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Presentation Outline
Need for Developing SME Standards Local Accounting Framework ICAP Initiative Differential Reporting Status in Other Countries Basis of Development Proposed Three Tiers The New Standards Status of the SME Standards
September 21, 2006 2
ICAP Initiative
Accounting and Auditing Standards Committee (AASC) formed a sub-committee to look at various initiatives around the world and propose draft standards for Pakistan till the time an internationally agreed framework is in place
The sub-committee comprised of following members of AASC and a nominee of SECP Mr. Abdul Aleem, Mr. Syed Iftikhar Anjum, Mr. Riaz A. Rehman Chamdia, Mr. Nadeem Yousuf, Mr. Naresh Kumar, Mr. Farrukh Rehman, Mr. Shabbir Yunus, and Mr. Salman Shoaib Mr. Fayyaz Mahmud Director Professional Services SECP Directorate of Technical Services ICAP
September 21, 2006 6
Differential Reporting
What is differential reporting ? Differential reporting is the notion that some entities should be allowed to depart from particular requirements of accounting standards or entire accounting standards in preparing financial statements.
Differential Reporting
Two Approaches Integral Approach: Exemptions are given from compliance of individual accounting standards. Distinct Approach: Separate standards comprising all the issues that are addressed in the IAS/IFRS but which are relevant to SMEs.
Countries like Australia, New Zealand, US and UK had taken initiatives in differential reporting more than 10 years back and are making further improvements to it Mixed trend for both integral and distinct approaches in different countries Both approaches are based on existing financial reporting frameworks, may it be IFRS or self developed.
*International Accounting Standards Board (IASB) is in the process of developing SME standards based on the Distinct approach. IASB has started SME Standards project, which is expected to be completed in 2007.
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Basis of Development
Based on analysis of: - user needs - cost benefit consideration, and - limitations in accounting expertise available to SMEs separate set of Standards (distinct approach) was considered appropriate for application in Pakistan.
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Basis of Development
In Developing SME standards, the Institute examined: The draft Framework for Differential Reporting issued by Confederation of Asian & Pacific Accountants (CAPA) An exposure draft of proposed SME Financial Reporting Framework (SME-FRF) and Financial Reporting Standard (SME-FRS) issued by Hong Kong Institute of Certified Public Accountants (HKICPA).
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Basis of Development
Prevailing Frameworks for SMEs Accounting and Financial Reporting Guidelines for Small and MediumSized Enterprises (SMEGA) issued by Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) under the banner of United Nations Conference on Trade and Development (UNCTAD), an organ of United Nations SLASSE Sri Lankan Accounting Standards for Smaller Enterprises issued by the Institute of Chartered Accountants of Sri Lanka.
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Basis of Development
In developing the SME Framework and Standards, the Guidelines laid down by ISAR were primarily adopted The new Financial Reporting Framework for SMEs in Pakistan identifies three tiers of entities with Tier 2 and 3 being SMEs.
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Publicly Accountable Entities Medium Sized Entities (MSEs) Small Sized Entities (SSEs).
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Tier 2 Medium Sized Entities (MSEs) Tier 3 Small Sized Entities (SSEs).
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For material transactions or events not covered by this standard, reference shall be made to the Tier 2 standards.
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