for Accounting Professionals
IFRS INTRODUCTION
2011
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[Type text]
IFRS INTRODUCTION
IFRS WORKBOOKS
(1 million downloaded)
Welcome to IFRS Workbooks! These are the latest versions of the legendary workbooks in Russian and English produced by 3 TACIS projects, sponsored by the
European Union (2003-2009) and led by PricewaterhouseCoopers. They have also appeared on the website of the Ministry of Finance of the Russian Federation.
The workbooks cover various concepts of IFRS based accounting. They are intended to be practical self-instruction aids that professional accountants can use to upgrade
their knowledge, understanding and skills.
Each workbook is a self-standing short course designed for approximately of three hours of study. Although the workbooks are part of a series, each one is independent of
the others. Each workbook is a combination of Information, Examples, Self-Test Questions and Answers. A basic knowledge of accounting is assumed, but if any
additional knowledge is required this is mentioned at the beginning of the section.
Having written the first three editions, we want to update them and provide them to you to download. Please tell your friends and colleagues. Relating to the first
three editions and updated texts, the copyright of the material contained in each workbook belongs to the European Union and according to its policy may be used free of
charge for any non-commercial purpose. The copyright and responsibility of later books and the updates are ours. Our copyright policy is the same as that of the
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We wish to especially thank Elizabeth Appraxine (European Union) who administered these TACIS projects, Richard J. Gregson (Partner, PricewaterhouseCoopers)
who led the projects and all friends at Bankir.Ru for hosting the books.
TACIS project partners included Rosexpertiza (Russia), ACCA (UK), Agriconsulting (Italy), FBK (Russia), and European Savings Bank Group (Brussels). The help of
Philip W. Smith (editor of the third edition) and Allan Gamborg, project managers and Ekaterina Nekrasova, Director of PricewaterhouseCoopers, who managed the
production of the Russian version (2008-9) is gratefully acknowledged. Glyn R. Phillips, manager of the first two projects conceived the idea, designed the workbooks and
edited the first two versions. We are proud to realise his vision.
Robin Joyce
Professor of the Chair of
International Banking and Finance
Financial University
under the Government of the Russian Federation
Visiting Professor of the Siberian Academy of Finance and Banking
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Moscow, Russia
2011
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IFRS INTRODUCTION
4
Remuneration Group .......................................................... 11
5
Listed Company Group ....................................................... 12
6
Special Case 2 Group ......................................................... 13
7
Disclosure Group ................................................................ 14
8
Banks Group ....................................................................... 14
1.2 Introductory Standards ......................................................... 4
9
Industry Specific Group ...................................................... 15
1.3 Foundation Standards .......................................................... 4
10 Consolidation Standards ..................................................... 16
1.4 Property, Plant and Equipment Standards ........................... 5
11 Additional Publications ........................................................ 17
CONTENTS
An Introduction to IFRS ............................................................... 3
1.1 Scope ................................................................................... 3
Grouping of IFRS ........................................................................ 4
1.5 Special Case 1 Standards .................................................... 5
1.6 Remuneration Standards ..................................................... 5
1.7 Listed Company Standards .................................................. 5
11.1
Transformation................................................................ 17
An Introduction to IFRS
1.1
Scope
1.8 Special Case 2 Standards .................................................... 5
1.9 Disclosure Standards ........................................................... 5
1.10
Banking Standards ........................................................... 5
1.11
Industry Specific Standards .............................................. 5
1.12
Consolidation Standards ................................................... 5
1.13 Additional Publications ........................................................ 5
2
Overview of the Standards ................................................... 6
These notes are an unofficial guide to IFRS and introduce the
series, IFRS Workbooks for Accounting Professionals. The main
objective is to help you navigate the IFRS standards by grouping
them by theme.
The secondary purpose is to highlight how our publications can
assist in learning IFRS. For each Standard there is a workbook to
download comprising text, examples, multiple-choice questions and
answers on our website www.bankir.ru/ifrs.
2.1 Introductory Group .............................................................. 6
2.2 Foundation Group ................................................................ 7
2.3 Property, Plant and Equipment Group.................................. 8
3
Special Case 1 Group......................................................... 11
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The architecture of IFRS must be taken as a whole. Financial
statements prepared under IFRS must use all of the required
applicable standards to be “IFRS compliant”.
