The ‘International Financial Reporting Standard for Small and Medium-sized Entities’

(IFRS for SMEs) applies for small and medium entities that do not have public accountability
and publish general purpose financial statements for external users. According to the Philippine
Security Exchange Commission, small and medium enterprises are those entities that have total
assets between P3,000,000 to P350,000,000 and liabilities between P3,000,000 to
P250,000,000; entities that are not in the process of filing financial statements for the purpose of
issuing any class of instruments in a public market; entities that are not a holder of secondary
license issued by a regulatory agency; and, entities that are not a public utility.

The basic recognition under IFRS for SMEs is an item is recognized if it meets the
definition of an asset, liability, income or expense and satisfies the following criteria:
a) It is probable that any future economic benefit associated with the item will flow
to or from the entity.
b) The item has a cost or value that can be measured reliably.

The failure to recognise an item that satisfies those criteria is not rectified by disclosure
of the accounting policies used or by notes or explanatory material.

Furthermore, the basic measurement under IFRS for SMEs is Items are usually
accounted for at their historical cost. However, certain categories of financial instruments,
investments in associates and joint ventures, investment property and agricultural assets are
valued at fair value. All items other than those carried at fair value through profit or loss are
subject to impairment.

For derecognition under IFRS for SMEs, the entity derecognises a financial asset when
the rights to cash flows from the assets have expired or are settled, the entity has transferred
substantially all the risks and rewards of ownership of the financial asset, and the entity has
retained some significant risks and rewards but has transferred control of the asset to another
party. In this case, the asset is derecognised, and any rights and obligations created or retained
are recognised. On the other hand, the entity derecognises a financial liability when it is
concluded that the liabilities are extinguished - that is, when the obligation is discharged,
canceled or expires.

DIFFERENCES BETWEEN IFRS FOR SMEs AND FULL IFRS

IFRS FOR SME FULL IFRS

Qualitative Characteristics of the Financial Statements

➢ Under IFRS for SMEs, the qualitative
characteristics of the financial
statements include:
1. Understandability
2. Relevance
3. Materiality
4. Reliability
5. Substance over form
6. Prudence
7. Completeness
8. Comparability
9. Timeliness
10. Balance between benefit and
cost
Measurement
➢ There are only two (2) measurement
bases under IFRS for SME. These
are:
1. Historical cost
2. Fair value
➢ Historical cost is the required main
measurement under IFRS for SME.
However, certain categories of
financial instruments, investments in
associates and joint ventures,
investment property and agricultural
assets are required to be measured at
fair value.
Statement of Financial Position
➢ The statement of financial position
under IFRS for SME shall include, at
the minimum, the following:
1. Cash and cash equivalents
2. Trade and other receivables
3. Financial assets
4. Inventories
5. PPE
6. Investment property
7. Intangible assets
8. Biological assets
➢ Under full IFRS, the qualitative
characteristics of the financial
statements include:
1. Relevance
2. Faithful representation
3. Understandability
4. Comparability
5. Verifiability
6. Timeliness
➢ There are four (4) measurement
bases under full IFRS. These are:
1. Historical cost
2. Current cost
3. Realizable value
4. Present value
➢ Under full IFRS, the most common
measurement basis is the historical
cost. However, other bases are used
depending on the category. For
example, inventories are measured at
the lower cost and net realizable value
and liabilities such as pension liability
is measured at present value.
➢ The statement of financial position
under full IFRS is practically the same
under IFRS for SME. However, the
following are not required to be
presented under full IFRS:
1. Total assets classified as held
for sale
2. Total liabilities included in
disposal group classified as
held for sale
 9. Investments in associates and ➢ Under full IFRS, the presentation of
in joint-ventures investment in joint ventures is also not
10. Current tax assets required.
11. Deferred tax assets
12. Trade and other payables ➢ A third balance sheet must be
13. Financial liabilities prepared if an entity meets the criteria
14. Current tax liabilities required.
15. Deferred tax liabilities
16. Provisions
17. Equity attributable to the
owners of the parent
18. Non-controlling interests

➢ The following are not required to be

presented in the financial position of
an SME:
1. Total assets classified as held
for sale
2. Total liabilities included in
disposal group classified as
held for sale

➢ A separate line item regarding

investment property carried at cost
less accumulated depreciation and
impairment must also be included in
the statement of financial position of
an SME.

