for Accounting Professionals
IFRS INTRODUCTION
IFRS Introduction
2
IFRS Introduction
IAS 23: Borrowing Costs ............................................................................ 9
IAS 20: Accounting for Government Grants and Disclosure of
Government Assistance ............................................................................. 9
CONTENTS
1
PREFACE .......................................... ERROR! BOOKMARK NOT DEFINED.
4
SPECIAL CASE 1 GROUP ........................................................................... 10
IAS 21: The Effects of Changes in Foreign Exchange Rates .................. 10
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations 10
5
REMUNERATION GROUP ........................................................................... 10
IAS 19: Staff Benefits ............................................................................... 10
IAS 26: Accounting and Reporting by Retirement Benefit Plans ............. 10
IFRS 2: Share-based Payment ................................................................ 10
6
LISTED COMPANY GROUP ........................................................................ 11
IFRS 8: OPERATING Segments .............................................................. 11
IAS 34: Interim Financial Reporting ......................................................... 11
IAS 33: Earnings per Share ..................................................................... 12
7
SPECIAL CASE 2 GROUP ........................................................................... 12
IAS 29: Financial Reporting in Hyperinflationary Economies................... 12
IFRS 1: First-time Adoption of International Financial Reporting Standards
.................................................................................................................. 12
8
DISCLOSURE GROUP ................................................................................ 12
IAS 24: Related Party Disclosure. ............................................................ 12
IAS 10: Events after the Balance Sheet Date .......................................... 12
9
BANKS GROUP ............................................................................................ 13
IFRS 7: Disclosure in the Financial Statements of Banks and Similar
Financial Institutions ................................................................................. 13
IAS 32: Financial Instruments: Disclosure and Presentation ................... 13
IAS 39: Financial Instruments: Recognition and Measurement ............... 13
AN INTRODUCTION TO IFRS .............................................................................. 4
1.1
Scope ........................................................................................... 4
2
3
GROUPING OF IFRS ..................................................................................... 5
2.1
Introductory Standards ................................................................ 5
2.2
Foundation Standards ................................................................. 5
2.3
Property, Plant and Equipment Standards .................................. 5
2.4
Special Case 1 Standards ........................................................... 5
2.5
Remuneration Standards ............................................................. 5
2.6
Listed Company Standards ......................................................... 5
2.7
Special Case 2 Standards ........................................................... 5
2.8
Disclosure Standards ................................................................... 5
2.9
Banking Standards ...................................................................... 5
2.10
Industry Specific Standards ......................................................... 5
2.11
Consolidation Standards.............................................................. 5
2.12
Additional Publications from sources other than IASB ................ 6
OVERVIEW OF THE STANDARDS ............................................................... 6
3.1
Introductory Group ...................................................................... 6
IFRS Framework for the Preparation and Presentation of Financial
Statements ................................................................................................. 6
IAS 1: Presentation of Financial Statements ............................................. 6
IAS 7: Cash Flow Statements .................................................................... 6
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors 7
3.2
Foundation Group ........................................................................ 7
IAS 18: Revenue ........................................................................................ 7
IAS 2: Inventories....................................................................................... 7
IAS 37: Provisions, Contingent Liabilities and Contingent Assets ............. 7
IAS 12: Income Taxes ............................................................................... 8
3.3
Property, Plant and Equipment Group ......................................... 8
IAS 16: Property, Plant and Equipment ..................................................... 8
IAS 36: Impairment of Assets .................................................................... 8
IAS 40: Investment Property ...................................................................... 8
IAS 17: Leases........................................................................................... 8
IAS 38: Intangible Assets ........................................................................... 9
IAS 11: Construction Contracts ................................................................. 9
10
INDUSTRY SPECIFIC GROUP ................................................................ 13
IAS 41: Agriculture ................................................................................... 13
IFRS 4: Insurance Contracts .................................................................... 14
IFRS 6. Exploration for and evaluation of mineral resources ................... 14
11
CONSOLIDATION STANDARDS ............................................................. 14
IFRS 3: Business Combinations .............................................................. 14
12
ADDITIONAL PUBLICATIONS ................................................................. 15
12.1
Illustrative ................................................................................... 15
3
IFRS Introduction
Illustrative Corporate Financial Statements ............................................. 15
IFRS Disclosure Checklist ....................................................................... 15
12.2
Transformation ........................................................................... 15
RAS to IFRS Transformation ................................................................... 15
12.3
Case Studies ............................................................................. 15
IFRS Case Studies .................................................................................. 15
Issues and Solutions for the Pharmaceutical Industry............................. 16
AN INTRODUCTION TO IFRS
A.
