SMEs – FINANCIAL

STATEMENTS
Notes tofinancial statements
Related parties
Events after reporting period
Accounting changes
CHAPTER 25
GENERAL FEATURES OF
FINANCIAL STATEMENTS
The general features in the preparation of the financial statement of
SMEs are:
1. Fair presentation and compliance with PFRS for SMEs
2. Going concern
3. Accrual basis
4. Materiality and aggregation
5. Offsetting
6. Frequency of reporting
7. Comparative information
8. Consistency of presentation
Full PFRS and PFRS for SMEs have the same
provisions on general features in the preparation
of financial statements.
Fair presentation
Virtually, In all circumstances, fair
presentation is achieved if the financial
statements of an SME are prepared in
accordance with PFRS for SMEs.
Compliance with PFRS for
SMEs
An entity whose financial statements comply with
PFRS for SMEs shall make an explicit and
unreserved statement of such compliance in the
notes.

However, a “publicly accountable entity” is

prohibited from making this statement of
compliance even if it is required by law to prepare
the financial statements in accordance with the
PFRS for SMEs.
Going concern
Going concern means that the accounting
entity is viewed as continuing in operation
indefinitely in the absence of evidence to
the contrary.
Accrual basis
Accrual accounting means that income is
recognized when earned regardless of when
received and expense is recognized when
incurred regardless when paid.
Materiality and
aggregation
An entity shall present separately each
material class of similar items.

An entity shall present separately items of

dissimilar nature or function unless they
are immaterial.
Offsetting
Assets and liabilities, and income and
expenses, when material, shall not be offset
against each other.

Offsetting may be done when it is required

or permitted by another PFRS.
Frequency of reporting
An entity shall present a complete set of financial
statements at least annually.

When an entity changes the end of the reporting

period and present financial statements for a period
longer or shorter than one year, an entity shall
disclose:
a. The period covered by the financial statements.
b. The reason for using a longer or shorter period.
c. The fact that amounts presented in the financial
statements are not entirely comparable.
Comparable
information
Except when permitted or required
otherwise by PFRS for SMEs, an entity shall
disclose comparative information in respect
of the previous period for all amounts
reported in the current period’s financial
statements including narrative and
descriptive information.
Consistency of
presentation
The principle of consistency requires that
the accounting methods and practices shall
be applied on a uniform basis from period to
period.

The presentation and classification of

financial statement items shall be uniform
from one accounting period to the next.
Components of financial
statements
A complete set of financial statements of an SME shall
include all of the following:
1. Statement of financial position
2. Either a single statement of statement of
comprehensive income OR a separate income
statement and a separate statement of comprehensive
income.
3. Statement of changes in equity
4. Statement of cash flows
5. Notes, comprising a summary of significant accounting
policies and other explanatory information
However, a single statement of income and retained
earnings can be presented by an SME instead of a
statement of comprehensive income an statement of
changes in equity if the only changes to the equity are the
result of the following:

a. Profit or loss
b. Payment of dividend
c. Prior period errors
d. Changes in accounting policy

In these cases, as SME is permitted but not required to

present a single statement of income and retained
earnings.
Comparison with full
PFRS
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

Statement of financial position
Comparison with full PFRS
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.

Paragraph 4.2 of PFRS for SMEs is amended to

include as separate line item investment
property carried at cost less accumulated
depreciation and impairment.
Current and noncurrent
An SME shall present current and
noncurrent assets and current and
noncurrent liabilities, as separate
classification in the statement of financial
position, except when a presentation
based on liquidity provides information
that is reliable and relevant.
Comparison with full
PFRS
Full PFRS and PFRS for SMEs have the
same provision on the current and
noncurrent separate presentation.

Full PFRS and PFRS for SMEs have the

same definition of current assets,
noncurrent assets, current liabilities and
noncurrent liabilities.
Comprehensive income
Comprehensive income is the change in equity
during a period resulting from transactions and
other events, other than changes resulting from
transactions with owners in their capacity as
owners.

In other words, comprehensive income includes

the following:
a. Components of profit or loss
b. Components of other comprehensive income
Profit or loss
The term profit or loss is the total of income
less expenses, excluding the components
of other comprehensive income.

In other words, this is the bottom line in the

traditional income statement. An entity
may use net income or net loss to describe
profit or loss.
Other comprehensive income
(OCI)
The term other comprehensive income comprises items of
income and expenses including reclassification adjustments
that are not recognized in profit or loss as required or
permitted by PFRS.

Under PFRS for SMEs the components of other comprehensive

income are:
1. Gain or loss from translating the financial statements of a
foreign operation.
2. Actuarial gain or loss on defined benefit plan.
Under PFRS for SMEs, the same SME has a policy choice
whether to present this item as component of other
comprehensive income or component of profit or loss.
3. Change in fair value of hedging instrument that
was effective in offsetting the change in fair value or
expected cash flows of the hedged item.

4. Revaluation surplus from the revaluation of

property, plant and equipment as allowed now under
the amended paragraph 1.15 of PFRS for SMEs.
NOTES TO FINANCIAL
STATEMENTS
Notes to financial statements provides
narrative description or disaggregation of
items presented in the financial statements
and information about items that do not
qualify for recognition.

