IFRS Summary 2010
PKF International Limited administers a network of legally independent member firms which carry on
separate businesses under the PKF Name. PKF International Limited is not responsible for the acts or
omissions of individual member firms of the network.
IFRS 2010
Introduction
Since the International Accounting Standards Board (IASB) was created in 2001, the growth in
the use of their standards has been phenomenal. At the time of preparing these summaries,
compliance with International Financial Reporting Standards (IFRS) in the preparation of
company financial statements is now permitted or required in over 100 countries. Many more
countries are committed to harmonising their own accounting standards with IFRS or to
permitting or requiring compliance with IFRS in the coming years.
The last few years have seen the publication of 9 new IFRS, 19 interpretations by the
International Financial Reporting Interpretations Committee (IFRIC) and numerous revisions to
the pre-existing International Accounting Standards (IAS).
To keep pace with the growth in the use and development of IFRS puts severe strain on the
resources of preparers, auditors and users of financial statements. The IASB’s 2010 bound
volumes of International Financial Reporting Standards are over 3,000 pages long in total.
These summaries are intended to provide a quick reference to the key requirements of
published IFRS and IAS and extant interpretations of IFRIC and its predecessor, the Standing
Interpretations Committee (SIC). Whilst they can never replace reference to the full
pronouncements of the IASB, they do provide a starting point in understanding their
requirements.
With the exception of IAS 26 Accounting and reporting by retirement benefit plans which only
applies to the financial statements of pension schemes, this guide reflects all IFRS, IAS and
interpretations of IFRIC and SIC that are relevant to entities with 31 December 2010 year ends.
This includes references to new, revised, and amended standards and interpretations issued but
not yet effective and those not yet endorsed by the European Union.
At the back of this guide are tables showing all extant standards and interpretations at the time
of publication.
Important
The summaries in this guide are intended as general information only and they should not be
relied upon as a substitution for reading the full standards. No responsibility for loss occasioned
by any person acting or not acting as a result of this material can be accepted by PKF
International Limited, or any of the member firms of PKF International.
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IFRS 2010
SUMMARY
IAS 1 Presentation of Financial Statements
Overview
IAS 1 (revised) sets out the content, structure and key presentational considerations for general
purpose financial statements. The structure and content requirements of IAS 1 (revised) do not
apply to interim financial statements prepared in accordance with IAS 34 Interim Financial
Reporting.
Components of general purpose financial statements
•
A complete set of financial statements comprises:
-
a statement of financial position;
-
an statement of comprehensive income;
-
a statement of changes in equity;
-
a statement of cash flows;
-
notes, being a summary of significant accounting policies and other explanatory notes;
and
-
a statement of financial position as at the beginning of the earliest comparative period
when an entity applies an accounting policy retrospectively or makes retrospective
restatement of items in its financial statements, or when it reclassifies items in its
financial statements.
Overall considerations
•
Financial statements must present fairly the financial position, financial performance and
cash flows of an entity. This is presumed to occur with the application of IFRS. (For the
purposes of IAS 1 (revised), IFRS are defined as comprising International Financial
Reporting Standards, International Accounting Standards and interpretations of the
International Financial Reporting Interpretations Committee and the Standing Interpretations
Committee.)
•
An entity may only depart from the requirements of an IFRS in the “extremely rare
circumstances” where compliance would otherwise conflict with the underlying objective of
providing information useful to users in making economic decisions. Additional disclosures
are required when an entity departs from a requirement of an IFRS.
•
If, and only if, an entity complies with all the requirements of IFRS it should make an
“explicit and unreserved statement of compliance with IFRS” in the notes to the financial
statements.
•
The following principles should be applied in the preparation of financial statements:
- the going concern basis, except where management intends to liquidate the entity or to
cease trading, or has no realistic alternative but to do so;
-
the accrual basis of accounting (except in the presentation of cash flow information);
-
consistency of presentation and classification from one period to the next;
-
separate presentation of each material class of similar items. (NB. An item might not be
sufficiently material to warrant separate presentation on the face of the financial
statements but still be sufficiently material for it to be presented separately in the notes.);
-
no offset of assets and liabilities, or income and expenses, unless specifically required
or permitted by a standard or an interpretation; and
-
the presentation of comparative information for all amounts reported in the financial
statements, unless an IFRS requires or permits otherwise.
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IFRS 2010
SUMMARY
IAS 1 Presentation of Financial Statements
Structure of financial statements
•
Financial statements should be presented at least annually. Additional disclosures are
required when an entity changes its reporting date or the time period covered by the
financial statements.
•
Current and non-current assets and current and non-current liabilities are presented as
separate classifications on the face of the statement of financial position.
•
If any entity breaches an undertaking given under a long-term loan agreement on or before
the reporting date resulting in the loan becoming payable on demand, the liability must be
shown within current liabilities as the entity does not have an unconditional right to defer
settlement. This requirement applies even if the lender agrees before the issuing of the
financial statements but after the reporting date not to demand payment as a result of the
breach.
•
IAS 1 (revised) specifies the minimum information to be presented on the face of, and in the
notes to, the statement of financial position, the statement of comprehensive income, and
the statement of changes in equity.
•
IAS 1 (revised) requires an entity to present, in a statement of changes in equity, all the
owner changes in equity. All non-owner changes in equity (comprehensive income) are
required to be presented in either one statement of comprehensive income or in two
statements (an income statement and a separate statement of comprehensive income).
Disclosures
•
IAS 1 (revised) specifies that the following disclosures be made in the notes to the
accounts:
-
accounting policies applied, including measurement bases used;
-
judgements made in the process of applying the accounting policies;
-
key assumptions about the future, and other key sources of estimation uncertainty;
-
information that enables users of its financial statements to evaluate its objectives,
policies and processes for managing capital;
-
dividends proposed or declared before the issue of the financial statements which have
not been recognised in the financial statements; and
-
if not disclosed elsewhere within the information published with the financial
statements, the entity’s legal form, domicile, country of incorporation, address of its
registered office, the nature of its operations and principal activities and the names of its
parent and ultimate parent (if different).
IFRIC 17 Distributions of non-cash assets to owners applies where an entity distributes noncash assets to its owners, in such a way that all owners of the same equity instruments are
treated equally, except where the assets are ultimately controlled by the same party before and
after the distribution. The interpretation requires that the distribution be measured at the fair
value of the non-cash assets and any difference between this and the carrying value in he
distributing company be recognised in profit or loss. It also sets out certain presentation and
disclosure requirements.
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IFRS 2010
SUMMARY
IAS 2 Inventories
Overview
IAS 2 sets out the accounting treatment for inventories, including the determination of cost, the
subsequent recognition of an expense and any write-downs to net realisable value.
Scope
•
Applies to all inventories except:
-
work in progress on construction and service contracts (IAS 11);
-
financial instruments (IAS 32, IAS 39 and IFRS 7); and
-
biological assets arising from agricultural activity (IAS 41).
Definitions
•
Inventories – assets that are:
-
held for sale in the ordinary course of business;
-
in the process of production for such sale; or
-
in the form of materials or supplies to be consumed in the production process or in the
rendering of services.
•
Net realisable value (NRV) - the estimated selling price less the estimated costs of
completion and the estimated costs necessary to make the sale.
•
Cost of inventories – all costs incurred in bringing the inventories to their present location
and condition, including the costs of purchase and conversion.
-
Costs of purchase of inventories comprise the purchase price (less trade discounts,
rebates and similar items), irrecoverable taxes, and transport, handling and other costs
directly attributable to their acquisition.
-
Costs of conversion include costs directly related to the units of production, such as
direct labour and systematically allocated fixed and variable production overheads
incurred in producing finished goods
Measurement
•
Inventories should be stated at the lower of cost and net realisable value.
•
To the extent that service providers have inventories, they measure them at the costs of
their production. These costs are primarily the costs of labour directly engaged in providing
the service, including supervisory personnel, and attributable overheads.
•
The cost of inventories of items that are ordinarily interchangeable and have not been
produced and segregated for specific projects is determined by using the first-in, first-out
(FIFO) or weighted average cost formula. The same cost formula should be adopted for all
inventories having a similar nature and use to the entity.
•
Inventories should usually be written down to NRV on an item by item basis, unless it is
more appropriate to group similar or related items.
Recognition as an expense
•
When inventories are sold, the carrying amount of those inventories should be recognised
as an expense in the period in which the related revenue is recognised.
•
Any losses of inventories and the amount of any write-down to net realisable value should
be recognised as expense in the period in which the loss or write-down occurs.
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IFRS 2010
SUMMARY
IAS 7 Statement of Cash Flows
Overview
IAS 1 (revised) requires that general purpose financial statements contain a statement of cash
flows. IAS 7 sets out the required presentation, structure and accompanying disclosures of such
a statement.
Definitions
•
Cash flows – inflows and outflows of cash and cash equivalents.
•
Cash – cash on hand and demand deposits.
•
Cash equivalents – short-term, highly liquid investments which are readily convertible to
known amounts of cash and subject to an insignificant risk of changes in value.
•
IAS 7 identifies three categories of activities:
Operating activities
The principal revenueproducing activities of the
entity and any other
activities that are not
investing or financing
activities.
Investing activities
The acquisition and disposal
of long-term assets and
other investments not
included in cash
equivalents.
Financing activities
Activities that result in
changes in the size and
composition of the
contributed equity and/or
borrowings of the entity.
Presentation
•
IAS 7 requires that all cash flows be presented within one of the above categories.
•
Cash flows from operating activities may be reported using either:
-
the direct method (disclosing major classes of gross cash receipts and payments); or
-
the indirect method (disclosing a reconciliation of profit or loss for the period to cash flow
from operating activities).
•
IAS 7 encourages, but does not require, the use of the direct method.
•
Cash flows are usually reported gross, with certain limited specific exceptions.
•
Cash flows from interest and dividends are disclosed separately and can be allocated to
operating, investing or financing activities.
•
Cash flows from taxes on income are also disclosed separately, usually within operating
activities.
•
Cash flows from the acquisition or disposal of subsidiaries and other business units are
presented within investing activities, with specific disclosures (IAS 7, paragraphs 39, 40).
Disclosures
•
The following disclosures are also required:
- non-cash investing and financing transactions; and
- the amount of significant cash and cash equivalent balances held by the entity that are
not available for use by the group, together with a commentary by management.
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IFRS 2010
SUMMARY
IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
Overview
To maintain the reliability, relevance and comparability of financial statements, IAS 8 sets out
criteria for selecting accounting policies. Where more reliable or relevant information would be
given by changing accounting policies, IAS 8 sets out the accounting treatment and disclosure of
such changes, as well as changes in accounting estimates and corrections of prior period errors.
Choosing accounting policies
•
Directly relevant IASB Standards, Interpretations and related Implementation Guidance
should be followed in determining appropriate accounting policies for particular transactions
and circumstances.
•
•
If no directly relevant standards or interpretations exist, an accounting policy should be
applied that provides information which is relevant for users’ economic decision-making,
and reliable in that it:
-
represents faithfully the entities financial position, performance and cash flows;
-
reflects the economic substance of transactions, other events and conditions;
-
is neutral, ie free from bias;
-
is prudent; and
-
is complete in all material respects.
IAS 8 sets out a hierarchy of sources which should be referred to when developing an
accounting policies:
1. IASB Standards and Interpretations dealing with similar and related issues; then
2. the IASB Framework for the Preparation and Presentation of Financial Statements; then
3. the most recent pronouncements of other standard-setting bodies (such as the ASB or
FASB) using a similar conceptual framework, other accounting literature and accepted
industry practices, to the extent that these do not conflict with the sources above.
Applying and changing accounting policies
•
Accounting policies must be applied consistently to similar items, and should only be
changed from one period to the next if the change:
•
•
-
is required by a Standard or an Interpretation (or will be required in the case of early
adoption of a Standard or Interpretation before its effective date); or
-
is voluntary and will result in financial statements providing information that is reliable
and more relevant.
A change in accounting policy should be applied retrospectively unless:
-
it arises from applying a Standard or Interpretation containing specific transitional
provisions; or
-
it is impracticable to determine either the period-specific effects or the cumulative effect
of the change. In such cases, the entity should apply the new policy from the earliest
date practicable. (NB In this context impracticable means that the policy cannot be
applied after making every reasonable effort to do so.)
If it is difficult to distinguish a change in an accounting policy from a change in an
accounting estimate, the change is treated as a change in an accounting estimate (see
below). For the avoidance of doubt, IAS 8 clarifies that a change in accounting bases (e.g.
from historic cost to current revaluation) constitutes a change in accounting policy.
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IFRS 2010
SUMMARY
IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
•
Retrospective application requires that the financial statements be prepared and all
balances (including opening balances and comparative amounts) be adjusted as if the new
accounting policy had always been applied.
Applying and changing accounting estimates
•
Many items in the financial statements cannot, by their nature, be precisely measured so
must be estimated. All estimates used in the preparation of financial statements must be
based on the latest available, reliable information and be informed by further experience.
Therefore, estimates should be revised whenever there is a change in circumstances or
new knowledge arises.
•
As revisions in estimates reflect new information gained, they do not relate to prior periods
or constitute corrections of errors. Therefore they are recognised prospectively; included in
profit or loss in the period of the change and, if the effect will be on-going, in future periods.
Errors
•
Financial statements containing material errors, or immaterial errors if made intentionally,
do not comply with IFRSs.
•
When material errors in financial statements from prior periods are discovered, they should,
unless it is impracticable (see above), be retrospectively corrected by:
-
restating the comparative amounts for the prior period(s) presented in which the error
occurred; or
-
if the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and equity for the earliest prior period presented.
Disclosures
•
IAS 8 sets out detailed disclosures that are required when:
-
an entity first applies after the effective date, or early adopts before the effective date, a
Standard or Interpretation affecting past, current or future periods (paragraph 28);
-
an entity voluntarily changes an accounting policy (paragraph 29);
-
an entity does not apply a Standard or Interpretation that has been issued but is not yet
effective (paragraph 30); or
-
an entity corrects a material prior period error.
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IFRS 2010
SUMMARY
IAS 10 Events after the Reporting Period
Overview
IAS 10 sets out the impact on the financial statements and/or disclosures of events occurring
between the end of the reporting period and the date the financial statements are authorised for
issue.
Definitions
•
Adjusting events after the end of the reporting period – those events occurring between the
end of the reporting period and the date when the financial statements are authorised for
issue that provide evidence of conditions that existed at the end of the reporting period.
•
Non-adjusting events after the end of the reporting period – those events occurring between
the end of the reporting period and the date when the financial statements are authorised
for issue that do not provide evidence of conditions that existed at the end of the reporting
period.
Adjusting events
•
By definition, adjusting events provide additional information about the financial position of
the entity at the end of the reporting period and/or the financial performance of the entity up
to that date. Therefore, an entity should adjust the amounts recognised in its financial
statements and/or relevant disclosures to reflect such events.
•
Examples of adjusting events include:
-
the elimination of uncertainty that had existed at the end of the reporting period, such as
the settlement of a previously contingent liability or the settlement of a provision (e.g. the
outcome of a court case or the calculation of bonuses for which an obligation existed at
the end of the reporting period);
-
the receipt of information indicating that there had been an impairment of an asset at the
end of the reporting period, such as the bankruptcy of a debtor or the sale of goods
where NRV proved to be less than the carrying value; or
-
the intention of management to liquidate the entity or cease trading or their
determination that they have no realistic alternative but to do so. The going concern
basis is not to be used.
Non-adjusting events
•
By definition, non-adjusting events do not provide any additional information about the
financial position of the entity at the end of the reporting period and/or the financial
performance of the entity up to that date. Therefore, an entity should not adjust the
amounts recognised in its financial statements to reflect such events
•
•
Examples of non-adjusting events include:
-
the declaration of dividends after the end of the reporting period as no obligation existed
at that date; or
-
the reduction in the NRV of stock arising from subsequent events such as a fire in a
warehouse.
However, if a non-adjusting event is material, disclosures of the nature of the event and its
estimated financial effect are required to ensure the economic decisions of users are not
unfairly influenced.
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IFRS 2010
SUMMARY
IAS 10 Events after the Reporting Period
Other disclosures
•
The date authority was given for issuing the financial statements and the person giving
such authority should be disclosed.
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IFRS 2010
SUMMARY
IAS 11 Construction Contracts
Overview
IAS 11 sets out the requirements for the measurement and recognition of revenue and costs
associated with contracts for the construction of assets or combinations of interrelated assets.
Definitions
•
A construction contract – a contract for the construction of an asset or a combination of
assets that are closely interrelated or interdependent in terms of their design, technology
and function or their ultimate purpose or use.
Combining and segmenting construction contracts
•
Although IAS 1 is usually applied separately to each construction contract in its entirety, it is
necessary to:
-
separate the contract into identifiable components, where each asset has been subject
to a separate proposal and negotiation and its cost and revenues are identifiable; or
-
group together separate contracts and treat as a single construction contract, where the
group of contracts have been negotiated as a single package, are performed together or
in a continuous sequence and are so closely interrelated to be, in effect, a single project
with an overall profit margin.
Contract revenue and costs
•
Contract revenue comprises the amounts initially agreed in the contract plus/minus
adjustments due to contract variations, claims and incentive payments, to the extent that it
is probable that such adjustments will result in revenue and they are capable of being
reliably measured.
•
Contract costs comprise costs relating directly to the specific contract, are chargeable
under the contract terms or are attributable to the entities general contract activity and be
allocated to the contract.
Recognition of contract revenue and expenses
•
The recognition of construction contract revenue and expenses depends on whether the
outcome of the contract can be estimated reliably, and whether a profit or loss is expected.
Can the contract
outcome be
estimated reliably?
Is a loss expected?
Recognition rules
No
Unknown as outcome
cannot be reliably
estimated
Yes
No
Yes
Yes
Recognise costs as incurred
Recognise revenue to the extent costs incurred
will probably be recovered
Recognise revenue, expenses and profit
attributable to the proportion of the contract
work completed.
Recognise revenue and costs attributable to
the proportion of the contract work completed,
plus the entire estimated loss as an expense.
Interpretation
IFRIC 15 Agreements for the construction of real estate, provides guidance on how to determine
whether an agreement for the construction of real estate is within the scope of IAS 11 or IAS 18
and when revenue from an incomplete construction should be recognised. An agreement for the
construction of real estate is a construction contract within the scope of IAS 11 only when the
buyer is able to specify the major structural elements of the design of the real estate before
construction begins and/or specify the major structural changes once construction has begun. If
the buyer does not have that ability the IAS 18 applies.
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IFRS 2010
SUMMARY
IAS 12 Income Taxes
Overview
IAS 12 sets out the accounting treatment for income taxes. It incorporates the requirements for
accounting for tax on transactions in the current period (current tax) and for the future tax
consequences of assets and liabilities recognised on the statement of financial position (deferred
tax). IAS 12 applies a statement of financial position approach in identifying and measuring
deferred tax.
Definitions
•
Current tax - the amount of income tax payable or recoverable in respect of the current year
results.
•
Deferred tax liabilities – the amounts of income taxes payable in the future in respect of
taxable temporary differences.
•
Deferred tax assets – the amounts of incomes taxes that will be recoverable in the future in
respect of deductible temporary differences and the carry-forward of unused tax losses or
tax credits.
