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

IFRS FOR SMES – JULY 2009Section 11Basic Financial InstrumentsScope of Sections 11 and 1211.1 Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments Issuestogether deal with recognising, derecognising, measuring and disclosingfinancial instruments (financial assets and financial liabilities). Section 11applies to basic financial instruments and is relevant to all entities. Section 12applies to other, more complex financial instruments and transactions. If anentity enters into only basic financial instrument transactions then Section 12 isnot applicable. However, even entities with only basic financial instruments shallconsider the scope of Section 12 to ensure they are exempt.Accounting policy choice11.2 An entity shall choose to apply either:(a)(b)the provisions of both Section 11 and Section 12 in full, orthe recognition and measurement provisions of IAS 39 Financial Instruments:Recognition and Measurement and the disclosure requirements of Sections 11and 12to account for all of its financial instruments. An entity’s choice of (a) or (b) is anaccounting policy choice. Paragraphs 10.8–10.14 contain requirements fordetermining when a change in accounting policy is appropriate, how such achange should be accounted for, and what information should be disclosed aboutthe change.Introduction to Section 1111.3 A financial instrument is a contract that gives rise to a financial asset of one entityand a financial liability or equity instrument of another entity.11.4 Section 11 requires an amortised cost model for all basic financial instrumentsexcept for investments in non-convertible and non-puttable preference sharesand non-puttable ordinary shares that are publicly traded or whose fair value canotherwise be measured reliably.11.5 Basic financial instruments within the scope of Section 11 are those that satisfythe conditions in paragraph 11.8. Examples of financial instruments thatnormally satisfy those conditions include:(a)(b)(c)(d)cash.demand and fixed-term deposits when the entity is the depositor, eg bankaccounts.commercial paper and commercial bills held.accounts, notes and loans receivable and payable.54 © IASCF