ized Entities (SMEs) 519. Chapter 14 pFRS for Small and Medium “siz Entities (SMEs) “a pel lated standard: PFRS for SMEs Fearning Objectives tate the basic purpose of the PERS for SMEs, a Define an SME. : provide the distinct differences between the full PERSs and the PERS for SMEs. Introduction since the adoption of the full IFRSs issued by the IASB, national standard-setters and regulators have received complaints, especially from entities considered “small and medium-sized entities,” of apparent difficulties in the application of the full IFRSs. “Full” IFRSs (or ‘Full’ PFRSs) refer to the various standards that have been discussed in the other chapters of this book. The IFRS for SMEs (on which the PERS for SMEs is based) was primarily developed in response to the apparent difficulties faced by some entities in adopting and applying the full IFRSs. Such difficulties include: a. Complexity, real or perceived, of compliance with full IFRS by SMEs, or b. High cost of implementation by SMEs. Overview on the topic Only the provisions of PFRS for SMEs that relate to financial accounting topics are discussed in this chapter. Those that relate to advanced accounting topics are included in the chapters of Accounting for Special Transactions and Accounting for Business Combinations books.— SP ler 17 O20 ij og na et Purpose The PERS for SMEs is adopted by the FRSC from the IASB’, International Financial Reporting Standard for Small and Medium-sizeq Entities (IFRS for SMEs) which was developed as a separate (stand-alone) standard intended to apply to the general Purpose financial statements of, and other financial reporting by, entities that in many countries are referred to by a variety of terms, including small and medium-sized entities (SMEs), private entities, and non-publicly accountable entities. PFRS for SMEs is only the minimum standard that qualifying entities need to adopt for the preparation and presentation of their financial statements. As such, SMEs may nevertheless opt to adopt the full PFRSs. Authority of the PFRS for SMEs Decisions on which entities are required or permitted to use the IASB’s standards rest with legislative and regulatory authorities and standard-setters in individual jurisdictions. In. the Philippines, per Securities and Exchange Commission (SEC) guideline, PFRS for SMEs shall cover corporations that: Have total assets of between P3 Million and P350 Million or total liabilities of between P3 Million and P250 Million; b. Are not required to file financial statements under SRC Rule 68.1; . Are not in the process of filing their financial statements for the purpose of issuing any class of instruments in a public a. market; Are not-holders of secondary licenses issued by a regulatory agency, such as banks, investment houses, finance companies, insurance companies, securities broker/dealers, mutual funds and pre-need companies; and : e, Are not public utilities. d. htsse suit and Mets Entities (Sy se 521 ie In other words, entities that may qualify as SME fn E are those the total assets of between P3M to P350M op | een PIM to P250M, IM or total liabilities of | not have public accountability, and p. 4 general purpose financi lish S fancial stat ee Examples of external users i ements for external veil i ts include owners who are not involved in nine the business, existing and potential creditors, and credit rating agencies, Pp anentity has public accountability when: the entity’s debt or equity securities are publicly listed (or in the process of issuing such instruments for trading in a public market, stock exchange or over-the-counter), or the entity holds assets in a fiduciary capacity for a broad group of outsiders, e.g, a bank accepting deposits from depositors, a mutual fund accepting investments from investors. some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, ifthey do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organizations, cooperative enterprises requiring a . nominal membership deposit, and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable. | | are those statements > General purpose financial statements ; inge of external users. that cater to the common needs of a wide ra External users are those that do not have the authority to demand financial reports tailored to their specificneeds.SMEs often produce financial statements only for the of owner-managers Or only for the use of tax authorities org S governmental authorities. Financial statements produceg wee for those purposes are not necessarily general purpose finan. statements. Oth; Micro entities ice Entities that have total assets or total liabilities below p3 Million (so called ‘micro entities’) may use “another acceptable basis 9 accounting.” However, a micro entity may nevertheless elect to apply the PFRS for SME or even the full PFRSs if it chooses to, Other acceptable basis of accounting Micro entities may use any of the following bases of accounting: a. Income tax basis of accounting, or b. Cash basis of accounting Management shall assess the acceptability of such basis of accounting in the light of the nature of the entity and the objective of the financial statements, or the requirements of the law or regulators and