Scope
These notes are an unofficial guide to IFRS and complement the series, IFRS
Workbooks for Accounting Professionals. The main objective is to help you
navigate the IFRS standards by grouping them by theme.
The secondary purpose is to highlight how our publications can assist in learning
IFRS. For each Standard there is a workbook, comprising text, examples,
multiple-choice questions and answers.
The architecture of IFRS must be taken as a whole. Financial statements
prepared under IFRS must use all of the applicable standards to be “IFRS
compliant”.
IFRS can be grouped by theme rather than date of publication as published by
IASB.
The themes chosen recognise that some standards, such as ‘Impairment’ interact
with a range of other standards.
4
IFRS Introduction
II. GROUPING OF IFRS
The standards are grouped into twelve themes as follows:
A.
Introductory Standards
IFRS Framework for the Preparation and Presentation of Financial Statements
Main Financial Statements and Accounting Policies:
IAS 1: Presentation of Financial Statements
IAS 7: Cash Flow Statements
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
B.
Foundation Standards
IAS 18: Revenue
IAS 2: Inventories
IAS 37: Provisions, Contingent Liabilities and Contingent Assets
IAS 12: Income Taxes
C.
Property, Plant and Equipment Standards
IAS 16: Property, Plant and Equipment
IAS 36: Impairment of Assets
IAS 40: Investment Property
IAS 17: Leases
IAS 38: Intangible Assets
IAS 11: Construction Contracts
IAS 23: Borrowing Costs
IAS 20: Accounting for Government Grants and Disclosure of Government
Assistance
D.
Special Case 1 Standards
IAS 21: The Effects of Changes in Foreign Exchange Rates
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
E.
Remuneration Standards
IAS 19: Employee Benefits
IAS 26: Accounting and Reporting by Retirement Benefit Plans
IFRS 2: Share-based Payment
F.
Listed Company Standards
IFRS 8: Operating Segments
IAS 34: Interim Financial Reporting
IAS 33: Earnings per Share
G.
Special Case 2 Standards
IAS 29: Financial Reporting in Hyperinflationary Economies
IFRS 1: First-time Adoption of International Financial Reporting Standards
H.
Disclosure Standards
IAS 24: Related Party Disclosure.
IAS 10: Events after the Balance Sheet Date
I.
Banking Standards
IFRS 7: Disclosure in the Financial Statements of Banks and Similar Financial
Institutions
IAS 32: Financial Instruments: Disclosure and Presentation
IAS 39: Financial Instruments: Recognition and Measurement
J.
Industry Specific Standards
IAS 41: Agriculture
IFRS 4: Insurance Contracts
IFRS 6. Exploration for and evaluation of mineral resourses
K.
Consolidation Standards
IFRS 3: Business Combinations
IAS 27: Consolidated and Separate Financial Statements
IAS 28: Investments in Associates
5
IFRS Introduction
IAS 31: Interests in Joint Ventures
Main Financial Statements and Accounting Policies
b.
IAS 1: Presentation of Financial Statements
L.
Additional Publications from sources other than IASB
Illustrative, Checklist
Illustrative Corporate Financial Statements 2004
IFRS Disclosure Checklist 2004
Transformation
RAS to IFRS Transformation
Case Studies
IFRS Case Studies
Issues and Solutions for the Pharmaceutical Industry
III.
A.
c.
