Ti Corporate Reporting 2014 2015 Inspection

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The Institute of Chartered Accountants in England and Wales
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Advanced Stage Technical Integration Level
CORPORATE REPORTING
For exams in 2014 July 2015
Study Manual
www.icaew.com
Corporate Reporting
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ISBN: 978-0-85760-750-8
Previous ISBN: 978-0-85760-477-4
All rights reserved. No part of this publication may be reproduced or

transmitted in any form or by any means or stored in any retrieval system,
electronic, mechanical, photocopying, recording or otherwise without prior
permission of the publisher.
British Library Cataloguing-in-Publication Data

A catalogue record for this book is available from the British Library
First edition 2007

Seventh edition 2013
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Polestar Wheatons
Hennock Road
Marsh Barton
Exeter
EX2 8RP
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Printed in the United Kingdom by Polestar Wheatons
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Your learning materials are printed on paper obtained from traceable,

sustainable sources.
Welcome to ICAEW
I am delighted to welcome you as a student studying our chartered accountancy qualification, the ACA.
The ACA will open doors to a highly rewarding career as a financial expert or business leader. Once you
are an ICAEW member, you will join over 138,000 others around the world who work at the highest
levels across all industry sectors, providing valuable financial and business advice. Some of our earlier
members formed today's global Big Four firms, and you can find an ICAEW Chartered Accountant on
the boards of 80% of the UK FTSE 100 companies.
We are here to help you every step of the way. As part of a worldwide network of over 19,000 students,
you will have access to a range of resources including the online student community, where you can
interact with fellow students, and our student support team. Take a look at the key resources on page ix.
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I wish you the very best of luck with your studies and look forward to supporting you throughout your
career.
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Michael Izza
Chief Executive
ICAEW
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Contents
Introduction
vii
Corporate Reporting
viii
Key resources
ix
Skills assessment guide
Faculties and Special Interest Groups
xvi
ICAEW publications for further reading
xvi
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Financial statements
1 Presentation of financial statements
Assets, liabilities and provisions
27
Financing
4 Leases, government grants and borrowing costs
5 Financial instruments presentation and disclosure
3 Events after the reporting period, provisions and contingencies
2 Reporting of assets
81
103
135
155
7 Financial instruments hedge accounting
219
Remuneration
Business combinations
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10 Groups revision
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8 Employee benefits
9 Share-based payment
6 Financial instruments recognition and measurement
259
299
351
Reporting overseas activities
11 Foreign currency translation and hyperinflationary economies
419
12 Income taxes
469
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Taxation and industry specific standards
511
13 Industry specific Standards

Reporting performance
545
15 Reporting performance
583
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14 Earnings per share
Financial analysis
16 Financial statement analysis
625
685
Index
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1 Introduction
1.1
What is Corporate Reporting and how does it fit within the ACA Advanced
Stage?
Structure
The ACA syllabus has been designed to develop core technical, commercial, and ethical skills and
knowledge in a structured and rigorous manner.
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The knowledge level
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The diagram below shows the twelve modules at the ACA Professional Stage, where the focus is on the
acquisition and application of technical skills and knowledge, and the ACA Advanced Stage which
comprises two technical integration modules and the Case Study.
In the Accounting paper you will have been introduced to the double entry system of recording
transactions and the preparation of non-complex financial statements.
Progression to ACA application level
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The knowledge base that is put into place here will be taken further in two application stage modules.
The Financial Accounting module develops these basic principles covered in Accounting, looking at the
preparation of single entity financial statements in more complex situations and also introduces the issue
of group financial statements.
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The Financial Reporting paper then takes these issues a step further enabling students to prepare
extracts from financial statements for entities undertaking a wide range of accounting transactions. The
emphasis is also on understanding financial information as well as preparation with analysis and
interpretation a key feature.
Progression to ACA Advanced Stage

The Advanced Stage papers Business Reporting (BR) and Business Change (BC) then take things
further again. The aims of BR are to ensure that students can apply analysis techniques, technical
knowledge and professional skills to resolve real-life compliance issues faced by businesses. In the BC
paper the aim is to ensure that students can provide technical advice in respect of issues arising in
business transformations eg mergers and acquisitions.
The above illustrates how the knowledge base of accounting gives a platform from which a progression
of skills and technical expertise is developed.
Introduction
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2 Corporate Reporting
2.1
Module aim
The aim of the Business Reporting paper is:
To ensure that candidates can apply analysis techniques, technical knowledge and professional
skills to resolve real-life compliance issues faced by businesses.
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Candidates may be put, for example, in the role of a preparer of financial statements, or other corporate
reports such as on sustainability and corporate responsibility, an advisor or in an assurance role facing
business issues where there are reporting implications. Compliance issues relating to taxation will also
feature in this module.
Candidates will be required to use professional judgement to identify and evaluate alternatives and
determine the appropriate solution(s) to compliance issues, giving due consideration to the commercial
impact of their recommendations.
The aim of the Business Change paper is:
To ensure that candidates can provide technical advice in respect of issues arising in business
transformations, mergers, acquisitions, alliances and disposals.
Candidates will be required to analyse and interpret both external and internal financial and nonfinancial data in order to plan for change and provide advice. In undertaking this analysis students will
be expected to evaluate the impact of stakeholder influences on the data, including the impact of
choice of reporting policies.
Specification grid
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2.2
Taxation and practical business techniques are particularly important in this module, where business
techniques include aspects of business strategy, business finance, performance management and
costing. There will also be assurance, ethical and legal implications to be considered when developing
and assessing strategic and business plans.
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This grid shows the relative weightings of subjects within each module and should guide the relative
study time spent on each. Over time the marks available in the assessment will equate to the weightings
below, while slight variations may occur in individual assessments to enable suitably rigorous questions
to be set.
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Ethics and law

Taxation
Audit and assurance
Corporate reporting
Business analysis
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Corporate Reporting
BR
Weighting (%)
5 10
20 30
30 40
30 40
0
BC
Weighting (%)
5 10
25 35
10 20
15 25
30 35
3 Key resources
STUDENT SUPPORT TEAM
T +44 (0)1908 248 250
E studentsupport@icaew.com
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STUDENT WEBSITE
icaew.com/students student homepage
icaew.com/exams exam applications, deadlines, regulations and more
icaew.com/cpl credit for prior learning/exemptions
icaew.com/examresources examiners comments, syllabus, past papers, study guides and more
icaew.com/examresults exam results
TUITION
If you are receiving structured tuition, make sure you know how and when you can contact your tutors
for extra help.
If you aren't receiving structured tuition and are interested in classroom, online or distance learning
tuition, take a look at our tuition providers in your area on icaew.com/exams
ONLINE STUDENT COMMUNITY

The online student community allows you to ask questions, gain study and exam advice from fellow
ACA and CFAB students and access our free webinars. There are also regular Ask an Expert and Ask a
Tutor sessions to help you with key technical topics and exam papers. Access the community at
icaew.com/studentcommunity
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THE LIBRARY & INFORMATION SERVICES (LIS)

The Library and Information Service (LIS) is ICAEW's world-leading accountancy and business library.
You have access to a range of resources free of charge via the library website, including the catalogue,
LibCat. icaew.com/library
Introduction
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4 Skills assessment guide

4.1
Introduction
As a Chartered Accountant in the business world, you will require the knowledge and skills to interpret
financial and other numerical and business data, and communicate the underlying issues to your clients.
In a similar way to the required knowledge, the ACA syllabus has been designed to develop your
professional skills in a progressive manner. These skills are broadly categorised as:
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Assessing your professional skills
4.2
Assimilating and using information

Structuring problems and solutions
Applying judgement
Drawing conclusions and making recommendations
Initial Professional Development
BR
FR
FA
A&A
Advance Stage
technical integration
ETHICS
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Professional Stage
application level
TAX
BC
Case Study
Technical
FM
BS
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Professional Stage
knowledge level
Skills
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The work experience requirements for students provide a framework to develop appropriate work
experience, completion of which is essential in order to qualify for membership. Work experience is also
an essential component for examination preparation.
The work experience framework is built around five key skills:
Business awareness being aware of the internal and external issues and pressure for change facing
an organisation and assessing an organisation's performance.
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Technical and functional expertise applying syllabus learning outcomes and where appropriate,
further technical knowledge to real situations.
Ethics and professionalism recognising issues, using knowledge and experience to assess
implications, making confident decisions and recommendations.
Professional judgement making recommendations and adding value with appropriate, targeted
and relevant solutions.
Personal effectiveness developing, maintaining and exercising skills and personal attributes
necessary for the role and responsibilities.
Corporate Reporting
The examinations, and in particular the Advanced Stage, embrace all of these skills.
The link between work experience and the examinations is demonstrated by the skills development
grids produced by the examiners.
This will help students see that their practical knowledge and skills gained in the workplace feed back
into the exam room and vice-versa.
4.3
Assessment grids
The following pages set out the learning outcomes for Corporate Reporting that are addressed under
each of the four skills areas. In addition, for each skills area, there is a description of:
The specific skills that are assessed
How these skills are assessed
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Using these grids will enable you to determine how the examination paper will be structured and to
consider whether your knowledge of Corporate Reporting is sufficiently strong to enable you to apply it
in the required manner.
Introduction
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Corporate Reporting
4.4
Technical knowledge
The table contained in this section shows the technical knowledge covered in the ACA Syllabus by
module.
For each individual standard the level of knowledge required in the relevant Professional Stage module
and at the Advanced Stage is shown.
The knowledge levels are defined as follows:
Level D
An awareness of the scope of the standard.
Level C
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A general knowledge with a basic understanding of the subject matter and training in its application
sufficient to identify significant issues and evaluate their potential implications or impact.
Level B
A working knowledge with a broad understanding of the subject matter and a level of experience in the
application thereof sufficient to apply the subject matter in straightforward circumstances.
Level A
A thorough knowledge with a solid understanding of the subject matter and experience in the
application thereof sufficient to exercise reasonable professional judgement in the application of the
subject matter in those circumstances generally encountered by Chartered Accountants.
Key to other symbols:
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The knowledge level reached is assumed to be continued
Introduction
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Financial
Reporting
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B
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B
A
A
A
A
B
A
A
A
C
Preface to International Financial Reporting Standards

