Model Financial Statements

for SME’s

Presented By:
Tariq Mahmood
ACMA, FCA
Today’s Learnings

- Applicable Financial Reporting Frameworks

- Overview of IFRS for SME and Disclosure

requirements

- Preparation of Model Financial Statements

- Additional Disclosure Requirements

Applicable Financial Reporting Framework
Companies Act, 2017, Section 224 & 225 (Third Schedule)
Relevant
S. Applicable
Schedule of
No. Classification Criteria of Company Accounting
Companies
Framework
Act
1. Public Interest Company (PIC)
a) Listed Company
IFRS Fourth Schedule

b) Non-listed Company which is:

i. A public sector company
ii. A public utility or similar company
iii. Holding assets in a fiduciary capacity for a
broad group of outsiders IFRS Fifth Schedule
iv. Having such number of members holding
ordinary shares as may be notified; or
v. Holding assets exceeding such value as may
be notified
Applicable Financial Reporting Framework
Companies Act, 2017, Section 224 & 225 (Third Schedule)
Applicable Relevant
S. Accounting Schedule of
Classification Criteria of Company
No. Framework Companies
Act
2. Large Sized Company (LSC)
a) Non listed Company with:
i. Paid-up capital of Rs. 200 million or more; or
ii. Turnover of Rs. 1 billion or more; or
IFRS Fifth Schedule
iii. Employees 750 or more
b) A foreign company with turnover of Rs. 1 billion or more

c) Non-listed Company licensed/ formed under section 42/

IFRS & Accounting
section 45of the Act having Annual Gross Revenue including Fifth Schedule
Standards for NPO’s
other income/ revenue of Rs. 200 million or more.
3. Medium Sized Company (MSC)
a) Non-listed Public Company with:
i. Paid-up capital less than Rs. 2oo million;
IFRS for SME’s Fifth Schedule
ii. Turnover less than Rs. 1 billion, and
iii. Employees less than 750
Applicable Financial Reporting Framework
Applicable Relevant
S. Accounting Schedule of
Classification Criteria of Company
No. Framework Companies
Act
b) Private Company with:
i. Paid-up capital greater than Rs. 10 million but less than
Rs. 200 million;
IFRS for SME’s Fifth Schedule
ii. Turnover greater than Rs. 100 million but less than Rs. 1
billion; or
iii. Employees less than 750
c) A Foreign Company which has turnover of less than Rs. 1
billion. IFRS for SME’s Fifth Schedule

d) Non-listed company licensed/ formed under Section 42 or IFRS for SME’s &
Fifth Schedule
Section 45 of the Act which has annual gross revenue Accounting Standards
including other income or revenue less than Rs. 200 million. for NPO’s

4. Small Sized Company (SSC)

A private company having: Revised AFRS for Fifth Schedule
i. Paid-up capital up to Rs. 10 million; SSE’s
ii. Turnover not exceeding Rs. 100 million; and
iii. Employees not more than 250
Requirements of IFRS for
SMEs
Section 3 - Financial Statement Presentation

REQUIREMENTS
Statement of compliance

A statement of explicit and unreserved compliance with IFRS for SMEs is required within
the financial statements.

Consistency of presentation

• Retain the presentation and classification from one period to the next
• Change is made:
• Where an entity’s operations change or another presentation and disclosure would
be more appropriate, in addition to any changes required by IFRS for SMEs.
• Changes made to presentation or classification will require the comparatives to be
reclassified unless it is impracticable to do so.
Section 3 - Financial Statement Presentation
Comparative information
• Disclose comparative information in respect of the previous period.
• Narrative and descriptive information is required when it is relevant to the
understanding of the current period’s financial statements.
Section 3 - Financial Statement Presentation
COMPLETE SET OF FINANCIAL STATEMENTS
1. A statement of financial position at the reporting date

2. For the reporting period:

o Either a separate income statement and statement of comprehensive

income
o A single statement of comprehensive income; or
o Encompassing other comprehensive income

3. Statement of changes in equity *

4. Statement of cash flows

5. Notes to the financial statements

Section 3 - Financial Statement Presentation
COMPLETE SET OF FINANCIAL STATEMENTS

* If the only change to equity results from:

• profit or loss,
• payment of dividends,
• correction of errors or changes in accounting policies

it is acceptable to present a single statement of income and retained earnings in

place of the comprehensive income statement and statement of changes in
equity.
Section 3 - Financial Statement Presentation

IDENTIFICATION OF FINANCIAL STATEMENTS

• Name of entity and any changes in its name since the end of the prior period

• Clarification as to whether the financial statements cover the individual entity or

group or entities
• The date of reporting period and period covered
• Presentation currency

• Level of rounding

• Domicile and legal form of the entity, its country of incorporation and its registered
office

• Description of the nature of operations and principal activity.