As well as financial performance, financial statements also show the results of
management’s stewardship of resources and must provide information on:
(i)
assets;
(ii)
liabilities;
(iii)
equity;
(iv)
income and expenses, including gains and losses;
(v)
other changes in equity; and
(vi)
cash flows.
OVERVIEW OF THE STANDARDS
Introductory Group
a.
IFRS
Framework
for
the
Preparation
Presentation of Financial Statements
and
This framework document deals with:
(i)
(ii)
(iii)
(iv)
IAS 7: Cash Flow Statements
the objective of financial statements;
the qualitative characteristics that determine the usefulness of
information in financial statements;
the definition, recognition and measurement of the elements from
which financial statements are constructed; and
concepts of capital and capital maintenance.
It identifies that IFRS accounts are prepared using the accrual concept and that
financial statements are normally prepared on the assumption that an
undertaking is a going concern, and will continue in operation for the foreseeable
future.
The Framework document is a comprehensive overview of the foundations of
IFRS, and is referred to by the IASB in its deliberations on new standards and
amendments to existing standards.
A complete set of financial statements comprises:
(i)
a balance sheet;
(ii)
an income statement;
(iii)
a statement of changes in equity showing either:
(iv)
all changes in equity, or
(v)
changes in equity (not normal buying and selling);
(vi)
a cash flow statement; and
(vii)
notes, comprising a summary of significant accounting policies, and
other explanatory notes.
IAS 1 AND IAS 7 cover the primary presentation issues of IFRS financial
statements and specify the information that needs to be included in those
statements.
IAS 7 requires the disclosure of information on changes in cash and cash
equivalents by means of a cash flow statement.
This classifies cash flows into:
(i)
operating,
(ii)
investing and
(iii)
financing activities.
Foreign currency cash flows are covered, as are Acquisitions and Disposals of
Subsidiaries and Other Business Units.
6
IFRS Introduction
d.
e.
IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors
Retrospective application and restatement may be new to some of our readers.
Our workbook on IAS 8 provides guidance and examples.
B.
Foundation Group
An undertaking shall disclose in the summary of significant policies:
(i) the measurement bases used in the financial statements; and
(ii) the other policies used, that are relevant to an understanding of the financial
statements.
IAS 8 prescribes the criteria for selecting and changing accounting policies, and
disclosing the effects of estimates and errors.
Accounting policies are rules and practices applied in presenting financial
statements.
A change in accounting estimate is an adjustment of the carrying amount of an
asset or a liability or the consumption of an asset.
Changes in estimates result from new information, or new developments are not
corrections of errors.
Prior-period errors are omissions or misstatements in the financial statements of
prior-periods.
Information that was available, and should have been taken into account, is
classified as an error.
Errors include
(i)
(ii)
(iii)
(iv)
calculation error;
incorrect application of accounting policies;
oversights or misinterpretations;
fraud.
Retrospective application, is applying a new policy as if that policy had always
been applied.
Retrospective restatement is restating financial statements as if a prior-period
error had never occurred.
a.
IAS 18: Revenue
Revenue is income that is derived from ordinary activities of the firm. (See also
IAS 17, 28, 39 & 41 which complement IAS 18 in respect of revenue.)
Income comprises revenue and gains.
The timing of recognition of revenue is a key issue of the standard.
Revenue will be recognised when it is probable that future economic benefits will
flow to the undertaking, and the benefits can be measured.
b.
IAS 2: Inventories
Inventories are:
(i)
(ii)
assets that are held for sale, or being prepared for sale,
materials to be used in the production process or provision of
services.
In the case of the provision of services, inventories include the cost of unbilled
services, (similar to work in progress).
Valuation of inventory at cost, fair value and net realisable value are all discussed
in the workbook.
c.
IAS 37: Provisions,
Contingent Assets
Contingent
Liabilities
and
IAS 37 sets out recognition criteria and measurement bases for provisions,
contingent liabilities and contingent assets and specify the information to be
disclosed in the notes to the financial statements.
7
IFRS Introduction
b.
