CHAPTER 25:
SMES-NOTES TO
FINANCIAL STATEMENTS
Notes to Financial Statements
Provide narrative description or disaggregation of items presented in
the financial statements and information about items that do not
qualify the recognition
Contains information in addition to that presented in the statement of
financial position, statement of comprehensive income, income
statement, statement of income and retained earnings , statement in
changes in equity and statement of cash flow.
An SME shall as far as practicable, present the notes in a systematic
manner.
Structure of the Notes
Presents information about the basis of preparation of the financial
statements and the accounting policies required.
Disclose information required by the PFRS for SMEs that is not
presented elsewhere in the financial statements.
Provide information that is not presented elsewhere is the financial
statements but is relevant to understanding of the information.
Order of presenting the Notes
Compliance with PFRS for SMEs
Summary of significant accounting policies
Supporting information for items presented in the financial statements
in the sequence in which each line item is presented in the financial
statements.
Any other disclosure
Information about Judgement
An SME shall disclose in the notes the judgement that management has
made in applying the accounting policies and that have made the most
significant effects on the amounts recognized.
Information about estimation uncertainty
An SME shall disclose in the notes the nature and carrying amount of
assets and liabilities for which estimates and assumption have a
significant risk of causing a material adjustment to their carrying
amount within the next financial year.
Other disclosures
The domicile and legal form of entity its county of incorporation and
the address of its registered office or place of business, if different
from the registered office
A description of the nature of the entity operations and its principal
activities.
PFRS for SME’s does not require the presentation of
the following:
Segment Information
Earnings per share
Interim Financial Reports
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Major categories of related parties
Major categories of unrelated
parties
Related Parties
a. Affiliates
b. Associates
c. Joint Ventures
d. Key management personnel of the entity
e. Close Family members of the key management personnel
f. Individuals with significant influence over the reporting entity and
close family members of such individuals
g. Postemployment benefit plans
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Unrelated Parties
a. Two entities simply because they have a director or other key
management personnel in common
b. Two ventures simply because they share joint control over joint
venture
c. Providers of finance, trade unions, public utilities and government
agencies simply by virtue of their normal dealings with the reporting
entity
d. A customer, supplier, franchisor, distributor or general agent with
whom the reporting entity transacts a significant volume of business
merely by virtue of the resulting economic independence
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The PFRS for SMEs and Full PFRS
share the same principles with
respect to related party disclosures.
Related Party Disclosure
Relationship between parent and subsidiaries shall be disclosed
regardless of whether there have been transactions between these
related parties.
An entity shall disclose the name of the parent and if different, the
ultimate controlling party
The name of the most senior parent must be disclosed if neither of the
entity’s parent nor the ultimate controlling party produces financial
statement.
Disclosures of related party transactions
The entity shall disclose
Nature of the related party relationship
Information about the transactions and the outstanding balances necessary
for an understanding of the potential effect of the relationship on the
financial statements
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Minimum inclusions in disclosures of related
party transactions
Minimum Inclusions
The amount of transaction
The amount of outstanding balances, the terms and
conditions, whether secured or unsecured, and nature of
consideration to be provided in settlement
Allowance for doubtful accounts related to the outstanding
balances
The expense recognized during the period in respect of
doubtful accounts due from related parties
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Two types of Events after reporting period:
1. Adjusting Events
2. Nonadjusting events
Events after reporting period
It is a favorable or unfavorable event that
occur between the end of the reporting period
and the date when the financial statements
are authorized for issue.
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Adjusting Events
They provide evidence of conditions that existed
at the end of the reporting period and lead to
adjustments of the financial statements.
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Nonadjusting Events
It is indicative of the conditions that arose
after the end of reporting period and do
not lead to adjustments but only disclosures
in the financial statements.
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The PFRS for SMEs and full PFRS
share the same provisions for
accounting and reporting events after
the end of reporting period.
Date for authorization for issue
When the board of directors reviews the financial statements and
authorized them for issue
The SME is required to disclose:
The date of authorization for issue
Who gave the authorization
If the owners or other person have the power to amend financial statement
after issue
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