Comparison between full PFRS and PFRS for SMEs

SMEs- Definition
The IASB concluded that, regardless of size, entities whose
securities are traded in a public market should follow full PFRS and
not PFRS for SMEs.
SMEs- Qualities of General Features
The PFRS for SMEs and full PFRS share the same provisions on the
definition, recognition, and measurement of the elements of
financial
statements.
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Under PFRS for SMEs, the measurement bases are two only, namely
historical cost and fair value.
However, under Conceptual Framework for Financial Reporting, the
measurement bases are historical cost, current cost, realizable
value and present value.
Full PFRS and PFRS for SMEs have the same provisions on the
general
features in the preparation of financial statements.
Under the Conceptual Framework for Financial Reporting the
fundamental qualitative characteristics of useful financial
information are:
a. Relevance
b. Faithful representation
To be relevant, financial information must have both predictive
values and confirmatory value.
To be a perfectly faithful representation, a depiction should possess
the
characteristics of completeness, neutrality and free from error.
Materiality is a subcharacteristic of relevance.

The Conceptual Framework also mentions the enhancing qualitative

characteristic that would increase the usefulness of financial
information, namely:
a. Understandability
b. Comparability
c. Verifiability
d. Timeliness

SMEs- Statement of Financial Position

The components of financial statements of an SME are similar to
those
provided by full PFRS.
However, a single statement of income and retained earnings is not
permitted under full PFRS. A statement of changes in equity is
always
required.
In addition, under full PFRS, the third statement of financial position
as at the beginning of earliest comparative period shall be prepared:
a. When an entity applies an accounting policy retrospectively.
b. When an entity makes a retrospective restatement.
c. When an entity reclassifies items in its financial statements.
The third statement of financial position is not required under PFRS
for SMEs.
Full PFRS and PFRS for SMEs require practically the same line items
to be presented on the face of the statement of financial position.
However, the following items are required to be presented under full
PFRS but not under PFRS for SMEs:
a. Total of assets classified as held for sale.
b. Total of liabilities included in disposal group classified as held for
sale.
Moreover, full PFRS requires presentation of investments in
associates but not investment in joint ventures.

PFRS for SMEs requires presentation of both investments in

associates and investments in joint ventures.
Full PFRS and PFRS for SMEs have the same provision on the current
and noncurrent separate presentation, and the definition of current
assets, noncurrent assets, current liabilities and noncurrent
liabilities.

SMEs- Comprehensive Income, Cash Flows

Under full PFRS, the components of other comprehensive income
include the following:
1. Gain or loss from translation of the financial statements of a
foreign
operation.
2. “Remeasurements,” including actuarial gain or loss on projected
benefit obligation
3. Unrealized gain or loss from derivative contracts designated as
cash flow hedge
4. Unrealized gain or loss on equity investment measured at fair
value
through other comprehensive income.
5. Unrealized gain or loss on debt investment measured at fair value
through other comprehensive income.
6. Revaluation surplus during the year.
7. The change in fair value attributable to credit risk of a financial
liability designated at fair value through profit or loss.
Full PFRS and PFRS for SMEs have the same provisions on the
presentation of total comprehensive income.
The PFRS for SMEs and full PFRS share the same provisions on the
presentation of total comprehensive income.

SMEs- Notes to Financial Statements Related parties, Events after

reporting period
The PFRS for SMEs and full PFRS are the same in the matter of
presenting the notes to financial statements.
The PFRS for SMEs and full PFRS share the same provisions
The PFRS for SMEs and full PFRS share the same principles with
respect to related party disclosures.
The PFRS for SMEs and full PFRS share the same provisions for
accounting and reporting events after the end of reporting period.
SMEs- Accounting Changes
PFRS for SMEs and full PFRS have the same provisions and
requirements with respect to the following:
a. Selection of accounting policies
b. Consistency of accounting policies
c. Changes in accounting policies
d. Changes in accounting estimates
e. Correction of prior period error
SMEs- Inventories and Revenue
The PFRS for SMEs and full PFRS have practically the same
provisions
related to definition, measurement, costs of purchase, cost of
conversion, other cost and cost formulas for inventories.
SMEs – Basic Financial Instruments Both the PFRS for SMEs and full PFRS
have the same definitions of a financial instrument, financial asset
and financial liability.
SMEs- Associate
The significant difference between the PFRS for SMEs and full PFRS
lies in the measurement of the investment in associate.
Under PFRS for SMEs, all investments in associates are accounted
for
using any one of the cost model, equity method or the fair value
model.
In other words, only one accounting policy or one model shall be
applied in accounting for all investments in associate.
Under full PFRS, the investor has no accounting policy choice. The
investments in associates shall be accounted for using the equity
method only.

