Applicability of SMEIG Final Q&As on the application of IFRS for SMEs to Philippine SMEs

Advertisements

The Philippine Interpretations Committee (PIC) approved Q&A No. 2013 – 01 on June 30, 2013 which deals with the applicability of SME Implementation Group (SMEIG) Q&As on Philippine SMEs.  Q&A No. 2013 – 01 clarifies the following:

  • All Q&As except Q&A 2011/01 and Q&A 2011/02 can be applied to Philippine SMEs.
  • Q&A 2011/01 is not applicable since, under Securities Regulation Code (SRC) Rule 68 (As Amended 2011), SMEs are entities that meet all the criteria specified by the SEC, which include this quantitative criterion: “Total assets of between P3 million to P350 million or total liabilities between P3 million to P250 million.  If the entity is a parent company, the amount shall be based on the consolidated figures”.In other words, if in the consolidated financial statements, the consolidated total assets are between P3 million to P350 million or consolidated total liabilities between P3 million to P250 million, the consolidated as well as the parent financial statements should be prepared under the full PFRS.
  • Q&A 2011/02 is not applicable since in the Philippines, banks, credit unions, insurance companies, securities brokers/ dealers, mutual funds and investment banks are regulated entities that are considered as publicly accountable entities under SRC Rule 68.  Thus, those entities are not SMEs and are, therefore, not eligible to use PFRS for SMEs.

Below is the full text of the Q&A No. 2013 – 01:

Issue

Are the Final Q&As issued by the SME Implementation Group (SMEIG) on the application of International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) applicable to and can be applied by Philippine SMEs?

Advertisements

Background

IFRS for SMEs was issued to provide a common framework for financial reporting of SMEs in response to strong international demand for a rigorous and uniform set of accounting standards for SMEs. IFRS for SMEs simplified and reduced the detailed requirements that exist under IFRS.

In 2009, the Philippine Financial Reporting Standards Council (FRSC) and the Securities and Exchange Commission (SEC) adopted IFRS for SMEs as Philippine Financial Reporting Standard (PFRS) for SMEs effective on January 1, 2010.

Following the issuance of IFRS for SMEs by the International Accounting Standards Board (IASB) in 2009, the SMEIG has issued seven final Q&As which aim to provide non-mandatory and timely guidance to SMEs implementing IFRS for SMEs.  SMEIG is an advisory body to the IASB in the implementation of IFRS for SMEs.

Following are the seven Final Q&As issued by the SMEIG, which are included as appendices to this Q&A and which are also available in the IASB website:

Ref No Final Q & A Date published
2012/04 Recycling of cumulative exchange differences on disposal of a subsidiary 27 April 2012
2012/03 Fallback to IFRS 9 Financial Instruments 27 April 2012
2012/02 Jurisdiction requires fallback to full IFRSs 10 April 2012
2012/01 Application of ‘undue cost or effort’ 10 April 2012
2011/03 Interpretation of ‘traded in a public market’ 7 December 2011
2011/02 Entities that typically have public accountability 7 December 2011
2011/01 Use of IFRS for SMEs in a parent’s separate financial statements 23 June 2011

Consensus

The above SMEIG Final Q&As can be applied by Philippine SMEs adopting PFRS for SMEs, except for the following:

1. SMEIG Q&A 2011/01 – Use of IFRS for SMEs in a parent’s separate financial statements

This Q&A allows a parent company to present its separate financial statements in accordance with IFRS for SMEs even if it presents its consolidated financial statements in accordance with full IFRSs as long as the parent company, based on its own assessment and without considering other group entities, has no public accountability.  As a result, there will be two different financial reporting frameworks used by the company, i.e., IFRS for SMEs in the separate financial statements and full IFRS in the consolidated financial statements.

In the Philippines, however, it will not be possible to use PFRS for SMEs in the separate financial statements and full PFRSs in the consolidated financial statements because of the quantitative criterion provided by the SEC in determining whether an entity is an SME or not.  Under the Securities Regulation Code (SRC) Rule 68 (As Amended 2011), SMEs are entities that meet all the criteria specified by the SEC, which include this quantitative criterion: “Total assets of between P3 million to P350 million or total liabilities between P3 million to P250 million.  If the entity is a parent company, the amount shall be based on the consolidated figures” (underscoring supplied).  This rule specifically indicates that the assessment whether the entity qualifies as an SME is based on its consolidated figures. Hence, a separate assessment based on the parent’s own figures is not appropriate.  Therefore, once a parent company is determined to be not an SME based on its consolidated figures, it is likewise deemed not an SME even in its separate financial statements.

2. SMEIG Q&A 2011/02 – Entities that typically have public accountability

Entities with public accountability are not eligible to use IFRS for SMEs. An entity has public accountability if it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses. Paragraph 1.3(b) of IFRS for SMEs identifies banks, credit unions, insurance companies, securities brokers/ dealers, mutual funds and investment banks as examples of the type of entity that ‘typically’ holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.  This SMEIG Q&A 2011/02 clarifies that entities indicated in Paragraph 1.3(b) of IFRS for SMEs should not automatically be assumed to have public accountability. Judgment is required to assess whether these entities actually have public accountability as defined under the standard. Thus, it is possible that entities indicated in Paragraph 1.3(b) can be eligible to apply IFRS for SMEs.

In the Philippines, the entities indicated in Paragraph 1.3(b) of PFRS for SMEs are regulated entities that are considered as publicly accountable entities under SRC Rule 68. Thus, those entities are not SMEs and are, therefore, not eligible to use PFRS for SMEs.

Effective Date

The consensus in this Q&A is effective from the date of approval by the FRSC.

Q&A approved by PIC: January 30, 2013 (Original signed)

Download Link: Q&A No. 2013 – 01 Applicability of SMEIG Final Q&As on the application of IFRS for SMEs to Philippine SMEs 

Tell us what’s on your mind! ;)


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.

What are you searching for?


Let us help you! Enter your 'search key word' to search an article / topic!