•
Temporary differences – differences between the carrying values of assets and liabilities
and their tax base.
•
The tax base of an asset or liability – the amount attributed to it for tax purposes. For
assets that will be involved in generating taxable earnings, the tax base is usually the future
tax deductions associated with the asset. For most liabilities, the tax base is the carrying
value less any amounts that will be tax deductible in the future
Current tax
•
Current tax income or expense should be included in the profit or loss for the period unless
it relates to a transaction or event recognised directly in equity, when it should also be
recognised in equity.
•
Unpaid current tax should be recognised as a liability. Where tax losses can be carried
back to recover prior period current tax, the benefit should be recognised as an asset.
•
Current tax assets and liabilities should be measured using the rates/laws that have been
enacted, or substantively enacted, by the end of the reporting period.
Deferred tax - recognition
•
Deferred tax assets and liabilities should be recognised on all temporary differences, with
limited exceptions. The exceptions are temporary differences arising:
•
-
on initial recognition of goodwill, because goodwill is a residual amount and recognising
another liability would increase the goodwill further;
-
from a transaction that does not immediately affect reported profit or loss and is not a
business combination. An example would be the acquisition of a property for which no
future tax deductions would be available; and
-
from investments in subsidiaries, associates and joint venturers, but only in certain
circumstances (see IAS 12 paragraphs 39 and 44).
It should be noted that the upward revaluation of a property would create an additional
deferred tax liability (or reduce an existing deferred tax asset). This arises irrespective of
whether a deferred tax asset or liability arose on initial recognition of the property.
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IFRS 2010
SUMMARY
IAS 12 Income Taxes
•
Deferred tax income or expense should be included in the profit or loss for the period
unless it relates to a transaction or event recognised directly in equity (when it should also
be recognised in equity) or to a business combination treated as an acquisition.
•
Deferred tax assets and liabilities acquired in a business combination and meeting the
criteria for recognition are included in the calculation of goodwill on acquisition.
•
If the acquired business had deferred tax assets which did not meet the criteria for
recognition at the time of acquisition but are subsequently utilised, goodwill must be written
down with the reduction recognised as an expense in the statement of comprehensive
income. The amount written down should equal the value of the deferred tax asset if it had
been recognised at the time of acquisition.
Deferred tax - measurement
•
Deferred tax assets and liabilities should be measured using tax rates/laws that have been
enacted or substantively enacted by the end of the reporting period and are expected to
apply when the asset is realised or liability settled.
•
Care must be taken in measuring deferred tax assets and liabilities. The measurement of
the tax base should reflect the entity's expectations, at the end of the reporting period, as to
the manner in which the carrying amount of its assets and liabilities will be recovered or
settled. For example, in many jurisdictions the tax deductions available through use of a
property are very different to those available on the sale of a property.
•
Deferred tax assets and liabilities should not be discounted.
•
The carrying amount of deferred tax assets should be reviewed at end of each reporting
period.
Presentation and disclosures
•
Current tax assets and liabilities should be offset if, and only if, the entity has the legal right
and the intention to settle on a net basis or realise the asset and settle the liability at the
same time.
•
Deferred tax assets and deferred tax liabilities should be offset on the statement of financial
position only if there is a legal right to settle current tax assets and liabilities on a net basis
and they are levied by the same taxing authority on the same entity or different entities that
intend to realise the asset and settle the liability at the same time.
•
IAS 12 requires a number of detailed disclosures (paragraph 81) including a reconciliation
of tax expense to accounting profit, details of where a deferred tax asset has not been
recognised and the evidence supporting the recognition of some deferred tax assets.
Interpretations
SIC 21 Recovery of revalued non-depreciable assets clarifies that the deferred tax liability or
asset that arises from the revaluation of a non-depreciable asset is measured on the basis of the
tax consequences from the sale of the asset rather than through use.
SIC 25 Changes in the tax status of an enterprise or its shareholders clarifies that any tax
consequences of a change in tax status should normally be included in profit or loss for the
period unless those consequences relate to transactions or events that were recognised directly
in equity.
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IFRS 2010
SUMMARY
IAS 16 Property, Plant and Equipment
Overview
IAS 16 sets out the required accounting treatment for property, plant and equipment, unless
another standard requires or permits a different accounting treatment. For example, IFRS 5 Noncurrent assets Held for Sale and Discontinued Operations applies to property, plant and
equipment classified as held for sale.
Definitions
•
Property, plant and equipment – tangible items that are held for use in the production or
supply of goods or services, for rental to others, or for administrative purposes and are
expected to be used during more than one period.
•
Recoverable amount – the higher of an asset’s selling price and its value in use.
•
Impairment loss – the amount by which an asset’s carrying value exceeds its recoverable
amount.
•
Fair value – the amount at which an asset could be exchanged between knowledgeable
willing parties in an arm’s length transaction.
•
Residual value – the net amount that could currently be realised by selling an asset if it
were of the age and in the condition expected at the end of its useful life.
Initial recognition
•
An item of property, plant and equipment should initially be recognised at cost, when it is
probable that future economic benefits will flow to the enterprise and the cost of the asset
can be measured reliably.
Subsequent measurement
•
An entity may choose, separately for each class of property, plant and equipment, to apply
either the cost model or the revaluation model.
•
•
•
Where the cost model is applied, assets are carried at cost less accumulated depreciation
and any accumulated impairment losses.
Where the revaluation model is applied, assets are carried at the fair value at its latest
revaluation less any subsequent accumulated depreciation and accumulated impairment
losses.
Any revaluation increase is credited directly to the revaluation surplus in equity, unless it
reverses a revaluation decrease previously recognised in profit or loss. Any revaluation
decrease is recognised in profit or loss, unless it reverses a surplus previously recognised
in equity.
Depreciation
•
Depreciation is applied on a component basis. That is to say each part of an item of
property, plant and equipment with a cost that is significant in relation to the total cost of the
item is depreciated separately.
•
The depreciable amount (cost, or other amount substituted for cost, less residual value) of
an asset shall be allocated on a systematic basis over its useful life, by recognising a
depreciation charge for each period in profit or loss unless it is included in the carrying
amount of another asset (e.g. the absorption of depreciation into the cost of manufacturing
inventories).
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IFRS 2010
SUMMARY
IAS 16 Property, Plant and Equipment
•
Management should review, at least at the end of each reporting period, an asset’s
expected residual value and useful life, and the depreciation method applied to it. Any
variations would constitute changes in accounting estimates, and should be applied
prospectively (IAS 8).
•
Depreciation is recognised even if the fair value of the asset exceeds its carrying amount;
as long as the asset’s residual value does not exceed its carrying amount. Repair and
maintenance of an asset do not negate the need to depreciate it.
•
Impairment is measured in accordance with IAS 36.
Derecognition
•
When an asset is disposed of or no future economic benefit is expected (either through use
or by disposal), the carrying amount of the asset should be derecognised with any resulting
gain or loss included in profit or loss.
•
The gain or loss on disposal is the difference between the net proceeds received and the
carrying amount at the time of disposal.
•
However, where an entity routinely sells items of property, plant and equipment that it has
held for rental to others, the assets should be transferred to inventories when they cease to
be rented and become held for sale. Sales of such items will then be recognised as
revenue in accordance with IAS 18.
•
Where an entity is compensated for the impairment, loss or giving up of an asset the
compensations is included in profit or loss, and disclosed on the face of the statement of
comprehensive income or in the notes, when it becomes receivable.
Disclosures
•
IAS 16 requires a number of disclosures (paragraphs 73 to 79), including:
-
the measurement bases (cost or revaluation), depreciation methods and useful lives or
rates used;
-
a reconciliation of the asset carrying amounts at the beginning and end of the period;
-
the effective date of any revaluations and whether an independent valuer was used;
-
the methods and significant assumptions applied by the valuer, and the extent to which
observable market prices, recent transactions or other valuation techniques were used;
-
for each class of revalued asset, the total carrying amount if the cost model had been
applied;
-
the revaluation surplus, movements in the surplus during the period and any restrictions
on distributing it to shareholders; and
-
details of any restrictions of title, securities pledged, and contractual commitments for
further expenditure that have been given.
Interpretation
IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities clarifies the
impact of changes in estimates of future decommission and similar costs on the carrying values
of provisions and related property, plant and equipment.
- 14 © PKF International Limited
IFRS 2010
SUMMARY
IAS 17 Leases
Overview
IAS 17 sets out the required accounting treatments and disclosures for finance and operating
leases by both lessors and lessees, except where IAS 40 is applied to investment property held
by a lessee.
Definitions
•
A finance lease – a lease that transfers substantially all the risks and reward of ownership.
•
An operating lease – any lease that is not a finance lease.
•
The lease term – the minimum period for which the lessee has contracted to lease the
asset, plus any further period over which the lessee has the option to extend the contract
and, at inception of the lease, it is reasonably certain it will do so.
•
The minimum lease payments – the payments the lessee is contracted to pay (excluding
contingent rents, service costs and taxes) plus:
-
for a lessee, any amounts guaranteed by the lessee or its related parties and the
exercise price of any option where exercise is reasonably certain at inception; and,
-
for a lessor, any guaranteed residual value.
•
The gross investment in the lease – the minimum lease payments plus any unguaranteed
residual vale.
•
The net investment in the lease – the present value of the gross investment in the lease
when discounted at the interest rate implicit in the lease.
Substance of lease
•
Whether a lease is a finance lease or an operating lease depends on the substance of the
transaction rather than the form of the contract. Examples of situations that may indicate
that a lease should be classified as a finance lease include:
•
-
ownership of the asset transfer to the lessee at the end of the lease term;
-
the lease term covers substantially all of the asset’s economic life;
-
the lessee will have the option to purchase the asset outright at below expected fair
value or extend the lease term at below market rent; and
-
the present value of the minimum lease payments amounts to substantially all of the fair
value of the asset.
When a lease includes both land and buildings elements, each element should be
assessed and classified separately as a finance or an operating lease. In making this
assessment an important consideration is that land normally has an indefinite economic life.
(NB Prior to years commencing on or after 1 January 2010 there was a presumption that
leases of land is such situations would normally be operating leases.)
Finance leases in the financial statements of lessees
•
At inception, finance leases should be recognised as assets and liabilities at the lower of
the fair value of the leased property and the present value of the minimum lease payments,
as determined at that date.
•
Any initial direct costs of the lessee are added to the amount recognised as an asset.
•
Minimum lease payments must be apportioned between the finance charge and the
reduction of the outstanding liability. The finance charge each period is calculated using a
constant interest rate (usually the interest rate implicit in the lease), applied to the
outstanding balance. Any contingent rents are charged to profit or loss as incurred.
- 15 © PKF International Limited
IFRS 2010
SUMMARY
IAS 17 Leases
Operating leases in the financial statements of lessees
•
Operating lease payments must be recognised as expenses on a straight-line basis over
the lease term, unless another systematic basis better represents the timing of benefits.
Finance leases in the financial statements of lessors
•
Lessors should recognise assets held under a finance lease, presented as a receivable at
an amount equal to the net investment in the lease.
•
The recognition of finance income should be based on a pattern reflecting a constant
periodic rate of return on the lessor’s net investment in the finance lease.
•
Manufacturer or dealer lessors should recognise selling profit or loss in the period, in
accordance with the policy followed by the entity for outright sales. If artificially low rates of
interest are quoted, selling profit shall be restricted to that which would apply if a market
rate of interest were charged.
Operating leases in the financial statements of lessors
•
Lessors should present assets subject to operating leases in their statement of financial
position according to the nature of the asset. Lease income from operating leases shall be
recognised in income on a straight-line basis over the lease term, unless another
systematic basis better represents the time pattern in which the economic benefits in the
leased asset diminish.
Sale and leaseback transactions
•
The sale of an asset and its subsequent leasing by the former owner should be accounted
for in a manner reflecting the substance of the transactions when seen as a package. The
actual accounting treatment will depend upon the type of lease involved.
•
If a sale and leaseback transaction results in:
-
a finance lease, any excess of sales proceeds over the carrying amount should be
deferred and amortised over the lease term.
-
an operating lease and is established at fair value, any profit or loss should be
recognised immediately.
Interpretations
SIC 15 Operating leases – incentives clarifies that incentives such as rent free periods should be
recognised as a reduction of rental income and expense by the lessor and the lessee over the
lease term.
SIC 27 Evaluating the substance of transactions involving the legal form of a lease clarifies that
a series of transactions that involve the legal form of a lease should be accounted for as a single
transaction if the overall economic effect can only be understood with reference to the series as
a whole.
IFRIC 4 Determining whether an arrangement contains a lease clarifies that arrangements that
depend on the use of a specific asset or convey the right to control a specific asset are generally
leases under IAS 17.
IFRIC 12 Service concession arrangements sets out accounting principles to be applied by
operators in public-to-private service concession arrangements covering, inter alia, the
recognition of the infrastructure assets to which the service concession arrangement relates.
SIC 29 sets out additional disclosure requirements in respect of such arrangements.
- 16 © PKF International Limited
IFRS 2010
SUMMARY
IAS 18 Revenue
Overview
IAS 18 sets out the required accounting treatment for revenue arising from the sale of goods, the
rendering of services, and the use by others of assets yielding interest, royalties and dividends.
It does not cover revenue arising from leases, dividends from associates, insurance contracts,
and changes in fair values or construction contracts within the scope of IAS 11.
Definitions
•
Revenue – the gross inflow of economic benefits arising from the ordinary activities of an
entity that result in increases in equity, other than contributions from equity holders.
•
Fair value – the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm's length transaction.
Measurement
•
Revenue is measured as the fair value of the consideration received or receivable, taking
into account any trade discounts or volume rebates allowed.
•
If the inflow of cash or cash equivalents is deferred and the arrangement effectively
constitutes a financing transaction, the fair value of the consideration is determined by
discounting all future receipts using an imputed rate of interest. The difference between the
fair value and the nominal amount is recognised as interest revenue in accordance with IAS
39.
•
Amounts received on behalf of other parties (e.g. sales and valued added taxes, amounts
collected on behalf of the principal in agency arrangements) are not economic benefits
flowing to the entity and do not result in increases in equity. Therefore, they do constitute
revenue.
Sale of goods
•
Revenue from the sale of goods is recognised when all the following conditions have been
satisfied:
-
the entity has transferred to the buyer the significant risks and rewards of ownership of
the goods;
-
the entity retains neither continuing managerial involvement nor effective control over
the goods sold;
-
the amount of revenue can be measured reliably;
-
it is probable that the economic benefits associated with the transaction will flow to the
entity; and
-
the costs incurred or to be incurred in respect of the transaction can be measured
reliably.
Rendering of services
•
Revenue for the rendering of services is recognised by reference to the stage of completion
of the transaction at the end of the reporting period, if the outcome of the transaction can be
reliably estimated. This is the case when all the following conditions are satisfied:
-
the amount of revenue can be measured reliably;
-
it is probable that the economic benefits associated with the transaction will flow to the
entity;
-
the stage of completion of the transaction at the end of the reporting period can be
measured reliably; and
- 17 © PKF International Limited
IFRS 2010
SUMMARY
IAS 18 Revenue
•
the costs incurred for the transaction and the costs to complete the transaction can be
measured reliably.
If the outcome of such a transaction cannot be estimated reliably, revenue is recognised
only to the extent that expenses recognised are recoverable.
Interest, royalties and dividends
•
When the receipt of economic benefits is probable and the amount of revenue can be
measured reliably, revenue should be recognised as follows:
-
interest should be recognised using the effective interest method per IAS 39, paragraph
9;
-
royalties should be recognised on an accrual basis in accordance with the substance of
the relevant agreement; and
-
dividends should be recognised when the shareholder's right to receive payment is
established.
Appendix A to IAS 18 provides detailed guidance dealing with many specific situations, including
guidance on agency/principal. This is a valuable source of reference.
Interpretations
SIC 31 Revenue – Barter transactions involving advertising services applies when an entity
enters into a barter transaction to provide advertising services in exchange for receiving
advertising services from its customer. SIC-31 clarifies that advertising revenue in a barter
transaction can be measured reliably only if substantial advertising revenue is received from
non-barter transactions.
IFRIC 12 Service concession arrangements sets out accounting principles to be applied by
operators in public-to-private service concession arrangements covering, inter alia, the
measurement and recognition of revenue. SIC 29 sets out additional disclosure requirements in
respect of such arrangements.
IFRIC 13 Customer loyalty programmes sets out the required treatment in recognising revenue
and/or liabilities in relation to awards under customer loyalty programmes.
IFRIC 18 Transfers of assets from customers clarifies that when an item of property, plant and
equipment is transferred from a customer, and it meets the definition of an asset from the
perspective of the recipient, the recipient must recognise the asset in its financial statements. If
the customer continues to control the transferred item, the asset definition would not be met
even if the ownership of the asset is transferred.
- 18 © PKF International Limited
IFRS 2010
SUMMARY
IAS 19 Employee Benefits
Overview
IAS 19 sets out the required accounting treatment for employee benefits, excluding those for
which IFRS 2 applies, and related disclosures. In particular, it covers short-term benefits, postemployment benefits, other long-term benefits and termination benefits.
Definitions
• Short-term employee benefits – payable wholly within 12 months of the end of the period
in which the employees rendered the related services (e.g. wages, salaries, social
security contributions, paid leave, bonuses and other benefits for current employees);
•
Post-employment benefits – employee benefits such as pensions, other retirement
benefits, life insurance and post-employment medical care;
•
Other long-term employee benefits – not payable wholly within 12 months of the end of
the period in which the employees rendered the related services (e.g. long-service leave
or other long-service benefits, long-term disability benefits, profit-shares, bonuses and
other deferred compensation); and
•
Termination benefits – amounts payable as a result of the employer’s decision to
terminate employment (before normal retirement date) or an employee’s decision to
accept voluntary redundancy.
Short-term employee benefits
•
Short-term employee benefits must be recognised in the period in which the benefit is
earned by the employee.
Post-employment benefits
•
Post-employment benefit plans are classified as either defined contribution plans or defined
benefit plans, with specific guidance given on multi-employer plans, state plans and plans
with insured benefits.
Defined contribution plans
•
Amounts payable by the employer are recognised when an employee has rendered
services in exchange for those contributions.
Defined benefit plans
•
IAS 19 requires that an amount representing the net liability or asset in a defined benefit
scheme is recognised on the statement of financial position. This is based on the
difference between the present value (PV) of the defined benefit obligations (i.e. the future
payments expected as the result of employee services to date) and the fair value (FV) of
any assets held by the plan to fund those obligations, adjusted for unrecognised actuarial
gains and losses and unrecognised past service costs.
•
The plan assets and obligations should be valued with sufficient regularity to ensure the
amounts shown in the statement of financial position are not materially different from the
actual values at that date. The obligations must be valued using the projected unit cost
method, using assumptions which are unbiased and mutually compatible. The discount
rate used must reflect market yields on high quality bonds.
• Actuarial gains and losses may be:
-
recognised immediately in the statement of recognised income and expense; or
-
partly deferred, and partly recognised in the statement of comprehensive income – the
minimum amount to be recognised is determined using a 10% corridor approach. If the
total unrecognised actuarial gains and losses at the start of the period exceed 10% of
the higher of the opening obligation and the opening plan assets, the minimum amount
recognised is the excess as calculated spread over the average remaining working life
of employees.
