Objective of Financial Statements:

Under full PFRS, the fundamental qualitative characteristics of useful financial information are: 1. Relevance 2. Faithful representation Materiality is a sub characteristic of relevance. The new Conceptual Framework also mentions the enhancing qualitative characteristics that would increase the usefulness of financial information, namely: 1. Understandability 2. Comparability 3. Verifiability 4. Timeliness Under PFRS for SMEs, the principal qualitative characteristics that make the information provided in financial statements of an SME useful include the following:

1. Understandability means that the financial information must be

comprehensible or intelligible if it is to be most useful.

2. Relevance is the capacity of the information to influence an economic

decision.

3. Materiality is a practical rule in accounting which dictates that strict

adherence to GAAP is not required when the item is insignificant enough to affect the evaluation and fairness of the financial statement.

4. Reliability is the quality of information that assures users that the

information is free from bias and error, and faithfully represents what it purports to represent.

5. Substance over form means that if there is a conflict between the economic
substance of a transaction and its legal form, the economic substance shall prevail.

6. Prudence is the desire to exercise care and caution when dealing with the
uncertainties in the measurement process such that assets and income are not overstated, or liabilities and expenses are not understated.

7. Completeness means that relevant information should be presented in a way

that facilitates understanding and avoids erroneous implication.

8. Comparability means that the ability to bring together for the purpose of
noting points of likeness and difference.

9. Timeliness means having information available to decision makers in time to

influence an economic decision.

10. Balance between benefit and cost

Cost is a pervasive constraint on the financial information needed. Financial reporting imposes cost and it is important that such cost is justified by the benefit derived from the financial information.

Elements of Financial Statements: The PFRS for SMEs and full PFRS share the same provisions on the definition,
recognition, and measurement of the elements of financial statements.

The only significant difference is the measurement of the elements of financial statements. Under full PFRS, the measurement bases are historical cost, current cost, realizable value and present value. Under PFRS for SMEs, the measurement bases of the elements of financial statements are two only, namely historical costs, current and fair value. General features of Financial Statements: The PFRS for SMEs and full PFRS contain the same provisions on the general features in the preparation of financial statement

Components of Financial Statements:

Under full PFRS, the same complete set of financial statements shall be prepared. However, a single statement of income and retained earnings is not permitted under full PFRS. A statement of changes in equity is always required. In addition, under full PFRS, a statement of financial position as at the beginning of the earliest comparative period shall be prepared: a. When an entity applies an accounting policy retrospectively. b. When an entity makes a retrospective restatement. When an entity reclassifies items in its financial statements

Under PFRS for SMEs, a complete set of financial statements of an SME shall include all of the following: Statement of financial position Either a single statement of comprehensive income OR a separate income statement and a separate statements of comprehensive income. Statement of changes in equity Statement of cash flows Notes, comprising a summary of significant accounting policies and other explanatory information However, if the only changes to the equity are a result of profit or loss, payments of dividends, prior period errors, changes in accounting policy, a single statement of income and retained earnings can be presented by an SME instead of a statement of comprehensive income and statement of changes in equity If the SME has no items of other comprehensive income in any of the periods for which financial statements are prepared, it may present only an income statement, or it may present a statement of comprehensive income in which is labelled profit or loss. This statement of financial position is not required under PFRS for SMEs.

Information not required by PFTS for SMEs:

The PFRS for SMEs does not require the presentation of the following: a. Segment information b. Earnings per share c. Interim financial reports

Current and Noncurrent:

PAS 1 has the same provision on the current and noncurrent separate presentation, and the definition of current assets, noncurrent assets, current liabilities and noncurrent liabilities. PAS 1 requires practically the same line items to be presented on the face of the statement of financial position. However, the following items are required to be presented under full PFRS but not under PFRS for SMEs: a. Total of assets classified as held for sale. b. Total of liabilities included in disposal group classified as held for sale.

Moreover, full PFRS requires presentations of investments in associates but not investment in joint ventures. PFRS for SMEs requires presentation of both investment in associates and investments in joint ventures.