Conceptual Framework for Financial Reporting
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events after the Reporting Period
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Consolidated and Separate Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation
IAS 33 Earnings per Share
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
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
IFRS 1 First-Time Adoption of IFRS
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IFRS 9 Financial Instruments
IFRS for SMEs
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Title
Financial
Accounting
Accounting
Professional Stage
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Corporate Reporting
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A
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B
B
A
B
C
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B
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Advanced Stage
Corporate Reporting
A
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D
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D
D
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C
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Current issues
A number of the Chapters in this Study Manual cover current developments in the relevant financial
reporting area. For example, IAS 39 is being replaced by IFRS 9, and there are proposals for changes to
the rules on revenue recognition.
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These areas are not examinable because they were not in force at the April 2013 cut-off date for
examinations in 2014. However, as a professional you need to be aware of what these issues are, and of
the problems with current accounting treatments.
Introduction
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5 Faculties and Special Interest Groups

The faculties and special interest groups are specialist bodies within the ICAEW which offer members
networking opportunities, influence and recognition within clearly defined areas of technical expertise.
As well as providing accurate and timely technical analysis, they lead the way in many professional and
wider business issues through stimulating debate, shaping policy and encouraging good practice. Their
value is endorsed by over 40,000 members of ICAEW who currently belong to one or more of the seven
faculties:
Audit and Assurance
Corporate Finance
Finance and Management
Financial Reporting
Financial Services
Information Technology
Tax
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Charity and Voluntary sector

Entertainment and Media
Farming and Rural Business
Forensic
Healthcare
Interim Management
Non-Executive Directors
Public Sector
Solicitors
Tourism and Hospitality
Valuation
The special interest groups provide practical support, information and representation for chartered
accountants working within a range of industry sectors, including:
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Students can register free of charge for provisional membership of one special interest group and
receive a monthly complimentary e-newsletter from one faculty of your choice. To find out more and to
access a range of free resources, visit icaew.com/facultiesandsigs
6 ICAEW publications for further reading
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ICAEW produces publications and guidance for its students and members on a variety of technical and
business topics. This list of publications has been prepared for students who wish to undertake further
reading in a particular subject area and is by no means exhaustive. You are not required to study these
publications for your exams. For a full list of publications, or to access any of the publications listed
below, visit the Technical Resources section of the ICAEW website at icaew.com
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ICAEW no longer prints a Members Handbook. ICAEW regulations, standards and guidance are
available at icaew.com/regulations This area includes regulations and guidance relevant to the regulated
areas of audit, investment business and insolvency as well as materials that were previously in the
handbook.
The TECH and AUDIT series of technical releases are another source of guidance available to members
and students. Visit icaew.com/technicalreleases for the most up-to-date releases.
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Corporate Reporting
Audit and Assurance Faculty icaew.com/aaf
Right First Time with the Clarified ISAs, ICAEW 2010, ISBN 978-0-85760-063-9
Clarified ISAs provide many opportunities for practitioners in terms of potential efficiencies, better
documentation, better reporting to clients, and enhanced audit quality overall.
This modular guide has been developed by ICAEW's ISA implementation sub-group to help
medium-sized and smaller firms implement the clarified ISAs and take advantage of these
opportunities. This modular guide is designed to give users the choice of either downloading the
publication in its entirety, or downloading specific modules on which they want to focus.
An international edition is also available.
Quality Control in the Audit Environment, ICAEW 2010, ISBN 0-497-80857-605-5
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The publication identifies seven key areas for firms to consider. Illustrative policies and procedures
are provided for selected aspects of each key area, including some examples for sole practitioners.
The guide also includes an appendix with answers to a number of frequently asked questions on
the standard.
The Audit of Related Parties in Practice, ICAEW 2010, ISBN 978-1-84125-565-6
Alternatives to Audit ICAEW, 2009, ISBN 978-1-84152-819-9
This practical guide to the audit of related party relationships and transactions is set in the context
of the significant change in approach that is required under the revised ISA and highlights the
importance of planning, the need to involve the entire audit team in this, to assign staff with the
appropriate level of experience to audit this area and upfront discussions with the client to identify
related parties.
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In August 2006, the ICAEW Audit and Assurance Faculty began a two-year consultation on a new
assurance services (the ICAEW Assurance Service), an alternative to audit based on the idea of
limited assurance introduced by the International Auditing and Assurance Standards Board (IAASB).
This report presents findings from the practical experience of providing the ICAEW Assurance
Service over the subsequent two years and views of users of financial information that help in
assessing the relevance of the service to their needs.
Companies Act 2006 Auditor related requirements and regulations third edition March
2012 ICAEW, 2012, ISBN 978-0-85760-442-2
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This third edition of the guide provides a brief summary of the key sections in the Companies Act
2006 (the Act) which relate directly to the rights and duties of auditors. It covers the various types
of reports issued by auditors in accordance with the Act. It is designed to be a signposting tool for
practitioners and identifies the other pieces of guidance issued by ICAEW, APB, FRC, POB and
others to support implementation of the Act.
Auditing in a group context: practical considerations for auditors ICAEW, 2008, ISBN 978-184152-628-7
The guide describes special considerations for auditors at each stage of the group audit's cycle.
While no decisions have been taken on UK adoption of the IAASB's clarity ISAs, the publication also
covers matters in the IAASB's revised and redrafted 'ISA 600 Special Considerations Audits of
Group Financial Statements (Including the Work of Component Auditors)'. The revised publication
contains suggestions for both group auditors and component auditors.
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Introduction
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Corporate Finance Faculty icaew.com/corpfinfac
Private equity demystified an explanatory guide Second Edition, Financing Change Initiative,
ICAEW, March 2010, John Gilligan and Mike Wright
This guide summarises the findings of academic work on private equity transactions from around
the world. Hard copies of the abstract and full report are free and are also available by download
from icaew.com/thoughtleadership
Best Practice Guidelines
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The Corporate Finance Faculty publishes a series of guidelines on best-practice, regulatory trends
and technical issues. Authored by leading practitioners in corporate finance, they are succinct and
clear overviews of emerging issues in UK corporate finance. icaew.com/corpfinfac
Corporate Financier magazine, ISSN 1367-4544
The award-winning Corporate Financier magazine is published ten times a year for members,
stakeholders and key associates of ICAEW's Corporate Finance Faculty.
Aimed at professionals, investors and company directors involved in corporate finance, it covers a
wide range of emerging regulatory, commercial and professional development issues.
The magazine includes features, news, analysis and research, written by experts, experienced editors
and professional journalists.
In 2011, three major themes were introduced: Innovation & Corporate Finance; Financing
Entrepreneurship; and Deal Leadership.
Corporate governance icaew.com/corporategovernance

The UK Corporate Governance Code 2010
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The UK Corporate Governance Code (formerly the Combined Code) sets out standards of good
practice in relation to board leadership and effectiveness, remuneration, accountability and
relations with shareholders. All companies with a Premium Listing of equity shares in the UK are
required under the Listing Rules to report on how they have applied the UK Corporate
Governance Code in their annual report and accounts.
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The first version of the UK Corporate Governance Code was produced in 1992 by the
Cadbury Committee. In May 2010 the Financial Reporting Council issued a new edition of
the Code which applies to financial years beginning on or after 29 June 2010.
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The UK Corporate Governance Code contains broad principles and more specific provisions.
Listed companies are required to report on how they have applied the main principles of the
Code, and either to confirm that they have complied with the Code's provisions or where they
have not to provide an explanation.
Internal Control: Revised Guidance on Internal Control for Directors on the Combined Code
(now the UK Corporate Governance Code)
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Originally published in 1999, the Turnbull guidance was revised and updated in October 2005,
following a review by the Financial Reporting Council. The updated guidance applies to listed
companies for financial years beginning on or after 1 January 2006.
The FRC Guidance on Audit Committees (formerly known as The Smith Guidance)
First published by the Financial Reporting Council in January 2003, and most recently updated in
2010. It is intended to assist company boards when implementing the sections of the UK
Corporate Governance Code dealing with audit committees and to assist directors serving on audit
committees in carrying out their role. Companies are encouraged to use the 2010 edition of the
guidance with effect from 30 April 2011.
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Corporate Reporting
The UK Stewardship Code

