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Summary of key provisions of IAS & IFRS which may be relevant to ACCA
financial reporting and audit papers for December 2014 and June 2015
examinations
Note you may want to refer to your ACCA Paper F7 Financial Reporting and P2
Corporate Reporting study materials for further detailed information.
Note you should not rely upon this document for knowledge and understanding of
all aspects of these reporting standards and other examinable documents; rather
they should be used as an aid or as a prompt to your studies.

2010 Conceptual Framework for Financial Reporting

Relevant for both F7 Financial Reporting and P2 Corporate Reporting
Objectives:
Meets the needs of a range of users
Financial performance as per PorL
Financial position as per SOFP
reporting entity:
Separate legal entity
Commercial substance of corporate group
qualitative characteristics:
fundamental characteristics of relevance and faithful representation
enhancing characteristics of comparability, verifiability, timeliness and understandability
elements of financial statements:
Assets rights to future economic benefits as a result of a past transaction or event
Liabilities future obligations to transfer economic benefits as a result of a past
transaction or event
Equity residual interest in an entitys assets after deduction of all liabilities
Income the increase in economic benefits during an accounting period
Expanses decreases in economic benefits during an accounting period
recognition in financial statements:
Recognise if it meets the definition of an element of the financial statements, it is
probable that there will be an inflow or outflow of economic benefits and it can be
reliably measured.
measurement in financial statements
Usually historical cost or fair value, but could be present value or amortised cost
presentation of financial information useful to users of FS
Primary statements plus disclosure notes
accounting for interests in other entities
Single company, associate and joint venture, subsidiary and group
Danny Beusch Kaplan Publishing
& Kaplan Financial
July 2014

IAS 1 Presentation of financial statements

Provides formats for classification and presentation of financial information
Identifies components of financial statements
Items of OCI must be classified as either items that may be reclassified to profit or loss in
future periods, or those items which will not be reclassified in future periods

IAS 2 - Inventories
Valued at lower of cost and estimated selling price less selling costs (i.e. NRV) for each
separate item or product
Include all costs of getting item or product to current location and condition

IAS 7 Statement of cash flows

Standard format choice between direct or indirect method indirect normally used
Three standard headings = operating, investing and financing within standard heading,
items can be in any order
Normally begin operating activities with profit before tax and adjust for non-cash items

IAS 8 Accounting policies, changes in accounting estimates and errors

Accounting policies should be appropriate and relevant, be consistently applied and be
disclosed
Changes in estimates are taken to statement of profit or loss e.g. change in depreciation
method or revised estimate of NRV
Changes in accounting policy and fundamental errors should be accounted for as a Prior
Period Adjustment to re-state the opening position and comparative information

IAS 10 Events after the reporting period

Definition those events between SOFP date and date of approval of financial statements
Adjusting events those which provide additional evidence of the situation existing at the
SOFP date e.g. insolvency of major debtor notified shortly after the reporting date
Non-adjusting events those which do not provide evidence of the situation at the SOFP
date e.g. share issue after the reporting date. Disclose only, but may become adjusting
event if going concern basis threatened.

IAS 11 - Construction contracts

This is not relevant for paper P2
Long-term defined as contract straddling two or more accounting periods
Recognise foreseeable losses prudent
Recognise element of attributable profit matching

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& Kaplan Financial
July 2014

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IAS 12 Income Taxes
Tax on company income charge in profit or loss and recognise as a liability
Deferred tax based upon full provision at reporting date:
Permanent differences ignored
Temporary differences in accounting and tax treatment accounted for, e.g.
Depreciation charge and tax allowances on PPE
Share options annual expense and allowed for tax when exercised
Defined benefit pension plans annual charge and contributions allowed for tax
Need to consider recoverability of deferred tax assets asset ceiling limit

IAS 16 Property, plant & equipment

Initial measurement cost directly attributable to bringing the asset into working condition;
now compulsory to capitalise finance costs.
Capitalise subsequent expenditure which enhances economic benefits of the asset.
May be revalued take revaluation to other comprehensive income; continue to depreciate
asset over remaining expected useful life. Disclose name, date and qualifications of valuer.
Commence depreciation when asset available for use and charge to reflect economic
benefits consumed during the period
May be possible not to charge depreciation if it is immaterial due to very long expected
useful life of asset and/or high residual values. If this is the case, asset to be maintained to a
high standard and is unlikely to suffer from economic or technical obsolescence.
Refer also to IAS 36 impairment of assets.

