Good Financial Reporting Made Simple. IFRS for SMEs 10/12/2015. Overview and Business Case for IFRS for SMEs

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1 Overview and Business Case for IFRS for SMEs Adoption of IFRS for SMEs in ASEAN Countries: Impacts on SMEs and SMPs 19 th AFA Conference Page 3 Agenda Introduction Overview and business case for IFRS for SMEs Status of adoption in ASEAN Impediments to adoption Implementation challenges The Philippine experience IFRS for SMEs = Good Financial Reporting Made Simple Page 2 Page 4

2 Why would an SME want to adopt it? Disclosure Simplifications Completely stand-alone Tailored for SMEs Users need information about short-term cash flows, liquidity and solvency Cost-benefits considerations Simplifications from full IFRSs Much smaller 230 pages vs 3,000+ in full IFRSs Internationally recognized Owners/Capital providers have confidence Remove uncertainties that affect their cost of capital Big reduction in disclosures: Full IFRSs more than 3,000 items in the disclosure checklist IFRS for SMEs roughly 300 disclosure items Page 5 Page 7 How did the IASB Simplify? A stable set of standards Omitted topics irrelevant to typical SMEs Where IFRSs have options, IFRS for SMEs include only the easier option Recognition and measurement simplifications Simplified drafting Reduced disclosures Subject to review only once every 3 years The IASB recently completed its initial comprehensive review, and concluded that the IFRS for SMEs is working well in practice. Consequently, only limited amendments were made. The amendments were issued in May The revised standard is effective on or after January 1, 2017 (earlier application permitted), and must be applied retrospectively. Most of the amendments simply clarify existing requirements or add supporting guidance. Significant changes made are as follows: Permitting SMEs to use a revaluation model for property, plant and equipment Aligning the main recognition and measurement requirements for income tax with full IFRSs Page 6 Page 8

3 Target adopters and eligible users of IFRS for SMEs Who is eligible to use it? Philippines Entities that Either have total assets between Php3 million to Php350 million or have total liabilities between Php3 million to Php250 million Are not listed or are not in the process of listing their debt or equity instruments Do not hold secondary licenses issued by regulatory agencies * For entities preparing consolidated FS, the above thresholds are based on the consolidated financial statements Page 9 Page 11 Who is eligible to use it? Who is the standard aimed at? Any entity that does not have public accountability Securities are not publicly traded Not a financial institution. and is required or chooses to produce General Purpose Financial Statements (GPFS) Millions of companies (over 99%)! The 52 largest stock exchanges in the world together have only around 45,000 listed companies globally. Publicly accountable entities (regardless of size) cannot use IFRS for SMEs. Size is generally not a barrier, however, eligibility to use is a jurisdictional consideration. Source: IASB website Page 10 Page 12

4 Who is the standard aimed at? SMEs in ASEAN Countries Status of adoption in ASEAN Account for between 88.8% to 99.9% of all establishments Employ more than 51.7% to 97.2% of the total workforce Contribute 30% to 53% to the ASEAN countries Gross Domestic Product (GDP) Source: Association of Southeast Asian Nations Communities: Small and Medium Enterprises Page 13 Page 15 Who is the standard aimed at? SMEs in the Philippines Status of adoption in ASEAN Represent about 99.6% of total registered enterprises Employ about 70% of the Philippine workforce Adopted For adoption within the next 2 years Not yet adopted Contribute 35% to the GDP Source: Philippine Department of Trade and Industry Page 14 Page 16

5 ASEAN countries that have adopted IFRS for SMEs word-forword ASEAN countries that have not adopted Cambodia Myanmar Philippines Singapore Locally known as Cambodia IFRS for SMEs (CIFRS for SMEs) Myanmar Financial Reporting Standards for SMEs (MFRS for SMEs) Philippine Financial Reporting Standards for SMEs (PFRS for SMEs) Singapore Financial Reporting Standards for Small Entities (SFRS for SEs) Comments Brunei In the process of reviewing the suitable accounting standards for SMEs Indonesia IFRS for SMEs used as point of reference for Tier 2 SAK ETAP, Indonesia s local accounting standards for SMEs Vietnam Has a local accounting regime for SMEs developed by the country s Ministry of Finance (MOF) Laos MOF in the process of developing an IFRS-based accounting standards for SMEs *Source: IFRS Foundation profiles *Source: IFRS Foundation profiles Page 17 Page 19 ASEAN countries that will adopt in the next 2 years Challenges in Adopting IFRS for SMEs Comments Malaysia Adopted and re-named as Malaysian Private Entities Reporting Standards (MPERS) in 2014 Effective for annual periods beginning on or after 1 January 2016 with early application permitted MPERS word-for-word similar to 2009 IFRS for SMEs except for certain requirements on income tax and property development activities Thailand In the process of adopting IFRS for SMEs without modification Will be locally called Thai Financial Reporting Standards for SMEs (TFRS for SMEs). Expected effective date is *Source: IFRS Foundation profiles Page 18 Page 20

6 Why are jurisdictions not adopting IFRS for SMEs? Some possible impediments Differences in the interpretation of an SME Impact/cost of transitioning from a local GAAP that is significantly different from the standard Linkage to local tax rules Differences with local regulations Differentiation between SMEs and large or public companies in terms of financial reporting Challenges in implementing IFRS for SMEs: The Philippine experience Some challenges experienced Obtaining requisite knowledge and skills Changes in systems to produce PFRS for SMEs compliant financial statements Managing the impact to key financial metrics Understanding and addressing tax implications Page 21 Page 23 Challenges in implementing IFRS for SMEs: The Philippine experience In conclusion Background In 2005, the country adopted IFRS as Philippine Financial Reporting Standards (PFRS). Philippine Accounting Standards (PAS) 101, Financial Reporting for Non-Publicly Accountable Entities, was also issued. Provided temporary relief for entities that qualify as NPAEs. NPAEs had the option to apply the new PFRS or the previous local GAAP. In 2009, IFRS for SMEs was adopted as PFRS for SMEs NPAEs that qualify as SMEs were required to adopt PFRS for SMEs beginning Page 22 Page 24

7 In conclusion About SGV The IFRS for SMEs Better quality reporting Tailored for the capabilities and needs of SME When SMEs aspire to become big, sound financials are a must SGV & Co. Assurance Tax Transactions Advisory About SGV & Co. SGV is the largest professional services firm in the Philippines that provides assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. SGV & Co. is a member firm of Ernst & Young Global Limited. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit SyCip Gorres Velayo & Co. All Rights Reserved. Page 25 Page 27 Thank you! Good Financial Reporting Made Simple Page 26