Financial Statements: PAS 1 has the same provisions on the presentation of the total comprehensive
income and the analysis of expenses by nature and by function. Under full PFRS, if the presentation is by function, additional disclosure of expenses by nature is required, for example, depreciation, amortization and employee benefit cost. Under PFRS for SMEs, it does not explicitly require disclosure of expenses by nature if the presentation is by function. Under full PFRS, the component of other comprehensive income are: a. Gain or loss from translating the financial statements of a foreign operation b. Actuarial gain or loss on defined benefit plan c. Unrealized gain or loss from derivatives contracts designated as cash flow hedge d. Unrealized gain or loss from equity instruments measured at fair value through other comprehensive income e. Revaluation surplus during the year Under PFRS for SMEs, the components of other comprehensive income do not include unrealized gain or loss from derivative contract designated as cash flow hedge and revaluation surplus during the year. Under PFRS for SMEs, a single statement of retained earnings may be prepared under certain conditions. Under full PFRS, a single statement of income and retained earnings is not permitted. PAS 1 provides practically the same line items to be presented in the statement of comprehensive income.

However, PFRS 9 requires the separate presentation of gain or loss from derecognition of financial asset measured at amortized cost. The PFRS for SMEs and full PFRS have the same provisions in the preparation of the statement of changes in equity and statement of cash flows.

Related Party Disclosures: Full PFRS and PFRS for SMEs share the same principles with respect to the related
party disclosures.

Events after the end of Reporting Period: Full PFRS and PFRS for SMEs share the same principles for accounting and reporting
events after the end of reporting period.

Accounting Policies, Estimates and Errors: PFRS for SMEs and full PFRS (PAS 8) have the same provisions and requirements with
respect to the following: a. Selection of accounting policies If the PFRS for SMEs does not specifically address a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. For SMEs, if there is no relevant guidance, management shall consider the following sources in descending order: 1. The requirements and guidance in PFRS on similar and related issues. 2. The definition, recognition criteria and measurement of assets, liabilities, income and expenses Under full PFRS, in addition to the hierarchy of guidance for SMEs, management may consider the following: 1. Most recent pronouncement of other standard setting bodies. 2. Other accounting literature 3. Accepted industry practices b. Consistency of accounting policies c. Changes in accounting policies d. Changes in accounting estimate e. Correction of prior period error

Revenue: PFRS for SMEs and full PFRS share the same principles for the recognition of revenue
from sale of goods, rendering of services, interest, royalties dividends and other significant type of revenue.

Inventories:
PAS 2 has the same provisions related to the definition, measurement of inventories, cost of purchase, costs of conversion, other costs and cost formulas. However, the most recent purchase price is not mentioned in PAS 2 as a technique of approximating cost.

Basic Financial Instrument:

Under PFRS for SMEs, basic financial instruments are categorized as either measured at: a. amortized cost or cost less impairment; or b. fair value with changes in fair value recognized in profit or loss (this will cover investments in nonconvertible and non-puttable preference shares and nonputtable ordinary shares that are publicly traded or whose fair value can otherwise be measured reliably). Under the full PFRS, there are four categories of financial instruments, for example: a. a financial asset or financial liability at fair value through profit or loss b. held-to-maturity investments (carried at amortized cost) c. loans and receivables (carried at amortized cost) d. available-for-sale financial assets (carried at fair value)

Investments in Associates:
Under PFRS for SMEs, investment in associates are accounted for using either the cost model, equity method or the fair value model. Under full PFRS, the investor has no accounting policy choice. The investments in associates shall be accounted for using the equity method only. Moreover, areas covered under full PFRS but not in PFRS for SMEs include the following: a. Guidance on significant influence b. Consequences when an investment ceases to be an associate c. Profit and loss from upstream and downstream transactions.

Investment Property:
Under PFRS for SMEs, investment property is measured at fair value if the fair value can be measured reliably without undue cost or effort on an ongoing basis. Otherwise, the investment property is accounted for as property, plant and equipment using the cost- depreciation-impairment model. Under full PFRS, PAS 40 allows an accounting policy choice of either fair value model or cost model. If the entity follows the cost model, the fair value of the property must be disclosed. However, when an investment property is held by a lessee under an operating lease, the entity must follow fair value model for all of its investments.

