The amount of expected consideration captures: (1) variable consideration if it is ‘highly probable’ (IFRS) or ‘probable’ (US GAAP) that the amount will not result in a significant revenue reversal if estimates change; (2) an assessment of time value of money (as a practical expedient, an entity need not make this assessment where the period between payment and the transfer of goods or services is less than one year); (3) non-cash consideration, generally at fair value; and (4) less any consideration paid to customers. Recoverable amount is the higher of the asset’s fair value less costs of disposal and its value in use: The carrying value of an asset is compared to the recoverable amount. Where the hedging instrument has a fair value change greater than the hedged item, the excess is recorded within profit or loss as ineffectiveness. IFRS 4 was designed as an interim standard, pending completion of IFRS 17. The final standard was issued in July 2014, with a proposed mandatory effective date of periods beginning on or after 1 January 2018. The new standard is applicable for annual periods beginning on or after 1 January 2021. Any equity instruments issued as part of the consideration are fair valued at the acquisition date. Financial statements, unadjusted for inflation in most countries, are prepared on the basis of historical cost, without regard either to changes in the general level of prices or to changes in specific prices of assets held. Agenda Introduction What is control? Represents a separate major line of business or geographical area of operation; Is part of a single co-ordinated plan to dispose of a separate major line of business or major geographical area of operation; or. It allows entities to continue with their existing accounting policies for insurance contracts if those policies meet certain minimum criteria. Agricultural produce harvested from an entity’s biological assets is measured at fair value less costs to sell at the point of harvest. This is an accounting policy choice. Identify the separate performance obligations in the contract. Disclosure is made by category of related party and by major type of transaction. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised only when it is virtually certain that reimbursement will be received if the entity settles the obligation. For example, the principal amount of a bond might vary with changes in a stock market index. Online course. Basic EPS is calculated by dividing the profit or loss for the period attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding (including adjustments for bonus and rights issues). The best evidence of stand-alone selling price is the observable price of a good or service where the entity sells that good or service separately. Under IFRS 17, the ‘general model’ requires entities to measure an insurance contract, at initial recognition, at the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment for non-financial risk) and the contractual service margin. Where there have been related party transactions during the period, management discloses the nature of the relationship, as well as information about the transactions and outstanding balances, including commitments, necessary for users to understand the potential impact of the relationship on the financial statements. For example, a debenture under which the issuer is required to make interest payments and redeem the debenture for cash is a financial liability. A sale is ‘highly probable’ where: there is evidence of management commitment; there is an active programme to locate a buyer and complete the plan; the asset is actively marketed for sale at a reasonable price compared to its fair value; the sale is expected to be completed within 12 months of the date of classification; and actions required to complete the plan indicate that it is unlikely that there will be significant changes to the plan or that it will be withdrawn. These costs would then be amortised as control of the goods or services to which the asset relates is transferred to the customer. These risks include credit risk, liquidity risk and market risk. Credit risk should not dominate value changes. Under IAS 23, ‘Borrowing costs’, entities are required to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset to be capitalised. Guidance on fair value is given in. Disclosure could be in the statement or in the notes. Cost of inventories includes import duties, non-refundable taxes, transport and handling costs, and any other directly attributable costs less trade discounts, rebates and similar items. The following indicators might suggest that the entity’s experience is not predictive of the outcome of a contract: (1) the amount of consideration is highly susceptible to factors outside the influence of the entity; (2) the uncertainty about the amount of consideration is not expected to be resolved for a long period of time; (3) the entity’s experience with similar types of contract is limited; and (4) the contract has a large number and broad range of possible consideration amounts. An equity instrument is any contract that evidences a residual interest in the entity’s assets after deducting all of its liabilities. Costs relating to satisfied performance obligations and costs related to inefficiencies should be expensed as incurred. Settlement gains or losses are recognised in the income statement when the settlement occurs. Management discloses the name of the entity’s parent and, if different, the ultimate controlling party (which could be a person). Recognition of further losses are discontinued, unless the investor has an obligation to fund the associate or joint venture, or the investor has guaranteed to support the associate or joint venture. A foreign currency transaction is expressed in an entity’s functional currency, using the exchange rate at the transaction date. There are three types of hedge relationship: For a fair value hedge, the hedged item is adjusted for the gain or loss attributable to the hedged risk. The designated hedge ratio should be consistent with the risk management strategy. The entity shall use the net defined benefit liability (asset) and the discount rate determined at the start of the annual reporting period (unless there is a plan amendment, curtailment or settlement during the reporting period). Non-cash transactions include impairment losses/reversals, depreciation, amortisation, fair value gains/losses, and income statement charges for provisions. The publication of IFRS 9 in July 2014 was the culmination of the IASB’s efforts to replace IAS 39. However, all ineffectiveness should still be calculated and recorded in the income statement. As soon as technical feasibility and commercial viability are determined, the assets are no longer classified as exploration and evaluation assets. Recognise revenue when (or as) each performance obligation is satisfied. Such instruments (such as bonds that are convertible into a fixed number of equity shares) are accounted for as separate components of liability and equity (being the option to convert if all of the criteria for equity are met). Gains or losses deferred in other comprehensive income are reclassified to profit or loss when the hedged item affects the income statement. The key principle is that fair value is the exit price, from the perspective of market participants who hold the asset or owe the liability, at the measurement date. Discontinued operations are presented separately in the income statement and the cash flow statement. The non-current asset (or disposal group) is classified as ‘held for sale’ if it is available for immediate sale in its present condition and its sale is highly probable. EPS is normally calculated in the context of ordinary shares of the entity. By topic; By industry; Checklists; Ebooks; Example accounts. 