CHAPTER 24 DEFINITION OF SMEs

CHAPTER 24 DEFINITION OF SMEs. By: Gloryvy M. Perez And Lim D. Vasquez II.

What is an SME ?.

r evenues , assets or a number of employees. SME is short for Small and Medium Entities.

The Definition of SMEs. A picture containing dark Description automatically generated.

Public accountability. A picture containing sport kite, outdoor object, accessory Description automatically generated.

Securities traded in a public market. A picture containing headdress, helmet Description automatically generated.

Financial Institutions. The primary business for financial institutions is to hold and manage financial resources entrusted to them by a broad group of clients and customers who are not involved in the management of the entities. As such, financial institutions are "publicly accountable" because the entities act in a fiduciary capacity. Accordingly, financial institutions must follow full IFRS and not IFRS for SMES.

Logo Description automatically generated. Under Philippine jurisdiction, the definition of small and medium-sized entity (SME) includes size criteria in terms of total assets and total liabilities..

Definition of SME by SEC. The Securities and Exchange Commission (SEC) has adopted a specific set of financial reporting rules for small-to-medium entities (SMEs), or firms with assets of between P3 million and P350 million..

Micro-business entities. A picture containing text, queen Description automatically generated.

Exemptions from PFRS for SMEs. The Philippine SEC in its meeting on October 7, 2010 resolved to exempt from the mandatory adoption of the PFRS for SME small and medium-sized entity that meets any of the following criteria: 1. It is a subsidiary of a parent reporting under full PFRS 2 It is a subsidiary of a foreign parent that will be moving toward full IFRS pursuant to the foreign country's published convergence plan. 3. It is a subsidiary of a foreign parent that has been applying the standards for a nonpublic accountable entity for local reporting purposes, and is considering moving to full PFRS instead of the PFRS for SME. In order to align its policies with the expected move to full IFRS by its foreign parent pursuant to the foreign country's published convergence plan. 4. It has short-term projections that show that it will Breach the quantitative thresholds set in the criteria for an SME, and the breach is expected to be significant and continuing due to its long-term effect on the entity's asset or liability size. 5. It is part of a group, either as a significant joint venture or an associate, that is reporting under full PFRS. 6. It is a branch office of a foreign entity reporting under full IFRS. 7. It has concrete plans to conduct an initial public offering within the next two years. 8. It has a subsidiary that is mandated to report under full PFRS. 9. It has been preparing financial statements using full PES and has decided to liquidate its assets..

First-time adopter. Icon Description automatically generated.

Date of transition. Icon Description automatically generated.

Transition from PFRS for SMES to full PFRS. If an SME that uses the PFRS for SMES in a current year breaches the floor and ceiling size criteria at the end of the Current year, the entity shall be required to transition to full PFRS in the next year if the ceiling threshold is breached or another acceptable accounting basis if the floor threshold is breached. transition must be made provided the event that caused the abilities would be considered significant. has general rule, 20% or more of total assets or total change in considered significant and continuing general rule, 20% or more of total asset or total abilities would be considered significant..

Opening statement of financial position. A picture containing dark, lit, night Description automatically generated.

The accounting policies that the first-time adopter use in the opening statement of financial position may differ from the previous accounting policies. The resulting adjustments arise from transactions, other events and conditions before the date of transition to PFRS or SMEs. First-time adoption requires full retrospective application of PFRS for SMEs effective at the reporting date for an entity's first annual financial statements that conform with PFRS for SMEs. Therefore, the first-time adopter shall recognize those adjustments directly in retained earnings or another category of equity, if appropriate..

Mandatory exceptions to retrospective application.

Reconciliation. A picture containing text, newspaper, sign Description automatically generated.

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