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Malaysian SMEs can be grouped into three categories micro, small, or medium and it can be grouped into 3 sectors as well. For example primary agriculture, manufacturing (including agro-based) & MRS, services sector (including ICT).
A micro sized primary agriculture must satisfy the following criteria with full-time
employees of less than 5 and with annual sales turnover of less than RM200,000
A small sized primary agriculture must satisfy the following criteria of full-time
employees of between 5 and 19 oand with annual sales turnover of between RM200,000 and less than RM1million
A medium sized primary agriculture must satisfy the following criteria of full-time employees not more than 50 employees and annual sales turnover not exceeding RM5 million.
Manufacturing (including agro-based) and MRS
A mirco sized manufacturing (including agro-based) and MRS is an enterprise full-time employees of less than 5 and with annual sales turnover of less than RM250,000
A small sized manufacturing (including agro-based) and MRS is an enterprise with full-time employees of between 5 and 50 and with annual sales turnover of between RM250,000 and less than RM10 million.
A medium sized manufacturing (including agro-based) and MRS is an enterprise with full-time employees not exceeding 150 and with annual sales turnover not exceeding RM25 million.
Services (including ICT)
A micro sized enterprise in the Services (including ICT) sector must satisfy the requirement of full-time employees less than 5 and with annual sales turnover of less than RM200,000
A small sized in the Services (including ICT) sector must satisfy the requirement of full-time employees between 5 and 19 and with annual sales turnover of between RM200,000 and less than RM1million.
A medium sized in the Services (including ICT) sector must satisfy the requirement of full-time employees between 20 and 50 and with annual sales turnover of between RM1 million and RM5 million.
Objective of financial statements of SMEs
The objective of financial statements of a small or medium-sized entity is to provide information about the financial position, performance and cash flows of the entity that is useful for economic decision-making by a broad range of users who are not in a position to demand reports tailored to meet their particular information needs. In meeting that objective, financial statements also show the results of management's stewardship of the resources entrusted to it.
Accounting standard for SMEs
IFRS for SME
IFRS for SMEs is an alteration and simplification of full IFRS meant for meeting the needs of private company financial reporting users and lessening the financial reporting burden on private companies through a cost-benefit approach. IFRS for SMEs is a self-contained global accounting and financial reporting standard applicable to the general-purpose financial statements of, and other financial reporting by, entities that in many countries are known as small- and medium-sized entities. Full IFRS and IFRS for SMEs are recognised by the International Accounting Standards Board ("IASB").Â
Aim of IFRS for SMEs
One aim of the IFRS for SMEs is to provide a standard for entities in countries that have no national GAAP. IFRS for SMEs will provide an accounting framework in such countries for entities that are not of the size nor have the resources to adopt full IFRS.
Another aim is to provide countries that already have an established national GAAP with an alternative, IFRS standard that will be recognised and understood across different territories. This will ease transition to full IFRS for growing entities once they become publicly accountable
Definition of FRSSE
FRSSE is a simplified UK accounting standard for small companies, and for small organisations that would be small companies if they were incorporated.
Objective of FRSSE
The objective of the FRSSE is to ensure that reporting entities falling within its scope provide in their financial statements information about the financial position, performance and financial adaptability of the entity that is useful to users in assessing the stewardship of management and for making economic decisions, recognising that the balance between users' needs in respect of stewardship and economic decision-making for smaller entities is different from that for other reporting entities.
Different between FRSSE and IFRS for SME
Under Consolidation requirement FRSSE accounts do not have to include a consolidation of subsidiaries. IFRS for SMEs would require one where the effect was material. In carrying out the field test for any FRSSE clients where this would be relevant you could note this shortcoming in your IFRS accounts.
Beside that, the accounting treatment in Cashflow statement for FRSSE is cashflow statement are not needed. Where else, the IFRS for SMEs requires a cashflow statement to be prepared (using the FIFO or LIFO).