Moreover, areas covered under full PFRS but not in PFRS for SMEs
include the following:
a. Guidance on significant influence.
b. Consequences when an investment ceases to be an associate.
c. Profit and loss from upstream and downstream transactions.
SMEs- Investment Property
Under PFRS for SMEs, investment property is measured at fair value
if the fair value can be measured reliably without undue cost or
effort on an ongoing basis.
Otherwise, the investment property is accounted for as property,
plant and equipment using the cost-depreciation-impairment model.
Full PFRS allows accounting policy choice of either fair value model
or cost model.
If the entity follows the cost model, the fair value of the property
must be disclosed.
However, when an investment property is held by a lessee under an
operating lease, the entity must follows the fair value model for all
of the investment properties.
SMEs- Property, Plant and Equipment
Full PFRS provides that an entity shall choose the cost model or
revaluation model as an accounting policy and shall apply that
policy to an entire class of property, plant and equipment.
Under PFRS for SMEs, property, plant and equipment shall be
measured using the cost model only.
The PFRS for SMEs and full PFRS are the same with respect to other
matters related to property, plant and equipment, such as
depreciation method, useful life, residual value, depreciation of
significant components, impairment and derecognition.
SMEs- Government Grant Borrowing Cost
The significant differences between PFRS for SMEs and full PFRS
with
respect to government grant are as follows:
1.) Under full PFRS, government grant is recognized when there is a
reasonable assurance that the entity will comply with the specified
conditions.
Under PFRS for SMEs, a government grant is recognized when the
conditions are actually satisfied.
2.) Under full PFRS, a government grant is recognized as income
over
the periods necessary to match the grant with the related cost for
which it is intended to compensate.
PFRS for SMEs does not allow an entity to match the grant with the
expense for which it is intended to compensate or the cost of the
asset that it is used to finance
3.) Under full PFRS, grant related to asset may be treated either as
deferred income or a reduction in the carrying amount of the asset.
There is no such option under PFRS for SMEs.
Under PFRS for SMEs, the grant is a deferred income until the
condition are actually satisfied.
SMES- Intangible Assets
The significant differences between PFRS for SMEs and full PFRS are
as follows:
1.) Under PFRS for SMEs, all research and development costs are
recognized as expenses when incurred.
Under full PFRS, research costs are expensed when incurred.
However, development costs may be capitalized when specific
criteria are met, particularly when technological feasibility has
already been established.
2.) Under PFRS for SMEs, intangible assets are measured
subsequently
using either the cost model only.
Under full PFRS, intangible assets are measured subsequently using
either cost model or revaluation model.
3.) Under PFRS for SMEs, the useful life of an intangible asset is
considered to be finite.
As a matter of fact, if the useful life if an intangible asset cannot be
estimated reliably, it is assumed to be 10 years.
Under full PFRS, the useful life of an intangible asset is either finite
or infinite. If the useful life cannot be estimated reliably, there is no
assumption of 10 years.
4.) Under PFRS for SMEs, all intangible assets, including goodwill,
are
amortized.
Under full PFRS, intangible assets with a finite useful life are
amortized over the useful life and intangible assets with intangible
assets with indefinite assets with indefinite useful life are not
amortized but tested for impairment.
5.) Under PFRS for SMEs, intangible assets are tested for impairment
when there is an indication that the asset may be impaired.
Under full PFRS, intangible assets with a finite useful life are tested
for impairment when there is an indication that the asset may be
impaired.
Intangible assets with indefinite useful life are tested for impairment
annually and whenever there is an indication that the asset may be
impaired.
SMEs- Impairment of Assets
Full PFRS and PFRS for SMEs are practically the same with respect to
the following:
a. Recognition and measurement of impairment loss
b. Definition of fair value less cost of disposal value in use
c. Internal and external indicators of impairment
d. Reversal of impairment
The notable difference is as follows:
Under PFRS for SMEs, assets, including goodwill, are tested for
impairment when there is an indication that the asset may be
impaired.
Under full PFRS, assets with a finite useful life are tested for
impairment when there is an indication that the asset may be
impaired.