- 19 © PKF International Limited
IFRS 2010
SUMMARY
IAS 19 Employee Benefits
• Past service costs are recognised only to the extent the benefits have vested.
• Changes in the net liability can be reconciled as follows:
Reconciling item
Statement
Definition
Opening net liability
(X)
Statement of
comprehensive
Increase in PV of obligation due to
Current service costs (X)
income - staff
employee services in the period
costs
Statement of
Increase in PV of obligation arising in
Recognised past
comprehensive
(X)
the period relating to employee
service costs
income - staff
services in past periods
costs
Statement of
Increase in PV of obligation due to
comprehensive
Interest costs
(X)
payments being one period closer to
income – finance
settlement
costs
Changes in PV of obligation due to
Statement of
changes in assumptions or
Recognised actuarial
X/(X) comprehensive
experience adjustments (differences
gains and losses
between previous assumptions and
income
actual events)
Statement of
Increase in plan assets due to
Contributions
(X)
financial position
contributions in the period
movement only
(X)
Closing net liability
Other long term employee benefits
• Expected payments are accounted for in the same way as defined benefit plans, except all
actuarial gains and losses and past service costs are recognised immediately in the
statement of comprehensive income.
Termination benefits
An obligation is recognised when, and only when the entity is demonstrably committed, with a
formal plan and no realistic possibility of withdrawal, to either terminating the employment of
an employee or group of employees before the normal retirement date
providing
termination benefits as a result of an offer made in order to encourage voluntary redundancy.
Disclosures
• The key disclosures in IAS 19 relate to defined benefit plans, and include:
-
reconciliations of opening and closing values for both the defined benefit obligation and
the plan assets, and a reconciliation of the closing values thereof to the amounts
recognised in the statement of financial position;
-
an analysis of the amounts recognised in profit or loss for the period, and in the SORIE;
-
analyses of the plan assets and returns on assets;
-
the principal actuarial assumptions applied; and
-
five year summaries of the values of the obligations, plan assets and experience
adjustments.
Interpretations
IFRIC 14 IAS 19 The limit of a defined benefit asset, minimum funding requirements and their
interaction promotes consistency in relation to the measurement of defined benefit assets
where limits on their future utilisation may exist.
- 20 © PKF International Limited
IFRS 2010
SUMMARY
IAS 20 Accounting for Government Grants
and Disclosure of Government Assistance
Overview
IAS 20 sets out the required accounting treatment for government grants and the disclosure of
other forms of government assistance, except where covered by IAS 41 Agriculture.
Recognition and measurement
•
A government grant should be recognised only when there is reasonable assurance that:
-
the enterprise will comply with any conditions attached to the grant; and
-
the grant will be received.
•
A grant should be recognised as income, on a systematic basis over the periods necessary
to match it with the costs it was intended to compensate. It should not to be credited directly
to equity.
•
A grant receivable as compensation for costs already incurred or for immediate financial
support, with no future related costs, should be recognised as income in the period in which
it is receivable.
•
Non-monetary grants, such as land or other resources, are usually accounted for at fair
value, although recording both the asset and the grant at a nominal amount is also
permitted.
•
Government grants do not include government assistance whose value cannot be
reasonably measured, such as technical or marketing advice, though such benefits may
require disclosure to ensure that the financial statements are not misleading.
Presentation
•
A grant relating to assets may be presented in one of two ways:
-
as deferred income, or
-
by deducting the grant from the asset's carrying amount.
•
A grant relating to income may be reported separately as 'other income' or deducted from
the related expense.
•
If a grant becomes repayable, it should be treated as a change in estimate in accordance
with IAS 8, in light of specific guidance in IAS 20.
Disclosures
•
Accounting policy applied, including the method of presentation chosen.
•
Nature and extent of government grants recognised and an indication of other forms of
government assistance received.
•
Any unfulfilled conditions and other contingencies attached to recognised government
grants and assistance.
Interpretation
SIC 10 Government assistance - no specific relation to operating activities clarifies that
government assistance to entities aimed at encouragement or long term support of business
activities in certain regions or industry sectors should be treated as government grants.
- 21 © PKF International Limited
IFRS 2010
SUMMARY
IAS 21 The Effects of Changes in Foreign
Exchange Rates
Overview
IAS 21 sets out the required accounting treatment for foreign currency transactions and foreign
operations, and how to translate financial statements into a different presentation currency. It
does not apply to foreign currency derivatives and hedge accounting of foreign currency items
covered by IAS 39 Financial Instruments: Recognition and Measurement.
Definitions
•
Functional currency – the currency of the entity’s primary economic environment, which is
usually the one in which it primarily generates and expends cash.
•
Foreign currency – any currency other than the functional currency.
•
Presentation currency – the currency in which the financial statements are presented.
•
Exchange differences – the differences resulting from changing a given number of units of
one currency into another at different exchange rates.
•
Monetary items – currency held, or receivables or payables which will be settled with a fixed
or determinable number of units of currency.
•
Net investment in a foreign operation – the total interest in the net assets of the operation.
This can include monetary items, if the settlement of the amounts receivable or payable is
neither planned nor expected for the foreseeable future.
Initial recognition of a foreign currency transaction
•
A foreign currency transaction is recorded initially in the functional currency, by applying the
spot exchange rate between the functional currency and the foreign currency at the date of
the transaction. For practical reasons, a rate that approximates to the actual rate at the date
of the transaction is often used (e.g. an average weekly or monthly rate), although this is
only permissible when exchange rates are not changing significantly.
Subsequent recognition
•
At each financial reporting date:
-
foreign currency monetary items are translated using the closing rate;
-
non-monetary items measured at historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction; and
non-monetary items measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
•
Exchange differences arising on the settlement of monetary items or on re-translating
monetary items at closing rates are recognised in profit or loss, except where the monetary
item forms part of the net investment in a foreign operation. (See below).
•
If a gain or loss on a non-monetary item is recognised directly in equity (such as the
revaluation of property, plant and equipment), then so is any exchange component thereof.
Similarly, if a gain or loss on a non-monetary item is recognised in profit or loss for the
period, then so is any associated exchange component.
Foreign operations
•
Where exchange differences arise on the translation of a monetary item forming part of an
reporting entity’s net investment in a foreign operation, these should be recognised:
- 22 © PKF International Limited
IFRS 2010
SUMMARY
IAS 21 The Effects of Changes in Foreign
Exchange Rates
•
-
in profit or loss in the separate financial statements of the parent or the foreign
operation, as appropriate, depending on which entity is exposed to the exchange
differences; and
-
in a separate component of equity in the consolidated accounts of the group.
When translating the results and financial position of a foreign operation for inclusion in the
reporting entity’s financial statements (whether by consolidation, proportionate
consolidation or the equity method):
-
assets and liabilities are translated at the closing rate;
-
income and expenses are translated at rates at the dates of the transactions: and
-
all resulting exchange differences are recognised as a separate component of equity.
•
Goodwill and fair value adjustments arising on the acquisition of a foreign operation should
be treated as assets and liabilities of the foreign operation, and hence should be translated
in the same manner as other assets and liabilities of a foreign operation.
•
On disposal of the foreign operation, the cumulative exchange differences directly in equity
are recognised in profit or loss. IAS 21 specifies disclosures about the functional currency
of an entity, and exchange differences arising during the period.
Presentational currency
•
An entity may choose to present its financial statements in any currency.
•
Where the functional currency is not that of a hyper-inflationary economy, the results and
financial position of the entity should be translated in the same manner as those of a foreign
operation, i.e.:
-
assets and liabilities are translated at the closing rate;
-
income and expenses are translated at rates at the dates of the transactions; and
-
all resulting exchange differences are recognised as a separate component of equity.
Disclosures
•
The amount of exchange differences recognised in profit or loss, other than on financial
instruments at fair value through profit or loss.
•
The amount of exchange differences recognised in a separate component of equity, with a
reconciliation of the balances at the beginning and end of the period.
•
The functional currency, if different from the presentation currency, and the reason for using
a different presentation currency.
•
If there is a change in functional currency of the reporting entity or a significant foreign
operation, the fact and the reason for the change.
•
Further disclosures are required where supplementary information in a currency other than
the functional or presentation currencies is given.
- 23 © PKF International Limited
IFRS 2010
SUMMARY
IAS 21 The Effects of Changes in Foreign
Exchange Rates
Interpretation
•
IFRIC 16 (Hedges of a net investment in a foreign operation), clarifies that:
- presentation currency does not create an exposure to which an entity may apply hedge
accounting only the foreign exchange differences arising from a difference between its
own functional currency and that of its foreign operation may be designated as a hedged
risk;
- the hedging instrument(s) may be held by any entity or entities within the group.
- while IAS 39 Financial Instruments: Recognition and Measurement must be applied to
determine the amount that needs to be reclassified to profit or loss from the foreign
currency translation reserve in respect of the hedging instrument, IAS 21 The Effects of
Changes in Foreign Exchange Rates must be applied in respect of the hedged item.
- 24 © PKF International Limited
IFRS 2010
SUMMARY
IAS 23 Borrowing Costs
Overview
IAS 23 sets out the required accounting treatment for borrowing costs.
Definitions
•
Borrowing costs – costs incurred in connection with the borrowing of funds, including
interest, amortisation of discounts or premiums on borrowings and the amortisation of
ancillary costs incurred in the arrangement of borrowings, finance charges in respect of
finance leases and exchange differences arising from foreign currency borrowings where
regarded as an adjustment to interest costs.
•
Qualifying asset – an asset that necessarily takes a substantial period of time to get ready
for its intended use or sale.
Recognition
•
An entity shall capitalise borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset. An entity
shall recognise other borrowing costs as an expense in the period in which they were
incurred.
•
In this case, "directly attributable" means those borrowing costs that would have been
avoided had the asset in question not been acquired, constructed or produced.
•
Where amounts are specifically borrowed for obtaining a qualifying asset, the amount
eligible for capitalisation is net of any investment income from temporarily investing the
borrowings.
•
If funds are borrowed generally and used to obtain a qualifying asset the entity should apply
a capitalisation rate to the expenditure on the asset. The capitalisation rate is the weighted
average rate applicable to all borrowings of the entity during the period other than those
specifically for the purpose of obtaining a qualifying asset. Borrowing costs capitalised
cannot exceed actual borrowing cost in the period.
•
Capitalisation of borrowing costs should commence when expenditures for the asset are
being incurred, borrowing costs are being incurred and activities that are necessary to
prepare the asset for its intended use or sale are in progress.
•
Capitalisation should be suspended during extended periods in which development of the
asset is interrupted, and ceased when substantially all activities for its intended use or sale
are complete.
Disclosure
•
An entity shall disclose the amount of borrowing costs capitalised during the period and the
capitalisation rate used to determine the amount of borrowing costs eligible for
capitalisation..
- 25 © PKF International Limited
IFRS 2010
SUMMARY
IAS 24 Related Party Disclosures
Overview
IAS 24 sets out the requirements for identifying related parties and the disclosure of such parties
and transactions with them.
Definition
• Related party – A party is related to an entity if it:
(a) directly or indirectly, controls, is controlled by, or is under common control with, the
entity;
(b) has an interest in the entity giving it significant influence over the entity;
(c) has joint control over the entity;
(d) is a member of the key management personnel of the entity or its parent;
(e) is a close member of the family of any individual referred to above;
(f) is an associate of the entity;
(g) is a joint venture in which the entity is a venturer;
(h) is an entity that is controlled, jointly controlled or significantly influenced by, or for which
significant voting power in such entity resides with, any of the key management
personnel or their close family members; or
(i) is a post-employment benefit plan for the benefit of employees of the entity, or of any of
its related parties.
•
Definitions of control, joint control and significant influence can be found in IAS 27, 28 and
31, which contain further disclosures required in respect of subsidiaries, associates and joint
ventures.
A related party transaction
• A related party transaction is one where there is a transfer of resources, services or
obligations between related parties, regardless of whether or not a price is charged.
Disclosures
• The name of the entity’s parent and, if different, the ultimate controlling party;
•
If neither the parent nor the ultimate controlling party produce financial statements for public
use, the name of the next most senior parent producing such financial statements.
•
Analysis of the compensation of key management personnel.
•
Where there have been transactions with related parties, sufficient information should be
provided for an understanding of the potential effect on the financial statements. This
information is shown separately for each of the following categories: the parent; entities with
joint control or significant influence over the entity; subsidiaries; associates; joint ventures in
which the entity is a venturer; key management personnel; and other related parties. The
disclosures should include, as a minimum:
-
the nature of the related party relationship;
-
the amount of the transactions;
-
the amount of outstanding balances, along with their terms and conditions, whether they
are secured, how they will be settled and details of any guarantees given or received;
-
provisions for doubtful debts in regard of the outstanding balances and any charges in
the period in respect of bad and doubtful debts.
- 26 © PKF International Limited
IFRS 2010
SUMMARY
IAS 27 Consolidated and Separate Financial
Statements
Overview
IAS 27 sets out the requirements for the preparation and presentation of consolidated financial
statements, and for the accounting for investments in subsidiaries, jointly controlled entities and
associates where separate financial statements of the parent company are prepared.
Definitions
•
A group – a parent (being an entity with one or more subsidiaries) and all its subsidiaries.
•
A subsidiary – an entity that is controlled by another entity (known as the parent).
•
Control – the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.
Presentation of consolidated financial statements
•
A parent must prepare consolidated financial statements in which it consolidates all of its
investments in subsidiaries, unless:
-
the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of
another entity and its other owners do not object to it not presenting consolidated
financial statements;
-
the parent’s debt or equity instruments are not traded in a public market;
-
the parent did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing any
class of instruments in a public market; and
-
the ultimate or any intermediate parent of the parent produces consolidated financial
statements available for public use that comply with International Financial Reporting
Standards.
Existence of control
•
Control is presumed to exist when the parent owns, directly or indirectly through
subsidiaries, more than half of the voting power of an entity unless, in exceptional
circumstances, it can be clearly demonstrated that such ownership does not constitute
control.
•
Control also exists when the parent owns half or less of the voting power of an entity when
there is:
-
power over more than half of the voting rights by virtue of an agreement with other
investors;
-
power to govern the financial and operating policies of the entity under a statute or an
agreement;
-
power to appoint or remove the majority of the members of the board of directors or
equivalent governing body and control of the entity is by that board or body; or
-
power to cast the majority of votes at meetings of the board of directors or equivalent
governing body and control of the entity is by that board or body.
Consolidation procedures
•
Consolidated financial statements must be prepared using uniform accounting policies for
similar transactions and other events in similar circumstances.
•
Ideally, all companies in the group should prepare financial statements as of the same
reporting date.
- 27 © PKF International Limited
IFRS 2010
SUMMARY
IAS 27 Consolidated and Separate Financial
Statements
•
When the reporting dates of the parent and a subsidiary are different, the subsidiary should
prepare, for consolidation purposes, additional financial statements as of the same date as
the financial statements of the parent unless it is impracticable. The subsidiary financial
statements used must have a reporting date within three months of that of the parent and
be adjusted for significant transactions and events in the intervening period.
•
Intra-group balances, transactions, income and expenses are eliminated in full.
•
When an entity ceases to have control over an investment, provided it does not become an
associate or jointly controlled entity, it should be accounted for in accordance with IAS 39
with the carrying amount at that date being regarded as its cost on initial measurement.
•
Any changes in ownership interest that do not result in a loss of control should be
recognised directly in equity, as transactions with equity holders.
•
Profit or loss and each component of other comprehensive income are attributed to the
owners of the parent and non-controlling interests even if this results in the non-controlling
interests having a deficit (or debit) balance.
Separate financial statements
•
Unless IFRS 5 applies, investments in subsidiaries, jointly controlled entities and associates
are accounted for in any separate financial statements of the parent either:
•
-
at cost, or
-
in accordance with IAS 39.
The same accounting policy must be applied for each category of investments.
•
Where investments in subsidiaries, jointly controlled entities, and associates are classified
as held for sale, or included in a disposal group classified as such, IFRS 5 must be applied.
•
All dividends, whether funded from pre- or post-acquisition profits, should be recognised as
income in the parent’s own financial statements. IAS 36 identifies certain specific situations
where the payment of dividends by a subsidiary may trigger an impairment review of the
investment in the subsidiary.
Disclosures
•
IAS 27 requires detailed disclosures when:
-
a parent-subsidiary relationship exists without the parent owning more than half the
voting power in the subsidiary or when ownership of more than half the voting powers of
another entity does not constitute a parent-subsidiary relationship;
-
the reporting date of a subsidiary’s financial statements differs from those of the parent;
-
there are significant restrictions on a subsidiary’s ability to transfer funds to the parent;
-
a parent elects not to prepare consolidated financial statements; and
-
a parent also prepares separate financial statements.
Interpretation
SIC 12 Consolidation - special purpose entities clarifies that a special purpose entity (SPE)
should be consolidated when, in substance, the SPE is controlled by the entity.
- 28 © PKF International Limited
IFRS 2010
SUMMARY
IAS 28 Investment in Associates
Overview
IAS 28 sets out the required accounting treatment for investments in associates over which the
investor has significant influence (but not control or joint control). It does not apply to
investments held by a venture capital organisation, mutual fund, unit trust, and similar entity that
are at fair value through profit or loss in accordance with IAS 39.
Definitions
•
Associate – an entity over which the investor has significant influence and that is neither a
subsidiary nor an interest in a joint venture.
•
Significant influence – the power to participate in the financial and operating policy
decisions of another entity other than through control (see IAS 27 summary) or joint control
(see IAS 31 summary).
•
Equity method – a method of accounting whereby the investment is initially recorded at cost
and subsequently adjusted to reflect changes in the investor’s interest in the net assets of
the associate. The investor’s profit or loss includes its share of the profit or loss of the
associate.
Identifying significant influence
•
A holding of 20% or more (directly or through subsidiaries) of the voting power of an entity
is presumed to indicate that the investor has significant influence, unless it can be clearly
demonstrated otherwise.
•
Conversely, a holding of less than 20% of the voting power is presumed to indicate the
investor does not have significant influence, unless such influence can be clearly
demonstrated.
•
The existence of significant influence by an investor is usually evidenced by:
-
representation on the board of directors or equivalent governing body of the investee;
-
participation in the policy-making process;
-
material transactions between the investor and the investee;
-
interchange of managerial personnel; or
-
provision of essential technical information.
Accounting policy
•
An associate must be accounted for as using the equity method except:
•
-
where the investor is a parent taking the exemption from producing consolidated
accounts in accordance with paragraph 10 of IAS 27;
-
where the financial statements constitute separate financial statements per IAS 27;
-
where the investment is classified as held for sale in accordance with IFRS 5; or
-
where the investor takes the exemption from equity accounting, which is available when
all the criteria in paragraph 13 (c) of IAS 28 are met.
A company that is not a parent company must equity account for any interests in associates
unless the exemption under paragraph 13(c) is taken.