IAS 36: Impairment of Assets
Provisions are used to provide for future liabilities that are uncertain.
Contingent assets are uncertain cash inflows that may be received.
Contingent liabilities (e.g. guarantees and warranties) do not appear on balance
sheets, but need to be noted in financial statements to enable users to have a
complete picture of the undertaking’s financial position.
d.
IAS 12: Income Taxes
The objective of IAS 36 is to prescribe the procedures to ensure that assets are
carried at no more than their recoverable amount and the disclosures that must
be made.
An asset is described as impaired when its carrying amount exceeds the
recoverable amount (amount to be recovered through use, or sale).
IAS 36 requires the recording of an impairment loss.
c.
IAS 40: Investment Property
IAS 12 prescribes the accounting treatment for income taxes, and the tax
consequences of:
Investment property can be:
(i)
(ii)
Transactions of the current period;
The future liquidation of assets and liabilities.
If liquidation of those assets and liabilities will make future tax payments larger or
smaller, IAS 12 generally requires recording of a deferred tax liability (or deferred
tax asset).
IAS 12 also covers:
(i)
Recognition of deferred tax assets arising from unused tax losses, or
unused tax credits,
(ii)
Presentation of income taxes, and
(iii)
Disclosure of information relating to income taxes.
C.
(i)
(i)
(ii)
(iii)
land, or
a building, or
part of a building, or
both land and building.
It is held by the owner (or by the lessee, under a finance lease) to earn rent, or
for capital appreciation, or both.
It does not include property:
(i)
(ii)
(iii)
for use in the production, supply of goods, services,
or for administrative purposes; or
for sale in the ordinary course of business.
Property, Plant and Equipment Group
d.
a.
IAS 17: Leases
IAS 16: Property, Plant and Equipment
The main issues in accounting for property, plant and equipment are:
(i)
the recognition of the assets;
(ii)
the determination of their carrying amounts;
(iii)
the depreciation charges; and
(iv)
impairment losses to be recognised.
Leases involve the owner of an asset renting it to others for payment.
Short-term rental agreements are mostly accounted for as ‘operating leases’, in
the same way as rental payments are booked.
Long-term rentals (‘finance leases’) have seen dramatic growth over the last 50
years.
8
IFRS Introduction
IAS 17 addresses this issue by accounting for finance leases in a similar manner
to the purchase of an asset, matched by a loan for the same amount.
The asset appears on the balance sheet, even though the lessee does not own it.
Construction contracts include:
(i)
Operating leases are treated as expense items in the income statement.
(ii)
e.
IAS 38: Intangible Assets
services related to the construction, such as project managers and
architects;
contracts for demolition, or restoration, of assets and the restoration
of the environment.
g.
IAS 23: Borrowing Costs
IAS 38 requires an undertaking to record an intangible asset only if:
(i)
(ii)
future benefits of the asset will flow to the undertaking and
the cost of the asset can be measured.
This requirement applies whether an intangible asset is acquired externally, or
generated internally.
IAS 38 includes additional recognition criteria for internally-generated intangible
assets.
Borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset form part of the cost of that asset.
Other borrowing costs are recognised as an expense.
A qualifying asset is one that takes a long time to prepare for its intended sale, or
use.
Examples of Qualifying Assets:
After initial recognition, IAS 38 requires an intangible asset to be measured at:
1. Inventories that require a long time to bring them to a saleable condition.
(i)
(ii)
cost, less any accumulated amortisation and any accumulated
impairment losses or
revalued amount, less any accumulated amortisation, and any
accumulated impairment losses.
2. Manufacturing plants.
3. Power-generation facilities
4. Investment properties.
f.
IAS 11: Construction Contracts
5. Intangible assets
The start and finish of construction contracts often falls in to different accounting
periods.
Thus, the timing of recognition of contract revenue and contract costs are key
issues of the standard.
An effective internal financial budgeting and reporting system, which is kept upto-date at all times, is required to control construction contracts.
Regular reviews of costs and revisions of estimates are necessary throughout the
contract.
h.
i.