Section 4 – Statement of Financial Position

Current vs non-current
Assets/liabilities:

• Current and non-current

• In ascending or descending order of liquidity.
Presentation based on ascending or descending order of liquidity is only permitted if this provides
information that is reliable and more relevant than current/non-current.

Sequencing

IFRS for SMEs does not prescribe the sequence or format of line items, except when an entity
does not present assets and liabilities on a current and non-current basis, in which case
sequencing must be based on ascending or descending liquidity.

* 5th Schedule to the Companies Ordinance prescribes the sequencing

Section 4 – Statement of Financial Position
Information to be presented in the statement of financial position (SOFP)
• Cash and cash equivalents;
• Trade and other receivables;
• Inventories,
• Property; plant and equipment;
• Investment property (at fair value);
• Intangible assets;
• Investments in associates;
• Investments in jointly controlled entities;
• Trade and other payables;
• Provisions;
• Non-controlling interest;
• Equity; Additional lines, headings and
• Deferred tax assets and/or liabilities; subtotals are presented when
• Other financial assets and/or liabilities. relevant to an understanding of the
entity’s financial position.
Section 4 – Statement of Financial Position
Information that can be presented in the SOFP or in the notes
• Classes of property, plant and equipment
• Disaggregation of inventory
• finished goods,
• work in progress,
• raw materials)
• Provisions for employee benefits
• Other provisions
• Trade and other receivables/payables, showing separately
• any amounts due from/to trade suppliers,
• related parties,
• accrued income/expense,
• deferred income
• Classes of equity
• paid in capital,
• retained earnings,
• share premium,
• items required to be recognised in other comprehensive income);
Section 4 – Statement of Financial Position
Information that can be presented in the SOFP or in the notes
• A description of each reserve in equity.

• Share capital:
• No. of authorized shares;
• No. of issued shares fully and not fully paid;
• Par value;
• reconciliation of out standing shares;
• rights preferences and
• restrictions relating to distribution of dividends and repayment of capital;

• Shares held in the entity by the entity subsidiaries or associates; the amount and terms
of shares reserved for issue.

• Information relating to any binding sale agreement for a major disposal of assets, or a
group of assets and liabilities, that is in place as at reporting date.
Section 5 – Statement of Comprehensive
Income and Income Statement
PRESENTATION OF TOTAL COMPREHENSIVE INCOME
An entity presents its total comprehensive income for a period either:

a) In a single statement of comprehensive income, in which case the statement of

comprehensive income (SOCI) presents all items of income and expense
recognized.

b) In two statements (an income statement and a statement of comprehensive

income).
A change from the single-
statement approach to the two-
statement approach, or vice
versa, is a change in
accounting policy to which
Section 10 applies.
Section 5 – Statement of Comprehensive
Income and Income Statement
SINGLE STATEMENTAPPROACH
Minimum line items to be presented under the single statement approach

a) Revenue;
b) Expenses
c) finance cost;
d) share of the profit or loss from equity accounted investments;
e) tax expense;
f) single amount for the total of post-tax profit or loss of a discontinued operation;
g) profit or loss
h) Each item of other comprehensive income e.g.
• gains and losses on retranslation of a foreign operation;
• actuarial gains and losses;
• changes in fair value of hedging instruments;
• gains and losses arising on revaluation of property plant and equipment
i) Share of other comprehensive income from equity accounted investments
j) The split of profit or loss attributable to non-controlling interests and owners of the
parent
Section 5 – Statement of Comprehensive
Income and Income Statement
TWO STATEMENTS APPROACH

Income statement

• The income statement presents, as a minimum, line items that present the
amounts in paragraph (a) under the single statement approach, with
profit or loss as the last line.

Statement of comprehensive income

• Begins with profit or loss and then presents, as a minimum, line items
that present the amounts in paragraphs (b) –(e) under the single
statement approach.
Section 5 – Statement of Comprehensive
Income and Income Statement
REQUIREMENTS OF BOTH APPROACHES

• Expenses are required to be analyzed and presented by either:

 Nature: expenses are aggregated by their nature (i.e. depreciation,

purchases of materials, transport costs, employee benefits,
advertising costs etc.)