Equity method
•
On acquisition, the principles of IFRS 3 should be applied, i.e. the fair value of the
associate’s assets (including intangibles), liabilities and contingent liabilities should be
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IFRS 2010
SUMMARY
IAS 28 Investment in Associates
compared to the fair value of the consideration given, and any resulting positive goodwill
recognised on the investor’s statement of financial position. Where the investor’s share of
the fair value of the associate’s net assets is greater than the consideration given, the
excess should be included in the investor’s share of the associate’s results for the period.
•
The investor’s interest in the net assets of the associate and its share of the associates
profit or loss is based on the amounts recognised in the associate’s financial statements
after adjustments to ensure consistent accounting policies are applied. As with the
consolidation of a subsidiary (see IAS 27 summary), the financial statements used should
share the same reporting date.
•
An investor should discontinue the use of the equity method from the date that it ceases to
have significant influence over an associate and should account for the investment in
accordance with IAS 39 from that date.
•
The impairment indicators in IAS 39 Financial Instruments: Recognition and Measurement
apply to investments in associates. If impairment is indicated, the amount is calculated by
reference to IAS 36 Impairment of Assets.
Presentation
•
The investor’s investment in the associate is shown as a single line within non-current
assets and is calculated as the total of:
-
its share of the associates net assets of the associate, after any fair value adjustments
on acquisition; plus
-
any goodwill which arose on acquisition; less
-
any impairment losses.
•
An investor only recognises its share of losses to the extent they do not exceed its interest
in the associate, unless the investor has incurred legal or constructive obligations.
•
IAS 1 shows the investor’s share of the associates profit after tax and minority interests as
a single line after finance costs but before tax expense. Any impairments charges and
gains or losses on disposals should be shown as separate line items.
•
Where an associate recognises a change in equity directly in the statement of changes in
equity (e.g. revaluation of plant, property and equipment), the investor should also show its
share of the change in that statement.
Disclosures
•
IAS 28 sets out a number of detailed disclosures including:
-
summarised financial information of associates, including aggregated amounts of
assets, liabilities, revenue and profit or loss;
-
reasons why the presumptions that significant influence is obtained with, and only with, a
holding of 20% share of the voting power have been overcome;
-
any unrecognised share of losses of an associate; and
-
the investor’s share of the associate’s contingent liabilities separate from those which
arise because the investor is jointly and severally liable.
- 30 © PKF International Limited
IFRS 2010
SUMMARY
IAS 29 Financial Reporting in
Hyperinflationary Economies
Overview
IAS 29 sets out the required accounting treatment in the financial statements of an entity where
its functional currency is that of a hyperinflationary economy.
•
In a hyperinflationary economy there is such a rapid loss of purchasing power that
comparisons of amounts relating to transactions occurring at different times, even within the
same accounting period, is misleading
Measurement
•
When an entity’s functional currency is the currency of a hyperinflationary economy, the
financial statements should be stated in terms of the measuring unit current at the end of
the reporting period.
•
If the entity’s presentation currency is different to its functional currency, then paragraphs
42(b) and 43 of IAS 21 specifically apply.
•
The gain or loss on translation should be separately disclosed as part of the profit or loss
for the period.
•
Comparative amounts for prior periods should be restated in the measuring unit current at
the end of the reporting period. The gain or loss on the net monetary position is included in
profit or loss.
•
When an economy ceases to be hyperinflationary, an entity discontinues the preparation
and presentation of financial statements in accordance with IAS 29. The amounts
expressed in the measuring unit current at the end of the previous reporting period are
treated as the basis for the carrying amounts in its subsequent financial statements.
Disclosures
•
The fact that the financial statements and comparative amounts have been restated in
terms of the measuring unit current at the end of the reporting period.
•
Whether the financial statements are based on a historic cost or a current cost approach.
•
The identity and level of the price index at the end of the reporting period and the
movement during the current and prior periods.
Interpretation
IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in
hyperinflationary economies clarifies the requirements under IAS 29 relating to how comparative
amounts in financial statements should be restated when an entity identifies the existence of
hyperinflation in the economy of the currency in which its financial statements are measured (its
‘functional currency’) and how deferred tax items in the opening statement of financial position
should be restated.
- 31 © PKF International Limited
IFRS 2010
SUMMARY
IAS 31 Interests in Joint Ventures
Overview
IAS 31 sets out the required accounting treatment for interests in joint ventures regardless of the
structures or the forms under which the joint venture activities take place. It does not apply to
investments held by a venture capital organisation, mutual fund, unit trust, and similar entity that
are at fair value through profit or loss in accordance with IAS 39.
Definitions
•
Joint control – the contractually agreed sharing of control over an economic activity which
exists only when strategic financial and operating decisions relating to the activity require
the unanimous consent of the parties sharing control (the venturers).
•
Joint venture – a contractual arrangement whereby two or more parties undertake an
economic activity that is subject to joint control.
•
IAS 31 identifies three broad types of joint ventures and sets out different accounting
treatments for each type:
•
-
Jointly controlled operations – the provision of the venturers own assets and resources
to a joint venture without the creation of a separate entity.
-
Jointly controlled assets – the joint control (and often joint ownership) of one or more
assets dedicated to the purposes of the joint venture.
-
Jointly controlled entities – a joint venture involving the establishment of a separate
entity in which each venturer has an interest.
Proportionate consolidation – a method of accounting whereby a venturer's share of each of
the assets, liabilities, income and expenses of a jointly controlled entity is combined line by
line with similar items in the venturer's financial statements or reported as separate line
items in the venturer's financial statements.
Jointly controlled operations
•
A venturer should recognise in both its separate and consolidated financial statements:
-
the assets that it controls and the liabilities that it incurs; and
-
the expenses that it incurs and its share of the income that it earns from the sale of
goods or services by the joint venture.
Jointly controlled assets
•
A venturer should recognise in both its separate and consolidated financial statements:
-
its share of the jointly controlled assets, classified according to the nature of the assets;
-
any liabilities that it has incurred;
-
its share of any liabilities incurred jointly with the other venturers in relation to the joint
venture;
-
any income from the sale or use of its share of the output of the joint venture, together
with its share of any expenses incurred by the joint venture; and
-
any expenses that it has incurred in respect of its interest in the joint venture.
Jointly controlled entities
•
An interest in a jointly controlled entity should be recognised using either proportionate
consolidation or the equity method except:
-
where the investor is a parent taking the exemption from producing consolidated
accounts in accordance with paragraph 10 of IAS 27;
-
where the financial statements constitute separate financial statements per IAS 27;
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IFRS 2010
SUMMARY
IAS 31 Interests in Joint Ventures
•
-
where the investment is classified as held for sale in accordance with IFRS 5; or
-
where the investor takes the exemption from proportionate consolidation and equity
accounting, which is available when all the criteria in paragraph 2 (c) of IAS 31 are met.
A company that is not a parent company must proportionately consolidate or equity account
for any interests in jointly controlled entities unless the exemption under paragraph 2 (c) is
taken.
•
The equity method is set out and explained in IAS 28 (see IAS 28 summary).
•
Proportionate consolidation requires the venturer to recognise its share of the jointly
controlled entity’s assets, liabilities, income and expenses on a line by line basis, and
present them combined with its own assets, liabilities, income and expenses or as separate
line items.
•
A venturer shall discontinue the use of proportionate consolidation from the date on which it
ceases to have joint control over a jointly controlled entity. A venturer shall discontinue use
of the equity method from the date on which it ceases to have joint control over, or have
significant influence in, a jointly controlled entity.
•
In the venturer’s separate financial statements, interests in jointly controlled entities should
be accounted for either at cost or as investments under IAS 39.
Transactions between venturers and joint ventures
•
Where a venturer sells to a joint venture, and has transferred the significant risks and
rewards of ownership, it should recognise the proportion of any gain or loss attributable to
the other venturers.
•
When a venturer purchases from a joint venture, the venturer should only recognise its
share of the joint ventures gain or loss from the transaction when the venturer resells the
asset to a third party.
Disclosures
•
IAS 31 sets out a number of detailed disclosures including:
-
a listing and description of interests in significant joint ventures and the proportion of
ownership interest held in jointly controlled entities;
-
where jointly controlled entities are proportionately consolidated or equity accounted,
aggregate amounts of current assets, current liabilities, long-term assets, long-term
liabilities, income and expenses relating to those entities;
-
aggregate amounts of contingent liabilities where the probability of loss is not remote,
showing separately those incurred in relation to its interests in joint ventures, its share of
those incurred by the joint ventures themselves and those arising because the venturer
is contingently liable for liabilities of other venturers; and
-
aggregate amounts of capital commitments, showing separately those of the venturer in
relation to its interests in joint ventures and its share of those of the joint ventures
themselves.
Interpretation
SIC 13 Jointly controlled entities – non-monetary contributions by venturers clarifies that
recognition of proportionate share of gains or losses on contributions of non-monetary assets is
generally appropriate.
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I IFRS 2010
SUMMARY
IAS 32 Financial Instruments: Presentation
Overview
IAS 32 sets out the principles for presenting financial instruments as liabilities or equity, for
classifying interest, dividends, gains and losses and for offsetting financial assets and liabilities.
Scope
• IAS 32 applies to all types of financial instruments except:
-
those interests in subsidiaries, associates and joint ventures that are accounted for in
accordance with IAS 27, IAS 28 or IAS 31;
-
employers’ rights and obligations under employee benefit plans;
-
contracts for contingent consideration in a business combination;
-
insurance contracts as defined by IFRS 4 and financial instruments that are within the
scope of IFRS 4 because they contain a discretionary participation feature;
-
financial instruments arising from share-based payment transactions; and
-
financial instruments, contracts and obligations under share-based payment
transactions.
Definitions
•
Financial instrument – any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.
•
•
•
Financial asset – any asset that is:
-
cash;
-
an equity instrument of another entity;
-
a contractual right to receive a financial asset from another entity, or to exchange
financial assets or liabilities under potentially favourable conditions;
-
a contract that will or may be settled in the entity’s own equity instruments, and is a nonderivative for a variable number of instruments, or a derivative that will or may be settled
other than by exchange of a fixed amount of cash or other financial asset for a fixed
number of the entity’s own equity instruments.
Financial liability – any liability that is:
-
a contractual obligation to deliver cash or other financial asset to another entity, or to
exchange financial assets or liabilities under potentially unfavourable conditions; or
-
a contract that will or may be settled in the entity’s own equity instruments, and is a nonderivative for a variable number of instruments, or a derivative that will or may be settled
other than by exchange of a fixed amount of cash or other financial asset for a fixed
number of the entity’s own equity instruments.
Equity instrument – any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities.
Presentation
•
Financial instruments are classified, from the perspective of the issuer, as financial assets,
financial liabilities and equity instruments in accordance with the substance of the
contractual arrangement and the definitions above.
•
One of the key indicators for an instrument to be classified as an equity instrument is the
absence of any unavoidable obligation to deliver cash or other financial asset. However,
even in the absence of such an obligation, an instrument would be a financial liability if it
may be settled by issuing a variable number of the entity’s own equity instruments.
- 34 © PKF International Limited
I IFRS 2010
SUMMARY
IAS 32 Financial Instruments: Presentation
•
Compound financial instruments may contain both a liability and an equity component.
•
The classification of a financial instrument is governed by its substance rather than its legal
form. This is determined by considering all the terms and conditions of the contractual
arrangement.
•
For example, a contractual provision requiring an entity to redeem preference shares for a
determinable amount at a determinable date (or at the holder’s request) means the issuer
does not have an unconditional right to avoid delivering cash, and hence the shares are
classified as liabilities.
•
Even if no obligation to redeem exists, the instrument may still contain a liability component
if the entity is required to pay fixed or determinable dividends.
•
A financial instrument that both creates a liability of the entity and also grants an option to
the holder to convert it into equity instrument of the entity (e.g. ordinary shares) is a
compound financial instrument which must be separated into its component parts.
•
Subject to certain strict conditions, some puttable financial instruments and financial
instruments that impose on the entity an obligation to deliver to another party a pro rata
share of the net assets of the entity only on liquidation should be classified as equity.
Treasury shares
•
Where an entity reacquires its own equity instruments (‘treasury shares’) they must not be
shown as an asset but must be deducted from equity. No gain or loss may be recognised in
profit or loss on the sale, purchase, issue or cancellation of an entity’s own equity
instruments.
Interest, dividends, gain an losses
•
Interest, dividends, losses and gains relating to financial liabilities are recognised as income
or expense in profit or loss. Distributions to holders of equity instruments are debited
directly to equity, net of any related income tax benefit.
Offsetting a financial asset and a financial liability
•
Financial assets and financial liabilities are offset when and only when:
•
-
there is a legally enforceable right to set off the amounts; and
-
the entity intends to settle on a net basis, or release the asset and settle the liability
simultaneously.
Therefore, where an entity has multiple bank accounts, some of which are in an overdraft
position, they may only be shown net where the entity intends to settle on a net basis.
Interpretations
IFRIC 2 Members’ share in co-operative entities and similar instruments considers the
application of the principles of IAS 32 and IAS 39 to members’ shares in co-operative entities,
and, in particular, their classification as liabilities or equity.
Future changes
In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues.
For rights issues offered for a fixed amount of foreign currency current practice appears to
require such issues to be accounted for as derivative liabilities. The amendment states that if
such rights are issued pro rata to an entity's all existing shareholders in the same class for a
fixed amount of currency, they should be classified as equity regardless of the currency in which
the exercise price is denominated. This change is effective for periods commencing on or after 1
February 2010.
- 35 © PKF International Limited
IFRS 2010
SUMMARY
IAS 33 Earnings per Share
Overview
IAS 33 sets out the principles to be applied in the determination and presentation of earnings per
share (EPS).
Scope
IAS 33 must be applied by publicly traded entities and by entities that file or are in the
•
process of filing financial statements with a regulatory organisation for the purpose of
issuing shares in a public market and any other entities voluntarily presenting EPS.
•
Where an entity prepares both consolidated and separate financial statements, IAS 33
need be presented only on the basis of the consolidated information. The EPS information
presented in consolidated financial statements must only be based on consolidated
information.
Definitions
• Dilution – a reduction in earnings per share or an increase in earnings per share resulting
from the assumption that convertible instruments are converted, options are exercised or
ordinary shares are issued upon satisfaction of specified conditions.
•
Potential ordinary shares – a financial instrument or other contract that may entitle its holder
to ordinary shares.
•
Contingent share agreement – an agreement to issue shares that is dependent on
satisfaction of specified conditions.
Calculation of basic EPS
Basic earnings per share is calculated by dividing profit or loss attributable to ordinary
•
equity holders of the parent entity (the numerator) by the weighted average number of
ordinary shares outstanding (the denominator) during the period.
•
The profit or loss attributable to the parent entity is adjusted for the after-tax amounts of
preference dividends, differences arising on the settlement of preference shares and other
similar effects of preference shares, where the preference shares are classified as equity.
•
The weighted average number of ordinary shares outstanding during the period is the
number of ordinary shares outstanding at the beginning of the period, adjusted by the
number of ordinary bought back or issued during the period multiplied by a time-weighting
factor.
Diluted EPS
Diluted earnings per share is calculated by adjusting the profit or loss attributable to
•
ordinary equity holders of the parent entity, and the weighted average number of ordinary
shares outstanding, for the effects of all dilutive potential ordinary shares.
•
The profit or loss attributable to ordinary equity holders of the parent entity, as calculated for
basic earnings per share, is adjusted for the after-tax effects of:
-
any dividends or other items related to dilutive potential ordinary shares deducted in
arriving at profit or loss attributable to ordinary equity holders;
-
any interest recognised in the period related to dilutive potential ordinary shares; and
-
any other changes in income or expense that would result from the conversion of the
dilutive potential ordinary shares.
- 36 © PKF International Limited
IFRS 2010
SUMMARY
IAS 33 Earnings per Share
•
The number of ordinary shares is the weighted average number of ordinary shares
outstanding as calculated for basic earnings per share, plus the weighted average number
of ordinary shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
•
Potential ordinary shares are treated as dilutive when their conversion to ordinary shares
would decrease earnings per share or increase loss per share from continuing operations
(e.g. options and warrants, convertible instruments, contingently issuable shares).
•
The standard provides detailed guidance on the impact of options, warrants, convertible
instruments, contracts with settlement options and written put options.
•
Retrospective adjustments are required where the number of ordinary or potential ordinary
shares increases as a result of a capitalisation, bonus issue or share split, or reduces as
result of a reverse share split, even where the change occurs after the end of the reporting
period but before the financial statements are authorised for issue.
Presentation
•
An entity must present, for each class of ordinary shares, on the face of the statement of
comprehensive income with equal prominence basic and diluted earnings per share
amounts for:
-
profit or loss attributable to ordinary equity holders; and, if presented,
-
profit or loss from continuing operations.
•
If an entity reports a discontinued operation, it must also disclose basic and diluted earnings
per share for the discontinued operation. This can be disclosed either on the face of the
statement of comprehensive income or in the notes.
•
If an entity discloses amounts per share other than those defined in the standard, they may
be presented in the notes but not on the face of the statement of comprehensive income.
Such amounts should use the same weighted average number of shares as for EPS, with
basic and diluted amounts per share given equal prominence. If the numerator is not a line
item reported on the face of the statement of comprehensive income, reconciliation to such
an item must be given.
Disclosures
The numerators used and a reconciliation of these amounts to profit or loss attributable to
•
the parent entity for the period.
•
The weighted average number of shares used as the denominators in calculating basic and
diluted EPS and a reconciliation of the two amounts.
•
Instruments including contingently issuable shares that could potentially dilute EPS in the
future but were not included in any EPS calculation as they are anti-dilutive for the periods
presented.
•
A description of ordinary and potential ordinary transactions after the end of the reporting
period that would have changed the calculations had they occurred before the financial year
end date.
- 37 © PKF International Limited
IFRS 2010
SUMMARY
IAS 34 Interim Financial Reporting
Overview
IAS 34 sets out the minimum content of interim financial reports which are required or intended
to comply with International Financial Reporting Standards and the principles for recognition and
measurement therein.
Scope
•
IAS 34 does not specify which entities must publish interim financial reports, how
frequently, or how soon after the end of an interim period. Those are matters that are
usually specified by local regulators and/or legislation. IAS 34 applies if an entity is required
or elects to publish an interim financial report in accordance with International Financial
Reporting Standards.
Definitions
•
Interim financial report – either a complete set or a set of condensed financial statements
for an interim period.
•
Interim period – a reporting period shorter than a full financial year.
Contents
•
The minimum content of an interim financial report is defined as:
-
a condensed statement of financial position;
-
a condensed statement of comprehensive income;
-
a condensed statement showing changes in equity;
-
a condensed statement of cash flows; and
-
selected explanatory notes.
•
Condensed statements should include, at a minimum, each of the headings and subtotals
that were included in its most recent annual financial statements and selected explanatory
notes.
•
Interim reports should include interim financial statements (condensed or complete) for
periods as follows:
•
-
a statement of financial position at the end of the current interim period, and a
comparative statement of financial position as of the end of the most recent full financial
year;
-
statement of comprehensive income for the current interim period and cumulatively for
the current financial year to date, with comparative statement of comprehensive income
for the comparable interim periods of the immediately preceding financial year;
-
a statement of changes in equity cumulatively for the current financial year to date, and
a comparative statement for the comparable year-to-date period of the prior year; and
-
a statement of cash flows cumulatively for the current financial year to date, and a
comparative statement for the comparable year-to-date period of the prior financial year.
