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SMEGA - Accounting and Financial Reporting Guidelines For Small and Medium-Sized Enterprises
SMEGA - Accounting and Financial Reporting Guidelines For Small and Medium-Sized Enterprises
Level 3 Guidance
UNITED NATIONS
New York and Geneva, 2009
SMEGA – Level 3
Note
UNCTAD/DIAE/ED/2009/2
UNITED NATIONS
PUBLICATION
Sales No. E.09.II.D.3
ISBN 978-92-1-112764-5
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SMEGA – Level 3
Contents
Page
Preface ............................................................................................ iv
Acknowledgements ........................................................................ vi
Introduction .................................................................................... 1
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Preface
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SMEGA – Level 3
Acknowledgements
This publication was prepared by an UNCTAD team
lead by Nazha Bennabbes Taarji-Aschenbrenner, Officer-in-
Charge, Enterprise Development Branch. Yoseph Asmelash
coordinated the consultations and finalized the manuscript
for printing. Peter Navarrette provided essential
administrative support.
UNCTAD would like to express its appreciation to
experts who contributed to revising the SMEGA Level 3 by
providing input during the ad hoc consultative meetings that
were held in Geneva in July 2007 and May 2008. These are:
Giancarlo Attolini, Consiglio Nazionale dei Dottori
Commercialisti (CNDC), Italy; Andrew Brathwaite,
Institute of Chartered Accountants of Barbados; Piero Di
Salvo, Organismo Italiano Contabilita, Italy; Reto Eberle,
KPMG, Zurich, Switzerland; Leyre Fuertes, European
Federation of Accountants, Belgium; Robin Jarvis,
Association of Chartered Certified Accountants, United
Kingdom; David Morris, Financial Executives International,
United States of America; Vickson Ncube, Eastern, Central
and Southern African Federation of Accountants; Wojciech
Nowak, University of Ludz, Poland; Jim Osayande Obazee,
Nigerian Accounting Standards Board; Mateo Pozzoli,
CNDC, Italy; Gerhard Prachner, European Federation of
Accountants, Belgium; David Raggay, Institute of Chartered
Accountants of Trinidad and Tobago; Stefano Santucci,
European Federation of Accountants and Auditors for SMEs,
Italy; Syed Asad Ali Shah, Institute of Chartered
Accountants of Pakistan; Marco Venuti, Organismo Italiano
Contabilita, Italy; John Vincent, Association of Accounting
Technicians, United Kingdom; Simon Wray,
PricewaterhouseCoopers, Netherlands.
UNCTAD acknowledges with appreciation the
contributions of Richard Martin, Association of Chartered
Certified Accountants, United Kingdom. He served as chair
of the two ad hoc consultative meetings and presented
reports on these consultations to the twenty-fourth and
twenty-fifth sessions of ISAR.
vi
Introduction
A. Scope
1. The SMEGA Level 3 Guidance is designed for financial
statements of smaller enterprises that are often owner-managed and
have no or few employees. Such enterprises should generally
follow a simplified accruals-based accounting system that is
closely linked to cash transactions.1 The SMEGA Level 3
Guidance is intended to meet the needs of users and preparers of
financial statements for these enterprises.
1
National regulators may permit a derogation for newly formed businesses
or new entrants to the formal economy to use cash accounting for a
limited time.
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E. Qualitative characteristics
6. Qualitative characteristics are the attributes that make the
information provided in financial statements useful to users. The
four principal characteristics are:
(a) Understandability: It is essential that information
provided in financial statements be readily
understandable by users;
(b) Relevance: To be useful, information must be relevant to
the decision-making needs of users;
(c) Reliability: Information is considered to be reliable
when it is free from material error and bias, and can be
depended on by users to represent faithfully that which it
purports to represent;
(d) Comparability: Users must be able to compare the
financial statements of an enterprise over time in order
to identify trends in the enterprise’s financial position
and performance.
7. The balance between benefit and cost is a pervasive
constraint rather than a qualitative characteristic. The benefits
derived from information should exceed the cost of providing it.
The evaluation of benefits and costs is, however, substantially
judgemental.
8. In practice, trade-offs between qualitative characteristics are
often necessary. Determining the relative importance of the
characteristics in different cases is a matter of professional
judgement.