IFRS can be grouped by theme rather than date of publication as
published by IASB.
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IFRS INTRODUCTION
The themes chosen recognise that some standards, such as
‘Impairment’ interact with a range of other standards.
ALTERNATIVES
FOR
APPROPRIATE
ACCOUNTING
INTERNATIONAL FINANCIAL REPORTING STANDARDS.
Financial reporting standards have two main aims:
POLICIES discuss specific accounting for certain types of assets
and activities. They apply to all commercial banks. Policies indicate,
where applicable, which method of accounting is required when
alternatives exist.
-disclosure
-timing of profit
All standards identify the disclosure of information required
according to those aims. IAS 24 Related Parties, IAS 32 Financial
Instruments and IFRS 8 Operating Segments are only about
disclosure.
Most other standards prescribe the timing of recognition of revenue,
costs or both, and therefore the timing of the recognition of profit.
They may prescribe that revenue, costs or both (and therefore,
profit) are recognised in a single specific period, or are spread over
more than one period.
Note: IFRS 9-13 have an effective date of 2013. The standards they
replace are listed here and supported by our books as the older
standards can be used until 2013.
PRINCIPLE, STANDARD, POLICY, PROCEDURE
RELATIONSHIPS
PRINCIPLES are guiding concepts.
STANDARDS
ARE WRITTEN GUIDELINES FOR THE TREATMENT OF
VARIOUS TYPES OF FUNCTIONS AND ACTIVITIES. THEY APPLY TO ALL
COMMERCIAL
BANKS.
STANDARDS
INCLUDE
ACCEPTABLE
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UNDER
PROCEDURES give detailed instruction on the handling of specific
transactions arising from activities or in accounting for assets or
liabilities. They are written by individual banks for internal use. A
number of separate procedures are typically necessary to cover all
the various activities associated with accounting for one type of
function.
Grouping of IFRS
The standards are grouped into eleven themes as follows:
1.2 Introductory Standards
The Conceptual Framework for Financial Reporting
Main Financial Statements and Accounting Policies:
IAS 1: Presentation of Financial Statements
IAS 7: Statements of Cash Flows
IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors
1.3 Foundation Standards
IAS 18: Revenue
IAS 2: Inventories
IAS 37: Provisions, Contingent Liabilities and Contingent Assets
IAS 12: Income Taxes
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IFRS INTRODUCTION
1.4 Property, Plant and Equipment Standards
IAS 16: Property, Plant and Equipment
IAS 36: Impairment of Assets
IAS 40: Investment Property
IAS 17: Leases
IAS 38: Intangible Assets
IAS 11: Construction Contracts
IAS 23: Borrowing Costs
IAS 20: Accounting for Government Grants and Disclosure of
Government Assistance
IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations
1.5 Special Case 1 Standards
IAS 21: The Effects of Changes in Foreign Exchange Rates
1.6 Remuneration Standards
IAS 19: Employee Benefits
IAS 26: Accounting and Reporting by Retirement Benefit Plans
IFRS 2: Share-based Payment
1.7 Listed Company Standards
IFRS 8: Operating Segments
IAS 34: Interim Financial Reporting
IAS 33: Earnings per Share
1.8 Special Case 2 Standards
IAS 29: Financial Reporting in Hyperinflationary Economies
IFRS 1: First-time Adoption of International Financial Reporting
Standards
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1.9 Disclosure Standards
IAS 24: Related Party Disclosure.
IAS 10: Events after the Reporting Date
1.10 Banking Standards
IAS 32: Financial Instruments: Disclosure and Presentation
IAS 39: Financial Instruments: Recognition and Measurement
IFRS 7: Disclosure in the Financial Statements of Banks and
Similar Financial Institutions
IFRS 9: Financial Instruments
IFRS 13: Fair Value Measurement
1.11 Industry Specific Standards
IAS 41: Agriculture
IFRS 4: Insurance Contracts
IFRS 6. Exploration for and evaluation of mineral resourses
1.12 Consolidation Standards
IAS 27: Separate Financial Statements
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures
IFRS 3: Business Combinations
IFRS 10: Consolidated Financial Statements
IFRS 11: Joint Arrangements
IFRS 12: Disclosure of Interests in Other Entities
1.13 Additional Publications
RAS to IFRS Transformation
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IFRS INTRODUCTION
2
Overview of the Standards
2.1
Introductory Group
The Conceptual Framework for Financial Reporting
This framework document deals with:
(i)
(ii)
(iii)
(iv)
the objective of financial statements;
the qualitative characteristics that determine the
usefulness of information in financial statements;
the definition, recognition and measurement of the
elements from which financial statements are
constructed; and
concepts of capital and capital maintenance.