➢ A third balance sheet is not required

under IFRS for SME.

Other Comprehensive Income

➢ Under IFRS for SMEs, there are only
four (4) components of other
comprehensive income and these are:
1. Gain or loss from translation of
the financial statements of a
foreign corporation
2. Actuarial gain or loss on
defined benefit plan
3. Change in fair value of
hedging instrument that was
effective in offsetting the
change in fair value or
expected cash flows of the
hedge item
➢ Under full IFRS, there are seven (7)
components of other comprehensive
income and these are:
1. Gain or loss from translation of
the financial statements of a
foreign corporation
2. Remeasurements of defined
benefit plan
3. Unrealized gain or loss from
derivative contracts
designated as cash flow hedge
4. Unrealized gain or loss on
equity investment measured at
FVTOCI
 4. Revaluation surplus on PPE
➢ The line items that shall be presented
in the OCI as retained earnings
include:
1. Gain or loss from translation of
the financial statements of a
foreign corporation
2. Actuarial gain or loss on
defined benefit plan
3. Revaluation surplus on PPE
➢ The line item that shall be presented
in the OCI as profit or loss include:
1. Change in fair value of
hedging instrument that was
effective in offsetting the
change in fair value or
expected cash flows of the
hedge item
Statement of Changes In Equity
➢ In general, the statement of changes
in equity presents a reconciliation of
equity items between the beginning
and end of the period.
➢ Under IFRS for SMEs, there is an
option to present a single statement of
income and retained earnings, instead
of both statement of changes in equity
5. Unrealized gain or loss on
debt investment measured at
FVTOCI
6. Revaluation surplus during the
year
7. The amount of change in fair
value that is attributable to
credit risk of a financial liability
designated at FVTPL
➢ The line items that shall be presented
in the OCI as profit or loss include:
1. Gain or loss from translation of
the financial statements of a
foreign corporation
2. Unrealized gain or loss from
derivative contracts
designated as cash flow hedge
3. Unrealized gain or loss on
debt investment measured at
FVTOCI
➢ The line items that shall be presented
in the OCI as retained earnings
include:
1. Remeasurements of defined
benefit plan
2. Unrealized gain or loss on
equity investment measured at
FVTOCI
3. Revaluation surplus during the
year
4. The amount of change in fair
value that is attributable to
credit risk of a financial liability
designated at FVTPL.
➢ Similar to IFRS for SMEs, the
statement of changes in equity
presents a reconciliation of equity
items between the beginning and end
of the period.
➢ The following are presented either in
the statement of changes in equity or
in the notes under full IFRS:
 and statement of comprehensive
income, if only the changes to equity
arise from the following:
1. Profit or loss
2. Payment of dividends
3. Corrections of errors from prior
periods
4. Changes in accounting policy
Accounting Policies, Estimates and Errors
➢ In IFRS for SME, when it doesn’t
address a transaction, the
management has the authority to use
its judgment in applying an accounting
policy, considering consistently the
relevance and the reliability of that
decision.
➢ They also follow the following
hierarchy when developing accounting
policies:
1. Requirements of the IFRS for
SMEs dealing with similar and
related issues.
2. Definition, recognition and
measurement concepts and
pervasive principles set out.
➢ Also, changes in accounting estimates
are accounted for prospectively in the
current year, or future years, or both.
Inventories
➢ Inventories in IFRS for SME are
initially recorded at cost. It includes all
costs of purchase, conversion, and
1. Dividends recognised as
distributions to owners during
the period
2. Related amount per share
➢ Under full IFRS, the statement of
changes in equity is required to be
presented when an entity prepares a
complete set of general purpose
financial statements.
➢ Furthermore, under full IFRS, it does
not include an option to present a
statement of income and retained
earnings. These two statements must
be presented separately.
➢ In full IFRS, the management also has
the authority to decide for applying an
accounting policy if they don’t address
a transaction. However, they still
consider and rely on the IFRS as their
guide and source of information in
making or applying an accounting
policy.
➢ Also, in the absence of specific
guidance in full IFRS, the hierarchy of
guidance pronouncements issued by