 Function: expenses are aggregated according to their function as

part of cost of sales or, for example, the costs of distribution or
administrative activities. At a minimum, an entity discloses its cost
of sales under this method.
Section 6 – Statement of Changes in Equity and
Income and Retained Earnings
STATEMENT OF CHANGES IN EQUITY
Requirements

• Total comprehensive income for the period showing separately amounts attributable to
the owners of the parent and to non-controlling interests
• The effects of restatements of prior periods resulting from changes in accounting
policies or material errors
• A reconciliation for each component of equity between the carrying amounts at the
beginning and end of the period with separate disclosure of changes from:

 Profit or loss
 Other comprehensive income
 Amount of investments by, dividends and other distributions to, owners in their
capacity as owners, showing separately:
 Issue/repurchase of shares
 Treasury share transactions
 Dividends and other distributions to owners in their capacity as owners
 Changes in ownership interests of subsidiaries not representing a loss
Section 6 – Statement of Changes in Equity and
Income and Retained Earnings
STATEMENT OF INCOME AND RETAINED EARNINGS
Criteria for presentation

If the only change to equity results from:

• Profit or loss,
• Payment of dividends,
• Correction of errors,
• changes in accounting policies

Requirements
• Retained earnings at the beginning and end of the period
• Dividends declared and paid/payable
• Restatement for prior period adjustments (errors and changes in accounting
policy).
Section 7 – Statement of Cash Flows
The SOCF provides information about:
• the changes in cash and cash equivalents of an entity for a reporting
period,

• Showing separately changes from:

• Operating activities by either of;

• Indirect Method; or
• Direct Method
• Investing activities; and
• Financing activities.
Section 7 – Statement of Cash Flows
NOTE ON SPECIFIC CASH FLOWS
• Interest paid and received is presented separately and classified consistently
each period –either as operating, investing, or financing activities
• Dividends paid/received may be classified as operating, investing, or financing
activities
• Income tax cash flows are classified as operating unless specified.

OTHER DISCLOSURES
• Non-cash transactions are disclosed elsewhere within the financial statements
and not included in the SOCF
• A reconciliation of the components of C&CEs (i.e. cash amount presented in the
SOCF, and the cash position presented in the statement of financial position -if
the amounts are not identical)
• Any cash or cash equivalents, together with management commentary, that are
not available for use.
Section 8 – Notes to Financial Statements
Section 8 – Notes to Financial Statements
Section 8 – Notes to Financial Statements

REQUIREMENTS OF THE NOTES

The notes are required to:
• Present information about the basis of preparation
• Provide information that is not presented elsewhere in the financial
statements and is relevant to the understanding of the financial
statements
Section 8 – Notes to Financial Statements
ORDER OF PRESENTATION
- A statement of compliance (i.e. that the financial statements have been
prepared in accordance with IFRS for SMEs)
- A summary of significant accounting policies
- Supporting information (i.e. notes) to items presented in the financial
statements, in the sequence in which they are presented in those statements
- Any other disclosures.
• Cross reference to items in the financial statements
• Present accounting policies including the measurement basis(or bases)and
other policies used that are relevant to the understanding of the financial
statements
• Disclose the judgements that management have made in applying the
accounting policies
Section 9 – Consolidated and Separate
Financial Statements
DISCLOSURES
• The fact that the financial statements are consolidated
• Basis for concluding that control exists when the parent does not own
directly or indirectly more than half of the voting rights
• Any differences in reporting date between parent and subsidiaries
• Nature and extent of restrictions on ability to transfer funds to the parent
through either dividends or to repay loans
• Profit or loss attributable to owners and NCIs
• Total comprehensive income attributable to owners and NCIs

NCI is presented as a separate component of equity.

Section 10 – ACCOUNTING POLICIES,
ESTIMATES AND ERRORS
ACCOUNTING POLICY SELECTION AND APPLICATION
• Accounting policies applied are required to be in accordance with IFRS
for SMEs

• Management must apply its judgement in developing and applying an

accounting policy in the financial statements that :

- Represent faithfully the financial position, financial performance and

cash flows of the entity
- Reflect the economic substance of transactions, other events and
conditions, and not merely the legal form
- Are neutral (i.e. free from bias),
- Prudent; and Complete in all material respects.
Section 10 – ACCOUNTING POLICIES,
ESTIMATES AND ERRORS
• Accounting policies must be selected and applied consistently for similar
transactions, other events and conditions (unless IFRS for SMEs
requires or permits otherwise).

