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SMEs and SMPs: Addressing their Needs and Optimising SMP's Contributions

SMEs and SMPs: Addressing their Needs and Optimising SMP's Contributions. Paul CHAN. Council Member and Chairman of the Small & Medium Practitioners Committee, Hong Kong Society of Accountants Managing Partner, Paul Chan & Partners Hong Kong.

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SMEs and SMPs: Addressing their Needs and Optimising SMP's Contributions

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  1. SMEs and SMPs: Addressing their Needs and Optimising SMP's Contributions Paul CHAN • Council Member and Chairman of the Small & • Medium Practitioners Committee, • Hong Kong Society of Accountants • Managing Partner, • Paul Chan & Partners • Hong Kong

  2. SMEs and SMPs: Addressing Their Needs and Optimizing SMPs’ Contributions Paul M. P. Chan Chairman, SMPs Committee, HKSA Member, SMP Task Force, IFAC 21 November 2002

  3. Definition of SMEs & SMPs • Size, but no universal definition • SMEs ≠ SMPs • Size • Needs

  4. Financial Reporting Needsof SMEs • IASs driven by the desire for a global set of standards for cross-border listings • Greater length and complexity • Greater disclosure

  5. Financial Reporting Needsof SMEs (Cont’d) • Relevance of IASs to smaller companies and the associated costs of preparation and auditing • Who are the stakeholders in financial statements

  6. Why Financial Reporting Needsof SMEs Ought To Be Addressed • Huge number of businesses • Impact on the labour market • Contribution to the economy • Listing requirements ≠ Accounting requirements

  7. Issues to Consider • Accountability: • Public accountability • Separation of owners and management • Cost vs Benefit

  8. Issues to Consider (Cont’d) • Accounts to show true and fair view • Recognition and measurement requirements • Disclosure requirements

  9. International Developmentsin the Area of Differential Reporting • Canada, New Zealand & Hong Kong • Exemptions on a standard by standard basis • Differential reporting within GAAP • Full exemptions • Partial exemptions • Exemptions mainly on disclosure • Measurement simplification quite limited

  10. International Developmentsin the Area of Differential Reporting • Canada, New Zealand & Hong Kong (Cont’d) • Measurement simplifications: • Currently: quite limited • What if: owner-managed situation where all investors are “insiders” Is cost basis rather than fair value basis of measurement acceptable ?

  11. International Developmentsin the Area of Differential Reporting (Cont’d) • UK • A separate set of standards for smaller entities (‘FRSSE’) • Concerns • Double standards? Inconsistency? • Still ‘True and Fair’ Accounts?

  12. International Developmentsin the Area of Differential Reporting (Cont’d) • UK (Cont’d) • Counsel advice in the UK • No conflict or likely weakening of the FRSSE provided that: • The treatment is the same or a simplified version of the treatment in Big GAAP • Different treatments are justified on rational grounds • Rational ground might include • Different nature of entities • Different disclosures are for different users of financial statements • Established practice

  13. International Developmentsin the Area of Differential Reporting (Cont’d) • USA • Cash accounting and modified cash accounting • Tax basis of accounting • Australia • Accounts need not comply with some or all of the accounting standards

  14. International Developmentsin the Area of Differential Reporting (Cont’d) • United Nations – Intergovernmental working group on international standards of accounting and reporting • Three-tier approach • Level 1 Business – Listed entities • Level 2 Business – Significant commercial, industrial and business entities • Level 3 Business – Owner-managed with few employees

  15. SMPs’ Contribution in Satisfyingthe Needs of SMEs & SMPs • Understand the perspectives of SME owners • Know the needs of users • SMPs are often those who: • prepare accounts for SMEs • choose which reporting framework to be adopted by a SME

  16. Difficulties Faced By SMPs in Trying To Contribute • Workload • Expertise and exposure • Resources constraints

  17. Optimizing SMPs’ Contribution • In the Standard setting process: • Comments on EDs • Serving on standard setting committees, with alternate membership

  18. Optimizing SMPs’ Contribution (Cont’d) • Panel of resources persons to give input prior to the publication of EDs • Diversity of expertise and experience • Sharing of workload • SMP/SME perspectives duly considered before ED is formulated • Getting their buy in • Consultation paper on controversial issues

  19. Optimizing SMPs’ Contribution (Cont’d) • Others • Formation of SMP Committee to oversee matters of interests to SMPs and co-ordinate efforts • Periodic discussion forums to share ideas and collect feedback

  20. Thank You !

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