other standard-setting bodies or
industry practice as a source or
reference to consider.
➢ There are quite similarities with the
IFRS for SMEs when it comes to
inventories; however, full IFRS refers
 other costs incurred.
➢ Inventories are subsequently valued
at the lower of cost and selling price
less costs to complete and sell.
Inventories are assessed for
impairment at each reporting date.
➢ Then, management reevaluates the
selling price, minus completion
charges and sell each period after
that, assess if the impairment losses
already acknowledged should
reversed.
Investment in Associates and Joint Ventures
➢ For Investment in Associates, there is
a significant influence if there are 20
percent of voting power. Investment in
Associates are accounted for using
the cost model, equity model, or fair
value method.
➢ Also, investments in associates are
classified as non-current assets.
➢ On the other hand, for Investment in
Joint Ventures, the venturer
recognises assets, liabilities,
expenses, as well as its share of
income earned. It is measured using
only one among the cost model,
equity method, or fair value model.
Investment Property
➢ The investment property for SMEs is
measured at its purchase price plus
any directly attributable costs.
Borrowing costs are recognised as an
to net realizable value rather than
estimated selling price less costs to
complete and sell.
➢ Also, the borrowing costs in the cost
of inventory are required and
exemptions from the measurement
requirements of inventories is allowed
for procedures of agricultural
practices.
➢ In full IFRS Investment in Associate,
the separate classification and
presentation of associates held for
sale is required. It also initially uses
the equity method whereas the cost
and fair value models are only
permitted in the separate financial
statements.
➢ Moreover, the goodwill arising from
the investment is not amortized and
when significant influence is lost
through disposal, any remaining
investment is re-measured to fair
value.
➢ On the other hand, Investment in Joint
Ventures also requires the separate
financial statements of joint ventures
held for sale. Interests in this venture
are accounted for using proportionate
consolidation or the equity method.
➢ Similar to IFRS for SMEs except for
borrowing costs that are directly
attributable to the acquisition,
construction or production of a
 expense.
➢ For subsequent measurement, it is
carried at fair value without undue
cost or effort.
Government Grant
➢ An entity recognises government
grants according to the nature of the
grant as follows:
1. A grant that does not impose
specified future performance
conditions on the recipient is
recognised in income when
the grant proceeds are
receivable.
2. A grant that imposes specified
future performance conditions
on the recipient is recognised
in income only when the
performance conditions are
met.
3. Grants received before the
income recognition criteria are
satisfied are recognised as a
liability and released to income
when all attached conditions
have been complied with.
➢ Grants are measured at the fair value
of the asset received or receivable.
Borrowing Costs
➢ Borrowing costs are interest and other
costs included by an entity’s financial
liability and finance lease obligation.
➢ Borrowing costs are charged to
expense when incurred or used not
when capitalized.
qualifying asset are required to be
capitalized as part of the cost of that
asset.
➢ For subsequent measurement, the
management is the one in charge to
choose an accounting policy to carry
all its investment properties at a fair
value or cost.
➢ There are two broad options under
IAS 20: the capital approach and the
income approach. Accounting and
presentation could therefore be
different.
➢ Revenue is not recognised until there
is a reasonable assurance that:
1. The entity complies with the
conditions attached to the
grants; and
2. The grants are receivable.
➢ Government grants are recognised in
the statement of comprehensive
income over the periods necessary to
match them with the related costs that
they are intended to compensate for,
on a systematic basis. They are not
credited directly to shareholder’s
interest.
➢ Borrowing costs includes interest
incurred and exchange difference on
foreign currency borrowings where
they are regarded as an adjustment to
interest cost.
➢ Prescribe accounting treatment for
borrowing cost
 ➢ Other borrowing costs are recognized
as expenses while other borrowing
costs attributed to the production,
acquisition or construction of
qualifying assets should be
capitalized.

