1. Small and Medium Sized Entities as defined by International Financial Reporting Standards (IFRS) are entities that Firstly do not have public accountability and Secondly publish general purpose financial statements for any external users. These are non-subsidiary, independent firms which employ less than a certain number of employees. While generally equivalent to standards issued by the IASB(IFRS), reliability on AASB 1053 represents “Australian accounting standards” departure from what is occurring at the international level. In 2009 accounting standards were issued by the IASB for small and medium-sized entities. These standards allow small and medium (SMEs) enterprises out of recognition and measurement requirements and different presentation under international standards. In-contrast, full IFRS has been adopted in Australia, using ‘Public accountability’ notion would be more logical for IASB to determine which enterprises are in for-profit. The implementation of IFRS for the SMEs is imperative. With the IFRS in place, the investors are able to cover a diverse range of issues, have a substantial amount of guidance in regards to implementation and include disclosures suitable for public companies, as these standards have been designed to meet such financial requirements. However, the investors for SMEs have little relevance for such requirements. Instead, they are more interested in liquidity assessment, solvency and short term cash flows. Nonetheless, IFRS can prove to be unwieldy in the case of SMEs. Since they are being globally accepted and implemented rapidly along with beinf updated and detailed frequently, they gradually appear to be an increasing burden. Hence, the IASB aims for two goals: the proposed IFRS for SMEs shall meet user requirements while at the same time balance the costs and the benefits from the perspective of the preparer. Q1. Is done. Dnt worry abt it. Start from q2. Below is some info given. Write any 2 points from given 8. For q3 you have data at no. 3. Paraphrase it in a good way. You might need to find some better advantages and disadvantages. You can also usethe given link in front of no. 3 for more info. file://ad.uws.edu.au/DFShare/StdHomes/17771580/Desktop/PWC_comparison_Full_SMEs.pdf check this link and find some info for q.3,4,5,6. You can find the relevant info for these questions here. Q7. Just summarise it. Total word count is 1500. If you do only about 200/ques. Its 1400 words for 7 ques. And bit of the into saying we’re gonna talk about retail perspective. in-text citation and Harvard style ref pls. 3 or 4. If you have more info about accounting theories you can also chuk it in. 2. A.Financial Statements Full IFRS: A statement of changes in equity is required, presenting a reconciliation of equity items between the beginning and end of the period. IFRS for SMEs: Same requirement. However, if the only changes to the equity during the period are a result of profit or loss, payment of dividends, correction of prior-period errors or changes in accounting policy, a combined statement of income and retained earnings can be presented instead of both a statement of comprehensive income and a statement of changes in equity. b.Business combinations Full IFRS: Transaction costs are excluded under IFRS 3 (revised). Contingent consideration is recognised regardless of the probability of payment. IFRS for SMEs: Transaction costs are included in the acquisition costs. Contingent considerations are included as part of the acquisition cost if it is probable that the amount will be paid and its fair value can be measured reliably. c.Investments in associates and joint ventures Full IFRS: Investments in associates are accounted for using the equity method. The cost and fair value model are not permitted except in separate financial statements. To account for a jointly controlled entity, either the proportionate consolidation method or the equity method are allowed. The cost and fair value model are not permitted. IFRS for SMEs: An entity may account of its investments in associates or jointly controlled entities using one of the following: • The cost model (cost less any accumulated impairment losses). • The equity method. • The fair value through profit or loss model. d. Expense recognition Full IFRS: Research costs are expensed as incurred; development costs are capitalised and amortised, but only when specific criteria are met. Borrowing costs are capitalised if certain criteria are met. IFRS for SMEs: All research and development costs and all borrowing costs are recognised as an expense. e.Financial instruments – derivatives and hedging Full IFRS: IAS 39, ‘Financial instruments: Recognition and measurement’, distinguishes four measurement categories of financial instruments – that is, financial assets or liabilities at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. IFRS for SMEs: There are two sections dealing with financial instruments: a section for simple payables and receivables, and other basic financial instruments; and a section for other, more complex financial instruments. Most of the basic financial instruments are measured at amortised cost; the complex instruments are generally measured at fair value through profit or loss. f.Non-financial assets and goodwill Full IFRS: For tangible and intangible assets, there is an accounting policy choice between the cost model and the revaluation model. Goodwill and other intangibles with indefinite lives are reviewed for impairment and not amortised. IFRS for SMEs: The cost model is the only permitted model. All intangible assets, including goodwill, are assumed to have finite lives and are amortised. Full IFRS: Under IAS 38, ‘Intangible assets’, the useful life of an intangible asset is either finite or indefinite. The latter are not amortised and an annual impairment test is required. IFRS for SMEs: There is no distinction between assets with finite or infinite lives. The amortisation approach therefore applies to all intangible assets. These intangibles are tested for impairment only when there is an indication. Full IFRS: IAS 