IAS 20: Accounting for Government Grants and
Disclosure of Government Assistance
The standard covers accounting and disclosure of government grants and similar
assistance that transfers resources to qualifying firms. The firms qualify by past,
or future, compliance with the grant conditions.
9
IFRS Introduction
Grants exclude assistance that cannot be reasonably valued, and transactions
with government which are in the normal course of trade.
Such incentives as free technical assistance, marketing advice and the provision
of guarantees may not be easy to value.
a.
IAS 19 identifies, and provides guidance on the accounting for, five categories of
staff benefits:
IV. SPECIAL CASE 1 GROUP
a.
IAS 21: The Effects of Changes in Foreign Exchange
Rates
(i)
Transactions in foreign currencies, investments and liabilities in foreign
currencies are covered, as are financial statements of foreign operations.
(ii)
The standard sets out how to recognise and record income, expenditure, assets
and liabilities denominated in a foreign currency and how gains and losses are
recognised.
(iii)
b.
IFRS 5: Non-current Assets Held for Sale and
Discontinued Operations
(iv)
(v)
short-term staff benefits, such as salaries and social security
contributions, paid annual leave and paid sick leave, profit-sharing
and bonuses payable within twelve months and non-cash benefits
such as medical care, housing, cars and free or subsidised goods or
services for current staff.
post-employment benefits such as pensions, other retirement
benefits, post-employment life insurance and post-employment
medical care.
other long-term staff benefits, including long-service or sabbatical
leave, jubilee or other long-service benefits, long-term disability
benefits and, if they are payable twelve months or more after the end
of the period, profit-sharing, bonuses and deferred compensation.
termination benefits.
equity compensation benefits.
b.
IFRS 5 sets out requirements for the classification, measurement and
presentation of non-current assets ‘held for sale’.
IFRS 5 arises from the IASB’s consideration of the U.S. based FASB Statement
No. 144 and addresses two areas:
(i)
(ii)
the classification, measurement and presentation of assets ‘held for
sale’;
the classification and presentation of discontinued operations.
V. REMUNERATION GROUP
Providing guidance on remuneration, these standards are of specific interest to
those involved in private pension schemes and the use of shares and share
options to pay staff and others.
IAS 19: Staff Benefits
IAS 26: Accounting and Reporting by Retirement
Benefit Plans
IAS 26 should be applied in the reports of private retirement benefit (pension)
plans where such reports are prepared.
c.
IFRS 2: Share-based Payment
IFRS 2 covers settlements made in an entity’s own equity instruments or in cash,
if the amount payable depends on the price of the entity’s shares (or other equity
instruments, such as options).
Estimates are required of the number of options, or other instruments, expected
to be exercised.
Such estimates are complex to calculate where performance criteria, such as
earnings targets, are involved. Specialist valuation skills are likely to be required
in order to determine the amounts to be reported in the financial statements.
10
IFRS Introduction
(2) enable users to see an undertaking through the eyes of management;
VI. LISTED COMPANY GROUP
These three standards are compulsory only for companies listed on stock
exchanges, or mandatory under national accounting regulations. For other
companies these standards are recommended.
a.
IFRS 8: OPERATING Segments
As undertakings become larger, understanding how they operate:
- in different markets,
- with different products and services and
- providing to a growing range of clients
becomes more difficult, unless additional detail is provided.
Information about components of an undertaking, the products and services that
it offers, its foreign operations, and its major clients is useful for understanding
and making decisions about the undertaking as a whole. Users observe that the
evaluation of the prospects for future cash flows is the central element of
investment and lending decisions.
The evaluation of prospects requires assessment of the uncertainty that
surrounds both the timing and the amount of the expected cash flows to the
undertaking, which in turn affect potential cash flows to the investor or creditor.
Users also observe that uncertainty results in part from factors related to the
products and services an undertaking offers and the geographic areas in which it
operates.
Different segments will generate dissimilar streams of cash flows to which are
attached disparate risks and which bring about unique values. Thus, without
disaggregation, there is no sensible way to predict the overall amounts, timing, or
risks of a complete undertaking’s future cash flows.