CHANGES IN ACCOUNTING POLICIES

• Disclosure requirements include:

- The nature of the change in policy
- For the current and prior period the amount of adjustment for each
financial statement line affected
- For prior periods not presented the effect of the adjustment
- When making a voluntary change in policy the reasons why applying
the new accounting policy provides
Section 10 – ACCOUNTING POLICIES,
ESTIMATES AND ERRORS
CHANGE IN ACCOUNTING ESTIMATES
These are the adjustment of the carrying amount of an asset or liability, resulting from new
information or developments.

Corrections of errors are not changes in accounting estimates.

Disclosures include:
• The nature and effect of the change in accounting estimate in the current financial
statements
• If practicable, the effect in one or more future periods.
Section 10 – ACCOUNTING POLICIES,
ESTIMATES AND ERRORS
PRIOR PERIOD ERRORS
• Such errors include:
- The effects of mathematical mistakes
- Errors in applying accounting policies
- Oversights or misinterpretations of facts
- Fraud.
• Errors are corrected retrospectively by restating prior period comparatives or, if the error
occurred before prior periods presented, the opening balances for assets, liabilities and
equity should be adjusted.
• Disclosure of the error are required as follows:
 Nature of error
 For each prior period presented, to the extent practicable, the amount of the correction
for each financial statement line item affected
 To the extent practicable, the amount of the correction at the beginning of the earliest
prior period presented
 An explanation if it is not practicable to determine the amounts above.
Section 11 – Basic Financial Instruments
SCOPE OF SECTIONS 11 & 12
This Section and Section 12 Other Financial Instruments Issues together deal with
recognizing, derecognizing, measuring and disclosing financial instruments:
• Section 11: Basic financial instruments -relevant to all entities
• Section 12: More complex financial instruments and transactions.
Entities have an (accounting policy) choice to apply either:
• Sections 11 and Sections 12 in full
• Recognition and measurement provisions of IAS 39 Financial Instruments:
Recognition and Measurement**and the disclosure requirements of Sections 11
and 12.

In the IFRS for SMEs the accounting for basic financial instruments is addressed
separately from the accounting for more complex financial instrument
transactions.
Section 12 – OTHER FINANCIAL
INSTRUMENTS ISSUE
Under the IFRS for SMEs an entity shall choose to account for all of its financial
instruments either:
a) by applying the provisions of both Section 11 and Section 12 in full, or
b) by applying the recognition and measurement provisions of IAS 39 Financial
Instruments: Recognition and Measurement and the disclosure requirements of Section
11 and Section 12.

If an entity chooses to apply (b)

The difference between applying (b) and applying full IFRSs is the applicable disclosure
requirements.

IFRS 7’s disclosures are divided into three main categories:

• significance; risk; and transfers.

Section 11 includes many of the ‘significance’ disclosures that are in IFRS 7.

However, the IFRS for SMEs includes none of the ‘risk’ disclosures that are in IFRS 7.
The only disclosure from IFRS 7 relating to ‘transfers’ that is included in the IFRS for
SMEs relates to transfers of financial assets that do not qualify for derecognition.
Section 13 – INVENTORIES
MEASUREMENT PRINCIPLES

Inventories are measured at the lower of cost, and estimated selling price
less costs to complete and sell. The following guidance also applies:

• Service providers measure inventory at the costs of production

• Cost of inventory acquired through a non-exchange transaction is
measured at fair value at the date of acquisition.
COST PRINCIPLES
Cost includes all costs of purchase, cost of conversion and any other costs
(i.e. those incurred in bringing the asset to its current location and
condition).
Section 13 – INVENTORIES

DISCLOSURES
• Accounting policy adopted for measuring inventories, including the cost
formula used

• Total carrying amount of inventory in classifications appropriate to that

entity

• Amount of inventory recognised as an expense during the period

• Impairment losses recognised or reversed in the period in profit or loss

in accordance with Section 27

• Carrying amount of inventory pledged as security for liabilities.

Section 14 – INVESTMENT IN ASSOCIATES
MEASUREMENT
(1) Cost Method
• Measurement is at cost less accumulated impairment losses.
• Dividends are recognised as income.
(2) Fair Value Method

The fair value model requires that dividends received are recognised as income,
and the investment in associate is:

• Initially recognise at transaction price (excluding transaction costs)

• At reporting date, measure the investment at fair value in accordance with
Section 11 (if impracticable, use cost model)
• Movement in fair value recognised in profit or loss.
Section 14 – INVESTMENT IN ASSOCIATES

(3) Equity Method

Investment is initially recognized at the transaction price (including transaction
costs) and is subsequently adjusted to reflect:
• the investor’s share of the profit or loss
• other comprehensive income of the associate.