The UK Stewardship Code was published in July 2010. It aims to enhance the quality of
engagement between institutional investors and companies to help improve long-term
returns to shareholders and the efficient exercise of governance responsibilities by setting out
good practice on engagement with investee companies to which the Financial Reporting
Council believes institutional investors should aspire.
A report summarising the actions being taken by the Financial Reporting Council and
explaining how the UK Stewardship Code is intended to operate was also published in
July 2010.
Corporate responsibility icaew.com/corporateresponsibility

Sustainable Business January 2009
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The new thought leadership prospectus acts as a framework for the work that ICAEW do in
sustainability/corporate responsibility. It argues that any system that is sustainable needs accurate
and reliable information to help it learn and adapt, which is where the accounting profession plays
an important role. A downloadable pdf is available at icaew.com/sustainablebusiness
Environmental issues in annual financial statements ICAEW, May 2009, ISBN 978-1-84152-610-2
This report is a joint initiative with the Environment Agency. It is aimed at business accountants
who prepare, use or audit the financial statements in statutory annual reports and accounts, or
who advise or sit on the boards of the UK companies and public sector organisations. It offers
practical advice on measuring and disclosing environmental performance. A downloadable pdf is
available at icaew.com/sustainablebusiness
ESRC seminar series When worlds collide: contested paradigms of corporate responsibility
The Business Sustainability Programme (BSP)
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ICAEW, in conjunction with the British Academy of Management, won an Economic and Social
Research Council grant to run a seminar series which aims to bring academics and the business
community together to tackle some of the big challenges in corporate responsibility.
icaew.com/corporateresponsibility
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The Business Sustainability Programme is an e-learning package for accountants and business
professionals who want to learn about the business case for sustainability. The course is spread
across five modules taking users from definitions of sustainability and corporate responsibility,
through case studies and finally towards developing an individually tailored sustainability strategy
for their business. The first two modules are free to everyone. For more information and to
download a brochure visit icaew.com/bsp
Ethics icaew.com/ethics
Code of Ethics
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The Code of Ethics helps ICAEW members meet these obligations by providing them with ethical
guidance. The Code applies to all members, students, affiliates, employees of member firms and,
where applicable, member firms, in all of their professional and business activities, whether
remunerated or voluntary.
Instilling integrity in organisations ICAEW June 2009
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Practical guidance aimed at directors and management to assist them in instilling integrity in their
organisations. This document may also be helpful to audit firms discussing this topic with clients
and individuals seeking to address issues in this area with their employers.
Reporting with Integrity ICAEW May 2007, ISBN 978-1-84152-455-9

This publication brings ideas from a variety of disciplines, in order to obtain a more comprehensive
understanding of what is meant by integrity, both as a concept and in practice. Moreover, because
this report sees reporting with integrity as a joint endeavour of individuals, organisations and
professions, including the accounting profession, the concept of integrity is considered in all these
contexts.
Introduction
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Finance and Management Faculty icaew.com/fmfac
Finance's role in the organisation November 2009, ISBN 978-1-84152-855-7

This considers the challenges of designing successful organisations, written by Rick Payne, who
leads the faculty's finance direction programme.
Investment appraisal SR27: December 2009, ISBN 978-1-84152-854-4

This special report looks at the key issues and advises managers on how they can contribute
effectively to decision making and control during the process of investment appraisal.
Starting a business SR28: March 2010, ISBN 978-1-84152-984-2
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This report provides accountants with a realistic and motivational overview of what to consider
when starting a business.
Developing a vision for your business SR30: September 2010, ISBN 978-0-85760-054-7
This special report looks at what makes a good vision, the benefits of having one, the role of the FD
in the process, leadership, storytelling and the use of visions in medium-sized businesses.
Finance transformation the outsourcing perspective SR31: December 2010, ISBN 978-085760-079-0
The authors of this outsourcing special report share their expertise on topics including service level
agreements, people management, and innovation and technology.
The Finance Function: A Framework for Analysis September 2011, ISBN 978-0-85760-285-5
This report is a source of reference for those analyzing or researching the role of the finance
function and provides a foundation for considering the key challenges involved, written by Rick
Payne, who leads the faculty's finance direction programme.
EU Implementation of IFRS and the Fair Value Directive ICAEW, October 2007, ISBN 978-184152-519-8
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Financial Reporting Faculty icaew.com/frfac
The most comprehensive assessment to date of compliance with the requirements of IFRS and the
overall quality of IFRS financial reporting.
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The Financial Reporting Faculty makes available to students copies of its highly-regarded factsheets
on UK GAAP and IFRS issues, as well as its journal, By All Accounts, at icaew.com/frfac
Financial Services Faculty icaew.com/fsf

Audit of banks: lessons from the crisis, (Inspiring Confidence in Financial Services initiative)
ICAEW, June 2010 ISBN 978-0-85760-051-6
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This research has looked into the role played by bank auditors and examined improvements that
can be made in light of lessons learned from the financial crisis. The project has included the
publication of stakeholder feedback and development of a final report.
Measurement in financial services, (Inspiring Confidence in Financial Services initiative) ICAEW,

March 2008, ISBN 978-1-84152-546-4
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This report suggests that more work is required on matching measurement practices in the
financial services industry to the needs of different users of financial information, despite the fact
that the financial services industry has the greatest concentration of measurement and modelling
skills of any industry. A downloadable pdf is available at icaew.com/thoughtleadership
Skilled Persons' Guidance Reporting Under s166 Financial Services and Markets Act 2000
(Interim Technical Release FSF 01/08)
This interim guidance was issued by ICAEW in April 2008 as a revision to TECH 20/30 to assist
chartered accountants and other professionals who are requested to report under s166 Financial
Services and Markets Act 2000. A downloadable pdf is available at icaew.com/technicalreleases
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Corporate Reporting
Information Technology Faculty icaew.com/itfac

The IT Faculty provides ongoing advice and guidance that will help students in their studies and their
work. The online community (ion.icaew.com/itcountshome) provides regular free updates as well as a
link to the faculty's Twitter feed which provides helpful updates and links to relevant articles. The
following publications should also be of interest to students:
Make the move to cloud computing ICAEW, 2012, ISBN 978-0-85760-617-4

Cloud computing in its purest form is pay-as-you-go IT, online and on demand. The IT capabilities
provided as a service to businesses include: single software applications or software suites; online
software development platforms; and virtual computing infrastructure, ranging from data storage to
computer grids.
Bringing employee personal devices into the business - a guide to IT consumerisation ICAEW,
2012, ISBN 978-0-85760-443-9
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The gap between business and consumer technology has been growing over the last few years,
with the consumer market now leading in terms of ease of use and portability.
Making the most of social media - a practical guide for your business ICAEW, 2011, ISBN 978-085760-286-2
This guide will enable the business manager to develop a philosophy that allies social media's
potential with the business's objectives and capabilities, to set objectives and protect against pitfalls,
and then to take the first practical steps in a mass communications medium very different from any
that British business has encountered before.
Tax Faculty icaew.com/taxfac
Tax news service
The Tax Faculty runs a Younger Members Tax Club which provides informal presentations, discussions
and socialising. All young professionals interested in tax are welcome to attend. See the website for
more details icaew.com/taxfac
Demystifying XBRL
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You can keep up with the tax news as it develops on the Tax Faculty's news site
icaew.com/taxnews. And you can subscribe to the free newswire which gives you a weekly round
up. For more details visit icaew.com/taxfac
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This booklet, produced jointly by KPMG, the Tax Faculty and the Information Technology Faculty,
explains exactly what iXBRL is all about and what must be done in order to e-file corporation tax
returns using the new standard.
Implementing XBRL
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This booklet, produced jointly by Thompson Reuters, the Tax Faculty and the Information
Technology Faculty, is a practical guide for accountants in business and practice, and follows on
from Demystifying XBRL.
TAXline Tax Practice series of detailed briefings on current topics:
IN
TAXline Tax Practice 27

Let property a brief guide by Rebecca Cave (published November 2011)
The new pension rules by Anne Redston (published July 2011)
Tax Credits by Robin Williamson (published April 2011)
TAXline Tax Practice No 23
HMRC Powers an overview of the new powers and penalties regime by Paula Clemett (published
October 2010)
Introduction
xxi
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Corporate Reporting
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CHAPTER 1
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Presentation of financial
statements
Introduction
Topic List
1 IAS 1 Presentation of Financial Statements
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2 IAS 34 Interim Financial Reporting