It specifies that IFRS accounts are prepared using the accrual
concept and that financial statements are normally prepared on the
assumption that an undertaking is a going concern, and will
continue in operation for the foreseeable future.
The Framework document is a comprehensive overview of the
foundations of IFRS, and is referred to by the IASB in its
deliberations on new standards and amendments to existing
standards.
As well as financial performance, financial statements also show
the results of management’s stewardship of resources and must
provide information on:
(i)
assets;
(ii)
liabilities;
(iii)
equity;
(iv)
income and expenses, including gains and losses;
(v)
other changes in equity; and
(vi)
cash flows.
A complete set of financial statements comprises:
(i)
a balance sheet (Statement of Financial Performance);
(ii)
an income statement;
(iii)
a statement of changes in equity showing either:
(iv)
all changes in equity, or
(v)
changes in equity (not normal buying and selling);
(vi)
a statement of cash flows; and
(vii) notes, comprising a summary of significant accounting
policies, and other explanatory notes.
IAS 1 AND IAS 7 cover the primary presentation issues of IFRS
financial statements and specify the information that needs to be
included in those statements.
IAS 7 requires the disclosure of information on changes in cash and
cash equivalents by means of a cash flow statement.
Main Financial Statements and Accounting Policies
IAS 1: Presentation of Financial Statements
+
IAS 7: Statements of Cash Flows
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IAS 7 classifies cash flows into:
(i)
operating,
(ii)
investing and
(iii)
financing activities.
Foreign currency cash flows are covered, as are Acquisitions and
Disposals of Subsidiaries and Other Business Units.
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IFRS INTRODUCTION
IAS 8: Accounting Policies, Changes in Accounting Estimates
and Errors
Retrospective application is applying a new policy as if that policy
had always been applied.
An undertaking shall disclose in the summary of significant policies:
Retrospective restatement is restating financial statements as if a
prior-period error had never occurred.
(i) the measurement bases used in the financial statements; and
(ii) the other policies used that are relevant to an understanding of
the financial statements.
IAS 8 prescribes the criteria for selecting and changing accounting
policies, and disclosing the effects of estimates and errors.
Accounting policies are rules and practices applied in presenting
financial statements.
Retrospective application and restatement may be new to some of
our readers. Our workbook on IAS 8 provides guidance and
examples.
2.2
Foundation Group
IAS 18: Revenue
A change in accounting estimate is an adjustment of the carrying
amount of an asset or a liability or the consumption of an asset.
Revenue is income that is derived from ordinary activities of the
firm. (See also IAS 17, 28, 39 & 41+ IFRS 9 which complement IAS
18 in respect of revenue.)
Income comprises revenue and gains.
Changes in estimates result from new information, or new
developments and are not corrections of errors.
The timing of recognition of revenue is a key issue of the standard.
Prior-period errors are omissions or misstatements in the financial
statements of prior-periods.Information that was available, and
should have been taken into account, is classified as an error.
Revenue will be recognised when it is probable that future
economic benefits will be secured, and the benefits can be
measured.
Errors include
IAS 2: Inventories
(i)
(ii)
(iii)
(iv)
calculation error;
incorrect application of accounting policies;
oversights or misinterpretations; and
fraud.
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Inventories are:
(i)
(ii)
assets that are held for sale, or being prepared for sale,
materials to be used in the production process or
provision of services.
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IFRS INTRODUCTION
In the case of the provision of services, inventories include the cost
of unbilled services (similar to work in progress).
Valuation of inventory at cost, fair value and net realisable value are
all discussed in the workbook.
IAS 37: Provisions, Contingent Liabilities and Contingent
Assets
IAS 37 sets out recognition criteria and measurement bases for
provisions, contingent liabilities and contingent assets and specify
the information to be disclosed in the notes to the financial
statements.
Provisions are used to provide for future liabilities that are
uncertain.
Contingent assets are uncertain cash inflows that may be received.
