FAQs/FSCIFRSSME/25I2014

FREQUENTLY ASKED QUESTIONS (‘FAQs’)

1. What is the International Financial Reporting Standard for Small- and Medium-Sized Entities
("IFRS for SMEs")?

In July 2009 the International Accounting Standards Board (IASB) published the International
Financial Reporting Standard (IFRS) for Small and Medium-sized Entities (SMEs).

IFRS for SMEs is a complete and comprehensive standard, and accordingly contains much or
most of the vital guidance provided by the full IFRS. For example, it defines the qualities that are
needed for IFRS-compliant financial reporting, the elements of financial statements, the
required minimum captions in the required full set of financial statements, the mandate for
comparative reporting, amongst others.

The IFRS for SME aims at meeting the needs of private company financial reporting users and
easing the financial reporting burden on private companies

2. Why has the IASB come up with another IFRS based framework?

The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an entity that is useful to a wide range of users
in making economic decisions. In establishing standards for the form and content of general
purpose financial statements, the needs of users of financial statements are paramount.

It is acknowledged that the types and needs of users of SME financial statements are different
from the types and needs of users of public company financial statements and other entities
that would likely use full IFRS.

While the use of full IFRS has been designed to meet the needs of equity investors in companies
in public capital markets, users of the SMEs financial statements are more interested on shorter-
term cash flows, liquidity, balance sheet strength, and interest coverage and solvency issues.

FAQs – IFRS SMEs 1

It is recognised that a significant need existed for an accounting and financial reporting standard
for SMEs that would meet the needs of the users of financial statements while balancing the
costs and benefits from a preparer perspective. IFRS for SMEs has been designed to meet that
need.

3. What is meant by small- and medium-sized entities ("SMEs")?

IASB’s definition of small and medium sized entities is not based on quantifiable criteria.

IFRS for SMEs is intended to be used by SMEs, which are entities that publish general purpose
financial statements for external users and do not have public accountability.

4. What are the key differences between IFRS and IFRS for SME’s?

Compared to the full IFRS, the aggregate length of the standards, in terms of number of words,
has been reduced by more than 90%. This was achieved by eliminating topics deemed to not be
generally relevant to SMEs, by eliminating certain choices of accounting treatments, and by
simplifying methods for recognition and measurement. These three sets of modifications to the
content of the full IFRS respond to both the perceived needs of users of SMEs’ financial
statements and to cost-benefit concerns.

Full IFRS IFRS for SMEs

Standards numbered as published Organised by topic

Almost 3,000 pages Under 300 pages

Around 3,000 disclosure points About 300 disclosure points

Updates almost monthly Updated every 2 or 3 years

Some topics in full IFRS are omitted because they are not considered relevant to SMEs eg -
segmental reporting, assets held for sale and earnings per share.

Some accounting policy treatments in full IFRS are not allowed because a simplified method is
available to SMEs.

FAQs – IFRS SMEs 2

According to the IASB, an entity has public accountability if:

a) it files, or is in the process of filing, its financial statements with a securities commission or
other regulatory organization for the purpose of issuing any class of instruments in a
public market; or

b) it holds assets in a fiduciary capacity for a broad group of outsiders.

Regardless of size, entities whose securities are traded in a public market should follow full
IFRSs.

In most cases, the primary business of banks, insurance companies, securities brokers/dealers,
pension funds, mutual funds and investment banks is to hold and manage financial resources
entrusted to them by a broad group of clients, customers or members who are not involved in
the management of the entities. Because such entities act in a public fiduciary capacity, they are
publicly accountable.

6. What if the entity holds assets in a fiduciary capacity incidental to their primary business?

It is not the IASB's intention to exclude entities that hold assets in a fiduciary capacity for
reasons incidental to their primary business (for example, travel agents, schools and utilities)
from utilizing IFRS for SMEs.

7. Why is the Commission recognising “IFRS for SME’s” under Section 30 (4) of the Financial
Services Act (“the Act”)?

The Commission has received several requests to consider “IFRS for SME’s” as an internationally
recognised accounting standards under Section 30 (4) of the Financial Services Act (“the Act”).

The Companies Act 2001 provides for financial statements of public and private companies to be
prepared in accordance with and comply with the International Accounting Standards and to
comply with any requirement which apply to the company’s financial statements under any
other enactment.

In addition, the Companies Act provides that a private company, other than a small private
company, or public company, which does not qualify as a public interest entity as defined in the
Financial Reporting Act may prepare its financial statements in accordance with the
International Financial Reporting Standards for SMEs, issued by the International Accounting
Standards Board.

After examination of the requests received, the Commission is providing the same flexibility
afforded to non-GBC1 licence holder to a GBC1 Licence-holder to submit audited financial
statements prepared in accordance with IFRS for SME’s.

FAQs – IFRS SMEs 3

No. A GBC 1 licensed and carrying out financial services or financial business activities governed
by relevant acts are not eligible to prepare Financial Statements under IFRS for SME’s.

The relevant acts amongst others are:

- Insurance Act 2005

- Private Pension Schemes Act 2012

- Protected Cell Companies Act

- Securities Act 2005

- Securities (Central Depository, Clearing and Settlement) Act

- Trusts Act 2001

Preparers of Financial Statements need to refer to the Section 2 of the Financial Services Act for
the definition of financial services.

9. How should the financial statements be described?

An entity which have no public accountability and which elects to report in conformity with IFRS
for SMEs must make an “explicit and unreserved” declaration to that effect in the financial
statements.

The wordings that may be used are: “These financial statements have been prepared in
accordance with the International Financial Reporting Standard (IFRS) for Small and Medium-
sized Entities issued by the International Accounting Standards Board”.

If this representation is made, the entity must comply fully with all relevant requirements in the
standard.

10. What if the financial statements of a publicly accountable entity assert that it is in
conformance with the IFRS for SME’s?

A publicly accountable entity’s financial statements shall not be described as conforming to the
IFRS for SMEs.

FAQs – IFRS SMEs 4

Each entity should assess their eligibility to use the IFRS for SME on the basis of their own
circumstances, business models and the nature and complexity of their transactions.

Any entity licensed by the Commission and which chooses to use IFRS for SME may be required
to demonstrate to the Commission its eligibility to use IFRS for SME.

On the first year of adoption of the IFRS for SME’s, an entity may wish to submit a statement
demonstrating its eligibility at the time of submitting its financial statements.

12. From which date can an entity adopt IFRS for SME’s?

IFRS for SME’s can be applied for period beginning on or after 1 January 2015. However earlier
adoption is allowed.

Financial Services Commission

FSC House, 54 Cybercity, Ebene, Republic of Mauritius

FAQs – IFRS SMEs 5