The notes to the interim financial statements should disclose any events or transactions
that are material to understanding the current interim period, and should include as a
minimum:
-
a statement that accounting policies are consistent with most recent annual statements,
or descriptions of the nature and effect of any changes;
-
explanations of any seasonality or cyclicality;
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SUMMARY
IAS 34 Interim Financial Reporting
-
nature and amount of items unusual because of their nature, size or incidence;
-
nature and amount of changes in estimates;
-
raising or repayment of finance, both debt and equity;
-
dividends paid;
-
segmental disclosures including revenue from external customers, intersegment
revenues, a measure of segment profit or loss, total assets, any material changes since
the last annual statements and a reconciliation of the segmental disclosures to the year
end primary financial figures disclosed;
-
material events occurring after the interim financial reporting date;
-
changes in the composition of the entity and/or group; and
-
changes in contingent liabilities or contingent assets.
Basis of preparation
•
Materiality in interim reports is assessed in relation to the interim period financial data.
•
An entity should apply the same accounting policies in its interim financial statements as in
its latest annual financial statements.
•
Measurements for interim reporting purposes should be made on a year-to-date basis.
•
Although IAS 34 is primarily concerned with the disclosures required in interim financial
statements, it also requires disclosure in the annual accounts of estimates that have
changed significantly during the final interim period of a financial year.
•
The interim financial report should include a statement of compliance with IAS 34.
Interpretation
IFRIC 10 Interim financial reporting and impairment clarifies that an impairment of goodwill
recognised in interim financial statements cannot be subsequently reversed.
- 39 © PKF International Limited
IFRS 2010
SUMMARY
IAS 36 Impairment of Assets
Overview
IAS 34 sets out the procedures that an entity should apply to ensure that its assets are carried at
no more than their recoverable amount.
Scope
•
IAS 36 applies to property, plant and equipment, intangible assets and financial assets
classified as subsidiaries, associates and joint ventures.
Definitions
•
Impairment loss – the amount by which the carrying amount of an asset or a cashgenerating unit exceeds its recoverable amount.
•
Recoverable amount – the higher of an asset’s fair value less costs to sell and its value in
use.
•
Value in use – the present value of estimated future cash flows from an asset or CGU.
expected to arise from the use of the asset and from its disposal at the end of its useful life.
•
Cash-generating unit – the smallest group of assets that generates largely independent
cash flows. Cash flows from a group of assets may be interdependent due to operational or
contractual factors.
Timing of impairment reviews
•
At each financial reporting date, the entity should review assets for any indications of
impairment. If an impairment is indicated, the recoverable amount should be calculated and
compared to the carrying amount.
•
•
Additionally, the recoverable amount of the following assets should be compared at least
annually to their carrying amounts:
-
goodwill;
-
indefinite life intangible assets; and
-
intangible assets not yet available for use.
The recoverable amount should be estimated for individual assets where possible. If it is
not possible to estimate the recoverable amount of an individual asset, the entity should
determine the recoverable amount of the CGU to which the asset belongs.
Indicators of impairment
•
IAS 36 identifies the following non-exhaustive list of indicators of impairment:
-
a decline in asset market value;
-
significant changes in the environment (technological, market, economic or legal);
-
increases in market interest rates or other market rates of return;
-
the entity’s net assets exceed its market capitalisation;
-
evidence of obsolescence or damage to the asset;
-
significant adverse changes in the extent or manner of use of the asset;
-
worsening economic performance of the asset; or
-
dividends from subsidiaries, associates or joint ventures.
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IFRS 2010
SUMMARY
IAS 36 Impairment of Assets
Identifying carrying value of CGUs
•
Goodwill should be allocated to CGUs or a group of CGUs on the date of acquisition at the
lowest level it is monitored for internal management purposes. Goodwill should be
allocated to CGUs owned before the acquisition, if such CGUs will benefit from the
synergies of the business combination.
•
Corporate assets (e.g. head office) should be allocated to all CGUs that benefit from such
assets on a reasonable and consistent basis.
Calculation of value in use
•
The discount rate used should be a pre-tax rate that reflects the current market
assessments of the time value of money and the risks specific to the asset. It should be
independent of the entity’s particular capital structure.
•
The cash flows used should include cash inflows from continuing use of the asset, any cash
outflows necessary to generate them and any flows associated with its ultimate disposal.
They should be based on the most recent management approved forecasts and exclude
those flows associated with asset enhancement, but may include expected maintenance to
maintain current level of performance. Future tax and financing flows should be ignored.
Recognition of impairments and reversals
•
Impairment losses should be immediately recognised in full in profit or loss, except to the
extent they represent the reversal of a previous upward revaluation when they should be
recognised where the revaluation gain was first recognised.
•
A reversal of a previous impairment loss of an asset other than goodwill should be
recognised in profit or loss, but only to the extent that the asset is restated to the carrying
amount that would have been determined (net of amortisation or depreciation) had no
impairment loss been recognised. Impairment losses recognised on goodwill should never
be reversed in subsequent periods.
•
An impairment loss on a CGU is allocated to the assets of the unit in the following order:
•
-
first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit;
-
then, to the other assets of the CGU pro rata on the basis of the carrying amount of
each asset in the unit.
When allocating an impairment loss on a CGU the entity should not reduce the carrying
amount of an asset below its recoverable value
Disclosures
•
IAS 36 sets out a number of detailed disclosures including:
-
the amount of impairment losses and reversals by class of asset;
-
the amount of impairment losses and by segment where IAS 14 or IFRS 8 are applied;
-
details of the nature of, and reasons for, any material impairment losses recognised or
reversed in the period;
-
detailed explanations of the methods and estimates used in calculating any impairment
losses or reversals; and
-
estimates used to measure recoverable amounts of CGUs containing goodwill or
intangible assets with indefinite useful lives.
Interpretation
IFRIC 10 Interim financial reporting and impairment clarifies that an impairment of goodwill
recognised in interim financial statements cannot be subsequently reversed.
- 41 © PKF International Limited
IFRS 2010
SUMMARY
IAS 37 Provisions, Contingent Liabilities
and Contingent Assets
Overview
IAS 37 sets out the required accounting treatment and disclosures for provisions, contingent
liabilities and contingent assets.
Scope
•
IAS 37 applies to all provisions, contingent liabilities and contingent assets except those
resulting from executory contracts that are not onerous and those covered by other
standards such as IAS 39, IFRS 3 and IAS 19.
Definitions
•
A liability – a present obligation of the entity arising from past events which is expected to
be settled by the outflow of economic benefits.
•
A provision – a liability of uncertain timing or amount.
•
A contingent liability – a possible obligation arising from past events whose existence will
be confirmed only by the occurrence or non-occurrence of some uncertain future event not
wholly within the entity’s control, or a present obligation where payment is not probable or
the amount cannot be measured reliably.
•
A contingent asset – 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.
•
A constructive obligation – an obligation that derives from an entity’s actions where:
-
the entity has indicated to other parties (by a pattern of past practice, published policies
or a current statement) that it will accept certain responsibilities; and
-
as a result, the entity has created in the other parties a valid expectation it will discharge
those responsibilities.
Recognition
•
An entity must recognise a provision if, and only if:
-
a present obligation (legal or constructive) has arisen as a result of a past event (the
obligating event);
-
an outflow of economic benefit to settle the obligation is probable (“more likely than
not”); and
-
the amount of the obligation can be estimated reliably.
•
A contingent liability, being a possible obligation, is not recognised but is disclosed unless
the possibility of an outflow of economic benefits is remote.
•
A contingent asset should not be recognised but should be disclosed where an inflow of
economic benefits is probable.
Measurement
•
The amount recognised as a provision should be the best estimate of the expenditure
required to settle the present obligation at the financial reporting date, that is, the amount
that an entity would rationally pay to settle the obligation at the end of the financial reporting
period or to transfer it to a third party.
- 42 © PKF International Limited
IFRS 2010
SUMMARY
IAS 37 Provisions, Contingent Liabilities
and Contingent Assets
•
The estimate is made by the management of the entity but in light of all available evidence,
including that received after the end of the financial reporting date, and may be
supplemented by the evidence of independent experts.
•
Uncertainties surrounding the amount should be dealt with according to the circumstances.
For example, where there are discrete possible outcomes to which probabilities can be
assigned an expected value method of weighting outcomes by their respective probabilities
is appropriate.
•
Where the effect of the time value of money is material, the provisions should be
discounted using a pre-tax discount rate that reflects the current market assessments of the
time value of money and the risks specific to the liability.
•
When reimbursement of the amounts provided for is virtually certain (e.g. under an
insurance contract), a separate asset should be recognised. In the statement of
comprehensive income the expense relating to the provision and the amount recognised as
a reimbursement may be shown net.
•
Provisions must be reviewed at each financial reporting date and the amount adjusted to
reflect the current best estimate.
Specific applications
•
No provision should be made for future operating losses, including those relating to a
restructuring, as they do not meet the definition of a liability at the end of the financial
reporting period.
•
Provisions should be made for onerous contracts, being contracts where the unavoidable
future costs under the contract exceed the expected future economic benefits (e.g. a leased
property sub-let at a lower rent).
•
A restructuring is a sale or termination of a line of business, closure of business locations,
changes in management structure or a fundamental reorganisation of the company.
•
A provision for restructuring costs is recognised only when the general recognition criteria
are met. More specifically, a constructive obligation only arises when a detailed formal plan
is in place and it has begun or been announced to those affected by it. A board decision is
not enough. Restructuring provisions should include only direct expenditures caused by the
restructuring, not costs that associated with the ongoing activities of the entity.
•
No obligation arises for the sale of an operation until there is a binding sale agreement.
Disclosures
•
IAS 37 sets out detailed disclosures regarding the nature, amount and related uncertainties
of provisions and any disclosed contingent liabilities and contingent assets.
Interpretations
IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities clarifies the
impact on the impact of changes in estimates of future decommission and similar costs on the
carrying values of provisions and related property, plant and equipment.
IFRIC 5 Rights to Interests arising from decommissioning, restoration and environmental
rehabilitation funds clarifies that IAS 37 should be applied in accounting for a contributors
interests in such funds, unless the fund represents a subsidiary, associate or joint venture.
IFRIC 6 Liabilities arising from participating in a specific market – waste electrical and electronic
equipment provides specific guidance on liabilities arising as a result of the European Union’s
Directive on Waste Electrical and Electronic Equipment.
- 43 © PKF International Limited
IFRS 2010
SUMMARY
IAS 38 Intangible Assets
Overview
IAS 38 sets out the required accounting treatment for intangible assets.
Scope
•
IAS 38 applies to intangible assets other than financial assets, the recognition and
measurement of exploration and evaluation assets (IFRS 6), expenditure on the
development and extraction of non-regenerative resources, and those to which other
specific standard apply, e.g. IFRS 3 applies to goodwill arising on a business combination.
Definitions
•
An intangible asset – an identifiable non-monetary item without physical substance, which
is within the control of the entity and is capable of generating future economic benefits for
the entity.
•
An active market – a market in which the items traded are homogenous, willing buyers and
sellers can be found at any time and prices are available to the public.
•
Research – original planned investigation undertaken with the prospect of gaining new
scientific or technical knowledge and understanding.
•
Development – the application of research findings or other knowledge to a plan or design
for the production of new or substantially improved materials, devices, products, processes
or services before the start of commercial production.
Recognition criteria
•
An intangible asset is recognised if, and only if, all of the following criteria are met:
•
-
the asset meets the definition of an intangible asset;
-
it is probable that future economic benefits that are attributable to the asset will flow to
the entity; and
-
the cost of the asset can be measured reliably.
An intangible asset is identifiable if:
-
it is separable, i.e. it could be separated from the entity and sold, transferred licensed
rented or exchanged, whether individually or together with a related contract, asset or
liability; or
-
it arises from contractual or legal rights.
•
If an intangible item does not meet the criteria for recognition as an asset, the expenditure
is recognised as an expense when incurred. Such expenditure cannot be subsequently
included in the cost of an intangible asset at a later date.
•
In accordance with IFRS 3, it is always deemed probable that economic benefits
attributable to an intangible asset that was acquired as part of a business combination will
flow to the entity Furthermore, the cost of the asset is always considered capable of
reliable measurement.
•
Internally generated goodwill, brands, mastheads, publishing titles, customer lists and
similar items and amounts incurred on research or during the research phase of an internal
project are not recognised as assets.
•
An intangible asset arising from development is recognised if, and only if, each of the
following can be demonstrated:
-
the technical feasibility of completing the asset;
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IFRS 2010
SUMMARY
IAS 38 Intangible Assets
-
its intention to complete and use or sell the asset;
-
its ability to use or sell the asset;
-
how the asset will generate future economic benefit;
-
the availability of sufficient resources to complete the development ant us or sell the
asset;
-
the ability to measure reliably the expenditure incurred on the asset during its
development.
Measurement
•
An intangible asset should be initially recognised at cost and subsequently carried at:
•
-
cost, less any accumulated amortisation and impairment losses; or
-
revalued amount, less any subsequent accumulated amortisation and impairment
losses.
An intangible asset can only be revalued if there is an active market for the asset. The
revalued amount is the intangible asset’s fair value at the date of revaluation and must be
determined by reference to an active market.
Amortisation and impairment
•
An entity should assess whether the useful life of an intangible asset is finite or indefinite;
the useful life is indefinite if there is no foreseeable limit to the period over which the asset
is expected to generate net cash flows.
•
An intangible asset with an indefinite useful life is not amortised, but is tested for
impairment at least annually.
•
The depreciable amount of an intangible asset with a finite life is amortised on a systematic
basis over its useful life.
•
Impairments of intangible assets are recognised in accordance with IAS 36 Impairment of
Assets.
Disclosures
•
IAS 38 sets out a number of detailed disclosures including:
-
amortisation methods, estimates, amounts and accumulated balance at beginning at
end of period;
-
a reconciliation of carrying amounts at the beginning at end of the period;
-
information on any revalued intangible assets; and
-
the aggregate amount of research and development expensed in the period.
Interpretations
SIC 32 Intangible assets - web site costs clarifies that an entity’s own web site that arises from
development and is for internal or external access is an internally generated intangible asset that
is subject to the requirements of IAS 38.
- 45 © PKF International Limited
IFRS 2010
SUMMARY
IAS 39 Financial Instruments: Recognition
and Measurement
Overview
IAS 39 sets out the required accounting treatment for recognising and measuring financial
assets, financial liabilities and some contracts to buy or sell non-financial items.
Scope
•
IAS 39 applies when recognising and measuring all types of financial instruments except
where other standards specifically apply. For example IAS 39 does not apply to:
-
interests in subsidiaries, associates and joint ventures that are accounted for in
accordance with IAS 27, IAS 28 or IAS 31;
-
rights and obligations under leases accounted for under IAS 17 (with some exceptions);
-
equity instruments issued by the entity (including options and warrants);
-
insurance contracts as defined by IFRS 4 Insurance Contracts; and
-
financial instruments, contracts and obligations under share-based payment transactions
(see IFRS 2).
Definitions
•
The definitions of financial instruments, assets and liabilities are given in the IAS 32
summary. The classifications of financial assets and liabilities used in IAS 39 are defined
when introduced below.
•
Amortised cost – the amount measured at initial recognition minus principal repayments,
plus or minus the cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount, minus any reduction for
impairment or uncollectibility.
•
The effective interest rate – the rate that exactly discounts estimated cash flows associated
with the instrument to the carrying value of the financial instrument.
•
Fair value – the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction. The standard
provides guidance on how this is determined in certain situations.
•
Derivative – a financial instrument or other contract with the following characteristics:
•
-
its value changes in response to some other variable, provided in the case of a nonfinancial variable it is not specific to one of the contracting parties;
-
it requires no or little initial net investment; and
-
it is settled at a future date.
Embedded derivative – a component of a hybrid or combined contract that also includes a
non-derivative host contract with the effect that some of the cash flows of the combined
contract vary in a way similar to a stand-alone derivative.
Reclassifications
•
Non-derivative financial assets (other than those designated at fair value through profit or
loss) may be reclassified out of the fair value through profit or loss category, but only in
certain limited circumstances. Similarly, a financial asset may be reclassified from the
available-for-sale category to the loans and receivables category, if the financial asset
would have met the loans and receivables definition had it not been designated as available
for sale, and there is an intention and ability to hold said asset for the foreseeable future.
- 46 © PKF International Limited
IFRS 2010
SUMMARY
IAS 39 Financial Instruments: Recognition
and Measurement
Recognition and de-recognition
•
A financial asset or liability is recognised when the entity becomes a party to the instrument
contract.
•
A financial liability is derecognised when the liability is extinguished.
•
A financial asset is derecognised when, and only when:
•
-
the contractual rights to the cash flows from the asset expire; or
-
the entity transfers substantially all the risks and rewards of ownership of the asset; or
-
the entity transfers the asset, while retaining some of the risks and rewards of
ownership, but no longer has control of the asset (ie the transferee has the ability to sell
the asset). The risks and rewards retained are recognised as an asset.
IAS 39 sets out detailed accounting requirements where an entity makes a transfer of a
financial instrument that does not qualify for de-recognition. These requirements are
summarised in the flowchart extracted from the application guidance in IAS 39 and attached
at the end of this summary.
Categorisation
•
Financial instruments are categorised as:
-
assets and liabilities at fair value through profit and loss account which includes all
financial assets and liabilities held for trading, all derivatives unless forming part of a
designated hedge and other assets and liabilities which, subject to strict criteria set out
in the standard, have been so designated;
-
held to maturity financial assets, which are non-derivative financial assets with fixed or
determinable payments and maturity that the entity has the positive intention and ability
to hold to maturity. If any assets in this class are, in fact, not held to maturity the entity
must reclassify all assets in the class and is forbidden from using the classification again
for two years;
-
loans and receivables, which are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market;
-
available for sale financial assets which includes those designated as such and all nonderivative financial assets, not otherwise classified; and
-
other financial liabilities (ie liabilities not held for trading or otherwise designated as at
fair value through profit and loss account).
Measurement
•
Financial assets and liabilities are initially recognised at fair value. Subsequent
measurement depends on how the financial instrument is categorised:
-
-
At amortised cost using the effective interest method for those categorised as
-
held-to-maturity investments;
-
loans and receivables; and
-
other financial liabilities.
At fair value for those categorised as:
-
assets and liabilities classified as being at fair value through profit or loss (with fair
value changes recognised in profit or loss for the period); and
- 47 © PKF International Limited
IFRS 2010
SUMMARY
IAS 39 Financial Instruments: Recognition
and Measurement
-
•
available-for-sale financial assets (with fair value changes, other than impairment
losses and foreign exchange gains and losses, recognised directly in equity until
disposal).
If there is objective evidence that a financial asset is impaired, the carrying amount of the
asset is reduced and an impairment loss is recognised.
Hedge accounting
•
Strict conditions must be met before hedge accounting is applied:
-
formal designation and documentation of a hedge at inception;
-
the hedge is expected to be highly;
-
any forecast transaction being hedged is highly probable;
-
hedge effectiveness can be measured reliably; and
-
the hedge must be assessed on an ongoing basis and be highly effective.
