Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
22 October 2020Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Request for InformationComprehensive Review of the IFRS for SMEs StandardThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our views on this Request for Information (RFI).The HKICPA appreciates the IASB’s initiative to seek views on whether and how aligningthe IFRS for SMEs Standard with full IFRS Standards could better serve users of financialstatements that are prepared using the IFRS for SMEs Standard, without causing unduecost and effort for small and medium-sized entities (SMEs).In Hong Kong, we observe that most SMEs prepare their financial statements either inaccordance with the HKICPA’s Small and Medium-sized Entity Financial ReportingFramework and Financial Reporting Standard or full HKFRS Standards (equivalent to fullIFRS Standards). The level of application of HKFRS for Private Entities (equivalent toIFRS for SMEs Standard) is relatively limited in Hong Kong, as Hong Kong SMEs considerthat its recognition and measurement requirements are too complex. Entities that dochoose to use HKFRS for Private Entities do so because it requires fewer disclosures ascompared with full HKFRS Standards, and the concept of “undue cost and effort” helps tobalance the costs and benefits of its requirements.We primarily comment on the following areas of the RFI considering the limited use of theHKFRS for Private Entities/IFRS for SMEs Standard in Hong Kong:
•the IASB’s approach and alignment principles for the 2019 Review;
•whether and how to align specific sections of the IFRS for SMEs Standard with the2018 Conceptual Framework for Financial Reporting, and the newer, more significantstandards: IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts withCustomers and IFRS 16 Leases; and•topics that are not addressed in the IFRS for SMEs Standard.Alignment approach and principles (Question G1, G2, G3)
The HKICPA generally supports the alignment approach as we consider that the IFRS forSMEs Standard should continue to be aligned with full IFRS Standards to avoid increasingdivergence between the two sets of standards. In addition, we consider that alignmentshould cover both principles and important definitions in IFRS Standards to ensureconsistency and avoid confusion.Page 2 of 3However, our stakeholders have strongly emphasised the importance of considering costsand benefits. For instance, one of our stakeholders (who mainly consist of small andmedium practitioners and preparers) expressed concerns that the alignment approachmay impose additional cost and effort on SMEs, given that incorporating changes in fullIFRS Standards into the IFRS for SMEs Standard could lead to additional complexity, andhence based on these concerns does not support the alignment approach.The HKICPA considers the key to determining the most appropriate alignment approachrests with understanding the original objective of developing the IFRS for SMEs Standard,and assessing whether the current direction is in line with that objective. In particular, it isimportant the IASB keep in mind that the IFRS for SMEs Standard was developed to meetthe needs of smaller entities and address cost-benefit considerations. In doing so, weconsider it critical to not stray too far along the “continuum” towards simplified full IFRSStandards and away from purpose-built SME Standards that specifically take intoconsideration the needs of SMEs and their users.The HKICPA also generally supports the IASB’s proposed alignment principles, andconsider they provide an appropriate framework to assist in determining whether and howthe IFRS for SMEs Standard should be aligned with full IFRS Standards. However, giventhat cost-effectiveness is a major concern of SMEs, our stakeholders consider that theconcept of “undue cost or effort” should be considered as a formal alignment principle inorder to give it more prominence.With regard to timing, the HKICPA recommends that the IASB should only considerincorporation of changes to full IFRS Standards into the IFRS for SMEs Standard afterthose changes are effective, and after which the post-implementation review has beencompleted (i.e. Option (c) for Question G3). Our stakeholders advised that this approachwould be preferable because that provides enough time for implementation issues andconcerns with full IFRS Standards to be dealt with appropriately before integration into theIFRS for SMEs Standard.Alignment of specific sections of the IFRS for SMEs Standard with the 2018 ConceptualFramework for Financial Reporting, and IFRSs 9, 15 and 16 (Question S1, S3, S6, S7)
The HKICPA agrees that Section 2 Concepts and Pervasive Principles should be alignedwith the 2018 Conceptual Framework for Financial Reporting as most of the conceptshave been updated. Furthermore, our stakeholders consider the "undue cost or effort"concept should be retained to provide additional relief for SMEs.Whilst the HKICPA supports an alignment approach, it is not desirable to align with IFRS15 or IFRS 16 during this comprehensive review because of their complexity andinsufficient implementation experience among SMEs.Regarding alignment with classification requirement with IFRS 9, we did not receivenegative comments from our stakeholders on supplementing the list of examples inSection 11 Basic Financial Instruments with a principle for classifying financial assetsbased on their contractual cash flow characteristics.However, in respect of aligning the IFRS for SMEs Standard with the simplified approachto the impairment of financial assets in IFRS 9, our stakeholders consider this is likely toimpose undue cost or effort to SMEs and so does not achieve the principle of “simplicity”.Our stakeholders also consider that the current simplified hedge accounting requirementsshould be retained rather than aligning with IFRS 9, given the limited application of hedgeaccounting by most SMEs.Page 3 of 3In addition, our stakeholders agree with the IASB amending the IFRS for SMEs Standardto permit an entity to opt to apply the recognition and measurement requirements of IFRS9 and the disclosure requirements of Sections 11 and 12, consistent with the alignmentapproach.Topics that are not addressed in the IFRS for SMEs Standard (Question N4)
Our stakeholders consider that topics should first be addressed in full IFRS Standardsbefore considering their incorporation into the IFRS for SMEs Standard.Other suggestion (Question N5)
Section 16.1 of the IFRS for SMEs Standard states that: “… Only investment propertywhose fair value can be measured reliably without undue cost or effort on an ongoingbasis is accounted for in accordance with this section at fair value through profit or loss.All other investment property is accounted for using the cost model in Section 17 Property,Plant and Equipment and remains within the scope of Section 17 unless a reliablemeasure of fair value becomes available and it is expected that fair value will be reliablymeasurable on an ongoing basis.”