Contingent liabilities (e.g. guarantees and warranties) do not
appear on balance sheets, but need to be disclosed in financial
statements to enable users to have a complete picture of the
undertaking’s financial position.
IAS 12: Income Taxes
IAS 12 prescribes the accounting treatment for income taxes, and
the tax consequences of:
(i)
(ii)
transactions of the current period; and
the future liquidation of assets and liabilities.
If liquidation of those assets and liabilities will make future tax
payments larger or smaller, IAS 12 generally requires recording of a
deferred tax liability (or deferred tax asset).
IAS 12 also covers:
(i)
recognition of deferred tax assets arising from unused tax
losses or unused tax credits,
(ii)
presentation of income taxes, and
(iii)
disclosure of information relating to income taxes.
2.3
Property, Plant and Equipment Group
IAS 16: Property, Plant and Equipment
The main issues in accounting for property, plant and equipment
are:
(i)
the recognition of the assets;
(ii)
the determination of their carrying amounts;
(iii)
the depreciation charges; and
(iv)
impairment losses to be recognised.
IAS 36: Impairment of Assets
The objective of IAS 36 is to prescribe the procedures to ensure
that assets are carried at no more than their recoverable amount
and the disclosures that must be made.
An asset is described as impaired when its carrying amount
exceeds the recoverable amount (amount to be recovered through
use or sale).
IAS 36 requires the recording of an impairment loss.
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IFRS INTRODUCTION
IAS 40: Investment Property
Investment property can be:
(i)
(i)
(ii)
(iii)
land, or
a building, or
part of a building, or
both land and building.
Short-term rental agreements are mostly accounted for as
‘operating leases’ in the same way as rental payments are booked.
Operating leases are treated as expense items in the income
statement.
IAS 38: Intangible Assets
IAS 38 requires an undertaking to record an intangible asset only if:
It is held by the owner (or by the lessee, under a finance lease) to
earn rent, or for capital appreciation, or both.
(i)
It does not include property:
(ii)
(i)
(ii)
(iii)
for use in the production, supply of goods, services; or
for administrative purposes; or
for sale in the ordinary course of business.
future benefits of the asset will flow to the undertaking;
and
the cost of the asset can be measured.
This requirement applies whether an intangible asset is acquired
externally or generated internally.
IAS 17: Leases
IAS 38 includes additional recognition criteria for internallygenerated intangible assets.
Leases involve the owner of an asset renting it to others for
payment.
After initial recognition, IAS 38 requires an intangible asset to be
measured at:
Long-term rentals (‘finance leases’) have seen dramatic growth
over the last 50 years.
IAS 17 addresses this issue by accounting for finance leases in a
similar manner as the purchase of an asset, matched by a loan for
the same amount.
The asset appears on the balance sheet even though the lessee
does not own it.
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(i)
(ii)
cost, less any accumulated amortisation and any
accumulated impairment losses; or
revalued amount, less any accumulated amortisation,
and any accumulated impairment losses.
IAS 11: Construction Contracts
The start and finish of construction contracts often falls into different
accounting periods. Thus, the timing of recognition of contract
revenue and contract costs are key issues of the standard.
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IFRS INTRODUCTION
An effective internal financial budgeting and reporting system,
which is kept up-to-date at all times, is required to control
construction contracts.
4. Investment properties.
5. Intangible assets
Regular reviews of costs and revisions of estimates are necessary
throughout the contract.
IAS 20: Accounting for Government Grants and Disclosure of
Government Assistance
Construction contracts include:
IAS 20 covers accounting and disclosure of government grants and
similar assistance that transfers resources to qualifying firms. The
firms qualify by past or future compliance with the grant conditions.
Grants exclude assistance that cannot be reasonably valued, and
transactions with government which are in the normal course of
trade.
(i)
(ii)
services related to the construction, such as project
managers and architects;
contracts for demolition, or restoration, of assets and the
restoration of the environment.
IAS 23: Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset form part of the cost
of that asset.
Incentives such as free technical assistance, marketing advice and
the provision of guarantees are excluded form accounting unless
there is a direct cost.
Other borrowing costs are recognised as an expense.
IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations
A qualifying asset is one that takes a long time to prepare for its
intended sale or use.
IFRS 5 sets out requirements for the classification, measurement
and presentation of non-current assets ‘held for sale’.