Impairment of Assets

➢ If an asset is below the carrying
amount, it will be written down to their
recoverable amount.
➢ Recoverable amount is the greater of
fair value less cost to sell and value in
use.
➢ Assets will not be carried at more than
their recoverable amount.
➢ Recoverable amount is fair value less
cost of disposal.

Intangible Assets

➢ Intangible assets with a finite useful ➢ Amortized over useful life.

life are amortized. ➢ If the entity is unable to estimate
➢ An intangible asset with an indefinite useful life, then use the management
useful life is not amortized, but is test estimate but not more than 10
tested annually for impairment. years.

Research and Development Costs

➢ The full cost of research and ➢ Research costs are expensed as

development are considered to be incurred. Development costs are
expenses. capitalized when specific criteria are
met.

Employee Benefits

➢ Requires prompt acknowledgment ➢ Benefits to employees, actuarial

and divides the cost into various parts.
➢ The situation-driven method is
appropriate, hence employing the
accumulated benefit valuation
approach. It is necessary to use (the
anticipated unit credit technique) if the
data that is currently available is
required to do such a calculation, or if
it can be acquired without much
gains, or losses may be recorded right
away, amortized into profits, or during
the course of the participating
employees' anticipated future working
careers.
➢ The use of an accrued benefit
valuation method (the projected unit
credit method) is required for
calculating defined benefit obligations.
 expense or effort. Alternatively,
simplifying is permissible where future
service, future salary advancement, or
possible deaths during a worker's
employment are not considered.

Deferred Tax Asset

➢ A valuation allowance is recognized ➢ The concept of valuation allowance is

for a tax asset so that its carrying
amount equals the highest amount
that is more likely than not to be
recovered.
not applicable. Instead, a deferred tax
asset is only recognized to the extent
that it is probable that there will be
sufficient future taxable profit against
which the deferred tax asset can be
used.

Share-based Payment

➢ The share options must be measured
at fair value on the date of grant. The
intrinsic value is not mentioned as an
alternative.
➢ The share options shall be measured
at fair value on the date of grant.
However, if the fair value of the share
options cannot be measured reliably,
the intrinsic value of the share options
is used. The intrinsic value is the
excess of the market price of the
share over the option price.

Business Combination

➢ Transaction costs are included in the
cost of business combination.
Contingent consideration is included
as part of cost of business
combination if it is probable and can
be measured reliably.
➢ Transaction costs are excluded from
the cost of business combination.
Contingent consideration is
recognized regardless of the
probability of payments.

Consolidated Financial Statements

➢ A parent need not present ➢ A parent need not present

consolidated financial statements if: consolidated financial statements if:

a) The parent is itself a a) The parent is itself a

subsidiary and its ultimate wholly-owned subsidiary or
 parent or any intermediate
parent produces consolidated
financial statements that
comply with full PFRS or
PFRS for SMEs.
b) The parent has no subsidiaries
other than one which was
acquired with the intention of
selling or disposing of it within
one year.
Specialized Activities
➢ For Agriculture:
1. Biological assets, for which fair
value is readily determinable
without undue cost or effort,
are measured at fair value less
costs to sell. Changes in fair
value less costs to sell are
recognised in profit or loss;
2. All other biological assets are
measured at cost less
accumulated depreciation and
impairment losses;
3. At the point of harvest,
agricultural produce is
measured at fair value less
costs to sell and accounted for
as inventories.
➢ For Extractive Activities:
1. Expenditure incurred for the
acquisition or development of
assets for use in extractive
activities are accounted for in
accordance with Section 17
partially-owned subsidiary and
its other owners do not object
to the parent not presenting
consolidated financial
statements.
b) The parent's debt and equity
instruments are not traded in a
public market.
c) The parent did not file or is not
in the process of filing its
financial statements with a
regulatory organization for the
purpose of issuing any class of
instruments in a public market.
d) The ultimate or any
intermediate parent produces
consolidated financial
statements that comply with
PFRS.
➢ For Agriculture:
1. Fair value measurement is
required except when fair
value cannot be measured
reliably.
➢ For Extractive Activities:
1. The development of
accounting policies for the
recognition and measurement
of exploration and evaluation
assets is excluded from the
hierarchy of authoritative
guidance provided in IAS 8;
and
2. Expenditure recognised as
exploration and evaluation
assets are excluded from the
scope of IAS 16 Property,
Plant and Equipment and IAS
38 Intangible Assets.
 and/or Section 18;
2. Obligations for the dismantling
or removal of items are
accounted for in accordance
with Section 17 and Section
21.

References:
Croner-i. (n.d.). International Financial Reporting Standard for Small and Medium-sized Entities
(IFRS for SMEs). Croner-i Tax and Accounting.
https://library.croneri.co.uk/cch_uk/iast/ifrssme1-200907
Valix, C. (2020). Intermediate Accounting (Volume Three). Gic Enterprises & Co. Inc.

2923A bd IFRS/SMEs_2923A IFRS/SMEs. (n.d.). IAS Plus. Retrieved December 2, 2022, from
https://www.iasplus.com/en/binary/dttpubs/1004pocketsmes.pdf