PFRS for SMEs: Q&A 2012/03: Fallback to IFRS 9 Financial Instruments


As we all know, Philippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs) was adopted from International Financial Reporting Standards for Small and Medium-sized Entities (IFRS for SMEs).  Having said that, PFRS for SMEs and IFRS for SMEs are the same.  The IASB issued Q&A 2012/03, Fallback to IFRS 9 Financial Instruments, which concludes that despites that PFRS for SMEs falls back to PAS 39 on the recognition and measurement of financial instruments, and PAS 39 will soon be replaced by PFRS 9, PFRS for SMEs will not fallback to IFRS 9.

See full text of the Q&A below:


Paragraph 11.2(b) gives an entity the option of applying the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement to account for all of its financial instruments instead of following the recognition and measurement requirements in Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issues.  The IASB has been replacing IAS 39 with IFRS 9 Financial Instruments in phases.  May an entity choose to apply the recognition and measurement provisions of IFRS 9?



No. The IFRS for SMEs refers specifically to IAS 39. SMEs are not permitted to apply IFRS 9.

Basis for Conclusions

BC1 Allowing the use of IFRS 9 by SMEs would require a change to the IFRS for SMEs. Paragraph BC106 of the Basis for Conclusions issued with the IFRS for SMEs explains that one reason for allowing this fallback to full IFRSs, (the only one permitted in the IFRS for SMEs), was that “The Board is currently reconsidering IAS 39 in its entirety and concluded that SMEs should be permitted to have the same accounting policy options as in IAS 39 pending completion of the comprehensive IAS 39 project”.

BC2 The IASB intends to undertake a thorough review of the IFRS for SMEs when two years of financial statements using the IFRS for SMEs have been published by a broad range of entities. At that time, the Board will also consider new and amended IFRSs that have been issued since the IFRS for SMEs was published, including the requirements of IFRS 9. That review will get under way in 2012 and is expected to be completed in 2014. This means that the amendments to the IFRS for SMEs would most probably be effective at a similar time to the revised effective date of IFRS 9.

BC3 An SME that elects to follow the recognition and measurement principles of IAS 39, rather than those in Sections 11 and 12, would apply the version of IAS 39 that is in effect at the entity’s reporting date. This is consistent with the Board’s approach in full IFRSs to cross references to other IFRSs.

You may also download the full text of the PFRS for SMEs: Q&A 2012/03: Fallback to IFRS 9 Financial Instruments, here.

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 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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