Examples of Qualifying Assets:
IFRS 5 arises from the IASB’s consideration of the U.S. based
FASB Statement No. 144 and addresses two areas:
1. Inventories that require a long time to bring them to a
saleable condition.
(i)
2. Manufacturing plants.
(ii)
the classification, measurement and presentation of
assets ‘held for sale’;
the classification and presentation of discontinued
operations.
3. Power-generation facilities
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IFRS INTRODUCTION
3
Special Case 1 Group
(iii)
other long-term staff benefits, including long-service or
sabbatical leave, jubilee or other long-service benefits,
long-term disability benefits and, if they are payable
twelve months or more after the end of the period, profitsharing, bonuses and deferred compensation;
(iv)
termination benefits;
(v)
equity compensation benefits.
IAS 21: The Effects of Changes in Foreign Exchange Rates
Transactions in foreign currencies, investments and liabilities in
foreign currencies are covered, as are financial statements of
foreign operations.
The standard sets out how to recognise and record income,
expenditure, assets and liabilities denominated in a foreign
currency and how gains and losses are recognised.
IAS 26: Accounting and Reporting by Retirement Benefit Plans
4 Remuneration Group
Providing guidance on remuneration, these standards are of
specific interest to those involved in private pension schemes and
the use of shares and share options to pay staff and others.
IAS 26 should be applied in the reports of private retirement benefit
(pension) plans where such reports are prepared.
IAS 19: Staff Benefits
IFRS 2 covers settlements made in an entity’s own equity
instruments or in cash, if the amount payable depends on the price
of the entity’s shares (or other equity instruments, such as options).
IAS 19 identifies, and provides guidance on the accounting for, five
categories of staff benefits:
(i)
(ii)
short-term staff benefits, such as salaries and social
security contributions, paid annual leave and paid sick
leave, profit-sharing and bonuses payable within twelve
months and non-cash benefits such as medical care,
housing, cars and free or subsidised goods or services
for current staff;
IFRS 2: Share-based Payment
Estimates are required of the number of options, or other
instruments, expected to be exercised.
Such estimates are complex to calculate where performance
criteria, such as earnings targets, are involved. Specialist valuation
skills are likely to be required in order to determine the amounts to
be reported in the financial statements.
post-employment benefits such as pensions, other
retirement benefits, post-employment life insurance and
post-employment medical care;
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IFRS INTRODUCTION
5 Listed Company Group
These three standards are compulsory only for companies listed on
stock exchanges, or mandatory under national accounting
regulations. For other companies these standards are
recommended.
Different segments will generate dissimilar streams of cash flows to
which are attached disparate risks and which bring about unique
values. Thus, without disaggregation, there is no sensible way to
predict the overall amounts, timing, or risks of a complete
undertaking’s future cash flows.
IFRS 8: Operating Segments
The additional detail should:
As undertakings become larger, understanding how they operate:
- in different markets,
- with different products and services and
- providing to a growing range of clients
becomes more difficult, unless additional detail is provided.
Information about components of an undertaking, the products and
services that it offers, its foreign operations, and its major clients is
useful for understanding and making decisions about the
undertaking as a whole. Users observe that the evaluation of the
prospects for future cash flows is the central element of investment
and lending decisions.
The evaluation of prospects requires assessment of the uncertainty
that surrounds both the timing and the amount of the expected cash
flows to the undertaking, which in turn affect potential cash flows to
the investor or creditor.
Users also observe that uncertainty results in part from factors
related to the products and services an undertaking offers and the
geographic areas in which it operates.
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(1) increase the number of reported segments and provide more
information;
(2) enable users to see an undertaking through the eyes of
management;
(3) enable an undertaking to provide timely segment information for
external interim reporting with relatively low incremental cost;
(4) enhance consistency with the management discussion and
analysis or other annual report disclosures; and
(5) provide various measures of segment performance.
Knowledge of the structure of an undertaking’s internal organisation
is valuable in itself because it highlights the risks and opportunities
that management believes are important.
Segments based on the structure of an undertaking’s internal
organisation have at least three other significant advantages:
1. An ability to see an undertaking “through the eyes of
management” enhances a user’s ability to predict actions or
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IFRS INTRODUCTION
reactions of management that can significantly affect the
undertaking’s prospects for future cash flows.
period, and between different reporting periods for the same
undertaking.