IAS 17 - Leases
Operating lease any lease not a finance lease hire charges to IS on straight-line basis
Finance lease:
substantially all of economic useful life of asset and transfer of risks and rewards to less
capitalise asset and liability at FV
depreciation charge and finance cost charged to profit or loss
Sale and leaseback transactions:
Operating leaseback derecognise asset and recognise gain or loss on disposal
Finance leaseback:
defer gain or loss on disposal and amortise over lease term
recognise finance lease asset and finance lease obligation
account for annual depreciation charge and finance costs in IS

IAS 18 Revenue
Revenue should be recognised in the period to which it relates
When has revenue been earned?
o When risks and rewards have been transferred
o When work or service has been substantially delivered or performed
o
Upon identification of a critical point in a commercial relationship

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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IAS 19 (revised) Employee benefits
Not in F7 Financial Reporting syllabus
Defined contribution scheme recognises annual cost of pension contribution
Defined benefit scheme:
Net interest component charged to profit or loss in the year
apply discount rate to net obligation at start of year
includes increase in plan assets due to passage of time
service cost component charged to profit or loss in the year
current year service cost
past service costs recognised in full when announced
gains and losses on curtailments and settlements part of service cost
remeasurement component taken to other comprehensive income in the year
actuarial gains and losses on plan assets and plan obligation
income and gains/losses on plan assets, other than included as part of net interest
component
Short-term employee benefits wages and salaries, benefits-in-kind etc on accruals basis
Termination benefits recognise when there is a commitment to make such payments
Other long-term employee benefits account for in similar way to defined benefit plans

IAS 20 Accounting for government grants

Match revenue grants against expense to which they relate
Match capital grants with assets to which they relate two possibilities
account for gross cost of asset and deferred income on SOFP
preferred treatment as it provides more information
account only for net cost of asset on SOFP

IAS 21 The effects of changes in foreign exchange rates

Not in F7 Financial Reporting syllabus.
Use exchange rate ruling at date of transaction to record in FS
Non-monetary items (e.g. NCA, inventory) are not restated
Monetary items are re-translated at SOFP rate with gain or loss to PorL

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

Group FS:
Calculate goodwill in functional currency with annual retranslation at closing rate
Translate SOFP at closing rate
Translate incomes, expenses and OCI at average rate
Exchange gains and losses on retranslation of a foreign operation:
Net assets (opening net assets plus profit for year)
Goodwill
Total exchange gain/loss on retranslation taken to OCI for the year
Group share of exchange gain/loss on retranslation included in equity on SOFP

IAS 23 Borrowing costs

Compulsory to capitalise directly attributable borrowing cost during construction of a
qualifying non-current asset

IAS 24 Related party disclosures

Not in F7 Financial Reporting syllabus
Definition of a related party
Entities under common control or influence
directors
key staff able to control or influence transactions and/or their terms
employee defined benefits scheme
persons connected with any of the above
Must disclose existence of related parties, plus transactions and terms

IAS 27 (revised) Separate financial statements

Applies if consolidated financial statement not prepared disclose why
Disclose basis upon which subsidiaries, associates and joint arrangements have been
accounted for in these financial statements

IAS 28 (revised) Investment in associates and joint ventures

Associate - able to exert significant influence, but not control, another entity
Joint venture unanimous decision-making and entitled to share of net assets from JV
entity
Indicated by 20%-50% of equity shares in another entity
Consider if another entity owned (say) 70% - they would have outright control
IFRS 10 recognises that may still have influence, even if another has control
Equity accounting in group FS:
share of profit after tax for the year in PorL
cost plus share of profits/losses since gaining influence

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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IAS 32 - Financial Instruments Presentation
IAS 39 - Financial Instruments Recognition and Measurement
IFRS 7 Financial Instruments Disclosures
IFRS 9 - Financial Instruments
Use definitions of asset and liability per Framework to classify financial instruments
according to commercial substance
Returns on financial instruments in PorL to be classified on consistent basis as financial
instrument on SOFP
Split compound or hybrid instruments into liability and equity elements at inception.
Classification of financial assets per IFRS 9:
Fair value through PorL (FVTPorL) is normal default classification for all financial assets
Includes derivatives for speculation and financial assets held for trading
Fair value through other comprehensive income (FVTOCI)
can only apply to equity instruments only upon initial recognition
any impairment losses part of OCI movement in year
no recycling of impairment losses or of gains/loss on subsequent disposal
Financial assets measured at amortised cost must pass two tests:
business model test asset held to collect contractual cash flows
contractual cash flows characteristics test cash flows consist solely of payment of
interest and capital.
if either test failed, must be measured as FVTPorL
if at amortised cost, subject to annual impairment review
Financial liabilities classification of financial liabilities per IFRS 9 as either:
FVTPorL (like financial assets), includes derivatives for speculation and financial liabilities
held for trading
Other financial liabilities at amortised cost (if not at FVTPorL)
Note can still opt to measure liabilities at FVTPorL to eliminate or reduce financial
mismatch
Hedging currently still dealt with by IAS 39:
Must be formally documented at inception
Must be regularly reviewed to ensure still effective
FV hedge take changes in FV of hedged item and hedge instrument (i.e. derivative) to
PorL
Cashflow hedge take changes in FV of hedge instrument (i.e. derivative) to OCI.