•
For a fair value hedge, the fair value movements on both the hedging instrument and the
hedged item are recognised in profit or loss.
•
For a cash flow hedge, fair value movements on the part of the hedging instrument that is
effective are recognised in equity until such time as the hedged item affects profit or loss.
Any ineffective portion of the fair value movement is recognised in profit or loss.
•
A hedge of a net investment in a foreign operation is accounted for in the same way as a
cash flow hedge.
Embedded derivatives
•
Embedded derivatives should be separately accounted for if the combined instrument is not
measured at fair value through profit or loss and has different economic characteristics to
the embedded derivative it contains.
Interpretations
Appended to the standard are detailed application and implementation guidance and illustrative
examples. This guidance is very useful when applying the standard.
IFRIC 2 Members’ share in co-operative entities and similar instruments considers the
application of the principles of IAS 32 and IAS 39 to members’ shares in co-operative entities
which have certain characteristics, and the circumstances in which those features affect their
classification as liabilities or equity.
IFRIC 9 Reassessment of embedded derivatives clarifies that the assessment of whether a
contract contains an embedded derivative is made at the time the entity becomes a party to the
contract. Subsequent reassessment is prohibited unless there is a significant change to the
terms of the contract.
Future changes – IAS 39 replacement project
The IASB issued a new partial IFRS on the classification and measurement of financial assets,
representing the completion of the first of three phases to replace IAS 39 Financial Instruments:
Recognition and Measurement with a new standard - IFRS 9 Financial Instruments. The
partially complete IFRS 9 was available for early adoption for 2009 year end financial
statements. Subsequent proposals will address measurement of financial liabilities, the
impairment methodology and hedging. When complete, IFRS 9 is expected to be effective for
periods commencing on or after 1 January 2013..
- 48 © PKF International Limited
IFRS 2010
SUMMARY
IAS 39 Financial Instruments: Recognition
and Measurement
Step 1
Step 2
Step 3
Consolidate all subsidiaries (including any SPE)
Determine whether the flowchart should be applied to
a part or all of an asset (or group of similar assets)
Have the rights to the cash flows from
the asset expired?
Yes
Derecognise the asset.
No
Step 4
Has the entity transferred its rights to receive
the cash flows from the asset?
No
Yes
Has the entity assumed an obligation
to pay the cash flows from the asset that meets
the conditions in paragraph 18?
No
Continue to recognise the
asset.
Yes
Step 5
Has the entity transferred substantially
Yes
De-recognise the asset.
all risks and rewards?
No
Has the entity retained substantially
all risks and rewards?
Yes
Continue to recognise
the asset
No
De-recognise the asset.
No
Has the entity retained control
of the asset?
Yes
Continue to recognise the asset to the extent of the
continuing involvement.
- 49 © PKF International Limited
IFRS 2010
SUMMARY
IAS 40 Investment Property
Overview
IAS 40 sets out the required accounting treatment for investment properties and related
disclosure requirements.
Scope
•
IAS 40 applies to all investment property other than biological assets and mineral rights and
mineral reserves. It applies to investment property interests held under leases, but does not
cover aspects of lease accounting specifically covered in IAS 17.
•
Furthermore, IAS 40 covers investment property held by all entities and is not limited to
entities whose main activities are in this area.
•
IAS 40 applies to property that is being constructed or developed for future use as
investment property.
Definitions
•
Investment property – land or a building (or part thereof) or both land and buildings held to
earn rentals or for capital appreciation or both, rather than for use in the operations
(production, supply or administration). The investment property may be held by the owner
or by a lessee under a finance lease.
•
Property held under an operating lease may be classified as investment property provided
if, and only if, the property would otherwise meet the definition, the operating lease is
accounted for as if it was a finance lease and the lessee uses the fair value model. This
optional classification is available on a property by property basis.
Measurement
•
Investment property is measured initially at cost, including transaction costs.
•
Where the investment property interest is held under a lease, initial cost is the lower of the
property’s fair value and the present value of the minimum lease payments (see IAS 17
summary).
•
An investment property should be subsequently measured at either:
-
fair value with changes in fair value recognised in the statement of comprehensive
income (fair value model); or
-
depreciated cost less any accumulated impairment losses (cost model).
•
As stated above, the fair value model must be applied any property interest held by a
lessee under an operating lease that has been classified as investment property.
•
An entity should apply the model chosen to all its investment property, except:
-
for all investment property backing liabilities linked to the fair value of, or returns from, a
group of specified assets including that investment property. The measurement model
(either fair value or cost) for such investment property as a class may be different to that
chosen for other investment properties; and
-
investment property classified as held for sale and accounted for in accordance with
IFRS 5.
- 50 © PKF International Limited
IFRS 2010
SUMMARY
IAS 40 Investment Property
•
•
A change from one model to the other model should be made only if the change will result
in a more appropriate presentation, which is highly unlikely for a change from the fair value
model to the cost model.
If an entity determines that the fair value of an investment property under construction is not
reliably determinable but expects the fair value of the property to be reliably determinable
when construction is complete, it shall measure that investment property under construction
at cost until either its fair value becomes reliably determinable or construction is completed
(whichever is earlier).
Transfers
•
Transfers to and from investment property shall be made when, and only when, there is
change in use, as evidenced by:
-
the commencement or end of owner-occupation;
-
the commencement of development with a view to sale;
-
the commencement of an operating lease to another party; or
-
the end of construction or development.
Disclosures
• A description of the measurement model applied, including material assumptions,
depreciation methods and rates, valuation models applied and details on the qualifications
and independence of valuer used.
•
Amounts recognised in profit or loss, analysed between rental income, operating expenses
(separately for properties that generated income in the period and those that did not) and
cumulative fair value change.
•
Restrictions on the realisation of investment property or remittance of rentals and disposal
proceeds.
•
Detailed reconciliations of opening and closing carrying amounts for investment property
accounted for under each model.
•
An entity that chooses the cost model should disclose the fair value of its investment
property.
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IFRS 2010
SUMMARY
IAS 41 Agriculture
Overview
IAS 41 sets out the required accounting treatment for agricultural activity.
Scope
•
IAS 41 applies to the following when they relate to agricultural activity:
-
biological assets;
-
agricultural produce at the point of harvest; and
-
government grants.
Definitions
•
Agricultural activity – the management of the biological transformation of living animals or
plants (biological assets) into agricultural produce, or into additional biological assets.
•
Biological assets – living animals and plants.
•
Agricultural produce – the harvested product from biological assets.
Accounting for agricultural activity
•
Biological assets are required to be measured on initial recognition and thereafter at fair
value less estimated point-of-sale costs, except when fair value cannot be measured
reliably on initial recognition.
•
Any gains or losses from recognising changes in fair value less estimated point-of-sale
costs of biological assets should be recognised within profit or loss for the period.
•
Agricultural produce is measured initially at the point of harvest at fair value less estimated
point-of-sale costs. After that it falls outside the scope of IAS 41 and is treated in
accordance with IAS 2 Inventories.
•
IAS 41 does not define point-of-sale costs, but states that they include commissions to
brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer
taxes, but exclude transport and other costs necessary to get assets to a market.
•
The Standard does not deal with processing of agricultural produce after harvest; for
example, processing grapes into wine and wool into yarn.
•
IAS 41 includes a rebuttable presumption that fair value of biological assets can be
measured reliably and sets out a hierarchy of methods for determining such fair value:
•
-
If an active market exists for a biological asset or agricultural produce, the quoted price
in that market should be used.
-
If no active market exists, market pricing information should be used where available.
-
If no active market exists and market pricing information is not available, the present
value of expected net cash flows from the asset discounted at a current marketdetermined pre-tax rate should be used.
The presumption that fair value of a biological asset can be measured reliably can be
rebutted only on initial recognition. In such a case,
-
the biological asset is measured at its cost less any accumulated depreciation and any
accumulated impairment losses; and
-
once the fair value is reliably measurable, an entity should measure it at its fair value
less estimated point-of-sale costs.
- 52 © PKF International Limited
IFRS 2010
SUMMARY
IAS 41 Agriculture
Government grants
•
An unconditional government grant related to a biological asset measured at fair value less
estimated point-of-sale costs is recognised as income when, and only when, the grant
becomes receivable.
•
If a government grant is conditional, including where it requires an entity not to engage in
specified agricultural activity, an entity should recognise the grant as income when, and
only when, the conditions attaching to the grant are met.
•
If a government grant relates to a biological asset measured at its cost less any
accumulated depreciation and any accumulated impairment losses, IAS 20 Accounting for
Government Grants and Disclosure of Government Assistance is applied instead.
Disclosures
•
IAS 41 sets out numerous detailed disclosures including:
-
aggregate gain or loss arising on initial recognition of biological assets and agricultural
produce and changes in fair value less estimated point-of-sale costs of biological assets;
-
the nature of the entity’s activities and non-financial measures of the amount of
biological assets and agricultural produce;
-
the methods and significant assumptions applied in determining fair values;
-
the fair value less estimated point-of sale costs of agricultural produce harvested during
the period;
-
reconciliation of changes in the carrying values of biological assets during the period;
-
details on biological assets where fair values cannot be measured reliably; and
-
details on recognised grants and attached conditions and contingencies.
- 53 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 1 First-time Adoption of IFRS
Overview
•
IFRS 1 sets out the accounting treatments and disclosures specifically required when an
entity first applies IFRS in preparing its financial statements.
Scope
•
IFRS 1 applies whenever an entity prepares its first IFRS financial statements and each
interim financial report, if any, that the entity presents under IAS 34 Interim Financial
Reporting for part of the period covered by its first IFRS financial statements.
Definitions
•
An entity’s first IFRS financial statements – the first annual statements in which the entity
adopts IFRS by an explicit and unreserved statement of compliance with IFRS.
•
The date of transition – the beginning of the earliest period for which an entity presents full
comparative information under IFRS in its first IFRS financial statements.
General requirements
•
An entity is required to prepare and present an opening IFRS statement of financial
position at the date of transition to IFRS.
•
•
Generally, IFRS 1 requires an entity to comply with each IFRS effective at the reporting
date for its opening IFRS statement of financial position and for each period presented in its
first IFRS financial statements. This requires the entity to:
-
recognise all assets and liabilities whose recognition is required by IFRS;
-
not recognise items as assets or liabilities if IFRS do not permit such recognition;
-
reclassify items that it recognised under previous GAAP as one type of asset, liability or
component of equity, that are a different type of asset, liability or component of equity
under IFRS; and
-
apply IFRS in measuring all recognised assets and liabilities.
The transition provisions in other IFRS do not apply to a first-time adopter’s transition to
IFRS.
Optional exemptions
•
IFRS 1 grants limited exemptions from the retrospective application of IFRS. These
Exemptions are available in specified areas where the cost of complying would be likely to
exceed the benefits to users of financial statements. Exemptions exist in the following areas
and should be considered in detail in each case, to determine whether an entity will take
advantage of them:
-
business combinations;
-
fair value or revaluation as deemed cost for certain non-current assets;
-
defined benefit employee benefit plans;
-
cumulative translation differences;
-
compound financial instruments;
-
assets and liabilities of subsidiaries, associates and joint ventures;
-
designation of previously recognised financial instruments;
-
share-based payment transactions;
-
insurance contracts;
- 54 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 1 First-time Adoption of IFRS
-
changes in existing decommissioning, restoration and similar liabilities included in the
cost of property pant and equipment;
-
leases;
-
fair value measurement of financial assets and financial liabilities;
-
service concessions; and
-
cost of a subsidiary, associate and joint venture in separate financial statements.
Mandatory exceptions
•
The IFRS prohibits retrospective application of some of the requirements of IFRS in relation
to:
-
de-recognition of financial assets and liabilities;
-
hedge accounting;
-
non-controlling interests; and
-
accounting estimates.
Disclosure
•
IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS
affected the entity’s reported financial position, financial performance and cash flows. This
involves producing reconciliations of:
•
•
-
equity at the transition date and the end of the comparative period; and
-
profit or loss for the comparative period.
In addition, any interim reports for parts of the period covered by the first IFRS financial
statements should also provide reconciliations of:
-
equity at the end of the comparable interim period; and
-
profit or loss for the comparable interim period (current and year-to-date where more
than one interim report is produced each year).
Further disclosures are required where any of the optional exemptions from retrospective
application have been taken.
- 55 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 2 Share-based Payment
Overview
IFRS 2 sets out the required accounting treatment for share-based payment transactions.
Scope
•
IFRS 2 applies to all transfers of an entity’s equity instruments in payment for goods and
services, or the incurring of liabilities for amounts that are based on the value of the entity’s
equity instruments in return for goods and services, except where goods are received as
part of a business combination or the transaction falls within the scope of paragraphs 8-10
of IAS 32 or paragraphs 5-7 of IAS 39. This includes situations where there are no
specifically identifiable goods or services, but other circumstances indicate that goods or
services have or will be received.
•
For the purposes of the standard share-based payment transactions include transfers by a
shareholder and transfers of equity instruments of other entities within the same group.
The standard also provides specific guidance on group cash-settled share-based payment
transactions.
•
IFRS 2 applies to grants of shares, share options or other equity instruments that were
granted after 7 November 2002 and had not yet vested at the effective date of the IFRS. It
applies retrospectively to liabilities arising from share-based payment transactions existing
at the effective date.
Definitions
•
Equity-settled share-based payment transaction – a transaction in which the entity receives
goods or services as consideration for equity instruments of the entity (including shares and
share options)
•
Cash-settled share-based payment transaction – a transaction in which the entity acquires
goods or services by incurring liabilities to the supplier of those goods and services for
amounts that are based on the price of the entity’s shares or other equity instruments of the
entity.
•
Vesting conditions – conditions that must be satisfied before the counterparty becomes
entitled to receive cash, other assets or equity instruments under a share-based
arrangement.
•
Market conditions – vesting conditions relating to the market price of the entity’s equity
instruments (such as achieving share price or total shareholder return targets).
•
Non-market conditions – vesting conditions other than market conditions (such as
remaining in employment for a specific period of time or achieving earnings targets).
Recognition
•
All share-based payment transactions must be recognised when the goods or services are
received. The expense or asset, as appropriate, should be measured using fair values.
•
The corresponding credit entry should be recognised in equity for equity-settled
transactions, or within liabilities for cash-settled transactions.
Equity-settled transactions
•
In principle, the fair value of the goods or services received should be measured directly,
unless that fair value cannot be estimated reliably. If the entity cannot estimate the fair
value of the goods and services it should measure their value and the corresponding
increase in equity indirectly by reference to the fair value of the equity instruments granted.
- 56 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 2 Share-based Payment
•
There is the rebuttable assumption that for transactions with employees, the fair value of
the goods or services cannot be estimated directly. For equity-settled share-based payment
transactions with employees the measurement of the transaction amount is based on the
fair value of the equity instruments granted, as measured at the date of grant. IFRS 2
contains guidance on estimating the fair value of shares and share options granted,
focusing on the specific terms and conditions that are common features of a grant of shares
or share options to employees.
•
Any modification, cancellation or settlement of a grant of equity instruments to employees is
generally required by the IFRS to recognise the services received measured at grant date
fair value of the equity instruments granted.
Vesting conditions
•
Market conditions are considered as part of the valuation of the equity instruments granted
at the date of grant. Non-market conditions are taken into account by adjusting the number
of equity instruments included in the measurement of the transaction so that, ultimately, the
transaction amount is based on the number of equity instruments that eventually vest, or
would otherwise have vested if all market conditions had been met.
Cash-settled transactions
•
The goods or services acquired and the liability incurred should be measured at the fair
value of the liability. The liability recognised should be remeasured at each financial year
end, with any changes in fair value recognised in profit or loss for the period.
Choice of settling the transaction in cash or equity instruments
•
If the counterparty can choose whether the transaction is settled with cash or equity
instruments, the entity has granted a compound financial instrument. The equity and debt
components should be separately accounted for as equity-settled and cash-settled sharebased payments respectively.
•
If the entity can choose whether to settle the transaction in cash or by issuing equity
instruments, the entity should account for that transaction as a cash-settled share-based
payment if it has, in substance, a present obligation to settle in cash. Otherwise it should
account for the transaction as an equity-settled transaction.
Disclosures
•
Information should be disclosed that allows users to understand:
-
the nature and extent of share-based payment arrangements that existed during the
period;
-
how the fair value of the goods or services received or the fair value of the equity
instruments granted during the period was determined; and
-
the effect of share-based payment transactions on the entity’s profit or loss for the period
and on its financial position.
- 57 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 3 (2008) Business Combinations
Overview
IFRS 3 (2008) sets out the required accounting treatment for business combinations, with
specific exceptions. It is effective for years commencing on or after 1 July 2009 in respect of
business combinations arising after the standard is first applied.
Scope
•
IFRS 3 applies to transactions or other events in which an acquirer obtains control of one or
more businesses. It does not apply to the formations of joint ventures, combinations of
businesses under common control or to the acquisition of an asset or group of assets that
do not constitute a business.
Definitions
•
A business combination – a transaction or other event in which an acquirer obtains control
of one or more businesses.
•
Business – an integrated set of activities and assets that is capable of being conducted and
managed so as to provide a return to investors or other owners, members or participants.
•
Control – the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities.
•
Non-controlling interest – the equity in a subsidiary not attributable, directly or indirectly, to
a parent.
Method of accounting
•
All business combinations within the scope of IFRS 3 must be accounted for using the
purchase method from the date the acquirer obtains control (the acquisition date). An
acquirer must be identified for all business combinations.
Goodwill
•
Goodwill is recognised at the acquisition date measured as follows:
Fair value of consideration transferred
PLUS
The amount of any non-controlling interest (see below)
PLUS
The fair value of the acquirer’s previously held equity interest in the acquiree (if any)
LESS
The acquisition date amounts of the identifiable net assets acquired (see below)
•
If the above calculation results in a negative amount, the gain arising on such a “bargain
purchase” is recognised in the statement of comprehensive income on the acquisition date,
subject to the amounts in the calculation first being reviewed to ensure their accuracy.
•
It should be noted that, following the 2008 revision to IFRS 3, acquisition costs are
expensed as incurred and are not included in the calculation of goodwill.
Consideration transferred
•
Assets transferred, liabilities assumed and equity interest issued as consideration are
measured at their fair value at the acquisition date, except for:
-
exchanges of share based payment awards that should be measured in accordance with
IFRS 2; and
assets or liabilities that remain within the combined entity after the business combination
that should be measured at their carrying amounts immediately before the acquisition
date.
- 58 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 3 (2008) Business Combinations
•
Contingent consideration is measured at its fair value at the acquisition date. Any
subsequent re-measurements, other than those arising as a result of additional information
about the facts and circumstances that existed at the acquisition date do not change the
measurement of goodwill.
Non-controlling interests
•
For each business combination, non-controlling interests may be measured either at
acquisition date fair value or at the non-controlling interest’s proportionate share of the
acquiree’s identifiable net assets
Business combination achieved in stages
•
If the acquirer already held some equity interest in the acquiree immediately before the
acquisition date then this must be re-measured at its acquisition date fair value and include
in the goodwill calculation as shown above, recognising any gain or loss compared to prior
carrying value in the statement of comprehensive income as would be required if the
acquirer has disposed directly of the interest.
