International Federation of Accountants

1. International Federation of Accountants IFRS for Private Entities (formerly IFRS for SMEs) Ali Cherif, Partner, Mazars, OECT IFAC SMP Forum 2008 Abuja, Nigeria, October 13, 2008

2. Content • Why an IFRS for Private Entities? • IFRS for SMEs ED • Next Steps • IASCF Training Materials for IFRS for PEs • Potential Use of IFRS for PEs • My Other Comments & Suggestions

3. Why an IFRS for Private Entities? • Assist decision-making by financial statement users: • Bank lending/monitoring & credit rating • Overseas customers & vendors • Non-management investors & foreign venture capital • Development institutions (African Development Bank etc.) • Improved comparability & quality of reporting • Ease burden (verses full IFRSs/full national GAAP) • Enhanced access to capital • Efficiencies in education & training and auditing

4. IFRS for SMEs Exposure Draft - Overview • Simplified principles tailored for smaller, private entities • Based on full IFRSs with modifications based on: • User needs • Cost-benefit • 254 pages; organized by topic into 38 sections • Sample financial statements & disclosure checklists • Issued Feb. 2007: deadline for comment Nov. 2007 • IFAC highly supportive of project

5. IFRS for SMEs ED - Objective • General purpose financial statements for external users (see above) • Non-manager owners • Existing & potential lenders, vendors, creditors, customers • Credit rating agencies • Understand and compare performance, financial position, and cash flows • Auditor opinion on fair presentation

6. IFRS for SMEs ED – Simplifications • Five kinds of simplifications: • Some IFRS topics omitted if irrelevant to private entities • Where IFRS has options, include only simpler one • Recognition and measurement • Reduced disclosures (400 verses 3000+ in IFRS) • Drafting • Finding an answer: • Number of cross-references to full IFRS • Must try to find answers in IFRS for PEs • May look in full IFRSs if answer not in IFRS for PEs

7. IFRS for SMEs ED – Comment Letters • 162 comment letters ( 9 from Africa – 5 IFAC member bodies, 2 regional organizations, 2 other) • Key recommendations: • Remove all cross references to full IFRSs • Do not anticipate changes to full IFRSs • Historical cost model should be default • Income taxes – taxes payable only? • Consolidation – reduce or eliminate • Amortize goodwill & other intangibles • Fair value – reduce and clarify

8. IFRS for SMEs ED – Comment Letters • Key recommendations (cont..): 8. Pensions – measure at liquidation amount? Actuarial gains/losses 9. Share-based payment – intrinsic value is not simpler 10. Leases – simplify calculations 11. Impairment – allow value in use 12. Debt-equity classification 13. Further disclosure simplifications • IFAC’s comment letter made many of these.

9. IFRS for SMEs ED – Field Tests • 116 small entities from over 20 countries • Restated most recent annual financial statements using IFRS for PEs • Completed a questionnaire • Very few PEs had problems applying the ED • Main issues (few companies) were: • Determining fair values • Computing deferred taxes • First time: Equity and cash flow statements • Some doubts over rigor of field testing

10. Next Steps • Staff analyses of comments / field tests complete • Board deliberating staff recommendations Q2-Q4 2008 • Many staff recommendations declined for example, elimination of deferred tax and options, amortization of goodwill • Final Standard: Vote end of 2008 • Effective: Whenever adopted locally • Training materials: Mid-late 2009

11. IASCF Training Materials for IFRS for PEs • Being developed by IASC Foundation • One module per section • Finish by mid/late 2009 • Multiple languages • Free of charge! • IASCF train the trainers workshops • IFAC welcomes implementation support & looking into how it can help deliver workshops

12. Potential Use of IFRS for PEs • South Africa already adopted it word for word • South African GAAP = full IFRS • CEO of SAICA has said: “It is very welcome. The standard in its current form already offers SMEs real relief, and when the final standard comes it will be even better.” • Likely many others in similar position will adopt • This does not mean standard is best solution • Much interest in EU – high demand for convergence • But signs of disappointment: EC will not adopt

13. My Other Comments & Suggestions • Unlikely to be a solution for micro-entities: • IFAC research suggests ED much too complex • Reconsider further simplifications • Make pure stand-alone • Use even simpler language • Conduct analysis of whether satisfies user needs as part of post-implementation review