DISCLOSURES
• Accounting policy for investment in associates
• The carrying amount of investment in associates
• The fair value of investment in associates accounted for using the equity
method for which there are published price quotations
Section 15 – INVESTMENT IN JOINT
VENTURES
DISCLOSURES
• Accounting policy used for recognising interest in jointly controlled
entities (JCEs)
• Carrying amount of investments in JCEs
• Fair value of equity accounted investments when published price
quotations are available
• Aggregate amount of commitments relating to joint ventures
• For equity accounted JCEs share of profit or loss and discontinued
operations
• If the fair value model is used, Section 11 disclosures plus, if used,
reasons why the undue cost or effort exemption has been applied.
Section 16 – INVESTMENT PROPERTY
INITIAL MEASUREMENT

• At cost, comprising the purchase price plus any directly attributable

expenditure (legal and brokerage fees, property transfer taxes, other
transaction costs).

• If payment is deferred beyond normal credit terms, the cost is the

present value of all future payments.

• Cost of a self-constructed investment property is determined using

Section 17 (PP&E).
Section 16 – INVESTMENT PROPERTY
SUBSEQUENT MEASUREMENT

• If reliably measurable, fair value at each reporting date, with changes in

fair value being recorded in the profit or loss.

• If fair value is not reliably measurable, use the cost-depreciation-

impairment model (see Section 17).

TRANSFERS

• If a reliable measure of fair value is no longer available, the property

must be transferred to property, plant and equipment and accounted for
in accordance with Section 17 – with carrying amount at that date
becoming its cost.
Section 17 – PROPERTY, PLANT AND
EQUIPMENT
MEASUREMENT

• Initial measurement at cost

• Subsequent measurement is at either of:

• Cost model (Cost less depreciation)

• Revaluation model

• Impairment testing is to be done at each reporting date

• PP&E is derecognized on disposal or when no future economic benefits

are expected
Section 17 – PROPERTY, PLANT AND
EQUIPMENT
DISCLOSURES
• Measurement basis,
• Depreciation methods used
• Useful lives and rates used
• Gross carrying amount and accumulated depreciation
• A reconciliation from opening to closing amount for the current period
only.
• Carrying amount of assets that have restricted title or have been pledged
as security
• The amount of contractual commitments for the acquisition of PP&E.
• The fact and reasons why the fair value of an investment property
cannot be determined without undue cost or effort
Section 17 – PROPERTY, PLANT AND
EQUIPMENT
DISCLOSURES
• Revalued PP&E:

- Effective date of revaluation;

- Whether an independent valuer was used;
- Methods and assumptions in estimating fair value;
- Carrying amount under the cost model;
- Revaluation surplus indicating the change in the period.
Section 18 – INTANGIBLE ASSETS OTHER
THAN GOODWILL
DISCLOSURES
• Useful lives or the amortization rate used
• Amortization method used
• Gross carrying amount and any accumulated amortization
• Line item in SOCI or IS in which amortization is included
• Reconciliation of carrying amount of at beginning and end of reporting period;
• Description, carrying amount and remaining amortization period of individual
intangible asset that is material;
• Carrying amount of assets that have restricted title or have been pledged as
security
• The amount of contractual commitments for the acquisition of intangibles
• Aggregate amount of research and development expenditure recognized
as expense during the period.
Section 19 – BUSINESS COMBINATIONS AND
GOODWILL
Section 20 – LEASES
FINANCE LEASE – FINANCIAL STATEMENTS OF LESSEE
INITIAL RECOGNITION AND MEASUREMENT
• A lessee recognizes:
- its right of use (an asset)
- obligation (a liability) under the lease agreement in its statement
of financial position equal to the fair value of the leased property
or, if lower, the present value of the minimum lease payments
• Initial (incremental) direct costs incurred in arranging the lease are
added to the amount recognised as an asset.
• The present value of the minimum lease payments is calculated using
the interest rate implicit in the lease or, if this cannot be determined, the
lessee’s incremental borrowing rate.
Section 20 – LEASES

SUBSEQUENT MEASUREMENT

• Minimum lease payments are allocated between the finance charge and
the reduction of the outstanding liability using the effective interest rate;

• Contingent rents are recognised as an expense in the periods in which

they are incurred

• The leased asset is depreciated in accordance with the relevant Section

of IFRS for SMEs or, if it is not reasonably certain that the lessee will
obtain ownership by the end of the lease term, over the shorter of the
asset life or the lease term

• The asset is assessed for impairment at each reporting date.

