By Darichat Edwards, Accounting Manager
On November 14, 2022, the Federation of Accounting Professions (FAP) issued an announcement No. 48/2565, “Thai Financial Reporting Standard (TFRS) for Non-Publicly Accountable Entities (NPAEs) (Revised 2022)”. The announcement requires NPAEs to comply with this revised financial reporting standard, effective for accounting periods beginning on or after January 1, 2023.
In this article, I will summarise some significant changes to TFRS for NPAEs that are effective for accounting periods beginning on or after January 1, 2023.
Chapter 1: Background and Purpose
The key pillars of this revised TFRS are as follows:
• Make it more complete by adding accounting practices for transactions, for example agriculture, derivatives, business combinations, government grants, exploration and evaluation of mineral resources, service concession agreements.
• Maintain ease in practices so entities that do not have existing public interests are not affected, for example, in the preparation of interim financial reporting, the measurement of property, plant, and equipment, and measuring the fair value of investment properties.
• Increase options in accounting practices, for example the preparation of comprehensive income statements, the reconciliation of consolidated financial statements, options for setting the operating currency other than Thai Baht.
Chapter 2: Scope
The revised TFRS provides a more specified type of entity that is considered a non-publicly accountable entity, including pawnshops and asset management companies with limited company status.
Chapter 3: Conceptual framework
• Expand the definition of going-concern basis. The revised TFRS for NPAEs requires management to assess the entity’s ability to continue as a going concern unless management either intends to liquidate the entity, cease operations, or has no realistic alternative but to do so. The management considers all available information about the future, which is at least, but not limited to, twelve months from the reporting date. When management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties.
• When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.
Chapter 4: Financial Statement Presentation
• Entities can choose to present an interim financial statement and must comply with Thai Accounting Standard (TAS) 34: Interim Financial Reporting by excluding irrelevant transactions to NPAEs, such as cash flow statements, earnings per share, and related party disclosures.
• This revised TFRS does not require entities to present a comprehensive income statement. However, if entities see the benefits of a comprehensive income statement, it can be prepared. Entities can choose to present a single statement that includes income statements and other comprehensive income items or present two statements separately: an income statement and a statement of comprehensive income.
• The revised TFRS allows entities to present consolidated financial statements. If entities choose to prepare consolidated financial statements, the investments must be presented using the equity method. Entities are required to prepare the financial statements and follow these relevant financial reporting standards, which are as follows: TAS 27: Separate Financial Statements; TAS 28: Investments in Associates and Joint Ventures; TFRS 10: Consolidated Financial Statements; TFRS 11: Joint Arrangements; TFRS 12: Disclosure of Interests in Other Entities and Accounting Guidelines for Business Combinations Under Common Control.
Chapter 5: Changes to Accounting Policy, Estimated and Error
1. The revised TRFS for NPAEs allows entities to change accounting policy. However, if the amount of impact incurred in each accounting period cannot be specified, entities shall account for changes in accounting policy as follows:
• Retroactive adjustment (in practice, if it is not possible to specify the amount of impact in each accounting period shown as comparative data for either one or several periods, item 2 shall be applied).
• Adjusting the opening balance of assets, liabilities, and equity at the earliest applicable accounting period (if the entity fails to determine the amount of cumulative impact at the beginning of the current accounting period, item 3 shall be applied).
• Change immediately onwards.
2. Defined the revaluation method for land, plant, and equipment, from cost value to the revalued amount, as “no change in accounting policy,” so it does not require a retroactive adjustment.
Chapter 6: Cash and Cash equivalents
Changes the definition of “Cash” to be more concise. Cash comprises cash on hand and demand deposits in bank accounts.
Chapter 7: Account Receivable
Additional to the requirement of “Recognition of Bad Debt Recovered” as other income in the statement of income, according to the Federation of Accounting Professions Announcement No. 13/2555. Accounting treatment for bad debt recovered can be recorded in both ways, as follows:
1. Revert the accounts receivable and allowance for doubtful accounts related to the amount received and record a debt repayment transaction from debtors.
2. Record bad debts to be returned as other income in the statement of income (according to the Federation of Accounting Professions Announcement No. 13/2555).
Chapter 8: Inventories
Additional measurements of inventories at the end of the period
• Inventories held by producers of agricultural products, forest products, agricultural products after harvest, minerals, and minerals are measured at net realizable value (NRV) and do not need to be compared with cost.
• Inventories held by commodity brokers and dealers are measured at fair value less costs to sell.
Chapter 9: Investment
Additional definition of “investment in subsidiaries” (in case the parent company is deemed to have no control)
• An entity is considered to have control when it has more than half of the voting power (directly or indirectly).
• An entity is considered to have no control when it has less than half of the voting power (directly or indirectly) (the revised TFRS for NPAEs recently added).