3 Future of UK GAAP
Summary and Self-test

Technical reference
Answers to Self-test
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Answer to Interactive question
Introduction
Learning objectives
Tick off
Understand and apply the requirements of IAS 1Presentation of Financial Statements
Demonstrate an understanding of the requirements of IAS 34 Interim Financial Reporting
Apply recognition and measurement principles to the preparation of interim financial

statements as required by IAS 34 Interim Financial Reporting
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Corporate Reporting
1 IAS 1 Presentation of Financial Statements
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Section overview
IAS 1 Presentation of Financial Statements sets down the format of financial statements, containing
requirements as to their presentation, structure and content.
IAS 1 was amended in 2011, changing the presentation of items contained in other comprehensive
income (OCI) and their classification within OCI.
Main features
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1.1
Titles of financial statements
Statement of financial position

Statement of profit or loss and other comprehensive income
Statement of cash flows
The three main financial statements under IAS 1 are:
You may still see the old names (balance sheet, etc), as these new titles are not mandatory.
IAS 1 classifies changes in equity in a period as either:

Owner changes in equity, or
Non-owner changes in equity.
Reporting owner changes in equity and comprehensive income
Owner changes in equity arise from transactions with owners in their capacity as owners, eg dividends
paid and issues of share capital. These are presented in the statement of changes in equity.
Non-owner changes in equity (known as 'comprehensive income') include:
The profit or loss for the period
Income or expenditure recognised directly in equity (known as 'other comprehensive income').
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1
2
These are presented in the statement of profit or loss and other comprehensive income.
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Summary
Profit or loss for period
IAS 1
Statement of profit or loss and other
comprehensive income
Owner transactions
Statement of changes in equity
SP
Non-owner transactions recognised directly in equity
Presentation of comparatives
IN
IAS 1 requires disclosure of comparative information in respect of the previous period. It also requires
inclusion of a statement of financial position as at the beginning of the earliest comparative period when
an entity:
Retrospectively applies an accounting policy

Retrospectively restates items in the financial statements, or
Reclassifies items in the financial statements.
In effect this will result in the presentation of three statements of financial position when there is a prior
period adjustment.
1.2

Note that reserves other than share capital and retained earnings may be grouped as 'other components
of equity'.
Presentation of financial statements
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X7
Current assets
Inventories
Trade receivables
Other current assets
Cash and cash equivalents
Total assets
X
X
X
X
X
X
X
X
X
X
X
X
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1.3
X
X
X
X
X
X
X
X
X
X
X
X
Non-controlling interests
Total equity
Non-current liabilities
Long-term borrowings
Deferred tax
Long-term provisions
Total non-current liabilities
Current liabilities
Trade and other payables
Short-term borrowings
Current portion of long-term borrowings
Current tax payable
Short-term provisions
Total current liabilities
Total liabilities
Total equity and liabilities
X
X
X
X
X
X
EQUITY AND LIABILITIES

Equity attributable to owners of the parent
Share capital
Retained earnings
Other components of equity
31 Dec 20X6
$m
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ASSETS
Non-current assets
Property, plant and equipment
Goodwill
Other intangible assets
Investments in associates
Available-for-sale financial assets
31 Dec 20X7
$m
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
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The statement of profit or loss and other comprehensive income presents the total comprehensive
income of an entity for a period.
Total comprehensive income is the change in equity during a period resulting from transactions and
other events, other than those changes resulting from transactions with owners in their capacity as
owners. It includes all components of profit or loss and of 'other comprehensive income'.
IN
Other comprehensive income includes income and expenses that are not recognised in profit or loss,
but instead recognised directly in equity. It includes:
Changes in the revaluation surplus
Remeasurements (actuarial gains and losses on defined benefit plans recognised in accordance with
IAS 19 Employee Benefits (revised 2011) (Chapter 8)
Gains and losses arising from translating the financial statements of a foreign operation (Chapter
11)
Gains and losses on remeasuring available-for-sale financial assets (Chapter 6)
The effective portion of gains and losses on hedging instruments in a cash flow hedge (Chapter 7)
Corporate Reporting
1.3.1 2011 Revision of IAS 1
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In June 2011, the IASB published an amendment to IAS 1 called Presentation of items of other
comprehensive income, changing the presentation of items contained in Other Comprehensive Income
(OCI) and their classification within OCI.
Background
The blurring of distinctions between different items in OCI is the result of an underlying general lack
of agreement among users and preparers about which items should be presented in OCI and which
should be part of the profit or loss section. For instance, a common misunderstanding is that the split
between profit or loss and OCI is on the basis of realised versus unrealised gains. This is not, and has
never been, the case.
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This lack of a consistent basis for determining how items should be presented has led to the somewhat
inconsistent use of OCI in financial statements.
Change
Entities are required to group items presented in other comprehensive income (OCI) on the basis of
whether they would be reclassified to (recycled through) profit or loss at a later date, when specified
conditions are met.
The amendment does not address which items are presented in other comprehensive income or which
items need to be reclassified.
Income tax
IAS 1 requires an entity to disclose income tax relating to each component of other comprehensive
income. This is because these items often have tax rates different from those applied to profit or loss.
This may be achieved by either
Presenting individual components of other comprehensive income net of the related tax, or
Presenting individual components of other comprehensive income before tax, with one amount
shown for the aggregate amount of income tax relating to those components.
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Presentation
IAS 1 allows comprehensive income to be presented in two ways:

A single statement of profit or loss and other comprehensive income, or
A statement displaying components of profit or loss plus a second statement beginning with profit
or loss and displaying components of other comprehensive income (statement of profit or loss and
other comprehensive income).
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The recommended format of a single statement of profit or loss and other comprehensive income is as
follows:
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STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 20X7
IN
Revenue
Cost of sales
Gross profit
Other income
Distribution costs
Administrative expenses
Other expenses
Finance costs
Share of profit of associates
Profit before tax
Income tax expense
Profit for the year from continuing operations
Loss for the year from discontinued operations
20X7
$m
X
(X)
X
X
(X)
(X)
(X)
(X)
X
X
(X)
X
20X6
$m
X
(X)
X
X
(X)
(X)
(X)
(X)
X
X
(X)
X
(X)
PROFIT FOR THE YEAR

Other comprehensive income:
Items that will not be reclassified to profit or loss:
Gains on property revaluation
Investment in equity instruments (available-for-sale financial
assets)
Actuarial gains (losses) on defined benefit pension plans
Share of gain (loss) on property revaluation of associates
Income tax relating to items that will not be reclassified
20X6
$m
X
(X)
(X)
X
X
(X)
X
X
(X)
(X)
X
X
(X)
(X)
X
(X)
X
X
(X)
(X)
X
X
X
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Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operations
Cash flow hedges
Income tax relating to items that may be reclassified
20X7
$m
X
Other comprehensive income for the year, net of tax

TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Earnings per share ($)

Basic and diluted
Total comprehensive income attributable to:

Owners of the parent
X
X
X
X
X
X
X
X
X
X
X
X
Profit attributable to:

Owners of the parent
Tutorial note:
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Alternatively, components of OCI could be presented in the statement of profit or loss and other
comprehensive income net of tax.
EC
Throughout this text, income and expense items which are included in the 'top half' of the statement of
profit or loss and other comprehensive income are referred to as recognised in profit or loss, or
recognised in the income statement.
Income and expense items included in the 'bottom half' of the statement of profit or loss and other
comprehensive income are referred to as recognised in other comprehensive income.
SP
For exam purposes, you must ensure that you clarify where in the statement of profit or loss and other
comprehensive income an item is recorded, by referring to recognition:
IN
1.4
In profit or loss, or
In other comprehensive income
All changes in equity arising from transactions with owners in their capacity as owners are shown in the
statement of changes in equity.
Non-owner transactions are not permitted to be shown in the statement of changes in equity other than
in aggregate.
Corporate Reporting
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 20X7
Retained
earnings
'000
X
Translation
of foreign
operations
'000
(X)
(X)
(X)
Total
'000
X
Noncontrolling
interest
'000
X
Total
equity
'000
X
Revaluation
surplus
'000
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Cash flow
hedges
'000
X
(X)
X
(X)
X
(X)
(X)
Balance at
1 Jan 20X7
Changes in
accounting
policy
Restated
balance
Changes
in equity
during 20X7
Issue of share
capital
Dividends
Total
comprehensive
income for the
year
Transfer to
retained
earnings
Balance at
31 Dec 20X7
Share
capital
'000
X
Available
-for-sale
financial
assets
'000
X
A comparative statement for the prior period is also required.
Here is an example of a statement of changes in equity with some real figures in, to give you a better
idea of what it looks like:
OLIVE GROUP: STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 20X9
14,280
1,320
AFS
financial
assets
m
Revaluation
surplus
m
10,896
384
96
(216)
EC
Balance at
1 July 20X8
Share capital issued
Dividends
Total comprehensive
income for the year
Balance at
30 June 20X9
Retained
earnings
m
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Share
capital
m
Total
m
25,656
1,320
(216)
1,272
(120)
Total
equity
m
26,928
1,320
(336)
(1,296)
72
48
(1,176)
528
(648)
9,384
456
144
25,584
1,680
27,264
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15,600
Noncontrolling
interest
m
2 IAS 34 Interim Financial Reporting

