This article was written by Clifford Delia and Michelle Spiteri Bailey and was published on The Accountant.
This is the second in a series of articles outlining the main differences between General Accounting Principles for Smaller Entities (GAPSE) and General Accounting Principles for Small and Medium-Sized Entities (GAPSME) regulations in relation to its scope, applicability, presentation of financial statements and specific accounting and disclosure requirements.
The scope and applicability requirements of GAPSME regulations were discussed in Part 1 of this series, as well as specific accounting and disclosure requirements in relation to a number of line items. The following paragraphs will continue to discuss the prerequisites for applicability and give an outline of the key changes in the measurement, recognition and disclosure requirements for income taxes, provisions and contingencies, foreign currency translation and post balance sheet events.
APPLICABILITY OF GAPSME
In Part 1 we stated that GAPSME applies to financial reporting periods commencing on or after 1 January 2016, for small- and medium-sized entities excluding public interest entities, as long as they satisfy at least two out of three of the specific size criteria.
An entity qualifies as either small or medium in relation to its first financial year if the criteria are met in that year. One must note however that with reference to subsequent financial years the entity can qualify as either small or medium if the applicable criteria are met in two consecutive years.
In determining two consecutive years therefore, the criteria should hold for two consecutive balance sheet dates without interruption, such that the criteria should be met:
In that year (i.e. the current year) and the preceding financial year; or
In the current year and it qualifies as small or medium, as applicable, in relation to the preceding year; or
It qualifies as small or medium in the preceding financial year and the company qualified as small or medium in relation to that year, as applicable.
When an entity that has been preparing accounts under a financial reporting framework other than GAPSME is assessing whether it qualifies as a small or medium entity under GAPSME, that entity must restate the figures of the current and preceding year following the measurement and recognition criteria of GAPSME, and then perform the revenue and total assets test based on the restated figures.
Once the criteria are met then GAPSME has to be adopted, unless opted out by the directors or governing body, and its rules and regulations for the different line items become applicable.
As in the case of the previous GAPSE regulations, GAPSME prescribe the accounting treatment and disclosure requirements of income taxes, wherein income tax expense comprises current tax and deferred tax.
The general rules of measurement have not changed, GAPSME prescribe that current tax is measured using tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. Likewise deferred tax is measured at tax rates that are expected to apply when the asset is realised or the liability is settled, using tax rates (and tax laws) enacted or substantively enacted by the reporting...