(3) enable an undertaking to provide timely segment information for external
interim reporting with relatively low incremental cost;
(4) enhance consistency with the management discussion and analysis or other
annual report disclosures; and
(5) provide various measures of segment performance.
Knowledge of the structure of an undertaking’s internal organisation is valuable in
itself because it highlights the risks and opportunities that management believes
are important.
Segments based on the structure of an undertaking’s internal organisation have
at least three other significant advantages:
1. An ability to see an undertaking “through the eyes of management”
enhances a user’s ability to predict actions or reactions of management
that can significantly affect the undertaking’s prospects for future cash
flows.
2. As information about those segments is generated for management’s
use, the incremental cost of providing information for external reporting
should be relatively low.
3. Practice has demonstrated that the term ‘industry’ is subjective.
Segments based on an existing internal structure should be less
subjective.
b.
IAS 34:
(i)
(ii)
IAS 34: Interim Financial Reporting
defines the minimum content of an interim financial report; and
identifies the recognition and measurement principles that should be
applied in an interim financial report.
The additional detail should:
(1) increase the number of reported segments and provide more information;
11
IFRS Introduction
The notes to interim financial reports include primarily an explanation of the
events, and changes, that are significant to an understanding of the changes in
financial position, and performance, since the last annual reporting date.
IFRS 1 sets out the requirements for first time adopters of IFRS. The standard
allows companies to avoid some of the need for reconstructing old records, by
providing exemptions from other standards.
Virtually none of the notes to the annual financial statements are repeated, or
updated in the interim report.
VIII. DISCLOSURE GROUP
a.
c.
IAS 33: Earnings per Share
The objective of IAS 33 is to prescribe principles for the calculation and
presentation of earnings per share. This is to improve comparisons between
different undertakings in the same reporting period, and between different
reporting periods for the same undertaking.
Earnings per share (earnings / number of shares) as a measure of performance
has its limitations, as accounting policies for determining ‘earnings may differ.
The focus of IAS 33 is on determining the number of shares used in the EPS
calculation, which may not be immediately clear (e.g. where options exist).
The standard will be applied in:
(i)
Identifying related party relationships and transactions;
(ii)
Identifying outstanding balances between an undertaking and related
parties;
(iii)
Identifying when the disclosures should be made; and
(iv)
Determining what disclosures should be made.
Related party relationships are a normal feature of business throughout the
world. The related party relationships can have an impact on the profit, or loss, of
an undertaking.
Transactions with related may be made on different terms or prices, than would
have been made with unrelated parties.
VII. SPECIAL CASE 2 GROUP
a.
IAS 24: Related Party Disclosure.
IAS 29: Financial Reporting in Hyperinflationary
Economies
b.
IAS 10: Events after the Balance Sheet Date
IFRS 10 details the post-balance-sheet events, when they should be recognised
and how they should be recorded and disclosed.
IAS 29 is based on current purchasing power principles and requires that
financial statements, prepared in the currency of a hyperinflationary economy, be
stated in terms of the value of money at the reporting balance sheet date.
Post-balance-sheet events happen in the period starting immediately after the
balance sheet date and ending at the date of approval of the financial statements
by the shareholders.
This straightforward requirement needs an understanding of complex economic
concepts, a thorough knowledge of the enterprise’s financial and operating
patterns and a detailed series of procedures to implement.
There are 4 main types of material post-balance-sheet event in this period:
b.
IFRS 1: First-time Adoption of International Financial
Reporting Standards
(i)
(ii)
Dividends declared in the period should be noted, but not shown as a
liability, at the balance sheet date.
If the company can no longer be considered a going-concern during
this period, the financial statements should not be prepared on a
going-concern basis.
12
IFRS Introduction
(iii)
(iv)
Events that were unknown or unclear at the balance sheet date, will
cause the financial statements to be adjusted.
Conditions that arose after the balance sheet date should not adjust
the financial statements, but should be suitably noted.
