(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009Materiality2.6 Information is material—and therefore has relevance—if its omission ormisstatement could influence the economic decisions of users made on the basisof the financial statements. Materiality depends on the size of the item or errorjudged in the particular circumstances of its omission or misstatement. However,it is inappropriate to make, or leave uncorrected, immaterial departures from theIFRS for SMEs to achieve a particular presentation of an entity’s financial position,financial performance or cash flows.Reliability2.7 The information provided in financial statements must be reliable. Informationis reliable when it is free from material error and bias and represents faithfullythat which it either purports to represent or could reasonably be expected torepresent. Financial statements are not free from bias (ie not neutral) if, by theselection or presentation of information, they are intended to influence themaking of a decision or judgement in order to achieve a predetermined result oroutcome.Substance over form2.8 Transactions and other events and conditions should be accounted for andpresented in accordance with their substance and not merely their legal form.This enhances the reliability of financial statements.Prudence2.9 The uncertainties that inevitably surround many events and circumstances areacknowledged by the disclosure of their nature and extent and by the exercise ofprudence in the preparation of the financial statements. Prudence is the inclusionof a degree of caution in the exercise of the judgements needed in making theestimates required under conditions of uncertainty, such that assets or income arenot overstated and liabilities or expenses are not understated. However, theexercise of prudence does not allow the deliberate understatement of assets orincome, or the deliberate overstatement of liabilities or expenses. In short,prudence does not permit bias.Completeness2.10 To be reliable, the information in financial statements must be complete withinthe bounds of materiality and cost. An omission can cause information to be falseor misleading and thus unreliable and deficient in terms of its relevance.Comparability2.11 Users must be able to compare the financial statements of an entity through timeto identify trends in its financial position and performance. Users must also beable to compare the financial statements of different entities to evaluate theirrelative financial position, performance and cash flows. Hence, the measurementand display of the financial effects of like transactions and other events and© IASCF 13