Section 20 – LEASES

DISCLOSURES
• Net carrying amount at the financial reporting date for each class of
asset
• Total future minimum lease payments, analysed as within 1 year, later
than 1 year but within 5 years, and over 5 years
• General description of the lessee’s significant leasing arrangement:
- Contingent rent,
- Renewal or purchase options,
- Subleases and
- Restrictions arising from lease contracts
• Also refer to Sections 17, 18, 27, and 34 for additional disclosures for
assets held under finance leases.
Section 20 – LEASES
OPERATING LEASES

RECOGNITION OF LEASE PAYMENTS

• Lease payments are recognised as an expense on a straight line basis

unless another systematic basis is more representative of the time
pattern of the user’s benefit, or the payments are structured to increase
in line with expected general inflation (and there are no other factors
that vary payments to the lessor).
Section 20 – LEASES

DISCLOSURES

• Total future minimum lease payments under non-cancellable operating

leases, analyzed as within 1 year, later than 1 year but within 5 years,
and over 5 years
• Lease payments recognised as an expense
• General description of the lessee’s significant leasing arrangements.
- Contingent rent,
- Renewal or purchase options,
- Subleases and
- Restrictions arising from lease contracts.
Section 21 – PROVISIONS AND CONTINGENCIES
PROVISIONS
RECOGNITION
A provision is recognised in the statement of financial position and as an
expense when:
• As a result of a past event, there is a legal or constructive obligation at
the reporting date which cannot be avoided
• The obligation can be reliably measured
• It is probable (more likely than not) that there will be an outflow of
economic benefits in settlement.
Section 21 – PROVISIONS AND CONTINGENCIES

DISCLOSURES
For each provision:

• Opening carrying amount reconciled to closing carrying amount

showing:
- Additions;
- Adjustments; and
- Amounts charged/reversed in the period
• A description of nature, amount and timing
• Uncertainties around timing or amount
• Amount of any expected reimbursement.
Section 22 – LIABILITIES AND EQUITY
Section 23 – REVENUE

MEASUREMENT

• At the fair value of the consideration received or receivable

• Excludes all amounts collected on behalf of third parties; e.g.
- Sales taxes,
- When acting as an agent when an entity recognises only the amount
of any commission
Section 23 – REVENUE

DISCLOSURES
• Accounting policies adopted for revenue recognition including the
methods used to determine stage of completion
• Revenue recognised in the period showing separately for; sale of goods,
rendering of services, interest, royalties, dividends, commissions, grant
and other significant streams
• For construction contracts the following disclosures are required:
- Revenue recognised in the period
- Methods used to determine contract revenue and stage of completion
- Gross amount due from / to customers for contract work as an
asset / liability.
Section 24 – GOVERNMENT GRANTS

DISCLOSURES
• Nature and amount of government grants recognized
• Unfulfilled conditions and other contingencies attaching to the
government grant that has not been recognized in income
• An indication of other forms of government assistance from which the
entity has directly benefited.
Section 25 – BORROWING COST
RECOGNITION

All borrowing costs are recognised as an expense in profit or loss in the

period in which they are incurred.

Borrowing costs are not capitalised as part of the cost (or carrying amount)
of assets.

DISCLOSURES

• Section 11 sets out the required disclosures for total interest expense
(using the effective interest method) for financial liabilities that are not
measured at fair value through profit or loss

• Section 25 does not require any additional disclosures.

Section 26 – SHARE BASED PAYMENTS
Section 27 – IMPAIRMENT OF ASSETS
IMPAIRMENT OF INVENTORIES
• At each reporting date, inventories are assessed for impairment by
comparing the carrying amount to the NRV
• Impairment loss, if any is recorded in profit or loss (Cost of Sales)
• When part or all of a previous impairment no longer exists, a reversal of
impairment is recorded.
• Reversal is capped at the amount of the original impairment loss.

