Enquiry:

The ‘Revised Accounting and Financial Reporting Standard for Small-Sized Entities’, requires retrospective adoption of the standard by amending the comparative financial statements, whereas, section 35.2 of IFRS for SMEs allows both retrospective and prospective adoption. Please clarify.

 

Opinion:

 The Board would like to draw your attention to section 35.2 of IFRS for SMEs which states:

“35.2    An entity that has applied the IFRS for SMEs in a previous reporting period, but whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with the IFRS for SMEs, must either apply this section or apply the IFRS for SMEs retrospectively in accordance with Section 10 Accounting Policies, Estimates and Errors as if the entity had never stopped applying the IFRS for SMEs. When such an entity does not elect to apply this section, it is still required to apply the disclosure requirements in paragraph 35.12A in addition to the disclosure requirements in Section 10.” (underlining is ours)

Section 35 of the IFRS for SMEs outlines the procedures for preparing financial statements at the date of transition. The treatment for most items is retrospective and only for certain items is prospective such as specified below:

“35.9    On first-time adoption of this Standard, an entity shall not retrospectively change the accounting that it followed under its previous financial reporting framework  for any of the following transactions:

 (a) derecognition of financial assets and financial liabilities. ————————-

(b) hedge accounting ————–

(c) accounting estimates.

(d) discontinued operations” 

Section 22 ‘Transition to the Accounting Standard SSEs’ of the ‘Revised Accounting and Financial Reporting Standard for Small-Sized Entities’ (Revised AFRS for SSEs) states that:

 “22.2    An entity shall in its opening balance sheet as of its date of transition (beginning of the earliest period presented in financial statements) to this Standard:

 a) Recognize all assets and liabilities whose recognition is required by to this Standard;

b) Not recognize items as assets or liabilities if to this Standard do not permit such recognition;

c) Reclassify items that it recognized under its previous financial reporting framework as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under to this Standard; and

d) Apply to this Standard in measuring all recognized assets and liabilities.

The financial effect of above actions should be reflected in opening balance sheet by adjusting the amount of retained earnings as at the date of transition.”

From the above it is clear that for transition to the Revised AFRS for SSEs the retrospective approach will be followed.

 (October 02, 2017)