Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
21 February 2023Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure Draft ED/2022/1Third Edition of the IFRS for SMEs Accounting StandardThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our views on this Exposure Draft (ED).We welcome the IASB’s proposals to align the IFRS for SMEs Accounting Standard withfull IFRS Accounting Standards by taking into account the needs of small and medium-sized entities (SMEs) and users of their financial statements as well as the cost-benefitconsiderations of the proposals.In Hong Kong, the majority of the SMEs either prepare their financial statements under theHKICPA’s home-grown Small and Medium-sized Entity Financial Reporting Frameworkand Financial Reporting Standard or full HKFRS Standards. The level of application of theHKFRS for Private Entities (i.e. the local version of IFRS for SMEs Accounting Standard)
is relatively limited in Hong Kong.Considering the limited use of the HKFRS for Private Entities/IFRS for SMEs AccountingStandard in Hong Kong, we primarily comment on the following proposals in the ED.Impairment of financial assets in Section 11 Financial InstrumentsOur respondents expressed concern about the proposed application of the expected creditloss (ECL) model on financial assets measured at amortised cost (other than tradereceivables and contract assets). In Hong Kong, non-trade related receivables from relatedparties and business partners are common among SMEs and our respondents anticipatedthat SMEs would encounter the following practical difficulties in applying the ECL model tothese receivables:
a) Non-trade receivables from related parties and business partners are often one-off innature. Most SMEs do not possess sufficient historical data, such as credit-lossexperience, either internally or from its peer group for comparable financial instrumentsto ascertain appropriate credit loss rates.b) The ECL model requires the use of forward-looking information and an estimate ofprobability and related weight for formulating multiple forward-looking scenarios. SinceSMEs usually have limited resources and expertise, our respondents expressedconcern about the practical challenges in identifying and obtaining relevant forward-looking information that is reasonable and supportable for measuring ECL of thesereceivables.Page 2 of 3In view of the above challenges, our respondents questioned the quality of impairmentinformation provided by SMEs using the ECL model and whether the accounting outcomeswould still faithfully reflect the likelihood of the collection of future cash flows of these non-trade receivables at the reporting date.Furthermore, SMEs in Hong Kong are usually owner-managed businesses with limitedusers of financial statements. Users of SMEs’ financial statements generally do not have astrong demand for the more sophisticated information provided under the ECL model onnon-trade receivables. In addition, considering the complexity and difficulties for SMEs toapply the ECL model properly, users of SMEs’ financial statements do not consider thatthe expected credit loss information would provide relevant information capable of makinga difference in their decisions.Lastly, the proposals introduce two impairment models for financial assets measured atamortised cost – incurred loss model for trade receivable and contract assets, and the ECLmodel for all other receivables. We see little merit in having two impairment models forfinancial assets measured at amortised cost as it would add complexity, create confusionand not meet the principle of simplicity.In light of the above, we consider that the ECL model would impose undue cost or effort onSMEs and may not significantly improve the usefulness of information about impairment offinancial assets held by SMEs. Taking into account the costs and benefits of the proposals,we recommend the IASB retain the incurred loss model for all financial assets measuredat amortised cost.If the IASB were to go ahead with its proposals, we suggest that the IASB:
a) provide guidance or examples on the practical expedients that SMEs can apply inmeasuring ECL (paragraph 11.26E of the ED); andb) clarify the considerations for SMEs in assessing the ‘undue cost or effort’ of obtainingreasonable and supportable information for measuring ECL, given the model wouldbe more costly for SMEs (as compared to listed entities or corporates) to apply.Section 23 Revenue from Contracts with CustomersWe generally support the proposals in the revised Section 23 and consider that they areappropriate for SMEs and users of their financial statements. Nevertheless, we have thefollowing comments and recommendations:
a) Certain proposed simplified requirements of IFRS 15, for example warranty (paragraph
