Topic 1: Institutional issues, theoretical bases and implementation

of IFRS
IFRS = International Financial Reporting Standards
IAS = International Accounting Standards
IASB = International Accounting Standards Boards
IFRS became mandatory in 2002 (regulation of the application of IFRS) in
order to make comparison between financial statements possible. It is
mandatory for listed companies with consolidated Financial
Statements (FS).
The idea is to develop, in the public interest, a single set of high quality,
understandable and enforceable global accounting standards. It is du to
bring about convergence of national accounting standards.
The IASB is supposed to supervise the adoption of IFRS.
The Conceptual framework for financial reporting is
- To assist the IASB in setting IFRS
- To assist preparers of FS in applying IFRS
- To assist auditors in forming an opinion on whether FS comply with
IFRS
- To assist users of FS in interpreting IFRS FS
Asset: a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow the entity
Liability: a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity or
resources embodying economic benefits
Equity: the residual interest in the assets of the entity after deducting all
its liabilities
How to elaborate a financial statement:
-

Statement of financial position = balance sheet

>> IAS A requires a distinction between current assets (= cash or
other assets a company expect to convert into cash, sell or consume
either in one year or in the operating cycle) + current liabilities (=
obligation that a company generally expects to settle in its normal
operating cycle) AND non-current assets/ liabilities (= property, plant
and equipment, intangible assets, non current financial assets).

Statement of comprehensive income (presented in one statement or in

two: income statement + statement of other comprehensive income; EX/
page 18)

Statement of cash flows: where does the money come from and how it
was used = provide relevant information about the cash receipts and cash
payment of an enterprise during a period.

Operating cash flows can be presented either with the direct or the
indirect method.
-

Statement of changes in equity: the amount of transactions with

owners (contributions and distributions); effects of retrospective
application; profit or loss; total CI for the period

Notes: presentation f the basis of preparation of FS and any other relevant

information
Topic 2: Revenue recognition
The revenue recognition depends on the nature of transactions
Type
of Sale
of
transaction product from
inventory
Description Revenue
of revenue
from sales
Timing of R Date of sale
recognition

Rendering
service

a Permitting
use of an
asset
Revenue
Revenue
from
fees from
rents
and services and royalties
Services
As
time
performed
passes
or
and
assets
are
invoiceable
used

Sale of asset
other
than
inventory
Gain or loss
on disposal
Date of sale
or trade-in

Recognition
- Significant risks and rewards of the goods are transferred to the
buyer
- No more managerial involvement of the company
- Amount of revenue is measurable
- Economic benefits are tangible
- Costs can be estimated
Measurement
Revenue has to been measured as a fair value. As a consequence,
revenues are recorded after deductions of discounts and rebates; if there
is a significant financing component it has to be taken into account.
>>> IN CASE OF RIGHT OF RETURN: recognise a revenue for the
transferred products that are expected not to be returned recognise a
liability for the amount of products expected to be returned recognise an
asset for its right to recover products form customer on settling the refund
liability.
>>> IN CASE OF LOYALTY PROGRAMMES: sales divided in 2 parts 1
price of service / product stated on the invoice 2 revenue received in
advance for delivering a later service to the customer for free
Measurement over several periods

>> Method of measurement of a construction contract

-

Percentage of completion method IF

1 total contact revenue can be measured reliably
2 economic benefits will probably flow the company
3 the contract cost can be clearly identified and measured reliably
so that the cost can be compared with prior estimates

Cost-recovery method

Topic 3: Business combinations

A consolidated financial statement shows the real economic situation
and prevents manipulation.
1 Determine the scope and method of consolidation
Type or relationship
Control (voting right >
50%)
Significant
influence
(voting right > 20%)
Joint control

Type of company
Subsidiary

Consolidation method
Consolidation IFRS 3

Associate

Equity method

Joint arrangements

Equity method
OR
Proportionate
consolidation

2 Prepare individual FS of group entities for consolidation

(harmonisation, translation)
Change individual FS from local GAPP to IFRS (individual FS remain in
local GAPP). Once the FS are in IFRS, apply the IFRS accounting
policies.
3 Consolidation: combine FS of group entities and eliminate
all internal relations by applying the appropriate method
-

Integration of 100% of assets, equity, liabilities, expenses and

revenues of the subsidiary, even if the percentage of ownership
is smaller

Elimination of group-internal transactions and links (IN PARTICULAR

investment in subsidiary)

Identification and allocation of the Good Will (Fair value Book

value)
How to calculate a Good Will: difference between purchase price and
the book value =Purchase Price Allocation // difference between the
fair value of net assets and their book value = valuation difference
Good will = PPA valuation difference

Identification of non-controlling interest: put them in net assets and

net income
4 Present consolidated information