Measurement of the identifiable assets acquired and liabilities assumed
•
The identifiable assets acquired and liabilities assumed must be measured at their
acquisition date fair value subject to the following items which are subject to specific
measurement and/or recognition rules as detailed in the standard:
•
-
Contingent liabilities
-
Income taxes
-
Employee benefits
-
Indemnification assets
-
Reacquired rights
-
Share-based payment awards
-
Assets held for sale
If the initial accounting for a business combination is incomplete by the end of the reporting
period in which it occurs (e.g. fair values have not been determined for all acquired assets)
provisional amounts should be used. These may be adjusted in the “measurement period”,
which ends one year from the acquisition date (or when all information sought about the
facts and circumstances that existed at the acquisition date have been received, if earlier).
Determining what is part of the business combination transaction
•
Care must be taken to ensure that any amounts that are not part of the business
combination transaction are treated separately in accordance with the relevant IFRSs. Such
amounts might relate, inter alia, to pre-existing relationships between the transacting
parties, remuneration of employees or former owners for post-acquisition services (e.g.
payments contingent on future employment) and reimbursement of the former owners for
paying the acquirer’s acquisition costs..
Disclosures
• The entity should disclose sufficient information to enable users of the financial statements
to evaluate the nature of business combinations in the period and after the financial
reporting date but before the financial statements were authorised for issue and the financial
effects of gains, losses, error corrections and other adjustments recognised in the period
relating to business combinations.
- 59 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 4 Insurance Contracts
Overview
IFRS 4 sets out the required accounting treatment for insurance contracts by any entity that
issues such contracts.
IFRS 4 is phase I of the IASB’s project on insurance contracts, and is seen as a “stepping stone”
to a final standard to be released following the completion of phase II. An entity is temporarily
exempt from some requirements of other IFRS, including the requirement in IAS 8 to consider
the Framework in selecting accounting policies for insurance contracts.
Scope
•
IFRS 4 applies to insurance contracts issued, reinsurance contracts held and financial
instruments issued with a discretionary participation feature. It does not apply to:
-
product warranties issue directly by a manufacturer, dealer or retailer (see IAS 18 and
IAS 37);
-
employee benefits under IAS 19 or IFRS 2, or retirement benefit obligations when
reported by a retirement benefit plan;
-
contractual rights or obligations contingent on the future use of an asset or a lessee’s
residual value guarantee under a finance lease (see IAS 17, IAS 18 and IAS 38);
-
financial guarantee contracts unless the issuer has previously asserted that it regards
such contracts as insurance contracts and has accounted for them accordingly. In such
a case issuer may make an irrevocable choice on a contract-by-contract basis, whether
to apply IFRS 4, or IAS 32, IAS 39 and IFRS 7;
-
contingent consideration relating to a business combination; or
-
direct insurance contracts in which the entity is the policyholder.
Relaxation of IAS 8 requirements
•
IFRS 4 exempts an insurer from applying the criteria in paragraphs 10-12 of IAS 8
Accounting policies, changes in accounting estimates and errors, to its accounting policies
for insurance contracts it issues and reinsurance contracts that it holds. These paragraphs
are concerned with the relevance and reliability of information and the hierarchy of
reference sources to be addressed in choosing policies.
•
Therefore, subject to their conformity with the additional criteria below, an insurer may
continue with the accounting policies applied prior to the introduction of IFRS 4.
Accounting policy
•
Although the requirements of IAS 8 are relaxed, IFRS 4 does lay down some rules in the
choice of accounting policy.
•
Provisions for possible future claims under insurance contracts (such as catastrophe
provisions and equalisation provisions) that are not in existence at the reporting date should
not be recognised as a liability.
•
The adequacy of recognised insurance liabilities should be assessed at each reporting date.
•
Any impairment of the reinsurance assets of a cedant must be recognised;
•
Insurance liabilities must be removed from an insurer’s statement of financial position when,
and only when, they are discharged or cancelled, or expire.
•
Reinsurance assets must not be offset against related insurance liabilities. Similarly, income
and expenses from reinsurance contracts must not be offset against the expense or income
from the related insurance contracts.
- 60 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 4 Insurance Contracts
•
Furthermore, IFRS 4 clarifies that:
-
an entity need not account for an embedded derivative separately at fair value if the
embedded derivative meets the definition of an insurance contract;
-
an entity is required to unbundle (i.e. account separately for) deposit components of
some insurance contracts;
-
an entity may apply ‘shadow accounting’ (that is, account for both realised and
unrealised gains and losses on assets in the same way relative to measurement of
insurance liabilities); and
-
discretionary participation features contained in insurance contracts or financial
instruments may be recognised separately from the guaranteed element and classified
as a liability or as a separate component of equity.
Changing accounting policies
•
An entity should change its accounting policies for insurance contracts only if, as a result,
its financial statements are more relevant and no less reliable, or more reliable and no less
relevant.
•
•
In particular, an entity must not introduce, although it may continue to use accounting
policies that involve, any of the following practices,:
-
measuring insurance liabilities on an undiscounted basis;
-
measuring contractual rights to future investment management fees at an amount that
exceeds their fair value as implied by a comparison with current fees charged by other
market participants for similar services;
-
using non-uniform accounting policies for the insurance contracts of subsidiaries; and
-
measuring insurance liabilities with excessive prudence.
There is a rebuttable presumption that an insurer’s financial statements will become less
relevant and reliable if it introduces an accounting policy that reflects future investment
margins in the measurement of insurance contracts.
Disclosures
•
IFRS 4 requires an insurer to disclose:
-
information that identifies and explains the amounts in its financial statements arising
from insurance contracts; and
-
information that enables users of its financial statements to evaluate the nature and
extent of risks arising from insurance contracts.
- 61 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
Overview
IFRS 5 sets out the required accounting treatment for non-current assets held for sale, and the
presentation and disclosure of discontinued operations.
Definitions
•
Discontinued operations – a component of an entity that either has been disposed of or is
classified as held for sale, and:
•
-
represents a separate major line of business or geographical area of operations,
-
is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations, or
-
is a subsidiary acquired exclusively with a view to resale.
Disposal group - a group of assets, possibly with some associated liabilities, which an entity
intends to dispose of in a single transaction
Classification as held for sale and presentation
•
An asset or 'disposal group' must be classified as held for sale if, and only if, the following
conditions are met at the end of the financial period:
-
the asset is available for immediate sale;
-
the sale is highly probable, in that management are committed to a plan to sell, an active
programme to locate a buyer has been initiated and the asset is being actively marketed
for sale at a sales price reasonable in relation to its fair value;
-
the sale is highly probable within 12 months of classification as held for sale (subject to
limited exceptions); and
-
actions required to complete the plan indicate that it is unlikely that plan will be
significantly changed or withdrawn.
•
Operations that are expected to be wound down or abandoned do not meet the definition of
held for sale. However, they may be classified as discontinued once abandoned.
•
Assets classified as held for sale and the assets included within a disposal group classified
as held for sale must be presented as a line item on the face of the statement of financial
position, separate from other current assets but within the total thereof.
•
Similarly, liabilities of a disposal group must be presented as a line item on the face of the
statement of financial position, separate from other current liabilities but within the total
thereof.
Measurement of assets or disposal groups classified as held for sale
•
Immediately before the classification of the asset as held for sale, the carrying amount of
the asset should be measured in accordance with applicable IFRS.
•
After their classification as held for sale non-current assets or disposal groups should be
measured at the lower of carrying amount and fair value less costs to sell.
•
An impairment loss is recognised in the profit or loss for any initial and subsequent writedown of the asset or disposal group to fair value less costs to sell.
•
Where assets previously carried at fair value are classified as held for sale the requirement
to deduct costs to sell from fair value will result in an immediate charge to profit or loss.
- 62 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
•
If there is a subsequent increases in fair value less costs to sell of an asset classified as
held for sale, the increase can be recognised in the profit or loss to the extent that it is not in
excess of the cumulative impairment loss that has been recognised in accordance with
IFRS 5 or previously in accordance with IAS 36.
•
Non-current assets or disposal groups that are classified as held for sale should not be
depreciated.
Discontinued operations
•
Assets and liabilities relating to a discontinued operation should be presented on the face of
the statement of financial position in the same way as a disposal group, in that they should
be presented as line items, separate from but within the total of current assets and current
liabilities respectively.
•
The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or
loss recognised on the measurement to fair value less cost to sell or on the disposal of the
discontinued operation should be presented as a single amount on the face of the
statement of comprehensive income. Prior year comparatives should also be shown for all
operations discontinued at the reporting date.
•
The net cash flows attributable to the operating, investing, and financing activities of a
discontinued operation shall be separately presented on the face of the statement of cash
flows or disclosed in the notes. Prior year comparatives should also be shown for all
operations discontinued at the reporting date.
•
IFRS 5 prohibits the retroactive classification as a discontinued operation when the
discontinued criteria are met after the financial reporting date.
Disclosures
•
With respect to discontinued operations, the single amount presented on the statement of
comprehensive income should be further analysed into:
-
revenue, expenses, pre-tax profit or loss, and related income taxes; and
-
gain or loss recognised on the measurement to fair value less cost to sell or on the
disposal of the discontinued operation and related income taxes.
•
The above disclosures must cover both the current and all prior periods presented in the
financial statements, and may be shown in the notes or on the face of the statement of
comprehensive income in a section clearly identified as discontinued operations.
•
In the period in which a non-current asset or disposal group has been classified as held for
sale or sold, the entity must disclose:
-
a description of the non-current asset or disposal group;
-
a description of the facts and circumstances of the sale, or leading to the expected
disposal (including the expected manner and timing of the disposal);
-
the gain or loss recognised on measurement and remeasurement to fair value less costs
to sell; and
-
the segment, if any, in which the asset or disposal group is presented.
- 63 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 6 Exploration for and evaluation of
mineral resources
Overview
IFRS 6 does not provide comprehensive guidance on the financial reporting for the exploration
for and evaluation of mineral resources. Instead, it is designed to improve aspects of
comparability in financial reporting across the sector without specifying the precise recognition
and measurement practices to be applied.
Scope
• IFRS 6 applies only to expenditure incurred on exploration and evaluation of mineral
resources, and does not apply to expenditure before such activities or after the technical
feasibility and commercial viability of extracting a mineral resource are demonstrable.
Definitions
• Exploration for and evaluation of mineral resources – the search for minerals, oil, natural gas
and similar non-regenerative resources after an entity has obtained legal rights to explore in
a specific area, and the determination of the technical feasibility and commercial viability of
extracting the resource.
Relaxation of IAS 8 requirements
•
An entity may develop an accounting policy for exploration and evaluation assets without
specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Error. These paragraphs set out a hierarchy
of sources of guidance that would otherwise be referred to when choosing appropriate
accounting policies to transactions, events or conditions.
•
Therefore an entity may continue to use the accounting policies applied immediately before
the introduction of IFRS 6, subject to meeting certain limited criteria. This includes the
application of the recognition and measurement practices that form part of those accounting
policies.
•
An entity may change it accounting policy for exploration and evaluation expenditure if the
change would make the information presented more relevant to user’s economic decisionmaking and no less reliable, or more reliable and no less relevant.
•
The criteria in IAS 8 should be used in assessing whether any change in policy increases
the relevance and reliability of the information presented, but full compliance with those
criteria is not required.
Presentation
•
An entity should classify exploration and evaluation assets as tangible or intangible
according to the nature of the assets and apply the classification consistently.
Measurement
•
Exploration and evaluation assets must be initially measured at cost
•
Exploration and evaluation assets may be subsequently measured using either the cost
model or the revaluation model.
Impairments
•
Exploration and evaluation assets should be assessed for impairment when facts and
circumstances suggest that the carrying amount of the assets may exceed their recoverable
amount. Where the carrying amount does exceed the recoverable amount any resulting
impairment loss should be measured, presented and disclosed in accordance with IAS 36
Impairment of assets.
- 64 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 6 Exploration for and evaluation of
mineral resources
•
To facilitate such assessments, the entity should determine an accounting policy for
allocating exploration and evaluation assets to cash-generating units or groups of cashgenerating units. The cash-generating units or groups of cash-generating units for this
purpose should not be larger than a segment based on either the entity’s primary or
secondary reporting format determined in accordance with IAS 14 Segment reporting.
Disclosures
•
IFRS 6 requires disclosure of information that identifies and explains the amounts
recognised in its financial statements arising from the exploration for and evaluation of
mineral resources, including:
•
-
the accounting policies for exploration and evaluation expenditures including the
recognition of exploration and evaluation assets; and
-
the amounts of assets, liabilities, income and expense and operating and investing cash
flows arising from the exploration for and evaluation of mineral resources.
Exploration and evaluation assets must be treated as a separate class of assets, with the
relevant disclosures made in accordance with IAS 16 Property, plant and equipment or IAS
38 Intangible assets.
- 65 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 7 Financial Instruments: Disclosures
Overview
IFRS 7 sets out specific required disclosures in relation to financial instruments to enable users
to evaluate:
(a) the significance of financial instruments for the entity’s financial position and performance;
and
(b) the nature and extent of risks arising from financial instruments to which the entity is
exposed during the period and at the reporting date, and how the entity manages those risks
Scope
•
IFRS 7 applies to all financial instruments except:
-
interests in subsidiaries, associates and joint ventures accounted for using IAS 27, IAS
28 and IAS 31;
-
pension scheme rights and obligations accounted for under IAS 19;-
-
insurance contracts as defined in IFRS 4;
-
financial instruments under share-based payment arrangements to which IFRS 2
applies; and
-
instruments that are required to be classified as equity instruments under IAS 32
paragraphs 16A – 16D.
•
It also applies to contracts to buy or sell non-financial items that are within the scope of IAS
39 and to unrecognised financial instruments, such as loan commitments, that are outside
the scope of IAS 39.
•
Where IFRS 7 requires disclosure in respect of a class of financial assets or liabilities
sufficient information must be given to enable reconciliation to the line items presented on
the statement of financial position.
Disclosures on the significance of financial instruments
•
The general requirement is that the entity should disclose information that enables users of
the financial statements to evaluate the significance of financial instruments for the financial
position and performance of the entity. IFRS 7 then stipulates the specific disclosures
necessary to achieve this.
•
•
•
The carrying amount of financial instruments, analysed by category, should be disclosed on
the statement of financial position or in the notes.
IFRS 7 sets out in detail the disclosures required where:
-
a loan or receivable has been designated as at fair value through profit or loss;
-
a financial liability has been designated as at fair value through profit or loss;
-
a financial asset has been reclassified from at fair value to at cost or amortised cost (or
vice versa);
-
financial assets have been transferred in such a way that part or all of them do not
qualify for derecognition;
-
collateral has been pledged or is held;
-
impairments due to credit losses are recognised in a separate allowance account; and
-
there have been defaults and breaches in regard of loans payable.
The entity should disclose separately, either on the face of the statement of comprehensive
income or in the notes:
- 66 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 7 Financial Instruments: Disclosures
-
net gains/losses relating to different specified categories of financial instruments;
-
total interest income and total income expense for financial assets and liabilities not at
fair value through profit and loss;
-
any impairment losses for each class of financial asset; and
-
fee income and expense (unless included in the determination of effective interest rate).
Fair values
•
The fair value of each class of financial instrument should be disclosed is such a way as to
permit comparison with the carrying amounts in the statement of financial position.
•
Where financial instruments are measured in the statement of financial position at their fair
value, the measurements should be classified in accordance with a specified three level
hierarchy that reflects the significance of the inputs used.
•
Detailed disclosures are required in respect of each hierarchical level, with a reconciliation
of opening and closing level 3 balances.
Other disclosures
•
IFRS 7 also requires disclosure regarding:
-
accounting policies in relation to financial instruments; and
-
the extent and nature of hedging arrangements.
Risk disclosures
•
The entity should disclose information that enables users of the financial statements to
evaluate the nature and extent of risks arising from financial instruments to which the entity
is exposed at the reporting date, and how such risks are managed. These risks typically
include, but are not limited to credit risk, liquidity risk and market risk.
•
•
IFRS 7 requires the following qualitative disclosures for each type of risk:
-
details of the exposures to risk and how they arise;
-
the objectives, policies and processes for managing the risk, the methods used to
measure the risk; and
-
any changes to any of these from the previous period.
IFRS 7 also requires quantitative data about its exposure to each type of risk,
concentrations of risk as well as specified disclosures for credit risk, liquidity risk and
market risk. These include but are not restricted to:
- the amount that best represents the entity’s exposure to credit risk;
-
an aged analysis of financial assets that are past due;
-
an analysis of financial assets assessed as impaired;
- an analysis of the maturities of financial liabilities, based on contractual undiscounted
cash flows; and
-
sensitivity analysis showing how equity and profit or loss would be affected by changes
in market risk variables.
•
- 67 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 8 Operating Segments
Overview
IFRS 8 is effective for periods commencing on or after 1 January 2009 and will replace IAS 14
from that date. It sets out the requirements for identifying reportable segments of the entity and
the related disclosures.
Scope
•
IFRS 8 applies to an entity or parent:
-
whose equity or debt securities are traded in a public market; or
- files, or is in the process of filing, its financial statements with a securities commission or
other regulatory organisation for the purpose of issuing its instruments in a public market.
•
Where a financial report contains both the consolidated and separate financial statements of
a parent, the segment information is only required in the consolidated financial statements. If
an entity voluntarily provides information about segments but does not comply with IFRS 8,
it must not describe the information as segmental information.
Definitions
•
An operating segment – a component of an entity:
•
-
that engages in business activities from which it may earn revenues and incur expenses
(including revenue and expenses arising from transactions with other components);
-
whose operating results are regularly reviewed by the entity’s chief operating decision
maker when making decisions on resource allocation and performance assessment; and
-
for which discrete information is available.
In the context of IFRS 8 chief operating decision maker (“CODM”) identifies a function (the
allocation of resources and assessment of the performance of operating segments) rather
than a particular person. In practice the function may be performed by the chief executive
officer, the chief operating officer or a group of directors or others.
Core principle
•
An entity must disclose information to enable users of its financial statements to evaluate
the nature and financial effects of the business activities in which it engages and the
economic environments in which it operates.
Identifying reportable segments
•
An entity should report separately information for operating segments meeting the above
definition or resulting from the aggregation of two or more such segments (see below for
conditions for aggregation) that meet any of the following quantitative thresholds:
-
Its reported revenue, both external and internal to the entity or group, is 10% or more of
combined revenue of all operating segments.
-
Its reported profit or loss is 10% or more of the greater, in absolute amount, of the
combined reported profit of all profit-making operating segments or the combined
reported losses of all loss making operating segments.
-
Its assets are 10% or more of the combined assets of all operating segments.
•
Other segments may be considered reportable if management believes that information
about the segment would be useful to users of the financial statements.
•
Two or more operating segments may be aggregated into a single operating segment if the
aggregation is consistent with the core principle of IFRS 8, the segments have similar
economic characteristics and the segments are similar with respect to:
- 68 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 8 Operating Segments
-
the nature of their products, services and production processes;
-
the type or class of their customers;
-
the methods they use to distribute their products or provide their services; and
-
if applicable, the nature of the regulatory environments in which they operate.