Section overview
IAS 34 recommends that entities should produce interim financial reports, and for entities that
do publish such reports, it lays down principles and guidelines for their production.
IN
The following definitions are used in IAS 34.
Definitions
Interim period: A financial reporting period shorter than a full financial year.
Interim financial report: A financial report containing either a complete set of financial statements (as
described in IAS 1) or a set of condensed financial statements (as described in this Standard) for an
interim period.
2.1
Scope of IAS 34
IAS 34 does not make the preparation of interim financial reports mandatory, taking the view that this
is a matter for governments, securities regulators, stock exchanges or professional accountancy bodies
to decide within each country. The IASB does, however, strongly recommend to governments, and
regulators, that interim financial reporting should be a requirement for companies whose equity or debt
securities are publicly traded.
IAS 34 encourages publicity traded entities:
To provide an interim financial report for at least the first six months of their financial year (ie a
half year financial report).
To make the report available no later than 60 days after the end of the interim period.
2.2
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Thus, a company with a year ending 31 December would be required as a minimum to prepare an
interim report for the half year to 30 June and this report should be available before the end of August.
Minimum components
IAS 34 specifies the minimum component elements of an interim financial report as follows:
Condensed statement of financial position
Condensed statement of profit or loss and other comprehensive income, presented either as a
single condensed statement or a condensed income statement and a condensed statement of
profit or loss and other comprehensive income
Condensed statement of changes in equity
Condensed statement of cash flows
Selected note disclosures
IAS 34 applies where an entity is required to or chooses to publish an interim financial report in
accordance with International Financial Reporting Standards (IFRSs).
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An interim report complying with IFRSs may be:
A complete set of financial statements at the interim reporting date complying in full with IFRSs, or
A condensed interim financial report prepared in compliance with IAS 34.
2.3
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The rationale for requiring only condensed statements and selected note disclosures is that entities need
not duplicate information in their interim report that is contained in their report for the previous
financial year. Interim statements should focus more on new events, activities and circumstances.
Form and content
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Where full financial statements are given as interim financial statements, IAS 1 should be used as a
guide, otherwise IAS 34 specifies minimum contents.
The condensed statement of financial position should include, as a minimum, each of the major
components of assets, liabilities and equity as were in the statement of financial position at the end of
the previous financial year, thus providing a summary of the economic resources of the entity and its
financial structure.
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The condensed statement of profit or loss and other comprehensive income should include, as a
minimum, each of the component items of total comprehensive income as were shown in the
statement of profit or loss and other comprehensive income for the previous financial year, together
with the earnings per share and diluted earnings per share.
The condensed statement of cash flows should show, as a minimum, the three major sub-totals of
cash flow as required in statements of cash flows by IAS 7, namely: cash flows from operating activities,
cash flows from investing activities and cash flows from financing activities.
The condensed statement of changes in equity should include, as a minimum, each of the major
components of equity as were contained in the statement of changes in equity for the previous financial
year of the entity.
Corporate Reporting
2.3.1
Selected explanatory notes
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IAS 34 states that relatively minor changes from the most recent annual financial statements need not
be included in an interim report. However, the notes to an interim report should include the following
(unless the information is contained elsewhere in the report).
A statement that the same accounting policies and methods of computation have been used for
the interim statements as were used for the most recent annual financial statements. If not, the
nature of the differences and their effect should be described. (The accounting policies for
preparing the interim report should only differ from those used for the previous annual accounts in
a situation where there has been a change in accounting policy since the end of the previous
financial year, and the new policy will be applied for the annual accounts of the current financial
period.)
Explanatory comments on the seasonality or 'cyclicality' of operations in the interim period. For
example, if a company earns most of its annual profits in the first half of the year, because sales are
much higher in the first six months, the interim report for the first half of the year should explain
this fact.
The nature and amount of items during the interim period affecting assets, liabilities, capital, net
income or cash flows, that are unusual, due to their nature, incidence or size.
The issue or repurchase of equity or debt securities.
Nature and amount of any changes in estimates of amounts reported in an earlier interim report
during the financial year, or in prior financial years if these affect the current interim period.
Dividends paid on ordinary shares and the dividends paid on other shares.
Segmental results for entities that are required by IFRS 8 Operating Segments to disclose segment
information in their annual financial statements.
Any significant events since the end of the interim period.
Effect of changes in the composition of the entity during the interim period including the
acquisition or disposal of subsidiaries and long-term investments, restructurings and discontinued
operations.
Any significant change in a contingent liability or a contingent asset since the date of the last
annual statement of financial position.
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The standard requires the entity to provide explanatory comments about seasonality or cyclicality
relating to the interim financial statements.
Changes in the business environment such as changes in price, costs, demand, market share and
prospects for the full year should be discussed in the management discussion and analysis of the
financial review.
SP
The entity should also disclose the fact that the interim report has been produced in compliance with
IAS 34 on interim financial reporting.
Worked example: Disclosure

Requirement
IN
Give some examples of the type of disclosures required according to the above list of explanatory notes.
Solution
The following are examples:
Write-down of inventories to net realisable value and the reversal of such a write-down
Recognition of a loss from the impairment of property, plant and equipment, intangible assets, or
other assets, and the reversal of such an impairment loss
Reversal of any provisions for the costs of restructuring
Acquisitions and disposals of items of property, plant and equipment
2.4
Commitments for the purchase of property, plant and equipment
Litigation settlements
Corrections of fundamental errors in previously reported financial data
Any debt default or any breach of a debt covenant that has not been corrected subsequently
Related party transactions
Periods covered
Statement of financial position data as at the end of the current interim period, and comparative
data as at the end of the most recent financial year.
Statement of profit or loss and other comprehensive income data for the current interim
period and cumulative data for the current year to date, together with comparative data for the
corresponding interim period and cumulative figures for the previous financial year.
Statement of cash flows data should be cumulative for the current year to date, with comparative
cumulative data for the corresponding interim period in the previous financial year.
Data for the statement of changes in equity should be for both the current interim period and
for the year to date, together with comparative data for the corresponding interim period, and
cumulative figures, for the previous financial year.
Materiality
2.5
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The Standard requires that interim financial reports should provide financial information for the
following periods or as at the following dates.
2.6
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Materiality should be assessed in relation to the interim period financial data. It should be recognised
that interim measurements rely to a greater extent on estimates than annual financial data.
Recognition and measurement principles
EC
A large part of IAS 34 deals with recognition and measurement principles, and guidelines as to their
practical application. The guiding principle is that an entity should use the same recognition and
measurement principles in its interim statements as it does in its annual financial statements.
SP
This means, for example, that a cost that would not be regarded as an asset in the year-end statement
of financial position should not be regarded as an asset in the statement of financial position for an
interim period. Similarly, an accrual for an item of income or expense for a transaction that has not yet
occurred (or a deferral of an item of income or expense for a transaction that has already occurred) is
inappropriate for interim reporting, just as it is for year-end reporting.
IN
Applying this principle of recognition and measurement may result, in a subsequent interim period or at
the year-end, in a remeasurement of amounts that were reported in a financial statement for a previous
interim period. The nature and amount of any significant remeasurements should be disclosed.
Revenues received occasionally, seasonally or cyclically
Revenue that is received as an occasional item, or within a seasonal or cyclical pattern, should not be
anticipated or deferred in interim financial statements, if it would be inappropriate to anticipate or defer
the revenue for the annual financial statements. In other words, the principles of revenue recognition
should be applied consistently to the interim reports and year-end reports.
Costs incurred unevenly during the financial year

These should only be anticipated or deferred (ie treated as accruals or prepayments) if it would be
appropriate to anticipate or defer the expense in the annual financial statements. For example, it would
be appropriate to anticipate a cost for property rental where the rental is paid in arrears, but it would be
10
Corporate Reporting
inappropriate to anticipate part of the cost of a major advertising campaign later in the year, for which
no expenses have yet been incurred.
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The standard goes on, in an appendix, to deal with specific applications of the recognition and
measurement principle. Some of these examples are explained below, by way of explanation and
illustration.
Payroll taxes or insurance contributions paid by employers

