AUGUST 24, 2020 (MON) 10:00AM-12:00PM  NO AUDIT REPORT IF TOTAL

KEY FEATURES OF PFRS FOR SMALL ENTITIES ASSET OR TOTAL LIABILITY

SPEAKER: MS. KATHERINE U. SOBREMONTE ISLESS THAN P600,000
1.5 CPD UNITS – CERTIFICATES TO BE RELEASED NEXT - IF THRESHHOLD WERE BREACHED:
WORKING DAY o IS CHANGE SIGNIFICANT AND CONTINUING?
o YES, FOR 20% CHANGE OR MORE – TRANSITION
PFRS FOR SMALL ENTITIES TO NEXT FRAMEWORK
 THIRD FINANCIAL REPORTING STANDARD PROPOSED o OTHERWISE, CAN USE THE SAME FRAMEWORK
BY ACPAPP o STILL RELIES ON MANAGEMENT’S JUDGEMENT
 APPROVED BY PRC: FEB 20, 2018 -
 IN LINE WITH EASE OF DOING BUSINESS INITIATIVE KEY SIMPLIFICATIONS OF PFRS FOR SMALL ENTITIES
(LIPISDEBA)
THE NEED FOR PFRS FOR SMALL ENTITIES: 1. LEASES
- 99.52% OF BUSINESSES ARE MSME’s (MICRO, SMALL, 2. INVENTORIES
MEDIUM ENTITIES) 3. PROVISONS AND CONTINGENCIES
- PFRS FOR SMEs STILL TO COMPLEX 4. INVESTMENT PROPERTIES
- TO ALLOW SMALL ENTITIES TO COMPLY WITH 5. SHARE BASED PAYMENT TRANSACTIONS
FINANCIAL REPORTING REQUIREMENTS WITHOUT DUE 6. DEFERRED TAXATION
BURDEN 7. EMPLOYEE BENEFITS
o REDUCE NUMBER OF CHOICES FOR 8. BIOLOGICAL ASSETS
ACCOUNTING TREATMENT 9. ACCOUNTING POLICIES, ESTIMATES & ERRORS
o ELIMINATE TOPICS NOT GENERALLY RELEVANT
o 35 SECTIONS (PFRS SMEs) DOWN TO 29
SECTIONS (PFRS FOR SEs) 1. LEASES:
SMEs: TWO CLASSIFICATIONS (OPERATING/FINANCE)
WHICH BUSINESSES CAN ADOPT PFRS FOR SEs: SEs: OPERATING LEASE ONLY
- SEC MEMO CIRCUOLAR 5-2018
- ALL SMALL ENTITIES SHALL USE PFRS FOR SEs DISCLOSURES FOR LEASES:
o EXCEPT; THOSE CONDUCTING BUSINESS o GENERAL DESCRIPTION OF SIGNIFICANT LEASING
OUTSIDE PHILIPPINES ARRANGEMENT
o EXCEPT; SUBSIDIARY OF PARENT REPORTING  CONTINGENT RENT
UNDER FULL PFRS/PFRS FOR SMEs  RENEWAL TERMS
o EXCEPT; SUBSIDIARY OF A FOREIGN PARENT;  PURCHASE OPTIONS
o BRACH OFFICEOF ROHQ OF A FOREIGN  ESCALATION CLAUSES
COMPANY UNDER FULL IFRS OR IFRS FOR SMEs  SUBLEASES
o EXCEPT; THOSE THAT BREACH THE THRESHHOLD  RESTRICTIONS IMPOSED BY LEASE
o EXCEPT; TOSE UNDER LIQUIDATION ARRANGEMENT
o EXCEPT; ALL OTHER CASES THE SEC DEEMS AS o AMOUNT OF EXPENSE RECOGNIZED FOR THE
VALID EXCEPTION YEAR
o MUST DISCLOSE GROUNDS FOR EXEMPTION IN o LEASE COMMITMENT (NOT LATER THAN 1 YEAR,
THE NOTES TO FS LATER THAN 1 YEAR, NOT LATER THAN 5 YEARS,
LATER THAN 5 YEARS) – NOT REQUIRED UNDER
THRESHHOLDS: SE; APPLIES TO SMEs ONLY.
SMALL ENTITIES: P3M – P100M TOTAL ASSET OR LIAB
SMEs: P100M – P350M ASSET OR P100-250 LIABILITIES 2. INVENTORIES
FULL PFRS: ASSETS>P350M; LIABILITIES>P250M - DEFINITION: DOES NOT INCLUDE BIOLOGICAL ASSETS
FOR SEs
- MICRO ENTITIES OPTIONS - SUBSEQUENT MEASUREMENT:
o INCOME TAX BASIS - SMEs: LOWER OF COST LESS COST TO SELL/COMPLETE
o PFRS FOR SMALL ENTITIES AND MARKET VALUE
 SEC NOTICE ISSUED MARCH 18,2019 - SEs: LOWER OF COST OR MARKET VALUE