4 detailed workbooks on different stages of accounting for financial instruments:
Initial Recognition.
De-recognition.
Subsequent Recognition.
Hedge Accounting.
IX. BANKS GROUP
We are also producing a glossary to explain terms in more detail.
Whilst IFRS 7 relates only to Banks and similar financial institutions, IAS 32 and
IAS 39 must be applied to financial instruments in any company reporting under
IFRS.
Financial instruments are used extensively in banking but only to a limited extent
in enterprises.
a.
IFRS 7: Disclosure in the Financial Statements of
Banks and Similar Financial Institutions
IFRS 7 requires banks to provide disclosures in their financial statements that
enable users to evaluate:
X.
INDUSTRY SPECIFIC GROUP
a.
IAS 41: Agriculture
IAS 41 should be applied to the following agricultural activities:
(i)
(ii)
(iii)
biological assets;
agricultural produce at the point of harvest; and
certain government grants.
Agricultural activity includes:
(i)
(ii)
(iii)
the significance of financial instruments for the bank’s financial
position and performance; and
the nature and extent of risks arising from financial instruments to
which the bank is exposed during the period and at the reporting
date, and
how the entity manages those risks.
There are specified minimum disclosures on credit risk, liquidity risk and market
risk.
b.
IAS 32: Financial Instruments: Disclosure and
Presentation
c.
IAS 39: Financial Instruments: Recognition and
Measurement
(i)
(ii)
(iii)
(iv)
(v)
livestock,
forestry,
cropping,
cultivation,
aquaculture (including fish farming).
In each case, living animals and plants perform a biological transformation that
takes place in a managed environment. Management is the key issue that
differentiates agricultural activity from other activities such as sea fishing or
harvesting virgin forest neither of which are classified as agricultural activities.
The extent of change in the biological asset can be measured in a wide variety of
ways, ripeness, dimensions, fat content etc.
Biological transformation results in:
These two standards are primarily used by financial institutions and specify
disclosure, presentation, recognition and measurement of financial instruments.
(i)
(ii)
Our approach to these 2 complex, comprehensive standards is to provide
Change in the asset through an increase or decrease in quantity, or
quality.
Additional assets may result from procreation or agricultural produce
(cereals, legumes, beef, milk).
13
IFRS Introduction
b.
IFRS 4: Insurance Contracts
The acquirer records the acquiree’s identifiable assets, liabilities and contingent
liabilities at their fair values at the acquisition date and also records goodwill,
which is subsequently tested for impairment.
IFRS 4 specifies the financial reporting for insurance contracts for issuers of such
contracts.
Assets acquired and assumed:
In particular, IFRS 4 requires:
Recognition
(i)
(ii)
certain improvements to accounting,
disclosure that identifies and explains the amounts in an insurer’s
financial statements, Particularly in relation to:
a. amounts arising from insurance contracts and timing;
b. uncertainty of cash flows.
c.
IFRS 6. Exploration for and evaluation of mineral
resources
If there is an existing restructuring liability per IAS 37, it is included in the goodwill
calculation.
If fair values can be measured reliably, the acquirer must record separately the
acquiree’s contingent liabilities, at the acquisition date, as part of allocating the
cost of a business combination.
If the contingent liabilities cannot be measured, they are not included in the
allocation of cost.
Measurement
IFRS 6 is an interim solution, pending development of a comprehensive solution
to help companies deal with the IAS 16 and IAS 38 scope exclusions.
IFRS 3 requires the acquiree’s identifiable assets, liabilities and contingent
liabilities to be measured initially at their fair values, at the acquisition date.
Any minority interest in the acquiree is the minority’s proportion of the net fair
values.
Goodwill
XI. CONSOLIDATION STANDARDS
a.
IFRS 3: Business Combinations
IFRS 3 is the latest standard relating to consolidated accounts.
It made a number of important changes to previous practice, outlined below, but
must be read in conjunction with IAS 27, 28 and 31.