However, the following assets are tested for impairment annually

and
when there is an indication that the asset may be impaired:
a.) Goodwill
b.) Intangible assets with an indefinite useful life on an intangible
asset not yet available for use.
SMEs- Provisions and Contingencies. There are no significant differences
between PFRS for SMEs and full PFRS
with respect to provisions and contingencies.
The PFRS for SMEs and full PFRS share the same principles for
accounting and reporting provision and for disclosing contingent
liabilities and contingent assets.
SMEs- Leases
PFRS for SMEs and full PFRS are practically the same with respect to
the accounting and reporting the leases.
The PFRS for SMEs applies to all leases, except the following:
a.) Leases in the exploration industry
b.) Licensing agreement for such items as motion picture films,
video
recording, plays, manuscripts, patents and copyrights
c.) Investment property
d.)Biological assets
e.) Leases that could result in a loss to either party as a result of
contractual terms that are unrelated to changes in the price of
leased assets, changes in foreign changes rate or a default by one
of the counterparties
f.) Onerous operating leases
SMEs-Employee Benefits
Full PFRS and PFRS for SMEs share the same principles for the
recognition and measurement of the following:
a.) Short-term employee benefits
b.) Defined contribution plans
c.) Other long-term employee benefits
d.) Termination benefits
Full PFRS and PFRS for SMEs also share many of the principles for
the
recognition and measurement of defined benefit plans.
1.) Under both full PFRS and PFRS for SMEs, all past service costs
are
now registered as expense immediately regardless of vesting.
2.) Under full PFRS, all remesurements of defined benefit plans,
including actuarial gain and loss are recognized through other
comprehensive income.
However, amounts recognized in other comprehensive income are
not subsequently recycled to profit or loss but may be transferred
within equity or retained earnings.
Under PFRS for SMEs, actuarial gain and loss are:
a.) Recognized immediately in profit or loss
b.)Recognized immediately in other comprehensive income
The SMEs has an accounting policy choice.
3.) Under full PFRS, the projected unit credit method must be used
in
measuring the defined benefit liability.
Under PFRS for SMEs, the projected unit credit method is used in
measuring the defined benefit liability if the information that is
needed to make such calculation is already available or can be
obtained without undue cost or effort.
4.) Under both PFRS for SMEs and full SMEs, the defined benefit
liability
is the net total of the following:
a.) Present value of benefit obligation at year-end
b.) Minus the fair value of plan assets at year-end
5.) Under both PFRS for SMEs and full PFRS, there is no more
concept of expected return.
Under PFRS for SMEs, all changes in the fair value of plan assets are
recognized in profit or loss.
Under full PFRS, the interest income on the fair value of plan assets
at the beginning of the period is included in profit or loss as
component of employee benefit expense.
The difference between actual return on plan assets and the interest
income is recognized as a “remeasurement” through other
comprehensive income.
SMEs- Income Tax
Full PFRS and PFRS for SMEs share many of the basic principles in
accounting for income tax.
The significant differences between full PFRS and PFRS for SMEs are
as follows:
1.) Under PFRS for SMEs, a valuation allowance is recognized for a
deferred tax asset so that its carrying amount equals the highest
amount that is more likely than not to be recovered.
Under full SMEs, the concept of valuation allowance is not
applicable.
Instead, deferred tax asset is only recognized to the extent that it is
probable that there will be sufficient future taxable against which
the deferred tax asset can be used.
2.) Under PFRS for SMEs, an SME shall not recognized a deferred tax
asset or liability for temporary differences associated with
unremitted earnings from foreign investments in subsidiaries,
branches, associates and joint ventures to the extent that the
investments are essentially permanent in duration.
Under full PFRS, the same prohibition applies but it is applicable to
all investments in subsidiaries, branches, associates and joint
ventures, whether domestic or foreign.
SMEs- Equity
The PFRS for SMEs and full PFRS are practically the same with
respect to the recording of equity instruments, treasury shares;
compound financial instruments, dividends and other related equity
matters.

SMEs- Share-Based Payment

Under PFRS for SMEs, the share options must be measured at fair
value on the date of grant. The intrinsic value of share option is not
mentioned as an alternative.
Under full PFRS, the share options shall be measured at fair value on
the date of grant. However, if the fair value of the share options
cannot be measured reliably, the intrinsic value of the share options
is used. The intrinsic value is the excess of the market price of the
share over the option price.
SMEs- Specialized Activities Hyperinflation
PFRS for SMEs and full PFRS practically have the same principles for
the recognition and measurement of biological assets and
agricultural
produce.
Under full PFRS, an entity must develop its own policy for
recognition of an exploration and evaluation asset.
If an entity’s accounting policy results in the recognition of an
exploration and evaluation asset, such asset shall be measured
initially at cost.
Like the requirement of PFRS for SMEs, the exploration and
evaluation asset may be classified as tangible asset or intangible
asset.
Subsequently, exploration and evaluation asset shall be
measurement
using either the cost model or fair value model.
Under PFRS for SMEs, an exploration expenditure shall be measured
subsequently using the cost model only.
PFRS for SMEs and full PFRS are the same in all aspects of
accounting for an entity whose functional currency is the currency
of hyperinflationary economy.