In additional, under fixed assets and goodwill - Associates/Investment Properties/Intangible Assets - different measurement options and disclosure requirements. The FRSSE requires goodwill to be depreciated over its useful economic life and not be revalued. The IFRS for SME requires goodwill in a business combination after initial recognition to be recognised at cost less any impairment losses.
Other then that, under share-based payments FRSSE allows a disclosure-only approach for share-based payments that will be settled in shares. IFRS for SMEs during the relevant periods when earned requires a cost to be estimated based on the fair value of the instruments and included in the Profit & Loss.
Further more, under deferred taxes FRSSE omits most presentation disclosure aspects of FRS 19 and deferred tax recognised on all timing differences. IFRS for SME requires provision for tax of future recovery/settlement of assets/liabilities at current carrying amounts and utilisation of losses and unused credits
Non-financial assets and Goodwill
In full IFRS, tangible and intangible assets, there is an accounting policy choice between the cost model and the revaluation model. Goodwill and other intangibles with unclear lives are reviewed for impairment and not amortised. However, In IFRS for SMEs, The cost model is the only permitted model. All intangible assets, including goodwill, are assumed to have finite lives and are amortised.
In full IFRS, Under IAS 38, 'Intangible assets', the useful life of an intangible asset is either finite or indefinite. The latter are not amortised and an annual impairment test is required. Compared to IFRS for SMEs, there is no distinction between assets with finite or infinite lives. The amortisation approach therefore applies to all intangible assets. These intangibles are tested for impairment only when there is an indication.
In full IFRS, IAS 40, 'Investment property', offers a choice of fair value and the cost method but for IFRS for SMEs, Investment property is carried at fair value if this fair value can be measured without undue cost or effort.
In full IFRS, IFRS 5, 'Non-current assets held for sale and discontinued operations', requires non-current assets to be classified as held for sale where the carrying amount is recovered principally through a sale transaction rather than though continuing use. However, in IFRS for SMEs, Assets held for sale are not covered, the decision to sell an asset is considered an impairment indicator.
In full IFRS, A statement of changes in equity is required, presenting areconciliation of equity items between the beginning and end of the period but for IFRS for SMEs: Same requirement. However, if the only changes to the equity during the period are a result of profit or loss, payment of dividends, correction of prior-period errors or changes in accounting policy, a combined statement of income and retained earnings can be presented instead of both a statement of comprehensive income and a statement of changes in equity.
In Full IFRS, Transaction costs are excluded under IFRS 3 (revised). Contingent consideration is recognised regardless of the probability of payment. However, IFRS for SMEs: Transaction costs are included in the acquisition costs. Contingent considerations are included as part of the acquisition cost if it is probable that the amount will be paid and its fair value can be measured reliably.
In full IFRS, A deferred tax asset is only recognised to the extent that it is probable that there will be sufficient future taxable profit to enable recovery of the deferred tax asset. Comapared to IFRS for SMEs: A valuation allowance is recognised so that the net carrying amount of the deferred tax asset equals the highest amount that is more likely than not to be recovered. The net carrying amount of deferred tax asset is likely to be the same between full IFRS and IFRS for SMEs.
Small company should be treated differently because of their difference in liability, limited sources, sales volume, sales turnover, different types of asset and also their different types of ownership control. The accounting standard that is set for big company would not suit a small company because they have lesser necessity then bigger company. For example ifrs was build of public company that have to publish their account to the public to review they performance of the company to raise fund for the company but for sme they are not a big company and they do not need to produce so much information that they not need. Therefore, IASB created ifrs for sme because they know that the full ifrs contains lots of information that small company does not use. Besides the cost of full ifrs is much more expensive compare to the ifrs for sme. In additional, different level of sme can use different type of accounting standard such as micro company can use frsse for their accounts because they need to produce as much information as a small company. Besides that small company can use ifrs for sme to produce information because if they continue to use frsse maybe the information that frsse produce is not sufficient for they needs.