Accounting
Business combinations within the scope of IFRS 3 are accounted for using the
‘purchase method’.
IFRS 3 requires goodwill to be measured after initial recognition at cost, less any
accumulated impairment losses.
Goodwill is not amortised, but must be tested for impairment annually, or more
frequently.
Negative goodwill
IFRS 3 requires that negative goodwill must be expensed by the acquirer
immediately.
IAS 27: Consolidated and Separate Financial Statements
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures
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IFRS Introduction
All disclosures have been grouped by subject, where appropriate.
Additional notes and explanations in the checklist are shown in italics.
XII. ADDITIONAL PUBLICATIONS
B.
A.
a.
Illustrative
a.
Illustrative Corporate Financial Statements
This publication provides an illustrative set of consolidated financial statements,
prepared in accordance with IFRS, for a fictional manufacturing, wholesale and
retail entity (Footsy & Co Group). It provides a full set of financial statements,
including notes, and references.
b.
Transformation
IFRS Disclosure Checklist
Structure of the publication:
Section A Disclosures for consideration by all entities
Section B Disclosures required by all entities but only in certain situations
Section C Industry-specific disclosures
Section D Additional disclosures required by listed companies
Section E Additional disclosures required by banks and similar financial
institutions
Section F Additional disclosures required by entities that issue insurance
contracts
Section G Additional disclosures required for retirement benefit plans
Section H Suggested disclosures for financial review outside the financial
statements
Section I Disclosures for interim financial reports
Format of Disclosure Checklist
The Disclosure Checklist is presented in a format designed to facilitate the
collection and review of disclosures for each component of the financial
statements.
RAS to IFRS Transformation
The purpose of this workbook is to examine the process and adjustments
necessary to transform a trial balance based on Russian Accounting Standards
(RAS) into a set of IFRS financial statements comprising Income Statement and
Balance Sheet.
The workbook has been designed around a series of the most common
adjustments covering the main aspects of transformation.
These are presented in the form of 17 separate companies each of which
requires 2/5 adjustments. Each company uses the same opening, unadjusted,
RAS based trial balance which is then adjusted in accordance with the 2/5 entries
required.
Adjustments from all of the seventeen companies are brought together in a
summary that reflects all of the adjustment made in the individual companies.
C.
Case Studies
a.
IFRS Case Studies
The 20 case studies have been designed to cover a wide range of circumstances
but at the same time recognise the conditions and problems specific to the type
of industry and business.
They include examples of:
15
IFRS Introduction
(i)
(ii)
Re-categorisation the Russian chart of accounts into an IFRS
compatible format;
Identifying and outlining the reclassification and adjustments required
to bring the Russian numbers into IFRS compatible values. This
included the formalisation of detailed list of differences and practical
application issues.
(v)
Enterprise Specific Case Studies – These studies examine IFRS
issues in specific industries, for example mining or construction.
(vi)
Implementation of Change Case Studies – These case studies
examine the management, of the implementation process.
b.
Case 20 reviews some of the problem issues identified and makes observations
on the future direction of implementation of IFRS for Russian Companies.
Various types of case study were created including:
(i)
Illustrative or Descriptive Case Studies – The objective of these case
studies is to make the IFRS concept familiar to those who not familiar
with them, and to give the participants a common language.
(ii)
Pilot Case Studies – These case studies simulate all or parts of the
implementation of IFRS. They assist in the real process of planning,
timetabling and implementing itself, as well as identifying questions,
problems and missing information.
(iii)
Cumulative Case Studies. - These studies combine information or
issues from various enterprises and past studies to allow general
truths to be established.
(iv)
Critical Incident Case Studies – These case studies examine
selected issues or procedures, which impact the implementation of
IFRS. They help to identify and find solution for issues, which arise
during the conversion or implementation process.
Issues and Solutions for the Pharmaceutical
Industry
This publication covers 35 IFRS issues met in the Pharmaceutical Industry, plus
issues of business combinations. The presentation of each issue is the
background of the issue, relevant guidance and the solution.
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IFRS Introduction
17