Differences between the IFRS for SMEs and the Full IFRS regarding the

1- Number of comparative periods to be included in the statement of financial position

All interviewees stated that the inclusion of two comparative periods in the statement of financial position is necessary because this is a requirement according to IAS 1.10, and hence, there can be no waiving of this.

However, in respect of the suggestion under the IFRS for SMEs to include only one comparative period in the statement of financial position, EY2, EY3, EY4, and A3 welcomed this as they believed that the change would simplify the presentation process. The remaining six interviewees believed otherwise, considering that the proposed change would reduce the benefit of financial information by undermining the internal comparability. AF2 indicated that some stakeholders, particularly investors, prefer to compare the financial information throughout periods.

2- Exemption from preparing consolidated financial statements

All interviewees indicated that consolidated financial statements are not applicable to SMEs as these statements must be prepared by the Holding Company (parent), and SMEs do not have parent companies. Company Law Article (204a) states: “A Holding Company is a Public Shareholding Company which has financial and administrative control over one or more Companies called subsidiary companies”. This clearly does not apply to SMEs, and hence, this issue does not feature within the questionnaire.

3- Assets held for sales and disposal groups

All interviewees stated that assets held for sales were not relevant to the SME context.

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4- Whether a combined statement of income and retained earnings is permitted or not

All interviewees stated that making a combined statement of income and retained earnings is prohibited under the Full IFRS.

Regarding the proposal under the IFRS for SMEs to permit a combined statement in circumstances where a change in equity during the financial year was caused by profit or loss, payment of dividends, correction of prior period errors, or changes in accounting Policy [IFRS for SMEs 3.17-3.18 and 6.4-6.5], only EY3, A2, and AF2 showed their willingness for this proposal to be included. In their opinion, this change would significantly simplify the preparation of these statements. However, the rest of the interviewees rejected this proposal as it is not suitable if the entity has any other comprehensive income, which may lead to reduction in the comparability among the same size entities whereas some entities prepared the combined statement while other do not, as it is impractical if the company has other comprehensive income.

5- Investment property that is accounted as PPE.

The majority of interviewees considered this issue to be applicable within the SME context, although A1 and AF1 indicated that companies rarely disclose the fair value of these investments.

With regard to the suggestions under the IFRS for SMEs to exempt companies from this requirement, although all respondents agreed on the proposal due to the substantial simplification and the reduction in effort, time, and cost (as the fair value cannot be determined reliably without incurring undue cost and effort), EY2, EY3, EY5, A2, and AF2 expressed some concern about the reliability of financial information, which they thought had the potential to be reduced by the change, and which they thought would be a worry for investors. Thus, EY2, EY3, and A2 preferred to maintain a reasonable balance between cost and benefit that would involve disclosing the fair value if only that value could be determined reliably without undue cost and effort.

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6- Disclosing the accounting policy pertaining to government grants

All interviewees referred to the fact that in general, the Jordanian government does not donate to business in the form of grants, and that as this is unlikely to occur, they preferred to exclude reference to government grants from the content of standards applying to SMEs. Accordingly, this issue was excluded from the questionnaire.

7- Disclosure regarding the effect of changes in standards already issued but not yet effective

This issue was deemed as relevant to SMEs by the interviewees. Only AF1 agreed with the proposal under the IFRS for SMEs to exempt SMEs from disclosing these effects on the grounds that it would reduce the amount of unnecessary disclosures, and thereby save both effort and cost. On the other hand, even though the remaining interviewees rejected this suggestion, they did consider it necessary as a means of enhancing the adequacy and reliability of financial information. EY1, A2, AF1, and AF2 were concerned about two issues pertaining to the cost and benefit trade-off as well as the balance between reliability and understandability, since their belief was that some stakeholders would not be able to understand the disclosure.

8- Dividends declared after the end of the reporting period

As highlighted by the majority of interviewees, this issue is relevant to some SMEs that are formed as limited liability companies, or private shareholder companies. However, both A1 and A2 stated that this issue had low relevance within the SME context.

Regarding the suggestion under the IFRS for SMEs not to recognise these dividends as a liability, but to present the amount of dividends separately in retained earnings, all interviewees, with three exceptions, perceived this as increasing the transparency of financial information. However, EY1, EY4, and A2 preferred to comply with the Full IFRS in which the dividends are neither recognised as a liability, nor presented separately in retained earnings, as they believed this would increase the difficulties in preparing the retained earnings statement

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4.3.2 Differences between the IFRS for SMEs and the Full IFRS regarding the simplification of options, measurements and recognitions

4.3.2.1 First: Joint venture, associate, and business combination

All of the topics pertaining to joint venture, associate, and business combination were described by all the interviewees as being irrelevant in the context of Jordanian SMEs.