standard- setters. Income tax basis of accounting is an accounting that follows the recognition principles applicable in the preparation of income tax returns as provided under relevant tax laws rather than the provisions of PFRSs. For example, under PFRSs, research and development (R&D) costs are generally expensed outright while under the National Internal Revenue Code (NIRC), the taxpayer may elect to | expense the R&D costs outright or amortize it over a period of not less than sixty (60) months. Transition to PFRS for SME SMEs adopting the PERS for SMEs for the first time are considered first-time adopters. Additional disclosures are required under the PERS for SMEs for first-time adopters, On initial adoption of the PERS for SMEs, an entity shall apply the size’ criteria using the entity’s audited financiyr jo Total comprehensive income is the arithmetical difference between income and expenses. It is not a separate element of financial statements, and a separate recognition principle is Not needed for it.a > Profit or loss is the arithmetical difference between income and and expenses other than those items of income and expense hie : fa ® tha as items of other comprehensive income, It jg not : ‘ ot Jement of financial statements, and a sep are classified a separate ‘ recognition principle is not needed for it arate Accrual basis : An entity shall prepare its financial statements, except for cas), flow information, using the accrual basis of accounting. On the accrual basis, items are recognized as assets, liabilit equity, income or expenses when they satisfy the definitions and recognition criteria for those items. Measurement of assets, liabilities, income and expenses Measurement is the process of determining the monetary amounts at which an entity measures assets, liabilities, income and expenses in its financial statements. Measurement involves the selection of a basis of measurement. Two common measurement bases are historical cost and fair value: 1. Historical cost - For assets, historical cost is the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire the asset at the time of its acquisition. For liabilities, historical cost is the amount of proceeds of cash or cash equivalents received or the fair value of no cash assets received in exchange for the obligation at the tim? the obligation is incurred, or in some circumstances (for example, income tax) the amounts of cash or cash equivalen® expected to be paid to settle the liability in the normal cours? of business. of an Amortized historical cost is the historical cost ; | cos! asset or Jiabili i ic saad ability plus or minus that portion of its historic? Previously recognized as expense or income.mall and Medium-sized Entities (SMEs) 533 NS (SMI 5 pers for pair value is the amount for oxchanged, or a liability settled willing parties in an arm's length t which an asset could be ) between knowledgeable, ransaction, witial measurement vets and liabilities are initially measured ili : at historical cost the PFRS for SMEs requires initi As unless ial measurement at fair pale. subsequent measurement Financial assets and financial liabilities Basic financial assets and basic financial liabilities are measured at amortized cost less impairment. However, investments in equity instruments that are publicly traded or those items whose fair value can be measured reliably without undue cost or effort are measured at fair value with changes in fair value recognized in profit or loss (FVPL). All other financial assets and financial liabilities are generally measured at fair value with changes in fair value recognized in profit or loss (FVPL), unless the PERS for SMEs requires or permits measurement on another basis such as cost or amortized cost less impairment. Non-financial assets Most non-financial assets that an entity initially recognized at historical cost are subsequently measured on other measurement bases. For example: a. Inventories are subsequently measured at the lower of cost and selling price less costs to complete and sell. 5. Property, plant and equipment are measured either at (i) the lower of cost less any accumulated depreciation and impairment and the recoverable amount (cos! model) or (ii) the lower of the revalued amount and the recoverable amount (revaluation model).Chay 534 u cc. Impairment loss ecognized on non-financial assets that are : are in use or held for sale. Measurement of assets at those lower amounts ig it, ; = le to ensure that an asset is not measured al an amount y, baler th ‘ ; fir > 8 an what the entity expects to recover from the sale or use of ie . : a asset. Other non-financial assets are either permitted or required to be subsequently measured at fair value. Liabilities other than financial liabilities Most liabilities other than financial liabilities are measured at the best estimate of the amount that would be required to settle the obligation at the reporting date. Offsetting An entity shall not offset assets and liabilities, expenses, unless required or permitted by the PFRS for SM or income and * When computing for the gain or loss on the sale of an item of PPE, the entity shall offset the disposal costs from the net proceeds. * Measuring assets net of