•
If total external revenue attributable to reportable segments is less than 75 per cent of the
entity’s revenue, additional operating segments must be identified as reportable segments
until at least 75 per cent of revenue is included in reportable segments.
•
Segments which are not separately reported (or combined) are combined and disclosed as
in an “all other segments” category separate from any reconciling items.
Disclosures
•
The entity must disclose information on the factor’s used to identify reportable segments,
including the basis of organisation (e.g. by products, by geographical area etc) and the
types of products and services of each reportable segment.
•
•
For each reportable segment the entity must disclose:
-
a measure of profit or loss and total assets; and
-
a measure of liabilities, if such amounts are regularly provide to the CODM.
IFRS 8 lists specific line items that must be disclosed if they are included in the measure of
segment profit or loss or segment assets that is reviewed by the CODM or otherwise
reported to the CODM.
Measurement
•
The amount of each segment item must be the measure reported to the CODM. Where the
CODM makes use of more than one measure of a segment item, the measure most
consistent with the amounts in the financial statements must be reported.
•
The entity must provide detailed explanations of the measurements of segment profit or
loss, segment assets and segment liabilities.
Reconciliations
•
IFRS 8 requires that detailed reconciliations of the amounts reported by segment and the
amounts reported for the entity be given for revenue, profit or loss, total assets, total
liabilities and every other material item of information.
Entity-wide disclosures
•
All entity’s within the scope of IFRS 8, including those with only one reportable segment
must disclose:
-
revenues from external customers as reported in the financial statements, analysed by
product or service, or groups of similar products or services;
-
revenues and certain non-current assets as reported in the financial statements
analysed by geographical area. The analysis should show the amounts attributable to
the entity’s country of domicile and the total for all other countries, as well as amounts
for individual countries where material; and
-
where revenues from a single customer exceed 10% of the entity’s total revenues, a
statement of that fact, total revenues from each such customer and the segment or
segments reporting that revenue.
- 69 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 9 Financial Instruments
Overview
IFRS 9 is effective for periods commencing on or after 1 January 2013 and will replace IAS 39
from that date. Entities can early adopt this part of the standard for years commencing on or
after 1 January 2009. Phase 1 of the project establishes principles for the classification and
measurement of financial assets.
Scope
• IFRS 9 applies to all assets within the scope of IAS 39 Financial Instruments: Recognition
and Measurement.
Initial recognition and measurement
• An entity shall recognise a financial asset in its statement of financial position when, and
only when, the entity becomes party to the contractual provisions of the instrument.
•
At initial recognition, an entity shall measure a financial asset at its fair value plus, in the
case of a financial asset not at fair value through profit or loss transactions costs that are
directly attributable to the acquisition of the financial asset.
Classification
•
An entity shall classify financial assets as subsequently measured at either amortised cost
or fair value on the basis of both:
•
•
-
the entity’s business model for managing the financial assets; and
-
the contractual cash flow characteristics of the financial asset.
A financial asset shall be measured at amortised cost if both of the following are met:
-
the asset is held within a business model whose objective is to hold assets in order to
collect contractual cash flows; and
-
the contractual terms of the financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal amount outstanding.
An entity may, at initial recognition, designate a financial asset as measured at fair value
through profit or loss if doing so significantly reduces a measurement or recognition
inconsistency that would otherwise result from recognising assets on other bases.
Investments in equity instruments
•
IFRS 9 classification principles indicate that all equity instruments should be recognised at
fair value. However, at date of recognition, management has the option of whether to
present gains and losses on equity instruments not held for trading in the statement of other
comprehensive income
Embedded derivatives
• Under IFRS 9, an entity is no longer required to separate embedded derivatives from the
financial asset host.
Reclassifications
• Reclassifications are prohibited by IFRS 9 except in rare circumstances when the entity
changes its business model. These rare reclassifications are applied prospectively.
- 70 © PKF International Limited
IFRS 2010
SUMMARY
IFRS 9 Financial Instruments
Project plan and timeline
•
Overview
- The financial crisis highlighted difficulties users are having in trying to understand and
interpret financial instrument disclosures. As a result IAS 39: Financial instruments Recognition and measurement is being fundamentally reconsidered and rewritten to
make it more principle based and less complex. The replacement will take place in three
phases.
•
Phase 1: Classification and Measurement (summarised above)
- The exposure draft was published in July 2009 and then on 12 November 2009 the
IASB published IFRS 9: Financial Instruments, to complete phase 1 of the project to
replace IAS 39.
•
Phase 2: Amortised cost and Impairment
- On 5 November 2009 the IASB published for public comment the exposure draft IFRS 9:
Financial Instruments: Amortised Cost and Impairment. The ED is open to comment
until 30 June 2010. At the time of writing, the final requirements have not been
published.
•
Phase 3: Hedge accounting
- The IASB is currently conducting outreach with its constituents and intends to issue an
exposure draft on hedge accounting in the third quarter of 2010. At the time of writing,
this exposure draft has not yet been issued.
- 71 © PKF International Limited
IFRS 2010
Standards and interpretations in issue
Standards and interpretations applying for years commencing on or after 1 January 2009
Standard /
Interpretation
IAS 1
Title
Notes
Presentation of financial statements
A revised IAS 1 has been issued which is
effective for periods commencing on or after 1
January 2009.
Discussion paper issued setting out proposals to
introduce cohesiveness and disaggregation as the
two main objectives for financial statement
presentation. Cohesiveness would ensure that a
reader of financial statements can follow the flow
of information through the different statements of
an entity; disaggregation would ensure that items
that respond differently to economic events are
shown separately. To achieve these main
objectives the boards have developed a principlebased format that is presented in the discussion
paper.
IAS 2
IAS 7
IAS 8
IAS 10
IAS 11
IAS 12
Inventories
Statement of cash flows
Accounting policies, changes in accounting estimates and errors
Events after the reporting period
Construction contracts
Income taxes
IAS 16
Property, plant and equipment
- 72 © PKF International Limited
Exposure draft issued setting out proposals to
replace IAS 12 with a new standard. Although the
proposed standard retains the basic IAS 12
approach, the IASB proposes to remove most of
the exceptions in IAS 12, to simplify the
accounting and strengthen the principle in the
standard. In addition, the IASB proposes a
changed structure for the standard that will make
it easier to use.
IFRS 2010
Standards and interpretations in issue
Discussion paper issued setting out proposals for
a new model for lease accounting. The model is
based on the principle that all leases give rise to
liabilities for future rental payments and assets
(the right to use the leased asset) that should be
recognised in an entity's statement of financial
position. The discussion paper deals mainly with
lessee accounting. However, it also describes
some of the issues that will need to be addressed
in a future proposed standard on lessor
accounting.
Exposure draft issued setting out proposals for a
single, contract-based revenue recognition model.
In the proposed model, revenue is recognised
when a contract asset increases or a contract
liability decreases (or some combination of the
two). That occurs when an entity performs by
satisfying an obligation in the contract.
Exposure draft issued setting out proposals to
amend the accounting for defined benefit plans
through which some employers provide long-term
employee benefits.. The ED proposes
improvements to the recognition, presentation,
and disclosure of defined benefit plans. The ED
does not address measurement of defined benefit
plans or the accounting for contribution-based
benefit promises.
IAS 17
Leases
IAS 18
Revenue
IAS 19
Employee benefits
IAS 20
IAS 21
IAS 23
Accounting for government grants and disclosure of government assistance
The effect of changes in foreign exchange rates
IAS 23 amended for periods commencing on or
Borrowing costs
after 1 January 2009 removing the option to
expense borrowing costs incurred on qualifying
assets. Borrowing costs are now required to be
capitalised on such assets
- 73 © PKF International Limited
IFRS 2010
Standards and interpretations in issue
IAS 24 amended for periods commencing on or
after 1 January 2011. The amended standard
provides a partial exemption for government
related entities and has simplified and removed
inconsistencies in the definition of a related party.
IAS 24
Related party disclosures
IAS 26
IAS 27
Accounting and reporting by retirement benefit plans
Consolidated and separate financial statements
IAS 28
IAS 29
IAS 31
Investments in associates
Financial reporting in hyper-inflationary economies
Joint arrangements
- 74 © PKF International Limited
IAS 27 has recently under gone two amendments.
For periods commencing on or after 1 January
2009 all dividends should be recognised as
income in the parent’s own financial statements,
though a subsequent amendment to IAS 36
requires the parent to perform an impairment
review of the carrying value of the investment in
the subsidiary if certain conditions apply.
For periods commencing on or after 1 July 2009
changes in non-controlling interests where there is
no effect on control are accounted for as
adjustments to equity rather than goodwill.
Exposure draft issued setting out proposals to
strengthen and improve the requirements for
identifying which entities a company controls and,
therefore, must include in its consolidated
financial statements. The new standard would
replace IAS 27 and SIC 12.
Exposure draft issued setting out proposals to
remove the option to proportionately consolidate
joint ventures, and enhancing the reporting of
information about joint arrangements.
IFRS 2010
Standards and interpretations in issue
IAS 32
Financial instruments: Presentation
IAS 33
Earnings per share
IAS 34
IAS 36
Interim financial reporting
Impairment of assets
IAS 32 has recently under gone two amendments.
For periods commencing on or after 1 January
2009 certain puttable financial instruments and
certain other financial instruments that impose on
the entity an obligation to deliver to another party
a pro rata share of the net assets of the entity only
on liquidation should be classified as equity.
For periods commencing on or after 1 February
2010 if rights are issued pro rata to an all existing
shareholders in the same class for a fixed amount
of currency, they should be classified as equity
regardless of the currency in which the exercise
price is denominated.
Discussion paper issued setting out proposals to
improve and simplify the distinction between
equity financial instruments and other financial
instruments (non-equity instruments).
Exposure draft issued setting out proposals to
simplify the calculation of EPS and to eliminate
differences between the methods required by
IFRSs and US accounting standards to calculate
EPS.
IAS 36 has recently under gone two amendments.
Dividends from subsidiaries, associates or joint
ventures have been added to the list of indicators
of impairment in certain specific situations.
Estimates used to measure recoverable amounts
of CGUs containing goodwill or intangible assets
with indefinite useful lives have been added to the
disclosure requirements.
Both are applicable for periods commencing on or
after 1 January 2009.
- 75 © PKF International Limited
IFRS 2010
Standards and interpretations in issue
IAS 37
Provisions, contingent liabilities and contingent assets
IAS 38
Intangible assets
IAS 39
Financial Instruments: Recognition and Measurement
IAS 40
Investment Property
IAS 41
Agriculture
- 76 © PKF International Limited
Exposure draft issued setting out proposals for
the replacement of IAS 37, including revised
measurement requirements.
In the light of the comments received, the IASB
has issued revised proposals that include more
guidance on measurement.
Exposure draft issued setting out proposals to
establish whether and how assets and liabilities
resulting from rate-regulated activities should be
recognised and measured under IFRS.
IAS 39 has recently been subject to two
amendments.
For periods commencing on or after 1 July 2008
entities are permitted under certain circumstances
to reclassify financial assets.
For periods commencing on or after 1 July 2009
additional guidance was included on eligible
hedged items.
IAS 39 will be superseded by IFRS 9 which is
being developed in 3 phases. IFRS 9 will be
effective for periods commencing on or after 1
January 2013. Phase 1 has been issued and early
adoption of this phase is permitted for periods
commencing on or after 1 January 2009.
Exposure draft setting out proposals of Phase 2
has been issued.
IAS 40 amended for periods commencing on or
after 1 January 2009 to bring property under
construction or development for future use as an
investment property within its scope.
IFRS 2010
Standards and interpretations in issue
IFRS 1
First-time adoption of IFRS
IFRS 2
Share-based payment
IFRS 1 has recently under gone a number of
amendments.
For periods commencing on or after 1 January
2009 first-time adopters are permitted to use a
deemed cost of either fair value or the carrying
amount under previous accounting practice to
measure the initial cost of investments in
subsidiaries, jointly controlled entities and
associates in the separate financial statements.
For periods commencing on or after 1 July 2009 a
restructured version of IFRS 1 becomes effective.
The revised version has an improved structure but
does not contain any technical changes.
For periods commencing on or after 1 January
2010 two additional exemptions have been added
to IFRS 1 relating to retrospective application of
IFRS to oil and gas assets and to the
reassessment of lease contracts in accordance
with IFRIC 4.
For periods commencing on or after 1 July 2010
first-time adopters are relieved from providing
comparative IFRS 7 enhanced financial
instrument disclosures.
IFRS 2 has recently under gone two
amendments.
For periods commencing on or after 1 January
2009 IFRS 2 was amended to clarify the terms
'vesting conditions' and 'cancellations'.
For periods commencing on or after 1 January
2010 IFRS 2 was amended to clarify how an
individual subsidiary in a group should account for
some share-based payment arrangements in its
own financial statements.
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IFRS 2010
Standards and interpretations in issue
IFRS 3(2008)
Business combinations
IFRS 4
Insurance contracts
IFRS 5
Non-current assets held for sale and discontinued operations
IFRS 6
Exploration and Evaluation of Mineral Resources
IFRS 7
Financial instruments: Disclosure
IFRS 8
Operating segments
- 78 © PKF International Limited
Superseded the previous version of IFRS for
periods commencing on or after 1 July 2009, in
respect of business combinations occurring after
the revised standard is first applicable..
Discussion paper issued setting out proposals as
to how an insurer should measure its insurance
liabilities.
Exposure draft issued setting out proposals to
revise the definition of discontinued operations
and require additional disclosure about
components of an entity that have been disposed
of or are classified as held for sale.
Discussion paper issued setting out proposals
addressing how to estimate and classify the
quantities of minerals or oil and gas discovered;
how to account for minerals or oil and gas
properties; how minerals or oil and gas properties
should be measured; and what information about
extractive activities should be disclosed.
IFRS 7 has recently undergone one key
amendment; for periods commencing on or after 1
January 2009 enhanced disclosures about fair
value and liquidity risk are required.
Superseded IAS 14 for years commencing on or
after 1 January 2009
IFRS 2010
Standards and interpretations in issue
IFRS 9
SIC 7
SIC 10
SIC 12
SIC 13
SIC 15
SIC 21
SIC 25
SIC 27
SIC 29
SIC 31
SIC 32
IFRIC 1
IFRIC 2
IFRIC 4
IFRIC 5
Financial instruments
IFRS 9 will supersede IAS 39 and is being
developed in 3 phases. The new standard will be
effective for periods commencing on or after 1
January 2013. Phase 1 relating to the
classification and measurement of financial
assets has been issued and early adoption of this
phase is permitted for periods commencing on or
after 1 January 2009. Exposure drafts setting out
proposals of Phase 2 and how to account for ‘own
credit risk’ when fair valuing financial liabilities
have been issued.
Introduction of the Euro
Provides guidance on IAS 21
Government assistance - no specific relation to operating activities
Provides guidance on IAS 20
Consolidation - special purpose entities
Provides guidance on IAS 27. Exposure draft
issued setting out proposals to strengthen and
improve the requirements for identifying which
entities a company controls and, therefore, must
include in its consolidated financial statements.
The new standard would replace SIC 12.
Jointly controlled entities- non-monetary contributions of venturers
Provides guidance on IAS 31
Operating leases - incentives
Provides guidance on IAS 17
Income taxes - recovery of revalued non-depreciated assets
Provides guidance on IAS 12
Income taxes - changes in the tax status of an enterprise or its shareholders Provides guidance on IAS 12
Evaluating the substance of transactions in the form of a lease
Provides guidance on IAS 17
Disclosure - service concession arrangements
Provides guidance on IAS 1 and should be read
in conjunction with IFRIC 12
Revenue - barter transactions involving advertising services
Provides guidance on IAS 18
Intangible assets - website costs
Provides guidance on IAS 38
Changes in Existing Decommissioning, Restoration and Similar Liabilities
Provides guidance on IAS 37, inter alia
Members’ Shares in Co-operative Entities and similar instruments
Provides guidance on IAS 32
Determining whether an Arrangement contains a Lease
Provides guidance on IAS 17
Rights to Interests arising from Decommissioning, Restoration and
Provides guidance on IAS 37, inter alia
Environmental Rehabilitation Funds.
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IFRS 2010
Standards and interpretations in issue
IFRIC 6
IFRIC 7
IFRIC 8
IFRIC 9
IFRIC 10
IFRIC 11
IFRIC 12
IFRIC 13
IFRIC 14
IFRIC 15
IFRIC 16
IFRIC 17
IFRIC 18
IFRIC 19
Liabilities arising from participating in a specific market - waste electrical and Provides guidance on 37
electronic equipment
Applying the restatement approach under IAS 29 Financial reporting in
Provides guidance on 29
hyperinflationary economies
Scope of IFRS 2
Withdrawn and incorporated in to IFRS 2,
effective 1 January 2010
Reassessment of embedded derivatives
Provides guidance on IAS 39 and IFRS 1 and 3
Interim financial reporting and impairment
Provides guidance on IAS 34, 36 and 39
IFRS 2: Group and Treasury Share Transactions
Withdrawn and incorporated in to IFRS 2,
effective 1 January 2010
Service Concession Arrangements
Provides guidance on IAS 17, inter alia
Customer Loyalty Programmes
Provides guidance on IAS 18
IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding
Provides guidance on IAS 19
Requirements and their Interaction
Agreements for the Construction of Real Estate
Provides guidance on IAS 11 and 18
Hedges of a Net Investment in a Foreign Operation
Provides guidance on IAS 21 and 39
Distributions of Non-cash Assets to Owners
Provides guidance on IAS 1 and 32
Transfers of Assets from Customers
Provides guidance on IAS 18
Extinguishing Financial Liabilities with Equity Instruments
Provides guidance on IAS 32 and 39, inter alia
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IFRS 2010
Standards and interpretations in issue but not yet effective
Standard /
Interpretation
Title
Ref
Effective years commencing on or after 1 February 2010. Earlier application is permitted.
IAS 32 amendment
Financial instruments: Presentation
Effective years commencing on or after 1 July 2010. Earlier application is permitted.
IFRS 1 amendment
First time adoption of IFRS
IFRIC 19
Extinguishing financial liabilities with equity instruments
IAS 32, 39, inter
alia
Effective years commencing on or after 1 January 2011. Earlier application is permitted.
IAS 24 amendment
Related party disclosures
Effective years commencing on or after 1 January 2013. Earlier application is permitted.
IFRS 9
Financial instruments: Recognition and measurement
- 81 © PKF International Limited
Comment
The amendment clarifies that if rights are issued
pro rata to an all existing shareholders in the
same class for a fixed amount of currency, they
should be classified as equity regardless of the
currency in which the exercise price is
denominated.
First-time adopters are relieved from providing
comparative IFRS 7 enhanced financial
instrument disclosures.
Clarifies the accounting treatment when an entity
renegotiates the terms of a financial liability with
its creditor and the creditor agrees to accept the
entity’s shares or other equity instruments to
settle the financial liability fully or partially.
The amended standard provides a partial
exemption for government related entities and has
simplified and removed inconsistencies in the
definition of a related party
IFRS 9 will supersede IAS 39 and is being
developed in 3 phases. Phase 1 relating to the
classification and measurement of financial assets
has been issued.
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