1079 0 obj <>/Encrypt 1063 0 R/Filter/FlateDecode/ID[<569BBD2760418C468F353ABD576DA9BC>]/Index[1062 95]/Info 1061 0 R/Length 97/Prev 176041/Root 1064 0 R/Size 1157/Type/XRef/W[1 2 1]>>stream Otherwise, they are measured at cost. IFRS 16, ‘Leases’, was published in January 2016 and is mandatory from 1 January 2019. It also explains how the pension asset or liability might be affected by a statutory or contractual minimum funding requirement. An entity is exempt from the disclosure of transactions (and outstanding balances) with a related party that is either a government that has control, joint control or significant influence over the entity or is another entity that is under the control, joint control or significant influence of the same government as the entity. The redeemable preference share is therefore treated as a liability rather than equity, even though legally it is a share of the issuer. For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately disclosing changes resulting from: Transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control. One of the minimum criteria is that the amount of the insurance liability is subject to a liability adequacy test. Early application is permitted for entities that apply IFRS 9, ‘Financial instruments’, and IFRS 15, ‘Revenue from contracts with customers’, at or before the date of initial application of IFRS 17. The acquirer can elect to measure the non-controlling interest at its fair value, or at its proportionate share of the identifiable net assets, on an acquisition-by-acquisition basis. The disclosure requirements do not just apply to banks and financial institutions. An asset seldom generates cash flows independently of other assets. Even if there is an economic relationship, a change in the credit risk of the hedging instrument or the hedged item must not be of such magnitude that it dominates the value changes that result from that economic relationship. Introduction ; Year end Illustrative financial statements; Interim Illustrative financial statements; Industry Illustrative financial statements. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not to control those policies. The modification is otherwise accounted for as an adjustment to the original contract, either through a cumulative catchup adjustment to revenue or a prospective adjustment to revenue when future performance obligations are satisfied, depending on whether the remaining goods and services are distinct. International Financial Reporting Standards (IFRS), for a fictional investment property group (IP Group). Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the entity has transferred substantially all the risks and rewards of ownership. Service costs (that is, the present value of the benefits earned by active employees); and. Changes in accounting policies made on adoption of a new standard or interpretation are accounted for in accordance with the transitional provisions (if any) within that standard or interpretation. For these assets, lifetime ECL (that is, expected losses arising from the risk of default over the life of the financial instrument) are recognised, and interest revenue is still calculated on the gross carrying amount of the asset. When control of the transferred financial asset is retained, the accounting can be complex. The entity is an existing preparer of IFRS financial statements. Revenue is recognised for each component separately by applying the recognition criteria below. financial statements comply with International Financial Reporting Standards (IFRS) as issued at 31 May 2018 and that apply to financial years commencing on or after 1 January 2018. It presents the generation and use of ‘cash and cash equivalents’ by category (operating, investing and financing) over a specific period of time. For example, any transaction contingent on the completion of another transaction might be considered to be linked. The term ‘probable’ has a different meaning under IFRS (where it means ‘more likely than not’ – that is, greater than 50% likelihood) and US GAAP (where it is generally interpreted as 75–80% likelihood). Accounting policies are applied consistently to similar items, transactions and events (unless a standard permits or requires otherwise). However, there are exceptions where the entity is required to, or chooses to, measure certain assets or liabilities at fair value. IFRS 9 sets out many examples to help determine when this test is (and is not) met. Errors might arise from mistakes (mathematical or application of accounting policies), oversights or misinterpretation of facts, and fraud. It does not apply to accounting for insurance contracts by policyholders. NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling expenses. Additional disclosures are required to explain changes in liabilities arising from financing activities, distinguishing cash flows from non-cash changes. Contingent liabilities are not recognised, but are disclosed, unless the possibility of an outflow is remote. IFRS 15 replaced IAS 18 and IAS 11 with effect from periods beginning on or after 1 January 2018. Introduction –Replacing IAS 27 and SIC-12 Criticism of IAS 27 and SIC-12 How addressed? IFRS 4 has two main principles for disclosure. A public authority could impose a levy on entities, based on measures such as gross revenues for a specified period or on assets or liabilities at a specified date. An embedded derivative is not 'closely related' if its economic characteristics and risks are different from those of the rest of the contract. An entity can expense the cost of obtaining a contract if the amortisation period would be less than one year. Investing activities are the acquisition and disposal of long-term assets (including business combinations) and investments that are not cash equivalents. This publication presents PwC's illustrative consolidated financial statements for a fictitious listed company, containing illustrative disclosures for as many common scenarios as possible. In these situations, management should develop and apply appropriate accounting policies. Aggregation of one or more operating segments into a single reportable segment is permitted (but not required) where certain conditions are met, the principal condition being that the operating segments should have similar economic characteristics (for example, profit margin, spreads, sales growth rates, etc.). Business combinations (IFRS 3) Financial instruments - Financial liabilities and equity (IFRS 9, IAS 32) Chapters by name (Accounting to Fair value) Accounting policies, accounting estimates and errors (IAS 8) Consolidated financial statements (IFRS 10) Accounting principles and applicability of IFRS … For insurers, the transition to IFRS 17 will have an impact on financial statements and on key performance indicators. This comprises the total of: The post-tax profit or loss of discontinued operations; and. If a change in policy upon initial application of a new standard does not include specific transitional provisions, or it is a voluntary change in policy, it should be accounted for retrospectively (that is, by restating all comparative figures presented) unless this is impracticable. For exampl… IFRS 10 has a single definition of control. An entity will be required to identify all performance obligations in a contract. These users include primary users: existing and potential investors, lenders, and other creditors, and other users: employees, suppliers, customers, governments and their agencies, regulators and the public, might find general purpose financial reports useful. IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019. The operator accounts for revenue and costs relating to construction or upgrade services and operation services in accordance with IFRS 15. 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