valuation allowances is not offsetting (e.g., deducting an allowance for doubtful accounts from the related receivable). Section 3 Financial Statement Presentation Fair presentation oe statements shall present fairly the financial posi financial : Performance and cash flows of an. entily: presentation requires the e efiects o boheril other events and conditions in accordance with ue jullons and recognition criteri a and expenses, tions Fait faithful representation of thi ia for assets, liabilities,small and Medium: 535 asl the application of the PERS for SMEs, when nec with additional » 18 preswmed to result in financial lose sia talk Ga : aionts that achieve a fair presentation of the financial gate ancial performance and cash flows of SME ‘jo 8, pes additional disclosures are necessary when compliance nthe specific requirements in the PERS for SMEs is insufficient wih Tye users to understand the effect of particular transactions, wor events and conditions on the entity’s financial position and gaancial performance. The application of the PFRS for SME by an entity with ul accountability does not result in a fair presentation. compliance with the PFRS for SMEs ‘An entity whose financial statements comply with the PFRS for SMEs shall make an explicit and unreserved statement of such compliance in the motes. Financial statements shall not be described as complying with the PFRS for SMEs unless they comply with all the requirements of the PFRS for SMEs. In the extremely rare circumstances when management concludes that compliance with the PERS for SMEs would be so misleading that it would conflict with the objective of financial statements of SMEs, the entity shall depart from that requirement (unless the relevant regulatory framework prohibits such a departure) and shall disclose the following: a. Management’s conclusion that the financial statements are fairly presented. b. Compliance with the PFRS for SMEs, except that it has departed from a particular requirement to achieve a fair Presentation. Nature and reason for the departure. If the relevant regulatory framework prohibits such departure, the entity should disclose the following: * The nature of the requirement in the PERS for SMEs, and the Teason why management has concluded that complying withpe taper that requirement is so misleading, in the circumstances that it conflicts with the objective of financial statements, b. For each period presented, the in the financial statements that management has concluded woug ry to achieve a fair presentation. adjustments to each ite be neces! Going concern a / ‘An assessment of the entity’s ability to continue as a going concer shall be made when financial statements are prepared, An entity is a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, 12 months from the reporting date. When management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to’ continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. Frequency of reporting An entity shall present a complete set of financial statements (including comparative information) at least annually. When the end of an entity’s reporting period changes ™4 the annual financial statements are presented for a period longet or shorter than one year, the entity shall disclose the following: a. that fact, b. 0% ef the reason for using a longer or shorter period, and c. the fact t A hat comparative amounts presented in the statements (includi ding the relate: 5) are not comparable, led notes) are not fi {nancial entirelyaf small and Medium-sized Entities (SMEs) A 537 consistency of presentation entity shall retain the presentation and cl “the financial statements from one period to other presentation or ropriate, or p. the PERS for SMEs requires a change in presentation, assification of items the next unless: i classificati cation would be more * The following shall be disc losed whi 4 amounts are reclassified: when comparative ,, Thenature of the reclassification, p. The amount of each item or class of items that is reclassified, and ¢, The reason for the reclassification. If it is impracticable to reclassify comparative amounts, an entity shall disclose why reclassification was not practicable. Comparative information Comparative information for the previous comparable period for all amounts presented in the current period’s financial statements shall be disclosed, except when the PERS for SMEs permits or requires otherwise. Comparative information for narrative and descriptive information shall be provided when it is relevant to the understanding of the current period’s financial statements. Materiality and aggregation An entity shall present separately ea items. An entity shall present separa Tature or function unless they are immaterial. ; Omissions or misstatements of items are material if they ‘ould, individually or collectively, influence the economic decisions of users made on the basis of the financial statements. _ “tetiality depends on the size and nature of the omission or " "statement judged in the surrounding circumstances. ch material class of similar tely items of a dissimilara et of financial statements Complete s* ' al statements of an entity shall inclug, le ‘A complete set of financi