Property, Plant and Equipment:

Under full PFRS, PAS 16 provides the same initial measurement of an item of property, plant and equipment. Moreover, PAS 23 states that borrowing cost directly attributable to the construction, acquisition and production of a qualifying asset is capitalized. Under PFRS for SMEs treats such borrowing cost as expense immediately. Under full PFRS, PAS 16 provides that an entity shall choose the cost model or revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment. Under PFRS for SMEs, property, plant and equipment shall be measured using the cost model only. The PFRS for SMEs and full PFRS are the same with respect to other matters related to property, plant and equipment, such as depreciation method, useful life, residual value, depreciation of significant components, impairment and derecognition. Under the PFRS for SMEs, the depreciation method, useful life and residual value are reviewed if there is a significant change since the last annual reporting date.

Under full PFRS, the depreciation method, useful life and residual value are reviewed at least at each annual reporting date.

Government Grants:
Under full PFRS, a government grant is recognized when there is a reasonable

assurance that the entity will comply with the specified conditions.
Under PFRS for SMEs, a government grant is recognized when the conditions are actually satisfied. Under full PFRS, a government grant is recognized as income over the periods necessary to match them with the related costs for which they are intended to compensate. Under PFRS for SMEs, it does not allow an entity to match the grant with the expense for which it is intended to compensate or the cost of the asset that it is used to finance. Under full PFRS, grant related to asset may be treated either as deferred income or a reduction in the carrying amount of the asset. There is no such option under PFRS for SMEs. Under PFRS for SMEs, the grant is a deferred income until the condition is actually satisfied.

Borrowing Costs:
Under PFRS for SMEs, an SME shall recognize all borrowing costs incurred as expense of the period in which they are incurred. In other words, the PFRS for SMEs does not permit capitalization of interest even if the interest is directly attributable to the acquisition, construction or production of a qualifying asset. Under full PFRS, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of the asset. Borrowing costs that are not directly attributable to a qualifying asset shall be

expensed when incurred.

Impairment of Assets: Full PFRS and PFRS for SMEs are practically the same with respect to the following:
a. Recognition and measurement of impairment loss b. Definition of fair value less cost to sell and value in use c. Internal and external indicators of impairment d. Reversal of impairment

The notable difference is as follows: Under PFRS for SMEs, assets, including goodwill, are tested for impairment when

there is an indication that the asset may be impaired.

Under full PFRS, asset with finite useful life are tested for impairment when there is an indication that the asset may be impaired. However, the following assets are tested for impairment annually and when there is an indication that the asset may be impaired: a. Goodwill

b. Intangible assets with an indefinite useful life or an intangible asset not yet
available for use.

Intangible Assets:
Under PFRS for SMEs, all research and development costs are recognized as expenses when incurred. Under full PFRS, research costs are expensed when incurred. However, development costs may be capitalized when specific criteria are met, particularly when technological feasibility has already been established. Under PFRS for SMEs, intangible assets are measured subsequently using the cost model only. Under full PFRS, intangible assets are measured subsequently using either the cost model or revaluation method.

 Under PFRS for SMEs, the useful life of intangible asset is considered to be finite. As a matter of fact, if the useful life of an intangible asset cannot be estimated reliably, it is assumed to be 10 years. Under full PFRS, the useful life of intangible assets is either finite or indefinite. If the useful life cannot be estimated reliably, there is no assumption of 10 years. Under PFRS for SMEs, all intangible assets, including goodwill, are amortized. Under full PFRS, intangible assets with a finite useful life are amortized over the useful life are amortized over the useful life and intangible assets with indefinite useful life and intangible assets with indefinite useful life are not amortized but tested for impairment. Under PFRS for SMEs, intangible assets are tested for impairment when there is an indication that the asset may be impaired. Under full PFRS, intangible assets with a finite useful life are tested for impairment when there is an indication that the asset may be impaired. Intangible assets with indefinite useful life are tested for impairment annually and whenever there is an indication that the asset may be impaired.

Leases: The PFRS for SMEs and full PFRS are practically the same with respect to the
accounting and reporting for leases.