2. As information about those segments is generated for
management’s use, the incremental cost of providing
information for external reporting should be relatively low.
Earnings per share (earnings / number of shares) as a measure of
performance has its limitations, as accounting policies for
determining “earnings” may differ.
3. Practice has demonstrated that the term ‘industry’ is
subjective. Segments based on an existing internal structure
should be less subjective.
The focus of IAS 33 is on determining the number of shares used in
the EPS calculation, which may not be immediately clear (for
example where options exist).
IAS 34: Interim Financial Reporting
6
IAS 34:
(i)
IAS 29: Financial Reporting in Hyperinflationary Economies
(ii)
defines the minimum content of an interim financial
report; and
identifies the recognition and measurement principles
that should be applied in an interim financial report.
The notes to interim financial reports include primarily an
explanation of the events, and changes, that are significant to an
understanding of the changes in financial position, and
performance, since the last annual reporting date.
Virtually none of the notes to the annual financial statements are
repeated, or updated in the interim report.
Special Case 2 Group
IAS 29 is based on current purchasing power principles and
requires that financial statements, prepared in the currency of a
hyperinflationary economy, be stated in terms of the value of money
at the reporting balance sheet date.
This straightforward requirement needs an understanding of
complex economic concepts, a thorough knowledge of the
enterprise’s financial and operating patterns and a detailed series of
procedures to implement.
IFRS 1: First-time Adoption of International Financial Reporting
Standards
IAS 33: Earnings per Share
The objective of IAS 33 is to prescribe principles for the calculation
and presentation of earnings per share. This is to improve
comparisons between different undertakings in the same reporting
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IFRS 1 sets out the requirements for first time adopters of IFRS.
The standard allows companies to avoid some of the need for
reconstructing old records by providing exemptions from other
standards.
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IFRS INTRODUCTION
7
Disclosure Group
(ii)
if the company can no longer be considered a goingconcern during this period, the financial statements
should not be prepared on a going-concern basis.
(iii)
events that were unknown or unclear at the balance
sheet date, will cause the financial statements to be
adjusted.
(iv)
conditions that arose after the balance sheet date should
not adjust the financial statements, but should be suitably
noted.
IAS 24: Related Party Disclosure.
The standard will be applied in:
(i)
identifying related party relationships and transactions;
(ii)
identifying outstanding balances between an undertaking
and related parties;
(iii)
identifying when the disclosures should be made; and
(iv)
determining what disclosures should be made.
Related party relationships are a normal feature of business
throughout the world. The related party relationships can have an
impact on the profit, or loss, of an undertaking.
Transactions with related parties may be made on different terms or
prices than would have been made with unrelated parties.
8
Banks Group
IFRS 7, IFRS 9,, IFRS 13, IAS 32 and IAS 39 must be applied to
financial instruments in any company reporting under IFRS.
IAS 10: Events after the Reporting Period
Financial instruments are used extensively in banking but only to a
limited extent in enterprises.
IFRS 10 details the post-balance-sheet events, when they should
be recognised and how they should be recorded and disclosed.
IFRS 7: Disclosure in the Financial Statements of Banks and
Similar Financial Institutions
Post-balance-sheet events happen in the period starting
immediately after the balance sheet date and ending at the date of
approval of the financial statements by the shareholders.
IFRS 7 requires banks to provide disclosures in their financial
statements that enable users to evaluate:
(i)
the significance of financial instruments for the bank’s
financial position and performance;
(ii)
the nature and extent of risks arising from financial
instruments to which the bank is exposed during the
period and at the reporting date; and
There are 4 main types of material post-balance-sheet event in this
period:
(i)
dividends declared in the period should be noted, but not
shown as a liability, at the balance sheet date.
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IFRS INTRODUCTION
(iii)
how the entity manages those risks.
There are specified minimum disclosures on credit risk, liquidity risk
and market risk.
9
Industry Specific Group
IAS 41: Agriculture
IAS 41 should be applied to the following agricultural activities:
IAS 32: Financial Instruments: Disclosure and Presentation
IAS 39: Financial Instruments: Recognition and Measurement
These two standards are primarily used by financial institutions and
specify disclosure, presentation, recognition and measurement of
financial instruments.
Our approach to these 2 complex, comprehensive standards is to
provide
4 detailed workbooks on different stages of accounting for financial
instruments:
Initial Recognition.