In some countries these are assessed on an annual basis, but paid at an uneven rate during the course of
the year, with a large proportion of the taxes being paid in the early part of the year, and a much
smaller proportion paid later on in the year. In this situation, it would be appropriate to use an
estimated average annual tax rate for the year in an interim statement, not the actual tax paid. This
treatment is appropriate because it reflects the fact that the taxes are assessed on an annual basis, even
though the payment pattern is uneven.
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Cost of a planned major periodic maintenance or overhaul
The cost of such an event later in the year must not be anticipated in an interim financial statement
unless there is a legal or constructive obligation to carry out this work. The fact that a maintenance or
overhaul is planned and is carried out annually is not of itself sufficient to justify anticipating the cost in
an interim financial report.
Other planned but irregularly-occurring costs
Similarly, these costs such as charitable donations or employee training costs, should not be accrued in
an interim report. These costs, even if they occur regularly and are planned, are nevertheless
discretionary.
Year-end bonus
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A year-end bonus should not be provided for in an interim financial statement unless there is a
constructive obligation to pay a year-end bonus (eg a contractual obligation, or a regular past practice)
and the size of the bonus can be reliably measured.
Worked example: Bonus
SP
EC
An entity's accounting year ends on 31 December each year and it is currently preparing interim
financial statements for the half year to 30 June 20X4. It has a contractual agreement with its staff that
it will pay them an annual bonus equal to 10% of their annual salary if the full year's output exceeds one
million units. Budgeted output is 1.4 million units and the entity has achieved budgeted output during
the first six months of the year. Annual salaries are estimated to be 100 million, with the cost in the
first half year to 30 June being 45 million.
Requirement
How should the bonus be reflected in the interim financial statements?
Solution
IN
It is probable that the bonus will be paid, given that the actual output already achieved in the year is in
line with budgeted figures, which exceed the required level of output. So a bonus of 4.5 million should
be recognised in the interim financial statements at 30 June 20X4.
Holiday pay
The same principle applies here. If holiday pay is an enforceable obligation on the employer, then any
unpaid accumulated holiday pay may be accrued in the interim financial report.
11
Non-monetary intangible assets

The entity might incur expenses during an interim period on items that might or will generate nonmonetary intangible assets. IAS 38 Intangible Assets requires that costs to generate non-monetary
intangible assets (eg development expenses) should be recognised as an expense when incurred unless
the costs form part of an identifiable intangible asset. Costs that were initially recognised as an expense
cannot subsequently be treated instead as part of the cost of an intangible asset. IAS 34 states that
interim financial statements should adopt the same approach. This means that it would be inappropriate
in an interim financial statement to 'defer' a cost in the expectation that it will eventually be part of a
non-monetary intangible asset that has not yet been recognised: such costs should be treated as an
expense in the interim statement.
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Depreciation
Depreciation should only be charged in an interim statement on non-current assets that have been
acquired, not on non-current assets that will be acquired later in the financial year.
Foreign currency translation gains and losses
These should be calculated by the same principles as at the financial year end, in accordance with IAS
21.
Tax on income
An entity will include an expense for income tax (tax on profits) in its interim statements. The tax rate
to use should be the estimated average annual tax rate for the year. For example, suppose that in a
particular jurisdiction, the rate of tax on company profits is 30% on the first 200,000 of profit and 40%
on profits above 200,000. Now suppose that a company makes a profit of 200,000 in its first half
year, and expects to make 200,000 in the second half year. The rate of tax to be applied in the interim
financial report should be 35%, not 30%, ie the expected average rate of tax for the year as a whole.
This approach is appropriate because income tax on company profits is charged on an annual basis, and
an effective annual rate should therefore be applied to each interim period.
EC
TI
As another illustration, suppose a company earns pre-tax income in the first quarter of the year of 30,000,
but expects to make a loss of 10,000 in each of the next three quarters, so that net income before tax for
the year is zero. Suppose also that the rate of tax is 30%. In this case, it would be inappropriate to anticipate
the losses, and the tax charge should be 9,000 for the first quarter of the year (30% of 30,000) and a
negative tax charge of 3,000 for each of the next three quarters, if actual losses are the same as anticipated.
Where the tax year for a company does not coincide with its financial year, a separate estimated
weighted average tax rate should be applied for each tax year, to the interim periods that fall within
that tax year.
SP
Some countries give entities tax credits against the tax payable, based on amounts of capital
expenditure or research and development, etc. Under most tax regimes, these credits are calculated and
granted on an annual basis; therefore it is appropriate to include anticipated tax credits within the
calculation of the estimated average tax rate for the year, and apply this rate to calculate the tax on
income for the interim period.
IN
Worked example: Taxation charge

An entity's accounting year ends on 31 December 20X4, and it is currently preparing interim financial
statements for the half year to 30 June 20X4. Its profit before tax for the six month period to 30 June
20X4 is 6 million. The business is seasonal and the profit before tax for the six months to 31
December 20X4 is almost certain to be 10 million. Income tax is calculated as 25% of reported annual
profit before tax if it does not exceed 10 million. If annual profit before tax exceeds 10 million the tax
rate on the whole amount is 30%.
Requirement
Under IAS 34 what should the taxation charge be in the interim financial statements?
12
Corporate Reporting
Solution
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The taxation charge in the interim financial statements is based upon the weighted average rate for the
year. In this case the entity's tax rate for the year is expected to be 30%. The taxation charge in the
interim financial statements will be 1.8 million.
Interactive question 1: Interim financial statement
[Difficulty level: Intermediate]
The Alshain Company's profit before tax for the six months to 30 September 20X6 was 4 million.
However, the business is seasonal and profit before tax for the six months to 31 March 20X7 is almost
certain to be 8 million. Profit before tax equals taxable profit for this company.
PY
Alshain operates in a country where income tax on companies is at a rate of 25% if annual profits are
below 11 million and a rate of 30% where annual profits exceed 11 million. These tax rates apply to
the entire profit for the year.
Under IAS 34 Interim Financial Reporting, what should be the income tax expense in Alshain's interim
financial statements for the half year to 30 September 20X6?
See Answer at the end of this chapter.
Inventory valuations
Within interim reports, inventories should be valued in the same way as for year-end accounts. It is
recognised, however, that it will be necessary to rely more heavily on estimates for interim reporting
than for year-end reporting.
In addition, it will normally be the case that the net realisable value of inventories should be estimated
from selling prices and related costs to complete and dispose at interim dates.
Worked example: Inventory valuations
EC
TI
An entity's accounting year ends on 31 December 20X4, and it is currently preparing interim financial
statements for the half year to 30 June 20X4. The price of its products tends to vary. At 30 June 20X4, it
has inventories of 100,000 units, at a cost per unit of 1.40. The net realisable value of the inventories is
1.20 per unit at 30 June 20X4. The expected net realisable value of the inventories at 31 December
20X4 is 1.55 per unit.
Requirement
How should the value of the inventories be reflected in the interim financial statements?
Solution
SP
The value of the inventories in the interim financial statements at 30 June 20X4 is the lower of cost and
NRV at 30 June 20X4. This is:
100,000 1.20 = 120,000
Use of estimates
IN
2.7
Although accounting information must be reliable and free from material error, it may be necessary to
sacrifice some accuracy and reliability for the sake of timeliness and cost-benefits. This is particularly the
case with interim financial reporting, where there will be much less time to produce reports than at the
financial year end. The standard therefore recognises that estimates will have to be used to a greater
extent in interim reporting, to assess values or even some costs, than in year-end reporting.
An appendix to IAS 34 gives some examples of the use of estimates.
Inventories. An entity might not need to carry out a full inventory count at the end of each interim
period. Instead, it may be sufficient to estimate inventory values using sales margins.
13
Provisions. An entity might employ outside experts or consultants to advise on the appropriate
amount of a provision, as at the year end. It will probably be inappropriate to employ an expert to
make a similar assessment at each interim date. Similarly, an entity might employ a professional
valuer to revalue non-current assets at the year end, whereas at the interim date(s) the entity will
not rely on such experts.
Income taxes. The rate of income tax (tax on profits) will be calculated at the year end by
applying the tax rate in each country/jurisdiction to the profits earned there. At the interim stage, it
may be sufficient to estimate the rate of income tax by applying the same 'blended' estimated
weighted average tax rate to the income earned in all countries/jurisdictions.
Classification of current and non-current assets and liabilities. The investigation for classifying
assets and liabilities as current and non-current may be more thorough at annual reporting dates
than at interim ones.
Pensions. IAS 19 Employee Benefits encourages the use of a professionally qualified actuary in the
measurement of the plan's defined benefit obligations. For interim reporting purposes reliable
estimates may be obtained by extrapolation of the latest actuarial valuation.
Contingencies. Normally the measurement of contingencies may involve formal reports giving the
opinions of experts. Expert opinions about contingencies and uncertainties relating to litigation or
assessments may or may not be needed at interim dates.
Revaluations and fair value accounting. Where an entity carries assets at fair value such as noncurrent assets in accordance with IAS 16 Property, Plant and Equipment or investment properties in
accordance with IAS 40 Investment Property, it may rely on independent professional valuations at
annual reporting dates, though not at interim reporting dates.
Intercompany reconciliations. Intercompany balances that are reconciled at a detailed level at the
year end may be reconciled at a less detailed level at the interim reporting date.
Specialised industries. Interim period measurement in specialised industries may be less precise
than at year end due to their complexity, and the cost and time investment that is required.
PY
IFRIC 10 Interim Financial Reporting and Impairment
EC
2.8
TI
The principle of materiality applies to interim financial reporting, as it does to year-end reporting. In
assessing materiality, it needs to be recognised that interim financial reports will rely more heavily on
estimates than year-end reports. Materiality should be assessed in relation to the interim financial
statements themselves, and should be independent of 'annual materiality' considerations.
This IFRIC, issued in 2006, addresses the apparent conflict between IAS 34 and the requirement in other
standards on the recognition and reversal in financial statements of impairment losses on goodwill and
certain financial assets.
SP
IFRIC 10 states that any such impairment losses recognised in an interim financial statement must not be
reversed in subsequent interim or annual financial statements.
IAS 34 Interim Financial Reporting and UK GAAP