23.27 of the ED) and options to purchase additional goods or services (paragraph 23.35of the ED), involve the evaluation of whether the financial impact of the warranty/optionis ‘significant to the contract’ in order to determine the accounting treatment. Suchevaluation requirement does not exist in IFRS 15. To ensure consistent application ofthe requirement by the SMEs, we recommend that the IASB provide guidance orexamples to illustrate how the ‘significant’ concept should be applied in those cases.b) In order to make the proposed requirements simpler for SMEs to apply, the ED hasreframed the principle in IFRS 15 for principal versus agent considerations and thecriteria for revenue recognition over time. For principal versus agent considerations, theED has reframed the principle and one indicator as circumstances that would result inan entity acting as a principal (as opposed to three indicators in IFRS 15), and thecriteria for revenue recognition over time has changed from three criteria in IFRS 15.B2to four criteria in the ED. While we on the whole agree with the IASB’s simplificationapproach, we are concerned that the simplifications made on these two areas mayunintentionally result in different accounting outcomes from full IFRS AccountingPage 3 of 3Standards in certain situations. Accordingly, we recommend the IASB clarify whetherthe principles and requirements on these two areas are the same under the ED andIFRS 15 to avoid confusion.Work undertaken by HKICPA in forming its views:
In response to this ED, the HKICPA:
a)
issued an Invitation to Comment on the ED on 9 September 2022;
b)
sought input from its Small and Medium-sized Practitioners Committee and itsTechnical Issues Working Group comprising technical and industry experts fromaccounting firms;
c)
sought input from targeted stakeholders comprising preparers, practitioners andusers of financial statements; andd)
developed its views through its Financial Reporting Standards Committee, whichcomprises preparer representatives from various industry sectors, regulators, as wellas technical and industry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk), George Au (georgeau@hkicpa.org.hk) or Kennis Lee(kennislee@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department
IASB Exposure Draft ED/2022/1 Third Edition of the IFRS for SMEs Accounting Standard
下载原件Page 1 of 3Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
21 February 2023Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure Draft ED/2022/1Third Edition of the IFRS for SMEs Accounting StandardThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,ethics and sustainability disclosures for professional accountants in Hong Kong. We aregrateful for the opportunity to provide you with our views on this Exposure Draft (ED).We welcome the IASB’s proposals to align the IFRS for SMEs Accounting Standard withfull IFRS Accounting Standards by taking into account the needs of small and medium-sized entities (SMEs) and users of their financial statements as well as the cost-benefitconsiderations of the proposals.In Hong Kong, the majority of the SMEs either prepare their financial statements under theHKICPA’s home-grown Small and Medium-sized Entity Financial Reporting Frameworkand Financial Reporting Standard or full HKFRS Standards. The level of application of theHKFRS for Private Entities (i.e. the local version of IFRS for SMEs Accounting Standard)
is relatively limited in Hong Kong.Considering the limited use of the HKFRS for Private Entities/IFRS for SMEs AccountingStandard in Hong Kong, we primarily comment on the following proposals in the ED.Impairment of financial assets in Section 11 Financial InstrumentsOur respondents expressed concern about the proposed application of the expected creditloss (ECL) model on financial assets measured at amortised cost (other than tradereceivables and contract assets). In Hong Kong, non-trade related receivables from relatedparties and business partners are common among SMEs and our respondents anticipatedthat SMEs would encounter the following practical difficulties in applying the ECL model tothese receivables:
a) Non-trade receivables from related parties and business partners are often one-off innature. Most SMEs do not possess sufficient historical data, such as credit-lossexperience, either internally or from its peer group for comparable financial instrumentsto ascertain appropriate credit loss rates.b) The ECL model requires the use of forward-looking information and an estimate ofprobability and related weight for formulating multiple forward-looking scenarios. SinceSMEs usually have limited resources and expertise, our respondents expressedconcern about the practical challenges in identifying and obtaining relevant forward-looking information that is reasonable and supportable for measuring ECL of thesereceivables.Page 2 of 3In view of the above challenges, our respondents questioned the quality of impairmentinformation provided by SMEs using the ECL model and whether the accounting outcomeswould still faithfully reflect the likelihood of the collection of future cash flows of these non-trade receivables at the reporting date.Furthermore, SMEs in Hong Kong are usually owner-managed businesses with limitedusers of financial statements. Users of SMEs’ financial statements generally do not have astrong demand for the more sophisticated information provided under the ECL model onnon-trade receivables. In addition, considering the complexity and difficulties for SMEs toapply the ECL model properly, users of SMEs’ financial statements do not consider thatthe expected credit loss information would provide relevant information capable of makinga difference in their decisions.Lastly, the proposals introduce two impairment models for financial assets measured atamortised cost – incurred loss model for trade receivable and contract assets, and the ECLmodel for all other receivables. We see little merit in having two impairment models forfinancial assets measured at amortised cost as it would add complexity, create confusionand not meet the principle of simplicity.In light of the above, we consider that the ECL model would impose undue cost or effort onSMEs and may not significantly improve the usefulness of information about impairment offinancial assets held by SMEs. Taking into account the costs and benefits of the proposals,we recommend the IASB retain the incurred loss model for all financial assets measuredat amortised cost.If the IASB were to go ahead with its proposals, we suggest that the IASB:
a) provide guidance or examples on the practical expedients that SMEs can apply inmeasuring ECL (paragraph 11.26E of the ED); andb) clarify the considerations for SMEs in assessing the ‘undue cost or effort’ of obtainingreasonable and supportable information for measuring ECL, given the model wouldbe more costly for SMEs (as compared to listed entities or corporates) to apply.Section 23 Revenue from Contracts with CustomersWe generally support the proposals in the revised Section 23 and consider that they areappropriate for SMEs and users of their financial statements. Nevertheless, we have thefollowing comments and recommendations:
a) Certain proposed simplified requirements of IFRS 15, for example warranty (paragraph
23.27 of the ED) and options to purchase additional goods or services (paragraph 23.35of the ED), involve the evaluation of whether the financial impact of the warranty/optionis ‘significant to the contract’ in order to determine the accounting treatment. Suchevaluation requirement does not exist in IFRS 15. To ensure consistent application ofthe requirement by the SMEs, we recommend that the IASB provide guidance orexamples to illustrate how the ‘significant’ concept should be applied in those cases.b) In order to make the proposed requirements simpler for SMEs to apply, the ED hasreframed the principle in IFRS 15 for principal versus agent considerations and thecriteria for revenue recognition over time. For principal versus agent considerations, theED has reframed the principle and one indicator as circumstances that would result inan entity acting as a principal (as opposed to three indicators in IFRS 15), and thecriteria for revenue recognition over time has changed from three criteria in IFRS 15.B2to four criteria in the ED. While we on the whole agree with the IASB’s simplificationapproach, we are concerned that the simplifications made on these two areas mayunintentionally result in different accounting outcomes from full IFRS AccountingPage 3 of 3Standards in certain situations. Accordingly, we recommend the IASB clarify whetherthe principles and requirements on these two areas are the same under the ED andIFRS 15 to avoid confusion.Work undertaken by HKICPA in forming its views:
In response to this ED, the HKICPA:
a)
issued an Invitation to Comment on the ED on 9 September 2022;
b)
sought input from its Small and Medium-sized Practitioners Committee and itsTechnical Issues Working Group comprising technical and industry experts fromaccounting firms;
c)
sought input from targeted stakeholders comprising preparers, practitioners andusers of financial statements; andd)
developed its views through its Financial Reporting Standards Committee, whichcomprises preparer representatives from various industry sectors, regulators, as wellas technical and industry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk), George Au (georgeau@hkicpa.org.hk) or Kennis Lee(kennislee@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department