IMPAIRMENT OF OTHER ASSETS

• An impairment loss (or reversal of a previous impairment) is recorded
immediately in profit or loss, unless the asset is carried at a revalued
amount in accordance with the revaluation model (Section 17)
Section 27 – IMPAIRMENT OF ASSETS

DISCLOSURES

For each class of asset disclose:

• The amount of impairment loss

• Reversal of loss recognised in profit or loss during the period; and
• Line in the statement of comprehensive income where the amount is
included.
Section 28 – EMPLOYEE BENEFITS

RECOGNITION CRITERIA

All employee benefits are recognised as follows:

• As a liability after deducting payments to employees (including amounts

paid directly to employees or to an employee benefit fund)

• As an expense unless another section of IFRS for SMEs requires

capitalisation.
Section 29 – INCOME TAX

CURRENT TAX
RECOGNITION AND MEASUREMENT
• Recognise current tax payable on taxable profits in current and past
periods
• If amounts already paid exceed the tax payable, recognise a current tax
asset
• A current tax asset is recorded for the benefit of tax loss that can be
carried back to offset taxes paid in previous periods
• A current tax liability (asset) is measured at the amount an entity expects
to pay (recover) using the tax rates and laws that have been enacted or
substantively enacted by the reporting date.
Section 29 – INCOME TAX
DEFERRED TAX
RECOGNITION
• A deferred tax asset or liability is recognised for tax recoverable or
payable in future periods as a result of past transactions or events.
• Deferred taxes arise from:
- differences between the accounting vs tax depreciation of assets
- the carry forward of currently unused tax losses and tax credits.
• No deferred tax liability is recognised for taxable temporary differences
arising from
- The initial recognition of goodwill
- The initial recognition of an asset or a liability in a transaction that is
not a business combination and at the time of the transactions affects
neither accounting profit nor taxable profit.
Section 29 – INCOME TAX
PRESENTATION
• A tax expense is recognised in the same component of total
comprehensive income or equity as the transaction or other event that
resulted in the tax expense.
• Deferred tax assets/liabilities are not classified as current
assets/liabilities
• Offsetting of current or deferred tax only if the entity
- has a legally enforceable right to set off; and
- can demonstrate without undue cost or effort that it plans to settle on a
net basis or to realize the asset and settle the liability simultaneously.
Section 29 – INCOME TAX
DISCLOSURE
• Separate disclosure of the major components of tax expense/income, including:
- Current tax expense/income
- Adjustments recognised for current tax of previous periods
- Amount of deferred tax relating to origination and reversal of temporary
differences and to changes in tax rates or the imposition of new taxes
- Benefit arising from a previously unrecognized tax loss, tax credit or
temporary difference used to reduce the tax expense
- Adjustments to deferred tax expense arising from a change in the tax status
- Tax expense relating to changes in accounting policies and errors.
The following information needs to be disclosed separately:
• Separately, the aggregate current and deferred tax in relation to items recognised
in OCI and credited directly to equity
• Explanation of significant differences between tax expense/income and
accounting profit multiplied by the applicable tax rate
Section 29 – INCOME TAX
• Explanation of changes in applicable tax rates compared with previous
periods
• For each type of temporary difference and each type of tax losses and
credits:
- Amount of deferred tax liabilities, assets and valuation allowance
- Analysis of changes during the period.
• Amount of deductible temporary differences, unused tax losses/tax
credits for which no deferred tax asset is recognised
• Explanation of potential tax consequences from the payment of
dividends to shareholders in jurisdictions with different applicable tax
rates
Section 30 – FOREIGN CURRENCY TRANSLATION

DISCLOSURES

• The amount of exchange differences arising in profit or loss except those

arising on financial instruments measured at fair value through profit or
loss (Sections 11 and 12)

• Exchange differences arising during the period and classified in a

separate component of equity at the end of the period

• The currency in which the financial statements are presented

• Any difference between the presentational currency and the functional

currency, including the reason(s) why they are different

• Any change made to functional currency.

Section 31 – HYPERINFLATION
Section 32 – EVENTS AFTER END OF REPORTING
PERIOD
DISCLOSURE
An entity discloses the following:

• Date that the accounts were authorised for issue and who gave that
authorisation

• If the owners or others have the power to amend the financial statements
after issue the entity shall disclose that fact

• For non-adjusting events the nature of the event and an estimate of its
financial effect (or a statement that an estimate cannot be made).
Section 33 – RELATED PARTY TRANSACTIONS
DISCLOSURE

• Relationship between parent and subsidiaries irrespective of whether

there have been related party transactions
• Name of parent entity and, if different, the ultimate controlling party
• Compensation of key management personnel in aggregate
• Nature of related party transactions aswell as information about the
transactions and outstanding balances
• Commitments entered into and guarantees given
• Provisions for uncollectible receivables as well as the quantum of
expense recognised in the period in respect of bad or doubtful debts
from related parties
Section 33 – RELATED PARTY TRANSACTIONS
• Separate disclosure of the above is required for the following:

- Entities with control, joint control or significant influence over the

reporting entity
- Entities over which the entity has control, joint control or significant
influence
- Key management personnel of the entity or its parent
- Other related parties.

