Small and

Medium-sized
Entities
Definition
The International Accounting Standards Board defines small and
medium-sized entities as entities that:
a) Do not have public accountability; and
b) Publish general purpose financial statements for external
users.
Public Accountability
■ Its debt or equity instruments are traded in a public market or it is in
the process of issuing such instruments for trading in public market.
■ It holds assets in fiduciary capacity for a broad group of outsiders as
one of its primary businesses.
General Purpose Financial Statements
■ The PFRS for SMEs is designed to apply to the general purpose
financial statements and other financial reporting of profit-oriented
entities that do not have public accountability.
Definition
The Philippine Securities and Exchange Commission defines small
and medium-sized entities as entities:
a) With total assets between P3,000,000 and P350,000,000 or
with total liabilities between P3,000,000 and P250,000,000.
b) That is not required to file financial statements under SRC Rule
68.1.
Definition
c) That is not in the process of filing financial statements for the
purpose of issuing any class of instruments in a public market.
d) That is not a holder of secondary license issued by a regulatory
agency.
e) That is not a public entity.
Micro-business Entities
■ Entities whose total assets or total liabilities are below the
P3,000,000 floor threshold.
■ Bases of accounting in the preparation of financial statements:
a) Full PFRS
b) PFRS for SMEs
c) Another acceptable basis of accounting
Exemptions from PFRS for SMEs
■ It is a subsidiary of a parent reporting under full PFRS.
■ It is a subsidiary of a foreign parent that will be moving toward full IFRS
pursuant to the foreign country’s published convergence plan.
■ It is a subsidiary of a foreign parent that has been applying the
standards for a nonpublicly accountable entity for local reporting
purposes, and is considering moving to full PFRS instead of the PFRS
for SMEs.
Exemptions from PFRS for SMEs
■ It has a short-term projections that show that it will breach the
quantitative thresholds set in the criteria for an SME, and the breach is
expected to be significant and continuing.
■ It is part of a group, either a significant joint venture or an associate,
that is reporting under full PFRS.
■ It is a branch office of a foreign entity reporting under full IFRS.
■ It has concrete plans to conduct an initial public offering within the
next two years.
Exemptions from PFRS for SMEs
■ It has a subsidiary that is mandated to report under full PFRS.
■ It has been preparing financial statements using full PFRS and has
decided to liquidate its assets.
First-time Adopter
■ A first-time adopter of PFRS for SMEs is an entity that presents its
first annual financial statements that conform with PFRS for
SMEs.
■ The date of transition is the beginning of the earliest period for
which full comparative information is presented in accordance
with PFRS for SMEs.
Opening Statement of Financial Position
■ It is the statement of financial position on the date of transition to
PFRS for SMEs.
Opening Statement of Financial Position
■ Recognize all assets and liabilities whose recognition is required by
PFRS for SMEs.
■ Not recognize as assets or liabilities if the PFRS for SMEs does not
permit such recognition.
■ Reclassify items that it recognized under the previous accounting
framework as one type of asset, liability or component of equity, but a
different type of asset, liability or equity under PFRS for SMEs.
■ Apply PFRS for SMEs in measuring all recognized assets and liabilities.
Application of PFRS for SMEs
■ First-time adoption requires full retrospective application of PFRS for
SMEs effective at the reporting date for an entity’s first annual
financial statements that conform with PFRS for SMEs.
■ The resulting adjustments arise from transactions, other events and
conditions before the date of transition to PFRS for SMEs.
■ The first-time adopter shall recognize those adjustments directly in
retained earnings or another category of equity, if appropriate.
Exceptions to Retrospective Application
The first-time adopter does not change the accounting it followed
previously on the following transactions:
■ Derecognition of financial assets and financial liabilities;
■ Hedge accounting;
■ Accounting estimates;
■ Discontinued operations; and
■ Measuring noncontroling interest.
Reconciliation
■ Reconciliation of equity reported under the previous reporting
framework to equity under PFRS for SMEs for both:
a) The transition date.
b) The end of the latest period presented in the entity’s most recent
annual financial statements.
■ Reconciliation of the profit or loss determined in accordance with the
previous reporting framework for the latest period in the entity’s
annual financial statements to the profit or loss determined in
accordance with PFRS for SMEs for the same period.
 SMEs –
Qualities and
General Features
Full PFRS and PFRS for SMEs have
the same provisions on the general
features in the preparation of
financial statements.
 SMEs –
Financial
Statements
Components of Financial Statements
■ Statement of financial position
■ Either statement of comprehensive income or a separate income
statement and a separate statement of comprehensive income
■ Statement in changes in equity
■ Statement of cash flows
■ Notes, comprising a summary of significant accounting policies and
other explanatory information.
 The components of financial
statements of an SME are similar to
those provided by full PFRS.
Components of Financial Statements
An SME is permitted to present a single statement of income and
retained earnings if the only changes to the equity are the result of the
following:
■ Profit of loss
■ Payment of dividends
■ Prior period errors
■ Changes in accounting policy
 A single statement of income and
retained earning is not permitted Under
full PFRS. A statement of changes in
equity is always required.
 SMEs –
Statement of
Financial Position
Statement of Financial Position
The following items are required to be presented under full PFRS but
not under PFRS for SMEs:
■ Total assets classified as held for sale.
■ Total liabilities included in disposal group classified as held or sale.
PFRS for SMEs includes as separate
line item investment property
carried at cost less accumulated
depreciation and impairment.
Statement of Financial Position

PFRS for SMEs

Full PFRS requires
requires presentation
presentation of
of both investment in
investments in
associates and
associates but not
investment in joint
investment in joint
venture as separate
ventures.
line item.
 For the current and noncurrent
presentation of assets and liabilities,
full PFRS and PFRS for SMEs have
the same provisions.
 SMEs –
Statement of
Comprehensive Income
 Full PFRS and PFRS for SMEs have
the same provisions on the
presentation of total comprehensive
income and analysis of expense by
nature and by function.
Components of Other Comprehensive Income
■ Gain or loss from translation of a foreign operation
■ Actuarial gain or loss on defined benefit plan
■ Changes in fair value of hedging instrument
■ Revaluation surplus from the revaluation of property plant and
equipment
Full PFRS and PFRS for SMEs
have practically the same “line
items” in the statement of
comprehensive income.
 SMEs –
Statement of
Changes in Equity
 Full PFRS and PFRS for SMEs
have the same provisions in the
preparation and presentation of
statement of changes in equity.
 SMEs –
Statement of
Cash Flows
 Full PFRS and PFRS for SMEs
have the same provisions in the
preparation and presentation of
statement of cash flows.