4.3.2.2 Second: Employees’ benefits

Likewise, all interviewees indicated this topic as being irrelevant since all companies participate in the Jordanian social insurance scheme. EY1, EY2, and EY5 added that as a result of the absence of an effective labour union in Jordan, companies are compelled to present the details relating to employee benefit, and because they comply with the local social insurance requirement, they do not adhere to the requirement under the Full IFRS. Additionally, they stated that only the Arab Potash Company which is a public company, and some banks comply with the requirement of the Full IFRS regarding employee benefits. Consequently, all the issues pertaining to employee benefits, such as deferral of actuarial gain and losses of defined benefit pension plan, the use of the projected unit credit method for defined benefit obligations and related expenses, discounting for defined contribution benefit, and spreading the past service cost over many periods, were deemed inappropriate for the questionnaire and therefore, not included.

4.3.2.3 Third: Other elements making up the statement of financial position 1- Share based payment

All interviewees emphasised this as an irrelevant topic in the Jordanian SME context, and hence, there were no questions concerning it on the questionnaire.

2- Exemptions for transactions related to combination or acquiring goods or services under a contract

Similarly, all interviewees considered this an irrelevancy in respect of Jordanian SMEs and, therefore, there were no questions about this suggestion on the questionnaire.

162 3- Measuring investment property

In the case of measuring investment property, all the interviewees perceived this as relevant to SMEs. With respect to the suggestion under the IFRS for SMEs to do this according to circumstances which might compel them one way or the other, rather than to allow SMEs the choice irrespective of the circumstances, of using the cost or fair value model, it was believed that the fair value model should only be used in the profit or loss account if the fair value can be measured without undue cost or effort, otherwise, the cost-depreciation-impairment method should be used [IFRS for SMEs 16.7-16.8]. This was considered to be preferable to measuring the investment property either by the cost or fair value model [IAS 40.30]. The majority of interviewees believed that the common practice was to measure these investments based on the cost model, and hence, that the introduction of the ability to use the fair value model would decrease comparability and simultaneously involve high costs. However, both A1 and A3 stated that as this suggestion provides companies with the option to use either model, it is pointless reducing the options because entities can give more priority to measuring these investments based on fair value if this is possible, before proceeding to the cost model option, and this strategy would ultimately enhance the reliability of accounting information.

4- Property, plant, and equipment measurement and recognition

All interviewees indicated the relevance of this topic to Jordanian SMEs. Regarding the suggestion under the IFRS for SMEs to use the cost model instead of the option to use either the revaluation model or the cost model under the Full IFRS, interviewees A1, A3, and EY3 expressed their preference not to restrict the preparers and reduce the options given to companies on the grounds that this would undermine the reliability of accounting information. They also believed that a fair value assessment of non-current assets provides relevant information to stakeholders if analysed prudently, as this reflects to some extent, the ability of companies to convert such assets into cash. A3 also added that some managers might prefer to use the revaluation model when the value of property increases dramatically. EY3 indicated a preference to recognise a reasonable balance between cost and benefit. The remaining interviewees said that the common practice was to measure these investments using the cost model and therefore, the use of the fair value approach would decrease comparability and be much more

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costly. The same outcome also emerged in respect of intangible assets. In this case, EY1 stated that whilst the use of the revaluation model is more beneficial for stakeholders, the cost of its implementation is extremely high since an valuer firm is required to actually re-evaluate the assets. He also added that companies should only invoke the revaluation model if there is an indication of impairment, since this approach would protect the shareholders and at the same time, maintain due prudence by only using the cost model when the fair value of assets exceeds the cost paid to acquire them. However, EY1 also expressed concern about the use of the cost model for intangible assets as is later highlighted when discussing the issue of these assets. EY2 considered the revaluation model as cost-intensive even though the market price is determined. He further added that this proposal would enhance the consistency across periods.

5- Assets that depreciate separately

All interviewees indicated the relevance of this topic to SMEs in Jordan, and most agreed with the suggestion under the IFRS for SMEs to account for assets with different patterns of expected economic benefit consumption, rather than presenting the significant cost of assets compared to total assets. However, two interviewees (A1, and A2) rejected this proposal as they believed that its implementation would be difficult for SMEs and extremely burdensome as it is characterised by subjectivity, rather than relying on numbers to determine the significant cost as required under the Full IFRS. That said, the remaining (and a significant majority) interviewees expressed the opinion that adherence to the Full IFRS involves using the component depreciation and that adds to the costs faced by SMEs. Moreover, AF2, A1, and A3 showed that the suggestion in the IFRS for SMEs to mirror the taxation requirement by Jordanian tax law, will eventually reduce the likelihood of creating either deferred tax assets or liability. EY3 stated that this could suit those companies whose assets share the same pattern of expected economic benefit (as for example, construction companies).