40, ‘Investment property’, offers a choice of fair value and the cost method. IFRS for SMEs: Investment property is carried at fair value if this fair value can be measured without undue cost or effort. Full IFRS: IFRS 5, ‘Non-current assets held for sale and discontinued operations’, requires non-current assets to be classified as held for sale where the carrying amount is recovered principally through a sale transaction rather than though continuing use. IFRS for SMEs: Assets held for sale are not covered, the decision to sell an asset is considered an impairment indicator. g.Employee benefits – defined benefit plans Full IFRS: under IAS 19, ‘Employee benefits’, actuarial gains or losses can be recognised immediately or amortised into profit or loss over the expected remaining working lives of participating employees. IFRS for SMEs: Requires immediate recognition and splits the expense into different components. Full IFRS: The use of an accrued benefit valuation method (the projected unit credit method) is required for calculating defined benefit obligations. IFRS for SMEs: The circumstance-driven approach is applicable, which means that the use of an accrued benefit valuation method (the projected unit credit method) is required if the information that is needed to make such a calculation is already available, or if it can be obtained without undue cost or effort. If not, simplifications are permitted in which future salary progression, future service or possible mortality during an employee’s period of service are not considered. h. Income taxes Full IFRS: A deferred tax asset is only recognised to the extent that it is probable that there will be sufficient future taxable profit to enable recovery of the deferred tax asset. IFRS for SMEs: A valuation allowance is recognised so that the net carrying amount of the deferred tax asset equals the highest amount that is more likely than not to be recovered. The net carrying amount of deferred tax asset is likely to be the same between full IFRS and IFRS for SMEs. Executive summary Similarities and differences – A comparison of ‘full IFRS’ and IFRS for SMEs 9 Full IFRS: No deferred tax is recognised upon the initial recognition of an asset and liability in a transaction that is not a business combination and affects neither accounting profit nor taxable profit at the time of the transaction. IFRS for SMEs: No such exemption. Full IFRS: There is no specific guidance on uncertain tax positions. In practice, management will record the liability measured as either a single best estimate or a weighted average probability of the possible outcomes, if the likelihood is greater than 50%. IFRS for SMEs: Management recognises the effect of the possible outcomes of a review by the tax authorities. It should be measured using the probability-weighted average amount of all the possible outcomes. There is no probable recognition threshold. 3.http://www.aasb.gov.au/admin/file/content102/c3/AASB_Comment_Letter_on_the_Proposed_Amendments_to_the_IFRS_for_SMEs.pdf Retail industry is thought to be most affected industry from changes in accounting for leases. At the moment most of the retail leases in the company are treated as operating lease. Changes in the lease treatment means retail companies will no longer be able to expense those leases rather have to capitalize it on balance sheet as asset and liability. Retailers like 7 eleven will book a “right-of-use” (ROU) in assets and present value of future lease payments in liabilities, inflating both the sides of the balance sheet. The income statement will change in terms of the way expense will be recognized and their timing each year. The nature of lease liability will be more like a loan with a principal and interest. In early years payments include more portion of interest and a relatively smaller portion of principal whereas in later years payments include more of the principal than interest. This treatment of lease will gradually reduce the balance sheet liability. The new standard will stabilize the income statement and reduce its volatility. However, like other retailers 7 eleven have a large portfolio of leases that expire and renew on different dates. This timing difference of renewals can still cause the expenses to vary every year. Other potential impacts could be; • Debt covenants need to be re-negotiated. • Dividend payments may be affected due to change in shape of the P&L. • Tax effect for interest recognized may have some deferred consequences. • New standard will re-shape leasing market and negotiation techniques. Advantages and disadvantages for the retail giants: Effect on financial statements: Balance sheet: IASB requires companies to report all asset and liabilities arising out of a lease contract on balance sheet (except short term and low value leases). Because of the carrying amount of lease assets will typically reduce more quickly than that of lease liability, reported equity will reduce for companies (like 7 eleven) with material off balance sheet leases. The newly recognized “right-of-use” asset is a non-current non-financial asset and lease liability takes form of current and non-current financial liability depending on the timing. This results in change in key financial ratios and metrics. In each period of lease, leased asset is depreciated on a straight-line basis, whereas lease liability is reduced by amount of lease payment made and increased by interest reducing over the life of the lease. This give rise to difference in balance of lease asset and lease liabilities throughout the period, however starting and ending balance will be equal. file://ad.uws.edu.au/DFShare/StdHomes/17771580/Desktop/PWC_comparison_Full_SMEs.pdf check this link and find some info for q.3,4,5,6. http://www.ifrs.org/Current-Projects/IASB-Projects/Small-and-Medium-sized-Entities/Pages/Small-and-Medium-sized-Entities.aspx http://www.ifrs.org/IFRS-for-SMEs/Documents/IFRS%20for%20SMEs%20Modules/Module01_version%202013.pdf http://iabcentre.com/file/IFRS%20for%20SMEs.pdf file://ad.uws.edu.au/DFShare/StdHomes/17771580/Desktop/PWC_comparison_Full_SMEs.pdf