DISCLOSURES FOR INVENTORIES

 o ACCOUNTING POLICIES INCLUDING COST
FORMULA USED
o TOTAL CARRYING AMT OF INVENTORIES,
CARRYING AMOUNT ON CLASSIFICATIONS
o AMOUNT OF INVENTORIES RECOGNIZED AS
EXPENSE
o IMPAIRMENT LOSSES RECOGNIZED OR
REVERSED IN P&L
o TOTAL CARRYING AMOUNT PLEDGED AS
SECURITIES FOR LIABILITIES
- **ADJUSTMENTS UPON TRANSITIONING: TO
CLOSED/CHARGED TO RETAINED EARNINGS
3. CONTINGENCIES AND PROVISIONS
ONEROUS CONTRACT: UNAVOIDABLE COSTS OF
MEETING OBLIGATIONS UNDER THE CONTRACT EXCEED
THE ECONOMIC BENEFITS EXPECTED TO BE RECEIVED
UNDER IT.
SEs: ALL LOSS RELATED TO ONEROUS CONTRACTS TO BE
RECOGNIZED IMMEDIATELY
4. INVESTMENT PROPERTIES
DEFINITION:
SMEs: HELD BY OWNER OR BY LESSEE UNDER FINANCE
LEASE
SEs: HELD BY OWNER (NO FINANCE LEASE)
SUBSEQUENT MEASUREMENT
SMEs: FAIR VALUE AT EACH REPORTING DATE
SEs: EITHER COST MODEL OR FAIR VALUE
TRANSFER OF INVESTMENT PROPERTY: IF RELIABLE
MEASURE OF FV IS NO LONGER AVAILABLE
SMEs: TRANSFER IP TO PPE
SEs: CONVERT FROM FV TO COST MODEL
**IF COST CANNOT BE IDENTIFIED: CARRYING
AMOUNT SHALL BE DEEMED TO BE THE COST
5. SHARE BASED PAYMENT TRANSACTIONS
SMEs: HIERARCHY OF MEASUREMENT: FV OF GOODS
RECEIVED; FV OF EQUITY INSTRUMENT GRANTED
SEs: NET ASSET VALUE OF EQUITY INSTRUMENTS
BE GRANTED (ASSETS LESS LIAB; DIVIDED BY # OF
OUTSTANDING SHARES = NET BOOK VALUE/NET
ASSET VALUE)
6. DEFERRED TAXATION
SEs: WITH A CHOICE BETWEEN:
o TAXES PAYABLE METHOD (CURRENT TAX
LIABILITY)
o INCOME TAXES METHOD
7. EMPLOYEE BENEFITS
8. BIOLOGICAL ASSETS
9. ACCOUNTING POLICIES, ESTIMATES AND ERRORS
SMEs: RETROSPECTIVE
SEs: PROSPECTIVE

**TAKE NOTE: IF UNDER REALTY SECTOR: Q&A PORTION

LAND/BLDG/PROPERTIES WILL BE TREATED AS
ORDINARY ASSET
*IF TO ADOPT FAIR VALUE MODEL: MUST REFER
CONCEPTS AND PERVASIVE PRINCIPLES ON HOW TO
GET FV OF ASSET
**MOST OF REQUIREMENTS IN PFRS FOR SEs ARE
BASED ON COST, UNLESS FV IS PERMITTED
EFFECT OF PANDEMIC TO THE NOTES TO FS:
1. EFFECT OF COVID, PLANS OF MANAGEMENT TO
MITIGATE FFECTS OF COVID
2. SUBSEQUENT EVENTS (2019)
3. LEASE COMMITMENT

HIERARCHY IN DETERMINING FV OF AN ASSET:

1. SALES PRICCE IN A BINDING AGREEMENT IN AN
ARM’S LENGTH TRANSACTION OR QUOTED
PRICE FOR AN IDENTICAL ASSET IN AN ACTIVE
MARKET
2. RECENT PRICE OF IDENTICAL ASSET AS LONG AS
NO SIGNIFICANT CHANGE IN ECONOMIC VALUE
3. VALUATION TECHNIQUE