IFRS
UK GAAP
There is no requirement under IFRS

to publish an interim financial report.
However, entities that do so
voluntarily or are required to do so by
local regulators must apply IAS 34.
The Financial Services Authority (FSA) has published the rules

which implement the EU Transparency Directive in the UK.
These rules apply to listed companies with financial reporting
periods starting on or after 20 January 2007.
IN
2.9
14
Corporate Reporting
Listed companies are required to publish a half yearly report

(ie interim financial statements) within two months of the
end of the first six months of the financial year. The half
yearly report must include a condensed set of financial
statements prepared in accordance with IFRS, an interim
management report and a responsibility statement made by
persons responsible to the company for the report.
IFRS
UK GAAP
C
H
A
P
T
E
R
Unless a company publishes quarterly financial reports, it will

be required to publish an Interim Management Statement
(IMS) during each six month period of any financial year. The
IMS must be published in the period between ten weeks
after the beginning, and six weeks before the end of, the
relevant six month period.
The IMS must explain material events and transactions that
have taken place during the relevant period and their impact
on the company's financial position and describe the
financial position and performance of the company during
that time. According to the FSA, companies may be able to
meet IMS requirements based on the content of their usual
performance reports, trading statements or other similar
reporting formats.
PY
The FSA rules are supplemented by the ASB's Statement of

Best Practice.
IAS 34 requires detailed

disclosures in accordance with
the requirements of IFRS 3
Business Combinations relating to
business combinations in the
period.
Comparatives for the statement

of financial position are required
for the previous financial year.
The ASB's interim statement requires only narrative

commentary.
The requirements of IAS 34 are

broadly in line with the UK
requirements with some minor
differences such as:
TI
The FSA Rules require statement of financial position

comparatives for the corresponding interim date of the
previous year.
EC
3 Future of UK GAAP
Section overview
The regulatory shift away from current UK GAAP will require all entities (except those small
enough to use the FRSSE) to report in accordance with FRSUKI with an option to use IFRS.
SP
If adopted, the ASB's proposals will mean the end of current UK GAAP.
Background
IN
3.1
The UK and Ireland Accounting Standards Board (ASB) has been a close partner of the International
Accounting Standards Board for many years and has had enormous input into the development of
IFRSs.
Examples of standards which were developed jointly with the International Accounting Standards Board
in the past are FRS 11 Impairment of assets and FRS 12 Provisions, contingent liabilities and contingent
assets, the former being very similar to the IFRS equivalent (IAS 36) admittedly with a difference of
opinion over the allocation of impairment losses, and the latter being almost identical to IFRSs (IAS 37)
other than terminology differences.
15
Recently the ASB has been harmonising standards with their international counterparts in the interest of
international convergence. Recent standards issued which are a copy of the international equivalent
include:
FRS 22 Earnings per share (IAS 33)

FRS 23 The effects of changes in foreign exchange rates (IAS 21)
FRS 25 Financial instruments: presentation (IAS 32)
FRS 26 Financial instruments: recognition and measurement (IAS 39)
FRS 29 Financial instruments: disclosures (IFRS 7)
Recent developments
3.2
PY
Harmonisation with IFRS by adopting the international version as a Financial Reporting Standard is
not without its issues: the IASB is continually revising its IFRSs to improve them, which means that
the corresponding changes to the UK/Irish equivalent need to be approved before changes can be
made to the UK/Irish standard. This is time-consuming and can lead to 'cut-off' differences between
the version of the IFRS applied in the UK and Ireland versus other IFRS jurisdictions (and indeed
versus the IFRSs applied by quoted companies in the UK and Ireland). This has particularly been
the case with the financial instruments standards which have seen many changes since they were
originally issued.
In 2009 a decision was made to no longer converge standards with IFRSs, but rather consult on the use
of IFRSs generally by companies in the UK and Ireland. In January 2012 the ASB issued FREDs 46 to 48,
setting out revised proposals for the future of financial reporting in the UK and Republic of Ireland.
FREDs 46 and 47 became FRS 100 and 101 respectively in November 2012, which is before the cut-off
date for your exam.
FRS 100 sets out the application of financial reporting requirements in the UK and Republic of
Ireland.
FRS 101 or IFRS with reduced disclosures outlines the reduced disclosure framework available for use
by 'qualifying entities' choosing to report under IFRS.
FRED 48 (FRS 102 or FRSUKI) is the Financial Reporting Standard applicable in the UK and Republic
of Ireland, including the reduced disclosures available for 'qualifying entities' reporting under this
FRS. This proposed FRS is based upon the IASB's IFRS for SMEs but has been further amended from
earlier versions.
TI
More detail on the FRSUKI
EC
3.3
SP
For all entities choosing not to apply IFRS or IFRS with reduced disclosures, the ASB is proposing the
use of a new standard based on the IASB's IFRS for SMEs. The ASB's proposed standard, FRS 102 or
FRSUKI, runs to less than 300 pages and has been adapted to comply with UK and EU law,
extended and amended to address the needs of a broader group of preparers in response to
feedback on FRED 44.
3.4
Implications
The implications of the above are:

All entities currently reporting under UK GAAP will be required to report under FRSUKI but may
voluntarily adopt IFRS. The three tier system previously proposed is eliminated, so that the
application of EU-adopted IFRS will not be extended beyond that required by regulation.
IN
(a)
(b) Accounting treatments permitted under current accounting standards are introduced. Previously
the ASB had proposed keeping changes to the IFRS for SMEs to a minimum. It now proposes that
where an accounting treatment is permitted currently in UK and Irish accounting standards and in
international accounting standards it should be retained. This means that the options to revalue
land and buildings, capitalise borrowing costs or carry forward certain development expenses have
been incorporated into the FRSUKI.
(c)
16
The requirements are aligned more closely to company law, with the majority of the presentation
requirements for the balance sheet and income statement being replaced by the formats in
company law rather than in the IFRS for SMEs.
Corporate Reporting
(d) There are amendments to accounting for deferred taxation, updates to consolidation requirements
and accounting for pension plans, and the introduction of an option to recognise grant income
over the life of a grant.
(e)
Qualifying entities will be able to take advantage of reduced disclosure requirements that include
exemption from disclosure of a cash flow statement, certain financial instruments, related party and
share based payments disclosures. The reliefs available are different between IFRS and FRSUKI.
(f)
Small entities currently eligible to apply FRSSE will continue to be able to do so. Should a new
framework for micro entities be introduced as a result of EU consultation processes, the ASB would
then review the status of the FRSSE and consult again on how to amend the FRSSE to
accommodate any change.
C
H
A
P
T
E
R
3.5
PY
(g) Guidance for public benefit entities is to be incorporated into the FRSUKI (FRED 48).
Timescale
IN
SP
EC
TI
These proposals would apply to accounting periods beginning on or after 1 January 2015, with earlier
adoption encouraged.
17
Summary and Self-test
PY
Summary
Present SFP at start of previous period

where prior period adjustment
Statement of
financial position
Presentation of
Financial Statements
IAS 1
Profit for period
Statement of
comprehensive income
Statement of
cash flows
Other comprehensive income
IN
SP
EC
TI
Statement of
changes in equity
18
Corporate Reporting
Transactions with owners
Interim Financial Reporting

IAS 34
C
H
A
P
T
E
R
Minimum
disclosure
Minimum
requirements
Condensed
statement of
comprehensive
income
Changes in debt or
equity from new
issues, repurchases or
repayments
Statement that
accounting policies
followed are
consistent with
latest full financial
statements
An update of segmental
information
Changes in contingent
liabilities or contingent
assets since last
reporting date
Any changes in the

composition of the
entity
Dividends paid
for each class of share
TI
Condensed
statement
of cash flows
Nature and effect

of any material
changes in estimates
Condensed statement
showing changes in
equity arising from
capital transactions with
owners and distributions
to owners
Impact of any
changes in
accounting policies
PY
Where relevant
how performance is
affected by seasonality
Condensed
statement of
financial position
Any unusual items
EC
Material events after

the reporting period
SP
Future of UK GAAP
Entities undder
EU1606/2002
IN
Apply EU-adopted
IFRS
All other entities

