Chirayuthchai TraisaengsatheanStrategic Finance for Property Development

Should a developer use full TFRS or TFRS for NPAEs: differences that affect the financial statements and fundraising

A comparison of PAEs and NPAEs on revenue, leases, financial instruments, deferred tax and fundraising preparation

Key takeaways

  • PAEs apply full TFRS, while NPAEs apply the simpler TFRS for NPAEs.
  • The results differ markedly for revenue, leases, financial instruments and income tax.
  • A developer preparing to raise funds or enter the capital market should prepare its data under full TFRS in advance.
  • Before closing the accounts, check the requirements of the version of TFRS for NPAEs that is effective for the period.

1. Introduction

Thai financial reporting standards are divided into a set for publicly accountable entities (PAEs) and a set for non-publicly accountable entities (NPAEs). The choice affects the format of the financial statements, the figures, loan applications and readiness to enter the capital market.

2. Scope of application

PAEs

Entities with public accountability, such as companies listed on the SET or mai, companies in the process of filing to offer securities, financial institutions and entities with publicly offered debt instruments, should check the latest definition against the requirements of the Thailand Federation of Accounting Professions (TFAC).

NPAEs

Entities that do not qualify as PAEs, such as many limited companies and partnerships, can use this set of standards, which reduces the burden of preparing financial statements. However, an entity may choose to apply full TFRS if it suits its business plan.

3. Overview of the differences

TopicTFRS for PAEsTFRS for NPAEs
Reference standardsAligned with full IFRSA single, simpler standard
ComplexityHighModerate
Fair ValueApplied across many standardsApplied less
Leases: lessee sideTFRS 16 recognises an ROU asset and a lease liabilityNot entirely the same as TFRS 16; check the requirements of the version applied
RevenueTFRS 15 5-Step ModelSimpler criteria
Financial InstrumentsTFRS 9 includes ECL and hedge accountingSimpler
GoodwillNot amortised; tested for impairmentAmortised; check the conditions of the version applied
Deferred TaxTAS 12Options available; check the policy and the version applied
DisclosureExtensiveMore concise

4. The differences in depth

4.1 Revenue recognition

PAEs apply TFRS 15: identify the contract, performance obligations and price, allocate the price, and recognise revenue when each obligation is satisfied. Variable consideration and financing components must be assessed where relevant. NPAEs use simpler criteria.

A company sells software for THB 10 million together with 3 years of maintenance, with a total value of THB 13 million. Under PAEs, it must separate the obligations and allocate the price based on SSP, then recognise the software on delivery and the services over the 3 years. NPAEs may allow a simpler approach, but the substance of the transaction must be considered under the version of the standard applied.

4.2 Leases

PAEs apply TFRS 16, recognising an ROU asset and a lease liability for almost all leases, except short-term and low-value leases. NPAEs have their own requirements. Do not assume that the same options as under TFRS 16 are available, so check before preparing the financial statements.

An office is leased for 5 years at THB 1.2 million per year, paid at year-end, discounted at 5%. The PV is approximately THB 5.2 million, and ROU depreciation is approximately THB 1.04 million per year. Under TFRS 16, EBITDA increases, but liabilities also increase. If the lease is recorded as rent expense under a permitted basis, no asset or liability is added to the statements.

This difference matters to banks, because the same company may show a very different D/E depending on the standard applied.

4.3 Financial instruments

PAEs apply TFRS 9, including the FVTPL, FVOCI and amortised cost classifications, as well as expected credit loss and hedge accounting. NPAEs are simpler.

Trade receivables of THB 100 million are within their credit terms, with no default problems. Under PAEs, trade receivables without a financing component typically use the simplified approach, measuring the allowance at lifetime ECL, for example using a provision matrix. Assuming an allowance of THB 1 to 2 million, profit is reduced from the outset. Under NPAEs, check the criteria of the version applied to determine when the allowance is recognised.

5. The developer's perspective

  • A developer that is an NPAE should still prepare a management report that separates transferred revenue from advances received, because this is key information for banks and investors.
  • If planning to enter the capital market, a developer must prepare historical data under full TFRS in advance, especially for revenue, leases, deferred tax and the allocation of project costs.
  • Group companies that apply different standards must make adjustments when preparing consolidated financial statements under the relevant requirements.

Conclusion

PAEs have more in-depth requirements, while NPAEs reduce the burden of preparing financial statements. The choice should not be based only on the cost of preparation, but should also consider the fundraising plan, the users of the financial statements and the ability to explain the figures to banks or investors.