In Hong Kong, the cost of performing the valuation for a property is often not consideredsignificant. Hence, it would be difficult for an entity to argue undue cost will be incurred toobtain the fair value of an investment property. This eliminates the option of using the costmodel in measuring the investment property indirectly. As a comparatively simplerframework than full IFRS Standards, one of our stakeholders recommends the IASB allowthe cost model in Section 16 Investment Property explicitly as in IAS 40 InvestmentProperty.Work undertaken by the HKICPA in forming its views:
The HKICPA:
(a) issued a public Invitation to Comment on the RFI on 31 January 2020;
(b) sought input from its Small and Medium Practitioners Technical Issues Working Groupcomprising technical and industry experts and auditors from accounting firms;
(c) held a roundtable discussion for preparers and practitioners on 18 May 2020; and(d) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises academics, preparerrepresentatives from various industry sectors, investors, regulators, and technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me,AnthonyWong(anthonylwwong@hkicpa.org.hk),orNormanChan(normanchan@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Yours sincerely,Tiernan KetchumDeputy Director, Standard Setting Department
IASB Request for Information Comprehensive Review of the IFRS for SMEs Standard
下载原件Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
22 October 2020Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Request for InformationComprehensive Review of the IFRS for SMEs StandardThe Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants, in Hong Kong. We are grateful for the opportunityto provide you with our views on this Request for Information (RFI).The HKICPA appreciates the IASB’s initiative to seek views on whether and how aligningthe IFRS for SMEs Standard with full IFRS Standards could better serve users of financialstatements that are prepared using the IFRS for SMEs Standard, without causing unduecost and effort for small and medium-sized entities (SMEs).In Hong Kong, we observe that most SMEs prepare their financial statements either inaccordance with the HKICPA’s Small and Medium-sized Entity Financial ReportingFramework and Financial Reporting Standard or full HKFRS Standards (equivalent to fullIFRS Standards). The level of application of HKFRS for Private Entities (equivalent toIFRS for SMEs Standard) is relatively limited in Hong Kong, as Hong Kong SMEs considerthat its recognition and measurement requirements are too complex. Entities that dochoose to use HKFRS for Private Entities do so because it requires fewer disclosures ascompared with full HKFRS Standards, and the concept of “undue cost and effort” helps tobalance the costs and benefits of its requirements.We primarily comment on the following areas of the RFI considering the limited use of theHKFRS for Private Entities/IFRS for SMEs Standard in Hong Kong:
•the IASB’s approach and alignment principles for the 2019 Review;
•whether and how to align specific sections of the IFRS for SMEs Standard with the2018 Conceptual Framework for Financial Reporting, and the newer, more significantstandards: IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts withCustomers and IFRS 16 Leases; and•topics that are not addressed in the IFRS for SMEs Standard.Alignment approach and principles (Question G1, G2, G3)
The HKICPA generally supports the alignment approach as we consider that the IFRS forSMEs Standard should continue to be aligned with full IFRS Standards to avoid increasingdivergence between the two sets of standards. In addition, we consider that alignmentshould cover both principles and important definitions in IFRS Standards to ensureconsistency and avoid confusion.Page 2 of 3However, our stakeholders have strongly emphasised the importance of considering costsand benefits. For instance, one of our stakeholders (who mainly consist of small andmedium practitioners and preparers) expressed concerns that the alignment approachmay impose additional cost and effort on SMEs, given that incorporating changes in fullIFRS Standards into the IFRS for SMEs Standard could lead to additional complexity, andhence based on these concerns does not support the alignment approach.The HKICPA considers the key to determining the most appropriate alignment approachrests with understanding the original objective of developing the IFRS for SMEs Standard,and assessing whether the current direction is in line with that objective. In particular, it isimportant the IASB keep in mind that the IFRS for SMEs Standard was developed to meetthe needs of smaller entities and address cost-benefit considerations. In doing so, weconsider it critical to not stray too far along the “continuum” towards simplified full IFRSStandards and away from purpose-built SME Standards that specifically take intoconsideration the