of the following: a. Statement of Statement of Comprehensive Income cc. Statement of Changes in Equity d. Statement of Cash Flows all nancial Position zr e, Notes Non-presentation of statement of changes in equity The entity may omit the statement of changes in equity and, in lieu thereof, present a single statement of income and retained earnings if the only changes to equity during the periods for which financial statements are presented arise from a. Profit or loss, b. Payment of dividends, c. Corrections of prior period errors, and d. Changes in accounting policy Non-presentation of statement of comprehensive income If an entity has no items of other comprehensive income in any of the periods for which financial .statements are presented, it may present only an income statement, or it may present a statement of paige income in which the ‘bottom line’ is labeled ‘protit or loss’. Comparative amounts Sin i . ee amounts are required to be presented in respect revi i one Liss re Period for all amounts presented in the current al statements, a complete set of financial stateme™™ means that ai i n entity shall present, as a minimum, two of exch! the required fi - quired financial statements and related notes. Presentation In a complete set of fin ; asentt each financial stat HL pres si ancial statements, an entity shal ent with equal prominence, heatand Medium: 5 for sl pre An entity may use titles for the fin, ose used in the PERS for SMEs ‘ancial statements other jon 8 long, a8 they are not isteadin: entification of the financial statements gxh of the financial statements and the notes shall be clearly jgentified and distinguished from other information in the same gocament- In addition, the following. information should be gisplayed prominently and repeatedly when necessary: 1, The name of the reporting entity and any change in its name since the end of the preceding Teporting period. 2 Whether the financial statements cover the individual entity ora group of entities. 3, The date of the end of the reporting period and the period covered by the financial statements. 4, The presentation currency. 5. The level of rounding, if any, used in presenting amounts in the financial statements. An entity shall disclose the following in the notes: a. The domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office). b. A description of the nature of the entity's operations and its principal activities. Presentation of information not required under PFRS for SMEs The PFRS for SMEs does not address presentation of segment information, earnings per share, or interim financial reports by an SME. Such disclosures are normally for entities with public accountability. An SME making such disclosures shall describe the basis for Preparing and presenting the information.Chapter yy 540 - tatement of Financial Position position (or balance Section 4 S' The statement of financial and equity as of a sy sheet) presents cific date the nd entity’s assets, liabilities of the reporting period. Minimum line items in the statement of financial position fa. Cash and cash equivalents. Frade and other receivables. Financial assets (excluding amounts shown under (a), (by, 0 and (k)). d. Inventories. e. Property, plant and equipment. f. Investment property carried at cost less accumulated depreciation and impairment. g. Investment property carried at fair value through profit or loss. h. Intangible assets. i. Biological assets carried at cost less accumulated depreciation and impairment. j. Biological assets carried at fair value through profit or loss. k. Investments in associates. 1. Investments in jointly controlled entities. m. Trade and other payables. n. Financial liabilities (excluding amounts shown under (I) and (p)). 0. Liabilities and assets for current tax. p. Deferred tax liabilities and deferred tax assets (these shall always be classified as non-current), q- Provisions. Non-controlling interest, preserited within equity separately ponte equity attributable to the owners of the parent. quity attributable to the owners of the parent. 7 Sequencing of item The PFRS for SMEs which items are Presented aboye 's in the statement of financial position does not prescribe the sequence ot format? fo be presented. The minimum line items simply provides a list of items tat insmall and Medium-sized Entities (SMUs) 541 sjicient different in nature or function to warrant separate uenatfn in the statement of financial position. An entity may include additional line items when the size, nature or function of an item is such that separate presentation jg relevant {0 an understanding of the entity’s financial sition. , ‘An entity may amend the descriptions and the sequencing of items to the nature of the entity and its transactions, to rovide information that is relevant to an understanding of the entity's financial position. current/Non-current distinction Current and non-current assets and liabilities shall be presented separately in the statement of financial position except when presentation based on liquidity provides information that is reliable nd more relevant. When presenting based om liquidity, all assets and liabilities shall be presented in the order of approximate liquidity (ascending or descending). Section 5 Statement of Comprehensive Income and Income Statement Total comprehensive income shall be presented in either of the following: a. Single statement of comprehensive income presenting all items of income and expense recognized in the period, or b. Two statements — a separate income statement presenting all items of income and expense except those that are recognized _ in other comprehensive income and a separate statement of comprehensive income showing’ components of other comprehensive income and the total comprehensive income for the Period. A change from the single-statement approach to the two- f : : pement approach, or vice versa, is a change in accounting icy. The prior year’s statement of comprehensive incomepresented as comparative information is re-presented Using newly adopted approach. ive income Other comprehensiv' : ; i Other comprehensive income comprises the following 1, Changes in the revaluation surplus for property, pj, : equipment measured under the revaluation mode] Some actuarial gains and losses. ; Some translation gains and losses of a foreign operation, Some changes in fair values of hedging instruments. en - Minimum line items in the statement of comprehensive income a. Revenue. b. Finance costs. c. Share of the profit or loss of investments in associates ang jointly controlled entities accounted for using the equity method. d. Tax expense excluding tax allocated to items (e), (g) and (h) below. e. Asingle amount comprising the total of i. The post-tax profit or loss of a discontinued operation, and ii. The post-tax gain or loss attributable to an impairment, or reversal of impairment, of the assets in the discontinued operation. £. Profit or loss (if an entity has no items of other comprehensive income, this line need not be presented). g- Each item of other comprehensive income classified by natu (excluding amounts in (h))Such items shall be grouped int® the following: 8 i, Those that will not be recta or loss, and ii Trove int will be reclassified subsequently to pro eer en specific conditions are met. d jointly pe ie comprehensive income of associates olled entities accounted for by the equity method ssified subsequently to pro! ofall and Me pps 8 sn qotal comprehensive income (if an e < \ 0 Ntity has no items of other prehensive income, it may tise com another term for this line iach as profil or loss) st The allocations of profit or loss and. total comprehensive {0 non-controlling interest and of the parent shall be disclosed separate ne {08 the period attributable nc! owners © ly in the staternent f comprehensive income. ate qwo-statement approach Under @ fwo-statement approach, the income statement shall display the same minimum line items provided above, except that rofit or loss is the last line. The statement of comprehensive income shall begin with profit or loss as its first line and shall display the components of other comprehensive income and the total comprehensive income for the period. Additional line items Additional line items, headings and subtotals are presented when they are relevant to the understanding of the entity’s financial performance. Effects of corrections of errors and changes in accounting policies The effects of corrections of errors and changes in accounting policies are presented as retrospective adjustments of prior periods rather than as part of profit or loss in the period in which | they arise. Extraordinary items An entity shall not present or describe any items of income and &pense. as ‘extraordinary items’ in the statement of Comprehensive income (or in the income statement, if presented) or in the notes, | E.os’ Analysis of expenses An analysis of expenses may be presented using either fhe Mi nature of expense or (b) function of expense methods, whichever provides information that is reliable and more relevant. Section 6 Statement of Changes in Equity and Statement ot Income and Retained Earnings The statement of changes in equity includes the following information: a. Total comprehensive income for the period b. For each component of equity, the effects of retrospective application or retrospective restatement. c. For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from: i. Profit or loss. ii, Other comprehensive income. iii, |The amounts of investments by, and dividends and other distributions to, owners in their capacity as owners, showing separately issues of shares, treasury share transactions, dividends and other distributions to owners, and changes in ownership interests in subsidiaries that do not result in a loss of control. Statement of income and retained earnings An entity may omit the statement of changes in equity and, in liew thereof, shall present a statement of income and retained earnings if the only changes to equity during the periods for which financial statements are presented arise from a. Profit or loss, b. Payment of dividends, €. Corrections of prior period errors and d. Changes in accounting policy,'MEs) i and Medium-sized Entities (5) 4 for Sma per — The statement of income and rp ont the following, information in ad) et tained earnings shall a : Hition to the information P ied tO be presented in a statement