IAS 33 Earnings per share

EPS = Profit after tax, NCI and pref dividends
Weighted average no. of equity shares
Consider:
o Market issue at full price calculate weighted ave no of equity shares in issue
o Bonus issue free shares treat as if had always been in issue and restate
comparative
o Rights issue treat partly as bonus issue and partly as issue at full market price
o Diluted EPS convertible debt and share option schemes

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

IAS 34 Interim financial reporting

Not in F7 Financial Reporting syllabus.
May be required by local law or listing regulations
Include condensed SOFP with comparative dated at end of previous financial year-end.
Include condensed PorL, plus cumulative for year to date, plus comparatives
Include condensed SOCIE plus statement of cash flows, plus comparatives for each
statement
Include selected explanatory notes including any change in accounting policy or significant
adjustments from interim to annual financial statements

IAS 36 Impairment of assets

Definition reduction in recoverable amount below carrying value in the FS
Normally charge to PorL. If asset previously revalued, first set impairment against
revaluation reserve for that asset, with any residual amount taken to PorL.
May apply to individual asset, collection of assets or income(cash) generating unit
If IGU includes goodwill, then gross up net or proportionate goodwill to get total CV of IGU,
then apply impairment test any impairment is then first allocated against goodwill.
If there are several IGUs within a business (e.g. subsidiary), then two-stage impairment test
required:
First on each individual IGU
Then on business as a whole
Cannot write down an individual asset to an amount lower than its recoverable amount.
Normally only expected to perform impairment review if there is indication that asset(s)
may be impaired
Compulsory impairment review required annually:
IFRS 3 goodwill on acquisition
Financial assets

IAS 37 Provisions, contingent liabilities and contingent assets

Provision is a liability which has uncertainty regarding the exact amount to be paid and/or
the timing of such payments
It is the minimum unavoidable obligation and may be discounted to PV for long-term
provisions
May be the result of a legal or constructive obligation
It will exclude:
Future operating losses
Relocation and retraining of existing employees
Periodic repairs
Statements of future intention
Contingent liability a possible obligation arising from a past event which will only
be confirmed by the outcome of one or more future uncertain events

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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IAS 38 Intangible assets
Assets without physical substance which entity has the right to control and from which it
derives economic benefits
Apply either cost model or valuation model
Valuation model:
Any increase in valuation taken to OCI and equity on SOFP
requires that there is an active market for that asset rarely the case
Cost model normally adopted
If finite useful life, then amortise commence when asset is available for use.
If infinite life, or cannot reliably estimate finite life, then recognise at cost or valuation with
annual impairment review.
Research and development costs dealt with by IAS 38
Compulsory capitalisation if definition of development costs met
Otherwise immediate write-off to PorL

IAS 40 Investment property

Definition development completed, held for investment potential and may be rented
on arms length basis to non-group member.
Use cost model if so account for as IAS 16 and depreciate over expected useful life
Use valuation model:
no depreciation charged and keep valuation up to date
increase or decrease in valuation taken to PorL

IAS 41 Agriculture
Biological assets are living plants and animals
Initially valued at fair value less costs to sell
Revalued to fair value less costs to sell at the reporting date with the gain or loss in
profit or loss.
Agricultural produce is the harvested product on a biological asset
Initially measured at fair value less costs to sell.
Subsequently accounted for under IAS 2 Inventories.

IFRS 1 First-time adoption of International Financial Reporting Standards

Not in F7 Financial Reporting syllabus
Recognise assets and liabilities per Framework document and applicable IAS/IFRS
Measure assets and liabilities per applicable IAS/IFRS
Derecognise assets and liabilities that do not comply with IAS/IFRS
Re-state comparative year(s)
Provide reconciliation between old SOFP and opening IAS/IFRS SOFP

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

IFRS 2 Share-based payment

Not in F7 Financial Reporting syllabus
Equity settled recognise equity reserve and PorL charge each year, pro-rated over vesting
period. Use FV of option at grant date and estimate at each reporting date the expected
number of options likely to vest.
Cash settled recognise liability and PorL charge each year, pro-rated over the vesting
period. Use FV of SAR at each reporting date and estimate at each reporting date the
number of SARs likely to vest.

