PwC network of firms believes that the SMEIG should not address through Q&As issues that might be relevant to full IFRS. There is a danger that the Q&As, although not mandatory and specific to the IFRS for SMEs (the standard), might be applied in the interpretation of full IFRS. PwC does not believe this to be appropriate, and believes Q&As issued by the SMEIG should be restricted to issues that affect the IFRS for SMEs only.
SME Implementation Group
30 Cannon Street
15 June 2011
‘Traded in a public market’ (Issue 3) and ‘Investment funds with only a few participants’ (Issue 4)
We are responding to your invitation to comment on the above questions and answers (Q&As) on behalf of PricewaterhouseCoopers. Following discussion with members of the PwC network of firms, this response summarises the views of the member firms that commented on the Q&As. ‘PwC’ refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
We do not believe that the SME Implementation Group (SMEIG) should issue Q&As that address the definition of a public market or determine what constitutes a ‘broad group of outsiders’.
The SMEIG should not address through Q&As issues that might be relevant to full IFRS. There is a danger that the Q&As, although not mandatory and specific to the IFRS for SMEs (the standard), might be applied in the interpretation of full IFRS. This is not appropriate, and Q&As issued by the SMEIG should be restricted to issues that affect the IFRS for SMEs only. The SMEIG should not therefore provide further guidance on the definition of a public market, which is a term also used in full IFRS.
The two Q&As described above address the scope of the standard. We believe the guidance in the standard is sufficient for management to determine whether the standard may be applied, taking account of the specific circumstances of each entity and the views of local regulators. It is not necessary for the SMEIG to issue additional guidance that might inadvertently narrow the scope of the standard. The application of the standard should be addressed by local regulators, which are best placed to determine whether specific classes of entity satisfy the criteria to apply the standard. There is no need for further interpretation of the scope guidance.
Section 1, Issue 3 – Interpretation of ‘traded in a public market’
The term ‘traded in a public market’ is used − for example, in full IFRS in IFRS 8, IAS 33 and IAS 39 − and should not therefore be subject to a Q&A issued by the SMEIG. IFRS 8 BC20 states that an amendment to the scope of IFRS 8 would be proposed once the definition of publicly accountable entities has been fully explored in the IFRS for SMEs project. We suggest that further guidance and interpretation in this area should not be issued until it has been subject to due process in the context of full IFRS.
However, if the SMEIG decides to issue this Q&A, we suggest that one more indicator of a public market should be included. We believe that a public market is accessible to individual investors (the ‘public’) and the definition therefore excludes markets that are only accessible to specific classes of investor. This is consistent with the notion of the ‘public’ explained in the draft Q&A. The interpretation should therefore state that a public market excludes markets accessible only to specific classes of investor.
Section 1, Issue 4 – Investment funds with only a few participants
For the reasons described above, it is not necessary for the SMEIG to provide further guidance on the scope of the standard. We therefore do not believe the SMEIG should issue this Q&A. If, however, SMEIG decides to issue the Q&A, we believe this question would benefit from more extensive consultation to assess the potential impact of the proposed guidance across a range of situations.
We also suggest that the determination of whether a particular investment holds assets for ‘a broad group of outsiders’ is a judgement for management or for local regulators. It is not appropriate for the Q&A to specify the number (a ‘few’ in paragraph 3(a) and (b) of the draft Q&A, and ‘two or three’ in paragraph 3(c)) of investors or participants necessary for an entity to hold assets for a broad range of investors. These examples make the proposed guidance prescriptive and rule-based. The qualitative indicators explained in paragraphs 2, 4 and 5 and in the Basis for Conclusions are sufficient to allow management to make informed judgements.
If you have any questions in relation to this letter, please do not hesitate to contact John Hitchins, PwC Global Chief Accountant (+44 207 804 2497) or Tony de Bell (+44 207 213 5336).