of income: eft etained earnings at the beginning of the reporting period. a rere satan eaten 2 Restatements of retained earnings for cortections of prior serio errors. Restatements of retained earnings for changes in accounting, policy. a. Dividends declared and paid or payable during the period. Retained earnings at the end of the reporting period. lustration 1: Statement of income and retained earnings {alternative 1 — illustrating the classification of expenses by function) l ABC Company Statement of income and retained earnings For the year ended December 31, 20x2 Notes 20x2 20x0 Revenue P 700,000 P 440,000 Cost of sales (130,000) (220,000) Gross profit 570,000 220,000 _| Other income 20,000 12,000 Distribution costs (48,000) (39,000) | | Administrative expenses (92,000) (71,000) | | Other expenses (16,000) (5,000) | [Finance costs (15,000) (18,000) |_| Profit before tax 419,000 99,000 | [Income tax expense (145,700) (79,700) | PROFIT FOR THE YEAR 273,300 19,300 | | Retained earnings at start of the year 74,300 75,000 Dividends + (180,000) (20,000) c ed earnings at end of the yr. P 167,600 P 74,300tatement of income and retained earnings trating the classification of expenses by nature) T1lustration (Alternative 2-illust BE Company come and rel ed earnings 31, 20x2 Statement of in For the year ended December eee 00,000 paantcn Revenue 700,000 Pag 000 Other income 20,000 12,04) Change in inventory 220,000 180,009 | Net purchases (350,000) (400,009) Employee benefits expense (80,000) (50,000) Depreciation and amortization expense (60,000) (60,000) iipment (10,000) Impairment of property, plant and equi . Other expenses (6,000) (5,000) Finance costs (45,000) (18,000) 419,000 99,000 Profit before tax Income tax expense (145,700) (79,700) 273,300 19,300 PROFIT FOR THE YEAR Retained earnings at start of year 74,300 75,000 Dividends (180,000) (20,000) P167,600 — P_74,300 Retained earnings at end of year Section 7 Statement of Cash Flows The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period, showing separately changes from operating activities, investing activities and financing activities. a. Operating activities are the principal revenue-producins activities of the entity. Therefore, cash flows from operatiné ial aes result from the transactions and ae : : nation 0 profit or loss. itions that enter into the determination Investing activities are the acquisition and dispos term assets a nd other j i ia equivalents, er investments not included 1 al of fons” cashfor Small and Medium-sized Entities (SMEs) 547 prR fe ginancing activities are activities that result in changes in the size and composition of the contributed equity and porrowings of an entity, orting of cash flows An entity shall present cash flows from operating activities using juhor the direct method or the indirect method. ce The direct method shows major cl gross cash payments from trans jetermination of profit or loss 8 Of gross re sipts and ‘actions that enter into. the and cash flows from the acquisition and sale of investments, loans and other contracts held for dealing or trading purposes, which are similar to inventory acquired specifically for resale. Under the indirect method, accrual basis profit or loss is adjusted for non-cash items and changes in current Operating assets and liabilities to determine the cash basis profit 0 which is equal to the cash flows from operating activities. An entity shall present separately major classes of gross r loss, _ cash receipts and gross cash payments arising from investing and financing, activities. Foreign currency cash flows Cash flows arising from transactions in foreign currency shall be translated to the entity’s functional currency using the exchange Tate at the date of the cash flow. Interest and dividends Interest paid and interest and dividends received may be dassified as operating cash flows because they are included in Profit or loss. Alternatively, the entity may classify interest paid and interest and dividends received as financing cash flows and ‘vesting cash flows respectively, because they are costs of Sbtaining financial resources or returns on investments. Dividends paid may be classified as financing cash flow because they are a cost of obtaining financial resources.5B bt Alternatively, the entity may ify dividends Paid ag ash flows from operating activities because yy, 8C they component of ¢: i cash flows. are paid out of operatiny Income tax Cash flows ari cash flows unless they can be spe: and investing.activities. ing from income tax shall be classified 98 operating cifically identified with financin % Non-cash transactions The statement of cash flows shall include only activities which have resulted to actual cash receipt or cash payment during the period. Non-cash transactions are excluded and disclosed elsewhere in the financial statements. Examples of non-cash transactions include, but not limited to, a. Acquisition of assets either by assuming directly related liabilities or by means of a finance lease. b. Acquisition of an entity by means of an equity issue. c. Conversion of debt to equity. Section 8 Notes to the Financial Statements The notes contain information in addition to those presented in