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Hyperinflation
An entity must prepare general price-level adjusted financial statements when its functional currency is hyperinflationary and follow the principles of IAS 29. IFRS
for SMEs provides indicators of hyperinflation but not an absolute rate. One indicator is where cumulative inflation approaches or exceeds 100% over a three-year
period.
Events after the End of the Reporting Period
An entity must adjust financial statements to reflect adjusting events that provide further evidence of conditions that existed at the end of the reporting period.
Similarly, the entity does not adjust for nonadjusting events that arose after the end of the reporting period. In this case, the entity must disclose the nature of the
event and an estimate of its financial effect.
If an entity declares dividends after the reporting period, the entity should not recognize those dividends as a liability at the end of the reporting period as it is a
nonadjusting event.
This section follows the principles of full IFRS.
Related-Party Disclosures
Specialized Activities
Agriculture. If the fair value of a class of biological assets is readily determinable without undue cost or effort, use the fair value through profit or loss model. If the
fair value is not readily determinable, or is determinable only with undue cost or effort, measure the biological assets at cost less any accumulated depreciation and
impairment.
At harvest, agricultural produce is measured at fair value less estimated costs to sell. Thereafter it is accounted for as inventory.
Extractive industries. An entity is not required to charge exploration costs to expense and must test the capitalized costs for impairment. Any expenditure on
tangible or intangible assets used in extractive activities is accounted as property, plant, and equipment or intangible assets other than goodwill.
Transition to the IFRS for SMEs
First-time adoption is the first set of financial statements in which the entity makes an explicit and unreserved statement of compliance with the IFRS for SMEs. The
entity selects accounting policies based on IFRS for SMEs at the end of the reporting period of first-time adoption. Many accounting policy decisions depend on
circumstances but the IFRS does allow some choice. The entity has to prepare the current year and one prior year’s financial statements using the IFRS for SMEs, but
there are optional and mandatory exceptions from restating specific items. There is a general exemption for impracticability. All of the special exemptions in IFRS 1
are included in the IFRS for SMEs.
The IFRS for SMEs gives some relief from the IFRS 1 requirement that in the entity’s first IFRS financial statements, there must be at least one year’s comparative
information. The relief has been created by including the “impracticability” exemption. Similarly, it provides an impracticability exemption with respect to restating the
opening statement of financial position.
Where financial statements are prepared using the Standard, the basis of presentation note and the auditor’s report will refer to compliance with the IFRS for SMEs.
This reference may improve SMEs’ access to capital. The Standard also contains simplified language and explanations of the standard.
The IASB Has Produced Full Implementation Guidance for SMEs
The IFRS for SMEs is a response to international demand from developed and emerging economies for a rigorous and common set of accounting standards for small
and medium-sized businesses that is much simpler than full IFRS. The IFRS for SMEs should provide improved comparability for users of accounts while enhancing
the overall confidence in the accounts of SMEs, and reducing the significant costs involved of maintaining standards on a national basis. As a result of the above, the
IFRS require SMEs to comply with less than 10% of the volume of accounting requirements applicable to listed companies complying with the full set of IFRS.
Facts
CASE STUDY 2
An SME faces a fine for operating without regard to the law. The entity expects to lose the case but does not expect the fine to be payable for 5 years. The
fine will be $50,000. Market rate of interest is 5%.
Required
How would the SME account for this under the IFRS for SMEs?
Solution