Chapter 10: Property, Plant and Equipment
Additional options for the measurement subsequent to initial recognition with the “Revaluation Method” (according to the Federation of Accounting Professions Announcement No. 42/2563)
• The revised TFRS allows the asset to be carried at a revalued amount, its fair value at the date of revaluation less subsequent depreciation and impairment, provided that fair value can be measured reliably.
• Under the revaluation method, evaluation should be carried out regularly so that the carrying amount of an asset does not differ materially from its fair value on the balance sheet date.
• The Federation of Accounting Professions encourages (but does not compel) the entity to measure the land, plant, and equipment at fair value using valuations from an independent appraiser with professional qualification and experience involved in land, plant, and equipment appraisal.
• The frequency of revaluation depends on changes in the fair value of land, plant, and equipment items that have been revalued. If the fair value of the assets that were previously revalued is materially different from the book value. The entity needs to revalue its assets.
• The fair value of land, plants, and equipment for some items is subject to fluctuations and significant changes that require the business to be revalued annually. However, frequent valuations are not necessary for land, plant, and equipment items with no significant change in fair value, in which case it may be necessary to revalue the price every 3 or 5 years.
Chapter 11: Intangible Assets
Revised the utilization age to provide more flexibility for “Intangible Assets” items whose useful life is unknown (excluding Goodwill) from 10 years to not more than 10 years amortization.
Chapter 12: Investment Property
Additional options for subsequent measurement transaction recognition using the “Fair value” method (according to the Federation of Accounting Professions Announcement No. 42/2563)
1. Cost method
1.1 Under the cost method, investment property is measured at cost less accumulated depreciation and any accumulated impairment losses (if any).
1.2 Changes incurred between periods are recognized in the statement of income as depreciation.
2. Fair value method
2.1 Under the fair value method, investment property is remeasured at the end of each reporting period.
2.2 Changes in fair value are recognized immediately in the statement of income as they occur.
2.3 No depreciation or impairment for value reduction
Chapter 13: Provisions, Contingent Liabilities and Contingent Assets
Further define “Contingent Assets” and disclose financial impact estimates with the best estimates.
• The revised TFRS for NPAEs defined contingent assets as a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
Accounting practices for contingent assets at the end of the reporting period.
• Entities are not required to recognize contingent assets.
• If there is a relatively certain possibility that entities will benefit economically, entities must disclose details briefly about the nature of contingent assets that may occur at the end of the reporting period, and if practical, entities must disclose financial impact estimates that measure their value with the best estimates.
• Entities are not required to recognize contingent assets in the financial statements because it may cause the recognition of revenue that may never be earned at all. However, if there is certainty that revenue will surely occur from a list of related assets, it is not considered a contingent asset.
Chapter 14: Revenue
1. Added “Customer Loyalty Programs” included in those topics were the recognition of revenue, measurement of revenue, and disclosure.
The revised TFRS for NPAEs addresses accounting by entities that grant loyalty award credits (such as ‘points’ or travel miles) to customers. The award can be redeemed by customers to receive another product or service, or to purchase a product or service at a discount. Specifically, it explains how such entities should account for their obligations to provide free or discounted goods or services (‘awards’) to customers who redeem award credits.
There are two methods of recognizing a customer loyalty program, as follows:
• Recognize accumulated points as provision for liabilities and recognize expenses with the best estimated amount at the end of the reporting period.
• Recognize accumulated points as liabilities separately from sales items for which the entity has accumulated points (initial sales) by allocating the fair value of the rewards received or accrued from the initial sales to the accumulated points (based on the fair value of the accumulated points) and other components of such sales items, which will subsequently be recognized as revenue when the customer exercises the right to redeem reward points and the business fulfils its obligation to provide such rewards.
2. The revised TFRS for NPAEs sets out a framework to determine whether an entity is a principal or agent. Key factors to determine whether an entity is a principal are as follows:
• An entity is primarily responsible for providing goods or services to customers or fulfilling orders.
• An entity bears risks related to goods or services, both before and after the order, during transit or return.
• An entity is free to set prices, whether directly or indirectly.
• An entity bears customers’ credit risks.
Agents do not bear significant risks or returns from the sale of goods or services.
The amount of income received by an agent is predetermined in the form of a fixed fee per transaction or as a percentage of the amount charged to the customer.
Chapter 15: Effects of Changes in Foreign Exchange Rates
The revised TFRS requires entities to convert their foreign currency transactions to the presentation currency. Entities must do as follows:
• Assets and liabilities shall be converted at the closing rate as of the date of each financial report, which includes a statement of financial position to be presented for comparison.
• Revenues and expenses shall be converted at the exchange rate as of the date on which the transaction occurs, and
• All exchange rate differences are to be recognized in equity, or other comprehensive profit and loss items. If the company chooses to prepare a comprehensive income statement.
Sources:
1. Federation of Accounting Professions: TAS1, TFRS for NPAEs, revised 2022, effective for accounting periods beginning on or after January 1, 2023.
2. Federation of Accounting Professions: Announcement No. 42/2563
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