the other components of a complete set of financial statements. Notes provide narrative descriptions or disaggregation of items presented in the other statements and information about items that do not qualify for recognition in those statements. Structure of the notes The notes shall: a. Present information about the basis of preparation financial statements and the specific accounting policies “S Disclose required information not presented elsewhere in! financial statements; and : ¢. Provide information th; financial stateme of them. of the edi he b. ere in the at is not presented elsew any nts but is relevant to an understandingland Medium. for sa pe referencing Gr0FS Fay shall, as far a8 practicable, smatic manner. An entity shall crag jal statements lo any related inform Present the notes in a ference each item in the ast $ ion in the notes. finan er of presentation An ently normally presents the notes in the Astatement that the financial statements have been prepared * compliance with the PERS for SMEs; p. Asummary of significant accounting policies applied ; supporting information for items presented in the financial statements, in the sequence in which each statement and each line item is presented; and d. Any other disclosures. following order: Section 9 Consolidated and Separate Financial Statements (Refer to Accounting for Business Combinations/Advanced Accounting 2. Section 10 Accounting Policies, Estimates and Errors Accounting policies are the specific principles, bases, conventions, tules and practices applied by an entity in preparing and Presenting financial statements. Hierarchy of reporting standards 1. Ifthe PERS for SMEs specifically.addresses a transaction, other event or condition, an entity shall apply the PFRS for SMEs. However, the entity need not follow a requirement in the PERS for SMEs if the effect of doing so would not be material. If the PFRS for SMEs does not specifically address a transaction, other event or condition, an entity’s management | Shall use its judgment in developing and applying an accounting policy that results in information that is relevant * and reliable, n3, In making the judgment, 5 10 qa management shall refer to, ang » an consider the applicability of, the following sources if descending order: i a. the requirements and gui : dealing with similar and related i b. the definitions, recognition criteria and” measuremeny pts for assets, liabilities, income and expenses and dance in the PFRS for SMI ues, and ‘ * conce] oe ‘ : the pervasive principles in the PFRS for SMEs. In making the judgment, management may also consider the requirements and guidance in full PFRSs dealing with similar and related issues. Consistency of accounting policies Accounting policies shall be applied covtsistently for similar transactions, other events and conditions, unless the PFRS for SMEs specifically requires or permits categorization of items for which different policies may be appropriate. Changes in accounting policies An entity shall change an accounting policy only if the change: a. is required by changes to the PFRS for SMEs, or b. results in reliable and more relevant information The following are not changes in accounting policies: a. The application of an accounting policy for transactions, other events or conditions that differ in substance from those previously occurring. The application of a new accounting policy for transactions: other events or conditions that did not occur previously of were not material, A change to the cost model when a reliable measure of fait value is no longer availabl PFRS for SMEs would o measured at fair value, le (or vice versa) for an asset that the otherwise require or permit © be5 Small and Medium-sized Entities (SMEs) 551 pel The PFRS for SMEs allows choices between accounting atments for certain transactions and events, A change between oices is a change in accounting policy, A change from the cost model to the revaluation model for plant and equipment is a change in accounting policy that d for prospectively. tre phese a operty, jg accounte accounting for changes in accounting policies An entity shall account for changes in accounting policy as follows: Changes in accounting policy resulting from a change in the requirements of the PFRS for SMEs is accounted’ for in accordance with the transitional provisions, if any, specified in that amendment. pb, All other changes in accounting policy are accounted for retrospectively. : a. Retrospective application When a change in accounting policy is applied retrospectively, the entity shall apply the new accounting policy to comparative information for prior periods to the earliest date for which it is practicable, as if the new accounting policy had always been applied. When it is impracticable to determine the individual- period effects of a change in accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the Current period, and shall make a corresponding adjustment to the pening balance of each affected component of equity for that Period. Changes in accounting estimates i nge in accounting estimate is'an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic “ONsumption of an asset, that results from the assessment of the