F. Elements
9. Elements include:
(a) Asset: A resource controlled by the enterprise as a result
of past events and from which future economic benefits
are expected to flow to the enterprise;
(b) Liability: A present obligation of the enterprise arising
from past events, the settlement of which is expected to
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G. Recognition
10. An item that meets the definition of an element should be
recognized if (a) it is probable that any future economic benefit
associated with the item will flow to or from the enterprise, and (b)
the item has a cost or value that can be measured with reliability.
H. Measurement
11. The measurement basis most commonly adopted in preparing
financial statements is historical cost.
4
I. Basic requirements
13. The following paragraphs set out the basic guidance for
Level 3 enterprises.
14. The minimum set of primary financial statements includes
the following components:
(a) A balance sheet;
(b) An income statement; and
(c) Explanatory notes.
15. Enterprises may wish to include other statements that are
likely to enhance the overall transparency and quality of the
information they provide to users; for example, a cash flow
statement.
16. Financial statements should be prepared on a going-concern
basis unless management either intends to liquidate the enterprise
or cease trading, or has no realistic alternative but to do so.
17. An enterprise should prepare its financial statements using
simplified accruals-based accounting, closely linked to cash
transactions.
18. The following information should be prominently displayed:
(a) The name of the reporting enterprise;
(b) The balance sheet date and the period covered by the
income statement; and
(c) The presentation currency.
19. Financial statements should be prepared at least once a year.
20. Financial statements should include comparative figures for
the previous period.
21. The enterprise should present current and non-current assets
and current and non-current liabilities as separate classifications on
the face of the balance sheet.
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use. Any trade discounts and rebates are deducted when arriving at
the purchase price.
31. The depreciable amount (cost less expected proceeds from
disposal) of an item of property, plant or equipment should be
allocated on a systematic basis over its useful life. Straight-line
depreciation is the simplest method.
32. If an item of property, plant or equipment becomes impaired,
in that it is unlikely to generate cash flows to absorb the carrying
amount of the item over its useful life, its carrying value should be
reduced to the cash flows to be recovered from the asset. Cash
flows need not be discounted and could come from either the
disposal value of the asset or from its continuing use. Indicators of
impairment would include a significant decline in market values or
obsolescence.
33. Land normally has an unlimited life and, therefore, is not
depreciated. Buildings have a limited life and, therefore, are
depreciable assets.
34. The financial statements should disclose for each class of
property, plant and equipment a reconciliation of the carrying
amount at the beginning and end of the period showing:
(a) Additions;
(b) Disposals;
(c) Depreciation; and
(d) Other movements.
35. Lease payments, whether deriving from an operating or
finance lease, should be recognized as an expense as they become
payable. If the payments are material, these should be disclosed in
the notes to the financial statements.
36. The value of the lease should not be shown either as an asset
or a liability on the balance sheet. However, if the total remaining
payments on the lease are material, this should be disclosed in the
notes to the financial statements.
37. Inventories should be measured at the lower of cost and net
realizable value (the estimated selling price in the ordinary course
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XYZ Ltd.
balance sheet
as of December 20X2
(in currency units, CU)
20X2 20X1
CU CU
Assets
Non-current assets
Property, plant and equipment 190,000 190,000
Current assets
Raw materials 18,200 9,100
Finished goods 34,000 21,000
Trade receivables 26,000 34,000
Cash and bank 6,800 11,500
85,000 75,600
Total assets 275,000 265,600
Owners’ equity and liabilities
Owners’ equity as of 1 January 132,900 114,700
Earnings for the year 55,600 48,200
Owners’ drawings for the year (45,000) (30,000)
Owners’ equity as of 31 December 143,500 132,900
Non-current liabilities
Loans 105,500 117,000
Current liabilities
Bank borrowings 2,500 12,500
Taxes payable 4,600 2,200
Trade payables 18,900 1,000
Total liabilities 131,500 132,700
Total owners’ equity and liabilities 275,000 265,600
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XYZ Ltd.
income statement
for the year ended 31 December 20X2
(in CU)
CU
Revenue
Direct operating costs
Contribution
Indirect costs
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20X2 20X1
CU CU
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