De-recognition.
(i)
(ii)
(iii)
biological assets;
agricultural produce at the point of harvest; and
certain government grants.
Agricultural activity includes:
(i)
(ii)
(iii)
(iv)
(v)
livestock,
forestry,
cropping,
cultivation, and
aquaculture (including fish farming).
In each case, living animals and plants perform a biological
transformation that takes place in a managed environment.
Management is the key issue that differentiates agricultural activity
from other activities such as sea fishing or harvesting virgin forest
neither of which are classified as agricultural activities.
Subsequent Recognition.
Hedge Accounting.
The extent of change in the biological asset can be measured in a
wide variety of ways, ripeness, dimensions, fat content, etc.
We are also producing an Explanations of Terminology to provide
more detail.
Biological transformation results in:
(i)
IFRS 9 is superseding IAS 39. IFRS 13 comprehensively covers
Fair Value.
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(ii)
Change in the asset through an increase or decrease in
quantity, or quality.
Additional assets may result from procreation or
agricultural produce (cereals, legumes, beef, milk).
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IFRS INTRODUCTION
IFRS 4: Insurance Contracts
IFRS 4 specifies the financial reporting for insurance contracts for
issuers of such contracts.
In particular, IFRS 4 requires:
(i)
certain improvements to accounting, and
(ii)
disclosure that identifies and explains the amounts in an
insurer’s financial statements, particularly in relation to:
a. amounts arising from insurance contracts and timing;
and
b. uncertainty of cash flows.
It includes a number of important changes to previous practice,
outlined below, but must be read in conjunction with IAS 27, 28 and
31.
Accounting
Business combinations within the scope of IFRS 3 are accounted
for using the ‘purchase method’.
The acquirer records the acquiree’s identifiable assets, liabilities
and contingent liabilities at their fair values at the acquisition date
and also records goodwill, which is subsequently tested for
impairment.
Assets acquired and assumed:
IFRS 6. Exploration for and evaluation of mineral resources
Recognition
IFRS 6 is an interim solution, pending development of a
comprehensive solution, to help companies deal with the IAS 16
and IAS 38 scope exclusions.
10 Consolidation Standards
These consolidation standards are for business groups and specify
the techniques for combining the financial statements of the
members of the group into a single consolidated set of financial
statements, and list the required disclosures.
IFRS 3: Business Combinations
IFRS 3 is the latest standard relating to consolidated accounts.
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If there is an existing restructuring liability per IAS 37, it is included
in the goodwill calculation.
If fair values can be measured reliably, the acquirer must record
separately the acquiree’s contingent liabilities, at the acquisition
date, as part of allocating the cost of a business combination.
If the contingent liabilities cannot be measured, they are not
included in the allocation of cost.
Measurement
IFRS 3 requires the acquiree’s identifiable assets, liabilities and
contingent liabilities to be measured initially at their fair values, at
the acquisition date.
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IFRS INTRODUCTION
Any minority interest in the acquiree is the minority’s proportion of
the net fair values.
11 Additional Publications
11.1 Transformation
Goodwill
IFRS 3 requires goodwill to be measured after initial recognition at
cost, less any accumulated impairment losses.
Goodwill is not amortised, but must be tested for impairment
annually, or more frequently.
Negative goodwill
IFRS 3 requires that negative goodwill must be credited to income
by the acquirer immediately.
IAS 27: Consolidated and Separate Financial Statements
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures
We have produced workbooks Consolidation 1+2+3 to cover these
standards, focussed on the practical techniques required to
consolidate financial statements.
RAS to IFRS Transformation
The purpose of this workbook is to examine the process and
adjustments necessary to transform a trial balance based on
Russian Accounting Standards (RAS) into a set of IFRS financial
statements comprising Income Statement and Balance Sheet.
The workbook has been designed around a series of the most
common adjustments covering the main aspects of transformation.
These are presented in the form of 17 separate companies each of
which requires 2/5 adjustments. Each company uses the same
opening, unadjusted, RAS based trial balance which is then
adjusted in accordance with the 2/5 entries required.
Adjustments from all of the seventeen companies are brought
together in a summary that reflects all of the adjustment made in
the individual companies.
IAS 27 still covers Separate Financial Statements, while the
consolidation has moved to IFRS 10 and IFRS 11 covers joint
arrangements.
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