IFRS 3 Revised Business combinations

Part of convergence between IFRS and US GAAP
Costs incurred as part of acquisition are charged to PorL.
Need to estimate FV of any contingent and deferred consideration at acquisition date
Choice of goodwill accounting:
o Proportionate or net basis group share of goodwill only
o Gross or full goodwill method goodwill for business as a whole
o Choice made an acquisitionby-acquisition basis
Goodwill is a permanent intangible non-current asset subject to annual impairment review
Account for subsidiary recognition and derecognition only when control is acquired or lost
Account for any residual holdings at FV at date of transaction
Any disposal where control retained is a transaction between equity holders

IFRS 5 Non-current assets held-for-sale and discontinued activities

Comply with all following conditions to be classified as held for sale:
o Must be a commitment to sell
o Must be immediately available
o Must be in current condition
o Must be at realistic price
o Must be actively marketed
o Thus expect to be disposed of within 12 months
Perform impairment review and reclassify out of non-current assets
Cannot be held for sale in group FS if sale is to another group member
Separate disclosure of discontinued operation in statement of profit or loss defined as a
component of a business which has either been disposed of or is classified as held for sale
and:
o represents a separate major line of business or geographical area of business
o is part of a single co-ordinated plan to dispose, or
o is a subsidiary acquired exclusively with a view to sale.

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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IFRS 8 Operating segments

Not in F7 Financial Reporting syllabus
Identify segment if it accounts for 10% or more of any one of:
o Total profits earned by segments
o Total losses incurred by segments
o Assets
o Gross (Internal plus external) revenues generated
Minimum disclosure to account for 75% of external revenues, or need to disclose additional
segments
Segments based upon internal reporting and decision-making lines within the entity

IFRS 10 Consolidated financial statements

Elements of control:
o Power over the investee
o Exposure, or rights to, variable returns
o Ability to use that power
Subject to periodic review to determine whether control acquired/lost or continues
Definition recognises that it may be possible for one entity to have control, whilst another
has significant influence, in a third entity.
Potential voting rights (e.g. share options and convertible loans) must be capable of being
exercised.
Protective rights (e.g. able to approve issue of new debt or equity capital) normally only
apply in specified circumstances and are limited in application not usually indicative of
control.
Silos able to exercise control over a defined and ring-fenced portion of another entitys
assets and liabilities.

IFRS 11 Joint arrangements

Not in F7 Financial Reporting syllabus
Definition two or more parties having joint control which requires unanimous consent
Joint venture where parties have joint control and have rights to net assets of a separate
entity formed for the joint venture use equity accounting per IAS 28.
Joint operation parties have joint control and have rights to the assets and obligations for
the liabilities of the joint operation normally will not be a separate entity and parties agree
rights and responsibilities or particular activities within the joint operation. Each joint
operation party accounts for their own transactions and has amounts due to and from other
joint operation partners.

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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IFRS 12 Disclosure of interests in other entities

Not in F7 Financial Reporting syllabus
Single source of disclosure requirements in FS applicable to interests in subsidiaries,
associates and joint arrangements
Disclose assumptions and judgements made in determining status of investment(s)
Disclose restrictions on ability to exercise control or influence

IFRS 13 Fair value measurement

Does not apply to transactions covered by IAS 17 and IFRS 2
Provides single and standardised definition and source of guidance for fair value
measurements.
Definition the amount received to sell an asset or transfer a liability in an orderly (i.e. not
distress) transaction between willing parties in an arms length transaction at the
measurement date.
Presumed to take place in an active market principal or most advantageous market
Excludes transactions costs they are not a feature of the asset or liability to be valued
Introduces 3-tier hierarchy of inputs used for valuation:
o Level 1 identical assets or liabilities traded in an active market observable
o Level 2 similar assets or liabilities traded in an active market observable
o Level 3 other data used to determine fair value unobservable

IFRS for SME

Published July 2009 and normally requires approval within a country to be effective.
SME defined as unlisted entity and each county able to add additional or excluding
criteria such as banking financial services activities, charities, size criteria etc.
One focus point for framework and accounting treatment and disclosures for SME.
Expected to be updated approximately every three years.
Some topics excluded completely from IFRS for SME:
o Earnings per share
o Interim financial statements
o Segmental reporting
o Assets held for sale
Some topics simplified for IFRS for SME:
o Research and development always expensed
o Goodwill amortised over ten years
o No revaluation of PPE
o Finance costs never capitalised

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014

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The Integrated Reporting Framework
An integrated report (IR) is 'a concise communication about how an organisations strategy,
governance, performance and prospects, in the context of its external environment, lead to
the creation of value in the short, medium and long term.'
The IR Framework establishes 'guiding principles' and 'content elements' that govern the
overall content of an integrated report. This will help organisations to report their value
creation in ways that are understandable and useful to the users.

Danny Beusch Kaplan Publishing

& Kaplan Financial
July 2014