needs of SMEs and their users.The HKICPA also generally supports the IASB’s proposed alignment principles, andconsider they provide an appropriate framework to assist in determining whether and howthe IFRS for SMEs Standard should be aligned with full IFRS Standards. However, giventhat cost-effectiveness is a major concern of SMEs, our stakeholders consider that theconcept of “undue cost or effort” should be considered as a formal alignment principle inorder to give it more prominence.With regard to timing, the HKICPA recommends that the IASB should only considerincorporation of changes to full IFRS Standards into the IFRS for SMEs Standard afterthose changes are effective, and after which the post-implementation review has beencompleted (i.e. Option (c) for Question G3). Our stakeholders advised that this approachwould be preferable because that provides enough time for implementation issues andconcerns with full IFRS Standards to be dealt with appropriately before integration into theIFRS for SMEs Standard.Alignment of specific sections of the IFRS for SMEs Standard with the 2018 ConceptualFramework for Financial Reporting, and IFRSs 9, 15 and 16 (Question S1, S3, S6, S7)
The HKICPA agrees that Section 2 Concepts and Pervasive Principles should be alignedwith the 2018 Conceptual Framework for Financial Reporting as most of the conceptshave been updated. Furthermore, our stakeholders consider the "undue cost or effort"concept should be retained to provide additional relief for SMEs.Whilst the HKICPA supports an alignment approach, it is not desirable to align with IFRS15 or IFRS 16 during this comprehensive review because of their complexity andinsufficient implementation experience among SMEs.Regarding alignment with classification requirement with IFRS 9, we did not receivenegative comments from our stakeholders on supplementing the list of examples inSection 11 Basic Financial Instruments with a principle for classifying financial assetsbased on their contractual cash flow characteristics.However, in respect of aligning the IFRS for SMEs Standard with the simplified approachto the impairment of financial assets in IFRS 9, our stakeholders consider this is likely toimpose undue cost or effort to SMEs and so does not achieve the principle of “simplicity”.Our stakeholders also consider that the current simplified hedge accounting requirementsshould be retained rather than aligning with IFRS 9, given the limited application of hedgeaccounting by most SMEs.Page 3 of 3In addition, our stakeholders agree with the IASB amending the IFRS for SMEs Standardto permit an entity to opt to apply the recognition and measurement requirements of IFRS9 and the disclosure requirements of Sections 11 and 12, consistent with the alignmentapproach.Topics that are not addressed in the IFRS for SMEs Standard (Question N4)
Our stakeholders consider that topics should first be addressed in full IFRS Standardsbefore considering their incorporation into the IFRS for SMEs Standard.Other suggestion (Question N5)
Section 16.1 of the IFRS for SMEs Standard states that: “… Only investment propertywhose fair value can be measured reliably without undue cost or effort on an ongoingbasis is accounted for in accordance with this section at fair value through profit or loss.All other investment property is accounted for using the cost model in Section 17 Property,Plant and Equipment and remains within the scope of Section 17 unless a reliablemeasure of fair value becomes available and it is expected that fair value will be reliablymeasurable on an ongoing basis.”
In Hong Kong, the cost of performing the valuation for a property is often not consideredsignificant. Hence, it would be difficult for an entity to argue undue cost will be incurred toobtain the fair value of an investment property. This eliminates the option of using the costmodel in measuring the investment property indirectly. As a comparatively simplerframework than full IFRS Standards, one of our stakeholders recommends the IASB allowthe cost model in Section 16 Investment Property explicitly as in IAS 40 InvestmentProperty.Work undertaken by the HKICPA in forming its views:
The HKICPA:
(a) issued a public Invitation to Comment on the RFI on 31 January 2020;
(b) sought input from its Small and Medium Practitioners Technical Issues Working Groupcomprising technical and industry experts and auditors from accounting firms;
(c) held a roundtable discussion for preparers and practitioners on 18 May 2020; and(d) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises academics, preparerrepresentatives from various industry sectors, investors, regulators, and technical andindustry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact me,AnthonyWong(anthonylwwong@hkicpa.org.hk),orNormanChan(normanchan@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Yours sincerely,Tiernan KetchumDeputy Director, Standard Setting Department