FRS 102 - FRSUKI
Small entities
FRSSE
Qualifying entities
Qualifying entities
FRS 101 - FRSUKI

with reduced
disclosures
FRS 102 - FRSUKI

with reduced
disclosed
UK company law will require either AIS accounts or Companies Act accounts
19
Self-test
1
Anteater
The Anteater Company operates a saleroom in a city centre from premises which it leases from the
Moreno Company under an operating lease according to IAS 17 Leases. Anteater's accounting year
end is 31 December each year and it is currently preparing half-yearly interim financial statements
for the six months to 30 June 20X7.
The lease agreement on the store premises contains a clause for contingent lease payments as
follows:
PY
"If the revenue of Anteater in any year to 31 December exceeds 123 million then an additional
lease rental of 4.2 million becomes payable in respect of that year to Moreno on 31 March of the
following year."
Anteater's business is seasonal due to high sales around the Christmas period. Only about one third
of annual sales are normally earned in the first six months of the year. In January 20X7 a
refurbishment of the premises was carried out and this is attracting more customers than had been
budgeted for.
Budgeted sales for the six months to 30 June 20X7

Budgeted sales for the year to 31 December 20X7
Actual sales for the six months to 30 June 20X7
m
39
117
49
Relevant information is as follows:
The budgets were set in December 20X6 and have not been changed.
Requirement
Marmoset
TI
According to IAS 34 Interim Financial Reporting, what amount should be recognised in profit or loss
for Anteater for the six months to 30 June 20X7 in respect of the contingent lease payment clause?
EC
The Marmoset Company offers the service of transport consultations. Its accounting year ends on
31 December each year and it is currently preparing half-yearly interim financial statements for the
six months to 30 June 20X7.
During 20X7 the directors drew up a plan to introduce a new bonus scheme for all junior
consultants in order to provide incentives and improve retention. The details of the scheme were
announced to employees the day before the interim financial statements were released on 15
August 20X7. Under the planned scheme any bonus would be paid on 31 March 20X8.
SP
The bonus will be equal to 1% of profit before tax (calculated prior to recognising the bonus) of
the year ended 31 December 20X7.
The business is seasonal such that 60% of the annual profit before tax is earned in the first 6
months of the year. The profit before tax in the interim financial statement for the six months to 30
June 20X7 is 6 million.
IN
Requirement
What amount should be recognised in profit or loss for Marmoset for the six months to 30 June
20X7 in respect of the bonus, according to IAS 34 Interim Financial Reporting?
Aconcagua
The Aconcagua Company sells fashion shoes, the price of which varies during the year. Its
accounting year ends on 31 December and it prepares half-yearly interim financial statements.
At 30 June 20X7 it has inventories of 2,000 units which cost 30 each. The net realisable value of
the inventories at 30 June, when the shoes are out of season, is 20 each. No sales are expected in
the period to 31 December 20X7, but the expected net realisable value of the shoes at that date
(when they are about to come back into season) is 28 each.
20
Corporate Reporting
Requirement
C
H
A
P
T
E
R
Should any changes in inventory values be reflected in the interim financial statements of
Aconcagua for the six months ending 30 June 20X7 and for the six months ending 31 December
20X7, according to IAS 34 Interim Financial Reporting?
IN
SP
EC
TI
PY
21
Technical reference
IAS 1 Presentation of Financial Statements
Applies to all general purpose financial statements
Links back to much in the IASB Framework
Presentation and disclosure rules apply only to material items
IAS 1.31 and IAS

1.7
PY
IAS 1.54, 56, 60,

66, 69, 79
IAS 1.81-90
IAS 1.106-107

Minimum components of an interim financial report
Form and content of interim financial statements
Selected explanatory notes
Disclosure of compliance with IFRSs
Periods for which interim financial statements are required to be presented
IAS 34.20
Materiality
IAS 34.23
IAS 34.8
IAS 34.9-11
IAS 34.16
IAS 34.19
Disclosure in annual financial statements
If an estimate of an amount reported in an interim period is changed

significantly during the final interim period of the financial year but a separate
financial report is not published for that final interim period, the nature and
amount of that change in estimate shall be disclosed in a note to the annual
financial statements for that financial year.
IAS 34.26
EC
TI
Recognition and measurement
An entity should apply the same accounting policies in its interim financial
statements as are applied in its annual financial statements, except for
accounting policy changes made after the date of the most recent annual
financial statements that are to be reflected in the next annual financial
statements. However, the frequency of an entity's reporting (annual, half-yearly,
or quarterly) should not affect the measurement of its annual results. To achieve
that objective, measurements for interim reporting purposes should be made
on a year-to-date basis.
IAS 34.28
SP
IN
Revenues received seasonally, cyclically, or occasionally
22
Revenues that are received seasonally, cyclically, or occasionally within a

financial year shall not be anticipated or deferred as of an interim date if
anticipation or deferral would not be appropriate at the end of the entity's
financial year.
Corporate Reporting
IAS 34.37
Costs incurred unevenly during the financial year

Costs that are incurred unevenly during an entity's financial year shall be
anticipated or deferred for interim reporting purposes if, and only if, it is also
appropriate to anticipate or defer that type of cost at the end of the financial
year.
IAS 34.39
Applying the recognition and measurement principles
IAS 34.40
Use of estimates
IAS 34.41
Restatement of previously reported interim periods
IAS 34.43
C
H
A
P
T
E
R
IN
SP
EC
TI
PY
23
Answers to Self-test
1
Anteater
2.1 million
Interim reports should apply the normal recognition and measurement criteria, using appropriate
estimates under IAS 34.41.
PY
There is a constructive obligation in relation to the contingent lease payments, which should be
measured by reference to all the evidence available. As the trigger level of sales is expected to be
achieved, then under IAS 34 App.B B7 the amount to be recognised is 4.2m 6/12.
Marmoset
Nil
estimates under IAS 34.41.
Aconcagua
Six months ending 30 June 20X7
Six months ending 31 December 20X7
20,000 profit decrease

16,000 profit increase
There is no legal or constructive obligation at the interim reporting date to pay the bonus as no
announcement had been made at this date. Under IAS 34 App B B6 no expense is required.
estimates under IAS 34.41. IAS 34 App B B25-B26 link these general principles to inventories by
requiring them to be written down to net realisable value at the interim date; the write-down is
then reversed at the year end, if appropriate.
IN
SP
EC
TI
So the profit decrease in the six months to 30 June 20X7 is 2,000 (30 - 20) = 20,000, while
the profit increase in the six months to 31 December 20X7 is 2,000 (28 - 20) = 16,000.
24
Corporate Reporting
C
H
A
P
T
E
R
Answer to Interactive question
Answer to Interactive question 1

30% 4 million = 1.2 million
IN
SP
EC
TI
PY
The tax rate for the entire year is applied to the profits for the interim period.
25

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The Institute of Chartered Accountants in England and Wales

Advanced Stage Technical Integration Level

For exams in 2014 July 2015

All rights reserved. No part of this publication may be reproduced or

British Library Cataloguing-in-Publication Data

First edition 2007

Printed in the United Kingdom by Polestar Wheatons

Your learning materials are printed on paper obtained from traceable,

The Institute of Chartered Accountants in England and Wales

Skills assessment guide

Faculties and Special Interest Groups

ICAEW publications for further reading

Assets, liabilities and provisions

3 Events after the reporting period, provisions and contingencies

7 Financial instruments hedge accounting

6 Financial instruments recognition and measurement

Reporting overseas activities

11 Foreign currency translation and hyperinflationary economies

Taxation and industry specific standards

13 Industry specific Standards

14 Earnings per share

The knowledge level

Progression to ACA application level

Progression to ACA Advanced Stage

The aim of the Business Change paper is:

Ethics and law

ONLINE STUDENT COMMUNITY

THE LIBRARY & INFORMATION SERVICES (LIS)

4 Skills assessment guide

Assessing your professional skills

Assimilating and using information

Initial Professional Development

The knowledge level reached is assumed to be continued

Preface to International Financial Reporting Standards

5 Faculties and Special Interest Groups

Charity and Voluntary sector

6 ICAEW publications for further reading

Audit and Assurance Faculty icaew.com/aaf

The Audit of Related Parties in Practice, ICAEW 2010, ISBN 978-1-84125-565-6

An international edition is also available.

Alternatives to Audit ICAEW, 2009, ISBN 978-1-84152-819-9

Corporate Finance Faculty icaew.com/corpfinfac

Best Practice Guidelines

Corporate governance icaew.com/corporategovernance

The UK Stewardship Code

Corporate responsibility icaew.com/corporateresponsibility

The Business Sustainability Programme (BSP)

Reporting with Integrity ICAEW May 2007, ISBN 978-1-84152-455-9

Finance and Management Faculty icaew.com/fmfac

Finance's role in the organisation November 2009, ISBN 978-1-84152-855-7

Investment appraisal SR27: December 2009, ISBN 978-1-84152-854-4

Starting a business SR28: March 2010, ISBN 978-1-84152-984-2

Financial Reporting Faculty icaew.com/frfac

Financial Services Faculty icaew.com/fsf

Measurement in financial services, (Inspiring Confidence in Financial Services initiative) ICAEW,

Information Technology Faculty icaew.com/itfac

Make the move to cloud computing ICAEW, 2012, ISBN 978-0-85760-617-4

Tax Faculty icaew.com/taxfac

Tax news service

TAXline Tax Practice series of detailed briefings on current topics:

TAXline Tax Practice 27

1 IAS 1 Presentation of Financial Statements