Definition (application) of undue cost or effort in the context of PFRS for SMEs

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In applying the provisions of PFRS for SMEs, some uses the “undue cost or effort” as a ground for exemption on complying with the recognition, measurement or disclosure requirements.  But what really is undue cost or effort in the context of PFRS for SMEs?

Several sections of the PFRS for SMEs contain exemptions in relation to certain requirements on the basis of ‘undue cost or effort’ or because they are ‘impracticable’. ‘Impracticable’ is defined in the IFRS for SMEs as follows: “applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so”. ‘Undue cost or effort’ is not defi ned. How should ‘undue cost or effort’ be applied?

That is why Q&A 2012/01 was issued by the SME Implementation Group of the IASB which was adopted by our FRSC.  In response, “undue cost or effort discussion” was expound as follows:

  1. ‘Undue cost or effort’ is deliberately not defined in the IFRS for SMEs, because it would depend on the SME’s specific circumstances and on management’s professional judgement in assessing the costs and benefits. Whether the amount of cost or effort is excessive (undue) necessarily requires consideration of how the economic decisions of the users of the financial statements could be affected by the availability of the information. Applying a requirement would result in ‘undue cost or effort’ because of either excessive cost (eg if valuers’ fees are excessive) or excessive endeavours by employees in comparison to the benefi ts that the users of the SME’s fi nancial statements would receive from having the information. Assessing whether a requirement will result in ‘undue cost or effort’ should be based on information available at the time of the transaction or event about the costs and benefits of the requirement. On any subsequent measurement, ‘undue cost or effort’ should be based on information available at the subsequent measurement date (eg the reporting date).
  2. ‘Undue cost or effort’ is specifically included for some requirements. It may not be used for any other requirements in the IFRS for SMEs.
  3. ‘Undue cost or effort’ is used either instead of, or together with, ‘impracticable’ for certain requirements in the IFRS for SMEs to make it clear that if obtaining or determining the information necessary to comply with the requirement would result in excessive cost or an excessive burden for an SME, the SME would be exempt from the requirement. Where ‘undue cost or effort’ is used together with ‘impracticable’, this should be applied in the same way as for ‘undue cost or effort’ on its own.

How were these arrived at? Just read the basis for conclusion in the Q&A.  Download it here!

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Disclaimer: Opinions expressed in this article are that of the author and information provided are for general conceptual guidance for public information and are not substitute for expert advice. Contact support@philcpa.org for more information and if you want to avail professional services. Find us on Facebook!



Orlando Calundan is a CPA who has exposures in FS audit of entities in various industries such as real estate, food/restaurants, manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements.

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