Chapter 11 Pfrs For Small and Medium-Sized Entities (Smes)

The document discusses the PFRS for Small and Medium-sized Entities (SMEs) accounting standards. It states that the PFRS for SMEs was developed as a separate standard for the general purpose financial statements of SMEs. It provides size criteria for Philippine corporations to qualify to use PFRS for SMEs, which is having total assets between 3M to 350M pesos or total liabilities between 3M to 250M pesos. For entities under 3M total assets or liabilities, they can use another acceptable basis of accounting. The document also outlines some of the key differences between the full PFRS and PFRS for SMEs, such as disclosure requirements and accounting

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Chapter 11 Pfrs For Small and Medium-Sized Entities (Smes)

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Sarah G

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Chapter 11 PFRS for Small and Medium-sized

Entities (SMEs)
Related standard: PFRS for SMEs

Learning Objectives
• State the basic purpose of the PFRS for SMEs.
• Define an SME.
• Provide the distinct differences between the full PFRSs and
the PFRS for SMEs.

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)

Overview on the topic

• Only the provisions of PFRS for SMEs that relate to intermediate

accounting topics are discussed in this chapter. Those that relate
to advanced accounting topics are discussed in the advanced
accounting books (i.e., Accounting for Special Transactions –
‘Advanced Accounting 1’ and Accounting for Business Combinations
– ‘Advanced Accounting 2’).

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Purpose

• The PFRS for SMEs is was developed as a separate (stand-

alone) standard intended to apply to the general purpose
financial statements of small and medium-sized entities (SMEs).

• PFRS for SMEs is only the minimum standard that qualifying

entities need to adopt for the preparation and presentation of their
financial statements. As such, SMEs may nevertheless opt to adopt
the full PFRSs.

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Authority of the PFRS for SMEs

• In the Philippines (based on SEC guideline), the PFRS for SMEs

shall be applied by corporations that:
1. Are not publicly listed and do not hold assets in a fiduciary
capacity for a broad group of outsiders; and
2. Have total assets of between ₱3 M and ₱350M or total
liabilities of between ₱3M and ₱250M.

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Micro entities

• Entities that have total assets or total liabilities below ₱3M (so
called ‘micro entities’) may use “another acceptable basis of
accounting.” However, a micro entity may nevertheless elect to
apply the PFRS for SME or even the full PFRSs if it chooses to.

• Other acceptable basis of accounting

Micro entities may use any of the following bases of accounting:
1. Income tax basis of accounting, or
2. Cash basis of accounting

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Transition to PFRS for SME

• On initial adoption of the PFRS for SMEs, an entity shall apply the
size criteria using the entity’s audited financial statements for the
immediately preceding financial reporting period.

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Transition from PFRS for SME

• Entities ceasing to qualify as SMEs shall adopt the full PFRS

unless they qualify as micro entities.

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Transition period for breaches of size criteria

• If in a current year, an SME that uses the PFRS for SMEs ceases to
qualify as an SME because it either exceeds the ceiling of the size
criteria or falls below the floor of the size criteria, such entity
may transition to the full PFRSs (exceeds) or another acceptable
accounting bases (falls below) in the next accounting period.
• To warrant a change in a financial reporting framework, the increase
or decrease in the size criteria must be judged to be “significant and
continuing.” As a general rule, a change of 20% or more of total
assets or total liabilities would be considered significant.

INTERMEDIATE ACCTG 3 (By: Zeus

Vernon B. Millan)
Overview of PFRS for SMEs

• Most of the concepts included in the PFRS for SMEs are similar
with the concepts provided in the full PFRSs. This is because the
PFRS for SMEs is just a simplification of the full PFRSs which
was intended to ease the difficulty of SMEs in applying and
implementing a generally accepted financial reporting framework.