An entity may disclose items of a similar nature in aggregate except when

separate disclosure is necessary for an understanding of the effects of
related party transactions.
 Requirements of Fifth
Schedule of Companies Act,
2017
Part I – General Requirements

• Geographical location of all business units

• Particulars of immovable fixed assets
• Capacity of industrial plant
• Actual production and reason of shortfall
• Number of employees as of reporting date
• Average number of employees during the period
• Names of associated companies/ undertakings the company went
into transactions with.
Part I – General Requirements

• Transactions/ agreements with associated companies or JVs

incorporated outside Pakistan
• Summary of significant transactions
• Loans given to or investments made in foreign companies/
undertakings
Part II – Requirements As To Statement of
Financial Position
• Separate line items on Statement of Financial Position:
- Revaluation surplus on property, plant and equipment
- Long-term deposits or prepayments
- Unpaid dividend
- Unclaimed dividend; and
- Cash and bank balances
Part II – Requirements As To Statement of
Financial Position
FIXED ASSETS
• Assets not held in the name of the company
• Land and building to be distinguished between freehold and
leasehold
• Revaluation of property, plant and equipment - forced sale value
• Sale of fixed assets (book value exceeding Rs. 500,000)
- Cost/ revalued amount
- Book value
- Sale price and mode of disposal
- Purchaser's particulars
- Gain/ loss
- Relationship
Part II – Requirements As To Statement of
Financial Position
LONG TERM INVESTMENTS

• Investments in associated companies/ undertakings

LONG TERM LOANS AND ADVANCES

• Loans and advances to directors:
- Purposes of loans/ advances
- Reconciliation of carrying amount
• Loans/ advances at terms other than arm’s length basis
Part II – Requirements As To Statement of
Financial Position
• Loans and advances to associates:
- Name of each associate and related parties
- Particulars of collateral security
- Maximum aggregate amount outstanding
- Provisions for doubtful loans/ advances
- Loans/ advances written off
Part II – Requirements As To Statement of
Financial Position
CURRENT ASSETS
• Debt / receivables from associates
- Name of each associate and related party
- Maximum aggregate amount outstanding
- Receivables- either past due or impaired
- Debts written off
- Provisions for doubtful/ bad debts
- Reversal of provisions of doubtful debts
- Provision for doubtful debts/ diminution in value of or loss
in respect of an asset
Part II – Requirements As To Statement of
Financial Position
SHARE CAPITAL AND RESERVES

• Capital and revenue reserves

• In case of issued share capital
- Shares allotted for consideration paid in cash
- Shares allotted for consideration other than cash
- Bonus shares
- Treasury shares
• Discount on issue of shares
• Shareholder agreements
Part II – Requirements As To Statement of
Financial Position
NON-CURRENT LIABILITIES
• Amount due to associated company
CURRENT LIABILITIES
• Items to be disclosed as separate line items
- Payable to provident fund/ contributory pension
- Deposits/ accrued liabilities/ advances
- Loans from banks/ financial institutions
- Loans/ advances from associated company/ sponsors/ directors
- Loans/ advances shall be classified as secured and unsecured
Part II – Requirements As To Statement of
Financial Position
• Provident fund/ contributory pension fund / any other contributory
retirement fund
• Security Deposit Payable
- Bifurcation of amount received
- Amount utilized for the purpose of business
- Amount kept in a separate bank account

CONTINGENCIES AND COMMITMENTS

• Legal proceedings in any court, agency or government authority
Part III– Requirements As To Profit and Loss

• Items to be disclosed as deduction from turnover

- Trade discount
- Sales and taxes directly attributable to sales
• Aggregate amount of auditor’s remuneration, showing separately:
- Fees;
- Expenses;
- Other remuneration for services as auditor; and
- Remuneration for services in any other capacity + nature of service

• Disclose for donations

- Donation to a single party exceeds Rs. 500,000, name of donee;
- Interest of director / spouse
Part III– Requirements As To Profit and Loss

• Particulars of the aggregate amount charged by the company

- Fees
- Managerial remuneration
- Commission / bonus, indicating nature thereof
- Reimbursable expenses in nature of perquisite or benefit
- Pension/ gratuities / superannuation and other funds
- Other perquisites and benefits
- Amount for any other services rendered

• In case of royalties paid to companies/ entities/ individuals

- Name and registered address
- Relationship with company or directors
QUESTIONS ANDANSWERS