The entity shall cross-reference each item in

the financial statements to any related
information in the notes.
Structure to the notes
The notes to financial statements shall:
a. Present information about the basis of
preparation of the financial statements and the
accounting policies applied.
b. Disclose the information required by the PFRS
for SMES that is not presented elsewhere in the
financial statements.
c. Provide information that is not yet presented
elsewhere in the financial statements but
relevant to an understanding of the
information.
Order of presenting the
notes
An SME shall present the notes in the following
order:
a. Statement of compliance with PFRS for SMEs
b. Summary of significant accounting policies
applied
c. Supporting information for items presented in the
financial statements in the sequence in which
each line item is presented in the financial
statements
d. Any other disclosures
Comparison with full
PFRS
The PFRS for SMEs and full PFRS are the
same in the matter of presenting the notes
to financial statements.

However, the PFRS for SMEs does not

require the presentation and disclosure of
the following:
a. Segment information
b. Earnings per share
c. Interim financial reports
RELATED AND UNRELATED
PARTIES
The major categories of related parties are:
a. Affiliates – the parent, subsidiaries and fellow
subsidiaries.
b. Associates – Associates include the subsidiary or
subsidiaries of the associates.
c. Joint ventures - Joint ventures include the subsidiary or
subsidiaries of joint ventures.
d. Key management personnel of the entity.
e. Close family members of the key management
personnel.
f. Individuals with significant influence over the reporting
entity and close family members of such individuals.
The major categories of unrelated parties are:
a. Two entities simply because they have a director
or other key management personnel in common.
b. Two venturers simply because they share joint
control over the joint venture.
c. Providers of finance, trade unions, public entities
and government agencies simply by virtue of their
normal dealings with the reporting entity.
d. A customer, supplier, franchisor, distributor or
general agent with whom the reporting entity
transacts a significant volume of business merely
by virtue of the resulting economic dependence.
Comparison with full
PFRS
The PFRS for SMEs and full PFRS share
the same principles with respect to related
party disclosures.
Disclosure of related party
transactions
As a minimum, the disclosure of related party
transactions shall include:
a. The amount of the transactions.
b. The amount of outstanding balances, the terms and
conditions, whether secured or unsecured, and
nature of consideration to be provided in settlement.
c. Allowance for doubtful accounts related to the
outstanding balances.
d. The expense recognized during the period in respect
of doubtful accounts due from related parties.
EVENTS AFTER THE END OF
REPORTING PERIOD
Events after the end of reporting period are those events, favourable
and unfavourable, that occur between the end of reporting period and
the date when the financial statements are authorized for issue.

There are two types of events after the end of reporting period,
namely adjusting events and nonadjusting events.

Adjusting events are those that provide evidence of conditions that

existed at the end of reporting period and lead to adjustments of the
financial statements.

Nonadjusting events are those that are indicative of the conditions

that arose after the end of reporting period and do not lead to
adjustments but only to disclosures in the financial statements.
Comparison with full
PFRS
The PFRS for SMEs and full PFRS share
the same provisions for accounting and
reporting events after the end of reporting
period.
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
Selection of accounting
policies
Accounting policies are the specific principles, bases,
conventions, rules and practices applied by an entity
in preparing and presenting financial statements.

If the PFRS for SMEs specifically address a transaction,

other event or condition, the SME shall PFRS for SMEs.

If the PFRS for SMEs does not specifically address a

transaction, other event or condition, management
shall use its judgement in developing and applying an
accounting policy that results in information that is
relevant and reliable.
For SMEs, if there is no relevant guidance,
management shall consider the following sources in
descending order:
a. The requirements and guidance in PFRS on similar
and related issues.
b. The definition, recognition criteria and
measurement of assets, liabilities, income and
expenses.
Under full PFRS, in addition to the hierarchy of
guidance for an SME, management may consider the
following:
c. Most recent pronouncement of other standard
setting bodies
Consistency of accounting
policy
An SME shall select and apply the accounting
policies consistently for similar transactions,
unless the PFRS for SMEs requires or permits
otherwise.
Change in accounting
policy
A change in accounting policy shall be made
only when:
a. Required by PFRS for SMEs.
b. The change will result in more relevant and
faithfully represented financial information.
Treatment of change in accounting
policy
A change in accounting policy as a result of an
amendment to the PFRS for SMEs is accounted
for in accordance with the transactional
provisions therein.

If there is no transactional provision of if an

accounting policy is changed voluntarily, the
change is applied retrospectively.
Change in accounting
estimate
A change in accounting estimate is a normal recurring
correction or adjustment which is the natural result of the
use estimate.

Changes in accounting estimate result from new

information or new development and accordingly are not
corrections of errors.

When it is difficult to distinguish a change in an

accounting policy from a change in an accounting
estimate, the change is treated as a change in an
accounting estimate.
Treatment of change in accounting
estimate
The effect of change in accounting estimate is
recognized prospectively by including it in profit or
loss of:
a. The period of change, if the change affects that
period only.
b. The period of change and future periods, if the
change affects both.
 Prior period errors
Prior period errors are omissions and misstatements in the financial
statements for one or more periods arising from a failure to use or
misuse of reliable information that:
a. Was available when financial statements for those periods were
authorize for issue.
b. Could reasonably be expected to have been obtained and taken
into account in the preparation and presentation of those
financial statements.

Errors my occur as a result of mathematical mistakes, mistakes in

applying accounting policies, misinterpretation of facts, fraud or
oversight.
Prior period errors are adjusted retrospectively by
adjusting the opening balance of retained
earnings and affected assets and liabilities.
If comparative statements are presented, the
financial statements of the prior period shall be
restated so as reflect the retroactive application of
the prior period error.

This is known as retrospective restatements.