs ED • Next Steps • IASCF Training Materials for IFRS for PEs • Potential Use of IFRS for PEs • My Other Comments & Suggestions

  3. Why an IFRS for Private Entities? • Assist decision-making by financial statement users: • Bank lending/monitoring & credit rating • Overseas customers & vendors • Non-management investors & foreign venture capital • Development institutions (African Development Bank etc.) • Improved comparability & quality of reporting • Ease burden (verses full IFRSs/full national GAAP) • Enhanced access to capital • Efficiencies in education & training and auditing

  4. IFRS for SMEs Exposure Draft - Overview • Simplified principles tailored for smaller, private entities • Based on full IFRSs with modifications based on: • User needs • Cost-benefit • 254 pages; organized by topic into 38 sections • Sample financial statements & disclosure checklists • Issued Feb. 2007: deadline for comment Nov. 2007 • IFAC highly supportive of project

  5. IFRS for SMEs ED - Objective • General purpose financial statements for external users (see above) • Non-manager owners • Existing & potential lenders, vendors, creditors, customers • Credit rating agencies • Understand and compare performance, financial position, and cash flows • Auditor opinion on fair presentation

  6. IFRS for SMEs ED – Simplifications • Five kinds of simplifications: • Some IFRS topics omitted if irrelevant to private entities • Where IFRS has options, include only simpler one • Recognition and measurement • Reduced disclosures (400 verses 3000+ in IFRS) • Drafting • Finding an answer: • Number of cross-references to full IFRS • Must try to find answers in IFRS for PEs • May look in full IFRSs if answer not in IFRS for PEs

  7. IFRS for SMEs ED – Comment Letters • 162 comment letters ( 9 from Africa – 5 IFAC member bodies, 2 regional organizations, 2 other) • Key recommendations: • Remove all cross references to full IFRSs • Do not anticipate changes to full IFRSs • Historical cost model should be default • Income taxes – taxes payable only? • Consolidation – reduce or eliminate • Amortize goodwill & other intangibles • Fair value – reduce and clarify

  8. IFRS for SMEs ED – Comment Letters • Key recommendations (cont..): 8. Pensions – measure at liquidation amount? Actuarial gains/losses 9. Share-based payment – intrinsic value is not simpler 10. Leases – simplify calculations 11. Impairment – allow value in use 12. Debt-equity classification 13. Further disclosure simplifications • IFAC’s comment letter made many of these.

  9. IFRS for SMEs ED – Field Tests • 116 small entities from over 20 countries • Restated most recent annual financial statements using IFRS for PEs • Completed a questionnaire • Very few PEs had problems applying the ED • Main issues (few companies) were: • Determining fair values • Computing deferred taxes • First time: Equity and cash flow statements • Some doubts over rigor of field testing

  10. Next Steps • Staff analyses of comments / field tests complete • Board deliberating staff recommendations Q2-Q4 2008 • Many staff recommendations declined for example, elimination of deferred tax and options, amortization of goodwill • Final Standard: Vote end of 2008 • Effective: Whenever adopted locally • Training materials: Mid-late 2009

  11. IASCF Training Materials for IFRS for PEs • Being developed by IASC Foundation • One module per section • Finish by mid/late 2009 • Multiple languages • Free of charge! • IASCF train the trainers workshops • IFAC welcomes implementation support & looking into how it can help deliver workshops

  12. Potential Use of IFRS for PEs • South Africa already adopted it word for word • South African GAAP = full IFRS • CEO of SAICA has said: “It is very welcome. The standard in its current form already offers SMEs real relief, and when the final standard comes it will be even better.” • Likely many others in similar position will adopt • This does not mean standard is best solution • Much interest in EU – high demand for convergence • But signs of disappointment: EC will not adopt

  13. My Other Comments & Suggestions • Unlikely to be a solution for micro-entities: • IFAC research suggests ED much too complex • Reconsider further simplifications • Make pure stand-alone • Use even simpler language • Conduct analysis of whether satisfies user needs as part of post-implementation review

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