6- Measuring intangible assets

The interviewees’ opinions fell into two definite groups in this respect. The first group, including EY1, EY2, EY3, EY4, EY5, and A2 considered the intangible assets to be relevant to SMEs in Jordan, and especially to manufacturing entities. The

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second group, however, believed this to be something that rarely happened in Jordanian SMEs. In terms of the suggestion under the IFRS for SMEs to measure those intangible assets according to the cost model instead of giving SMEs the option to choose between the cost or revaluation model, EY2, EY4, EY5, A1, A2, AF1, and AF3 indicated that the usual practice is to use the cost model as the revaluation approach is costly and not one that makes for an accurate determination of the value. These interviewees therefore agreed with the proposal under the IFRS for SMEs. In particular, EY2 and EY4 pointed out that the implementation of this proposal would simplify preparation, enhance comparability, and reduce the information asymmetry. Furthermore, EY2 believed that consistency throughout the period would be boosted. However, A1, A3, and EY3 stated that whilst the usual practice was to use the cost model, this was partly because the revaluation model involves undue costs and effort to revalue these assets, and hence, it was not a wise move to restrict the preparers of financial statements, and remove the options for companies. These interviewees preferred instead, to analyse the costs and benefits when considering which model to use, whilst simultaneously aiming to enhance the reliability of accounting information. Interviewee YE1 supported the viewpoint expressed by the former group, but believed that the measurement of intangible assets developed internally (rather than being purchased) according to cost would not be favoured by management. However, he stated that a cost-benefit analysis of the model reveals that the cost model is much simpler and does not imply incurring extra costs to determine the fair value. Y5 added that there was no need for companies to use the fair value model, especially in cases where they did not intend to sell their assets. Furthermore, EY2 considered there to be an evident degree of uncertainty pertaining to intangible assets, particularly regarding SMEs that rely on a single line of service or on a single major product line, since in these circumstances it is a challenge to differentiate the intangible assets from the original goodwill. Thus, he claimed that the uncertainty regarding revaluation outweighed the advantages obtained by external users from a presentation of the revalued numbers.

7- Some issues pertaining to intangible assets other than goodwill

Given that the proposals regarding intangible assets were deemed relevant to SMEs in Jordan as already mentioned, the suitability of certain topics pertaining to SMEs in Jordan was investigated, as follows:

165 A- The useful life of intangible assets

The majority of interviewees agreed with the proposal under the IFRS for SMEs to presume the life of intangible assets to be ten years, rather than to leave this fluid (i.e. not to specify any lifespan) as is the case in the Full IFRS. This agreement was based on the need for implicit simplification of the methods used to allocate the cost of these assets. Interviewee A2 also asserted that this could help in avoiding estimations, and thereby exercise more control over management. On the other hand, both EY2 and AF2 regarded this as an unwise strategy to adopt as intangible assets vary in their lifespan. Furthermore, EY2 stated that this would create secret reserves (as is explained in point C).

B- The potential infinite use of intangible assets

The finding was the same as with point A. Interviewees EY2 and AF2 indicated that some intangible assets would be infinite and hence, there was no point in attempting to amortise them, whereas the remaining interviewees (the large majority) indicated a preference for simplification, with most of them wanting to regard intangible assets as being of low relevance to SMEs in Jordan, a viewpoint which allows for the removal of the need for more sophisticated estimations and regular impairment tests.

C- Impairment of other-than-goodwill indefinite-life intangible assets

The IFRS for SMEs propose the amortisation of such assets over ten years and the need to test for impairment only when there is an indication of impairment, instead of testing for impairment annually. This suggestion was welcomed by all interviewees except EY2 and AF2, whose arguments against were centred on the fact that the preparation of accounts would be simpler and involve savings resulting from the relaxation in the testing of these assets annually for impairment since this is a burdensome activity for SMEs that necessitates the substantial exercise of judgment. EY3 stated that the amortisation of intangible assets would not deprive SMEs’ stakeholders of the financial information needed to evaluate cash flows. However, EY2 and AF2 believed that the implementation of this proposal would enhance the chances of SMEs creating secret reserves as well as decreasing profit and the value of assets, particularly if there were no impairment of these assets.

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AF2 was also concerned about the reduction in the amount of valuable information contained within the financial statements, believing this to be unacceptable both to shareholders and users.

8- Annual review of useful life, residual value and depreciation, and amortisation methods

The proposal within the IFRS for SMEs is to exempt these enterprises from the annual review of the above items, unless it becomes apparent during the year that there is considerable variance between the current and last reported value. All interviewees with the exception of EY2, A1, and AF2 agreed with this proposal, since they believed that the requirement to review these estimations annually was costly, complicated, and extremely time and effort-consuming for SMEs in Jordan. In addition, interviewees stated that companies tend to escape such review in order to avoid the creation of any deferred tax assets or liabilities as they try to be in line with the tax department’s estimations that specify the estimation according to the nature of the asset. However, the three interviewees who disagreed with the proposals (EY2, A1, and AF2) claimed that these assets should be regularly reviewed due to rapid developments, especially in technology, since only through such regular review can the most recent information enabling the avoidance of any over- or underestimation of these assets be obtained.

9- Assessment of leased assets’ impairment

The IFRS for SMEs propose that the impairment of leased assets must be reviewed every reporting date, although this not a requirement under the Full IFRS. On the grounds that the implementation of such assessment would increase the burdens facing Jordanian SMEs, the majority of interviewees expressed disagreement with this proposal, but EY2, EY4, A2, and AF2 reported different views. They argued that