Employee Benefits: Full PFRS and PFRS for SMEs share the same principles for the recognition and
measurement of the following: a. Short-term employee benefits b. Defined contribution plans c. Other long-term benefits d. Termination benefits

 Full PFRS and PFRS for SMEs share many of the principles for the recognition and measurement of defined benefit plans. Under full PFRS, unvested past service costs are recognized as expense on a straight line basis over the average period until the benefits become vested. However, vested past service costs are recognized as expense immediately. Under PFRS for SMEs, all past service costs are recognized as expense in full in the period in which they occur. Under full PFRS, actuarial gains and losses are: a. Recognized in profit or loss through the corridor approach b. Recognized immediately in full in profit or loss c. Recognized immediately in full in other comprehensive income However, amounts recognized in other comprehensive income are not subsequently recognized in profit or loss. Under PFRS for SMEs, actuarial gains and losses are: a. Recognized immediately in full in profit or loss b. Recognized immediately in full in other comprehensive income This means that there is no corridor approach under PFRS for SMEs. Under full PFRS, the projected unit credit method must be used in measuring the defined benefit liability. Under PFRS for SMEs, the projected unit credit method is used in measuring the defined benefit liability if the information that is needed to make such as a calculation is already available or can be obtaines without undue cost or effort. If this is not the case, an alternative method is permitted in which future salary, future service and possible mortality between the reporting date and the date employees are expected to begin receiving postemployment benefit are not considered. Under full PFRS, the defined benefit liability is the net total of the following: a. Present value of the benefit obligation at year-end

b. Plus actuarial gains less actuarial loss not recognized under the corridor approach c. Minus unrecognized past service costs d. Minus the fair value of plan assets at year-end Under PFRS for SMEs, the defined benefit liability is the net total of the following: a. Present value of benefit obligation at year-end b. Minus the fair value of plan assets at year-end Actuarial gains and losses and past service costs are ignored because they are already fully recognized. Under full PFRS, the expected return on plan assets is distinguished from actual return on plan assets. The difference between actual return and expected return is an actuarial gain or loss. Under PFRS for SMEs, there is no distinction between expected return and actual return. All changes in the fair value of plan assets are recognized in profit or loss.

Income Tax: Full PFRS and PFRS for SMEs share many of the basic principles in accounting
for income tax. Under PFRS for SMEs, a valuation allowance is recognized for a deferred tax asset so that its carrying amount equals the highest amount that is more likely than not to be recovered. Under full PFRS, the concept of valuation is 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. Under PFRS for SMEs, an SME shall not recognize a deferred tax asset or liability for temporary differences associated with unremitted earnings from foreign investments in subsidiaries, branches associates and joint ventures to the extent that the investments are essentially permanent in duration.

Under fill PFRS, the same prohibition applies but it is applicable to all investments in subsidiaries, branches, associates and joint venture, whether

domestic or foreign.

Equity: The PFRS for SMEs and full PFRS are practically the same with respect to the
recording of equity instruments, treasury shares, compound financial instruments, dividends and other related equity matters.

Share-Based Payment Transactions:

Under PFRS for SMEs, the share options must be measured at fair value on the date of grant. The intrinsic value of share options is not mentioned as an alternative. Under full PFRS, 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.

Specialized Activities: Full PFRS and PFRS for SMEs practically have the same principles for the
recognition and measurement of biological assets and agricultural produce. Under full PFRS, an entity must develop its own policy for recognition of an exploration and evaluation asset. In an entitys accounting policy results in the recognition of an exploration and evaluation asset, such asset shall be measured initially at cost. Like the requirement of PFRS for SMEs, the exploration and evaluation asset may be classified as tangible asset or intangible asset. Subsequently, exploration and evaluation asset shall be measured using either

the cost model or fair value model.

Under PFRS for SMEs, exploration expenditure shall be measured subsequently using the cost model only. Full PFRS and PFRS for SMEs have the same provisions on the recognition and measurement of a service concession. Full PFRS and PFRS for SMEs are the same in all aspects of accounting for an entity whose functional currency is the currency of a hyperinflationary economy.

The table below provides a snapshot of how the PFRS for SMEs compares with the full PFRS: