04.2 - ESTP - Desk Prof - IFRS Briefing Book (By IASF) (2015)

2015
International Financial Reporting Standards® (IFRS®)
IAS®
A Briefing for Chief Executives,
International Financial Reporting Standards® IFRIC® Audit Committees & Boards of Directors
IFRS Foundation® SIC® Summaries, in non-technical language, of the Standards required for annual reporting periods beginning on 1 January 2015,
assuming no early application. In addition, an Appendix provides summaries of IFRS 9, IFRS 14 and IFRS 15 that, although not
IFRS® IASB® mandatory for annual reporting periods beginning on 1 January 2015, can be applied early.
Contact the IFRS Foundation for details of countries where its Trade Marks are in use and/or have been registered.

A Briefing for Chief Executives, Audit Committees & Boards of Directors
This briefing provides summaries, in non-technical language, of the Standards that are required for
annual reporting periods beginning on 1 January 2015, assuming no early application.
In addition, an Appendix provides summaries of IFRS 9 Financial Instruments, IFRS 14 Regulatory Deferral Accounts
and IFRS 15 Revenue from Contracts with Customers, that, although not mandatory for annual reporting periods
beginning on 1 January 2015, can be applied early. If the Standards are not applied early, disclosure of the
possible impact when applied is required in the financial statements.
A summary of the significant judgements and estimates to be made by those preparing financial statements
when applying each Standard is provided. This will assist preparers and others in understanding the main
judgements and estimates that are often necessary when applying IFRS.
This concise and easy-to-use briefing has been specially prepared for Chief Executives, members of Audit
Committees, Boards of Directors and others who want a broad overview of the International Accounting
Standards Board’s (IASB®) Standards.
When applying IFRS, or when using IFRS financial statements, reference must be made to the full text of the
Standards issued by the IASB.
IFRS Foundation®
30 Cannon Street | London EC4M 6XH | United Kingdom
Telephone: +44 (0)20 7246 6410 | Fax: +44 (0)20 7246 6411
Email: info@ifrs.org | Web: www.ifrs.org
Publications Department
Telephone: +44 (0)20 7332 2730 | Fax: +44 (0)20 7332 2749
Email: publications@ifrs.org
2015
International Financial Reporting Standards (IFRS® )

Audit Committees & Boards of Directors
IFRS Foundation®
Telephone: +44 (0)20 7246 6410 | Fax: +44 (0)20 7246 6411 | Email: info@ifrs.org
Publications Telephone: +44 (0)20 7332 2730 | Publications Fax: +44 (0)20 7332 2749
Publications Email: publications@ifrs.org | Web: www.ifrs.org
NOTICE
This document has been issued by the International Financial Reporting Standards Foundation (‘the Foundation’)
and has not been approved by the International Accounting Standards Board (IASB).
Disclaimer. All implied warranties, including but not limited to the implied warranties of satisfactory quality, fitness
for a particular purpose, non-infringement and accuracy are excluded to the extent that they may be excluded as a
matter of law. To the extent permitted by applicable law, the IASB and the Foundation expressly disclaim all liability
howsoever arising whether in contract, tort (or deceit) or otherwise (including, but not limited to, liability for any
negligent act or omissions) to any person in respect of any claims or losses of any nature, arising directly or indirectly
from: (i) anything done or the consequences of anything done or omitted to be done wholly or partly in reliance upon
the whole or any part of the contents of this publication; and (ii) the use of any data or materials contained in this
publication or otherwise. The IASB and the Foundation shall not be liable for any damages of any kind arising from
use of and/or reliance on the contents of this publication including but not limited to direct, indirect, incidental,
consequential and punitive damages.
Information contained in this publication is not offered as advice on any particular matter and must not be treated as
a substitute for specific advice. In particular (i) for the requirements reference must be made to the Standards issued
by the IASB, and (ii) information contained in this publication does not constitute professional advice on the subject
matter of this publication and should not be used as a basis for making decisions. Advice from a suitably qualified
professional should always be sought in relation to any particular matter or circumstances.
Copyright © 2015 International Financial Reporting Standards Foundation®
ISBN: 978-1-909704-80-0
All rights reserved. No part of this publication may be translated, reprinted, reproduced or used in any form either
in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage and retrieval system, without prior permission in writing
from the Foundation.
The approved text of International Financial Reporting Standards and other IASB publications is that published by
the IASB in the English language. Copies may be obtained from the IFRS Foundation. Please address publications and
copyright matters to:
International Financial Reporting Standards Foundation Publications Department

30 Cannon Street, London EC4M 6XH, United Kingdom
Tel: +44 (0)20 7332 2730 Fax: +44 (0)20 7332 2749
Email: publications@ifrs.org Web: www.ifrs.org
Trade Marks
The IFRS Foundation logo/the IASB logo/‘Hexagon Device’, ‘International Financial Reporting Standards Foundation’,
‘eIFRS’, ‘IASB’, ‘IFRS for SMEs’, ‘IAS’, ‘IASs’, ‘IFRIC’, ‘IFRS’, ‘IFRSs’, ‘SIC’, ‘International Accounting Standards’ and
‘International Financial Reporting Standards’ are Trade Marks of the Foundation.
The Foundation is a not-for-profit corporation under the General Corporation Law of the State of Delaware, USA and
operates in England and Wales as an overseas company (Company number: FC023235) with its principal office as above.
A Briefing for Chief Executives, Audit Committees & Boards of Directors 2015
Contents
Introduction 5
The Conceptual Framework for Financial Reporting 7
Standards, as issued at 30 June 2015, required for annual reporting periods beginning on 1 January 2015
International Financial Reporting Standards
IFRS 1 First-time Adoption of International Financial Reporting Standards 9
IFRS 2 Share-based Payment 12
IFRS 3 Business Combinations 15
IFRS 4 Insurance Contracts 19
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 21
IFRS 6 Exploration for and Evaluation of Mineral Resources 24
IFRS 7 Financial Instruments: Disclosures 26
IFRS 8 Operating Segments 27
IFRS 10 Consolidated Financial Statements 29
IFRS 11 Joint Arrangements 31
IFRS 12 Disclosure of Interests in Other Entities 33
IFRS 13 Fair Value Measurement 35
International Accounting Standards
IAS 1 Presentation of Financial Statements 38
IAS 2 Inventories 41
IAS 7 Statement of Cash Flows 43
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 45
IAS 10 Events after the Reporting Period 47
IAS 11 Construction Contracts 49
IAS 12 Income Taxes 51
IAS 16 Property, Plant and Equipment 54
IAS 17 Leases 58
IAS 18 Revenue 60
IAS 19 Employee Benefits 62
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 65
IAS 21 The Effects of Changes in Foreign Exchange Rates 67
This Briefing has been prepared by IFRS Foundation staff on the basis of Standards and other documents issued at 30 June 2015. ©2015 IFRS®
This Briefing has not been approved by the IASB. For the requirements reference must be made to the Standards issued by the IASB. 3
Contents continued
IAS 23 Borrowing Costs 70
IAS 24 Related Party Disclosures 72
IAS 26 Accounting and Reporting by Retirement Benefit Plans 74
IAS 27 Separate Financial Statements 75
IAS 28 Investments in Associates and Joint Ventures 77
IAS 29 Financial Reporting in Hyperinflationary Economies 79
IAS 32 Financial Instruments: Presentation 82
IAS 33 Earnings per Share 85
IAS 34 Interim Financial Reporting 88
IAS 36 Impairment of Assets 90
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 93
IAS 38 Intangible Assets 96
IAS 39 Financial Instruments: Recognition and Measurement 99
IAS 40 Investment Property 104
IAS 41 Agriculture 106
The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) 108
Practice Statement as issued at 30 June 2015

IFRS Practice Statement Management Commentary 110
Appendix: Standards issued at 30 June 2015 and, although not mandatory for annual
reporting periods beginning on 1 January 2015, can be applied early
Introduction to Appendix 114
IFRS 9 Financial Instruments 116
IFRS 14 Regulatory Deferral Accounts 122
IFRS 15 Revenue from Contracts with Customers 124
©2015 IFRS® This Briefing has been prepared by IFRS Foundation staff on the basis of Standards and other documents issued at 30 June 2015.
4 This Briefing has not been approved by the IASB. For the requirements reference must be made to the Standards issued by the IASB.
Introduction
The text of this Briefing summarises, at a high level and in non-technical language, the main principles in
the International Accounting Standards Board’s Standards that are required for annual reporting periods
beginning on 1 January 2015 assuming no Standards are early applied. In addition, the Appendix contains
summaries of Standards that have a later effective date; these can be applied early if wished. Standards
published after 30 June 2015 are not summarised in this Briefing or its Appendix.
The summaries Each summary is self-contained and The Standards are mandatory
the summaries have been presented in pronouncements and comprise
These concise and easy to use summaries numerical order. However, to gain an International Financial Reporting
are prepared by the IFRS Foundation overview of the preparation of general Standards, International Accounting
education staff for Chief Executives, purpose financial statements, a reader Standards and Interpretations developed
members of Audit Committees, Boards might wish to start by reading the by the IFRS Interpretations Committee
of Directors and others who want summaries on the Conceptual Framework, (formerly called the International
a broad overview of International IAS 1, IAS 7, IAS 8 and IAS 10. Financial Reporting Interpretations
Financial Reporting Standards (IFRS). Committee (IFRIC)) and the former
The summaries have not been reviewed IFRS Standing Interpretations Committee (SIC).
or approved by the International
The objective of the IFRS Foundation In July 2009 the IASB published the
Accounting Standards Board (IASB).
is to develop, in the public interest, International Financial Reporting Standard
This Briefing is not intended to address a single set of high quality, (IFRS) for Small and Medium‑sized Entities
all aspects of each Standard; only the understandable, enforceable and (SMEs). This Standard is intended to
more common or significant matters globally accepted financial reporting apply to entities that in many countries
encountered in application and practice. Standards based upon clearly articulated are referred to by a variety of terms,
For the full requirements of IFRS, principles. including small and medium‑sized
reference must be made to the Standards entities, private entities and
The IASB is the standard-setting
issued by the IASB. non‑publicly accountable entities. In
operation of the IFRS Foundation. The
Financial reporting, like many things, IASB is selected, overseen and funded May 2015 the IASB issued amendments
is not always black and white. Entities by the IFRS Foundation, and the IASB to the IFRS for SMEs which are effective
present a statement of profit or loss and has complete responsibility for all for annual reporting periods beginning
other comprehensive income for their IASB technical matters including the on or after 1 January 2017.
financial period and a statement of preparation and issuing of Standards.
financial position as at the end of that
The Standards specify the recognition,
period and this can give an appearance
measurement, presentation and
of precision, for example, because
disclosure requirements in general
the statements show one total for
purpose financial statements. The
comprehensive income for the period.
Conceptual Framework for Financial Reporting
However, underlying the preparation of
provides the concepts from which
the statements will be many judgements
principle‑based Standards are developed.
and estimates. For this reason, we
highlight in this publication some of
the key judgements and estimates
that will be required when applying
each Standard.
continued
This Briefing has been prepared by IFRS Foundation staff on the basis of Standards and other documents issued at 30 June 2015. ©2015 IFRS®
Introduction continued
Changes since the • It has been updated for recent changes ▪▪ Amendments to IFRS 1, 3 and 13
in IFRS: and IAS 40 in Annual Improvements
2013 Briefing to IFRSs 2011-2013 Cycle; and
• Changes that were not required for
The changes made since the 2013 annual reporting periods beginning ▪▪ IFRIC 21 Levies.
Briefing are as follows: on 1 January 2013 but are required
• Changes that are not mandatory for
• The basis of preparation has been for annual reporting periods
annual reporting periods beginning
changed. The 2013 Briefing contained beginning on 1 January 2015.
on 1 January 2015, but that can be
high level summaries of Standards that Because the basis of preparation
applied early. The changes are listed
would apply at 1 January 2013 for a of the Briefing was different in
in the Appendix, and include:
preparer that chose to apply early all 2013, most of these changes were
Standards that had been issued at that considered when preparing the ▪▪ IFRS 9 Financial Instruments;
date even if they had a later effective 2013 Briefing. Because the Briefing ▪▪ IFRS 14 Regulatory Deferral Accounts;
date. This 2015 Briefing contains high is a high-level summary, not all the and
level summaries of Standards that are changes are explicitly discussed in
this Briefing. The changes are to be ▪▪ IFRS 15 Revenue from Contracts with
required for annual reporting periods
found in the following publications: Customers.
beginning on 1 January 2015 for a
preparer that chooses not to apply early ▪▪ Offsetting Financial assets and
any Standards that had an effective Financial Liabilities (Amendments to
date for annual reporting periods IAS 32);
beginning later than 1 January 2015.
▪▪ Investment Entities (Amendments to
• An appendix has been added. This IFRS 10, IFRS 12 and IAS 27);
is as a consequence of the above
change in the basis of preparation. ▪▪ Recoverable Amount Disclosures for
The appendix contains high level Non-Financial Assets (Amendments
summaries of Standards that apply for to IAS 36);
annual reporting periods beginning ▪▪ Novation of Derivatives and
later than 1 January 2015 that had Continuation of Hedge Accounting
been issued by 30 June 2015; such (Amendments to IAS 39);
Standards are available for early
▪▪ Defined Benefit Plans: Employee
application.
Contributions (Amendments to
IAS 19);
▪▪ Amendments to IFRS 2, 3, 8 and

13 and IAS 16, 24 and 38 in Annual
Improvements to IFRSs 2010-2012 Cycle;
©2015 IFRS® This Briefing has been prepared by IFRS Foundation staff on the basis of Standards and other documents issued at 30 June 2015.
The Conceptual Framework for

Financial Reporting
The Conceptual Framework

The Conceptual Framework sets out concepts underlying the preparation and presentation of financial
statements for external users.
The purpose of the Conceptual The Conceptual Framework specifies the IFRS financial statements are designed
Framework is to assist: the International objective of IFRS financial statements to meet the needs of external users.
Accounting Standards Board (IASB) and the IASB has this in mind when They are not designed to meet the
when it develops Standards; preparers formulating Standards. That objective is needs of a controlling shareholder,
of financial statements in accounting to provide financial information about management or regulators, because
for transactions and events; auditors in the reporting entity that is useful to those groups can prescribe the form
forming an opinion on whether financial existing and potential investors, lenders and content of reports to meet their
statements comply with International and other creditors in making decisions specific needs. However, the Conceptual
Financial Reporting Standards about providing resources to the entity. Framework explicitly states that IFRS
(IFRS); as well as a number of others. Those decisions involve buying, selling financial statements cannot provide
or holding equity and debt instruments, all the information needed by external
Consequently, the Conceptual Framework
and providing or settling loans and users. Users need to consider pertinent
is the starting point for understanding
other forms of credit. information from other sources, for
IFRS information.
example, political events and industry
Such decisions depend on the returns,
outlooks. IFRS financial statements
for example, dividends, principal and
Sets out the concepts that interest payments or market price
are not designed to show the value of
underlie IFRS financial increases, that investors, lenders
the entity, but provide information to
statements. and other creditors expect from an

external users for them to make their
own estimate of the value of the entity.
investment. Their expectations about
returns depend on their assessment of The Conceptual Framework sets out the
The Conceptual Framework is not, however, future net cash inflows to the entity. qualitative characteristics of useful
a Standard. Nor does it override any Consequently, the Conceptual Framework financial information. To be useful,
Standards. Nevertheless, the Conceptual explains that they need information financial information must be relevant
Framework provides the background to about the entity’s resources, claims (ie capable of making a difference
understand IFRS and also serves as a against the entity and how efficiently in the decisions made by users) and
basis for judgement in applying IFRS, and effectively the entity’s management it should faithfully represent what
including determining an accounting have discharged their responsibilities it purports to represent (ie financial
policy when there is no Standard that to use the entity’s resources, ie what is information should be complete, neutral
applies to a specific transaction or event. sometimes called stewardship. and free from error). The usefulness
of financial information is enhanced if
it is comparable, verifiable, timely and
understandable to users who have a
reasonable knowledge of business and
economic activities and who review and
analyse the information diligently.
continued
This summary has been prepared by IFRS Foundation staff on the basis of the Conceptual Framework issued at 30 June 2015. ©2015 IFRS®
The Conceptual Framework for

Financial Reporting continued
The Conceptual Framework also defines the The following elements are relevant to Recent developments
elements of financial statements. The financial performance:
following elements are relevant to an The IASB is updating and improving the
• Income is increases in economic Conceptual Framework and an Exposure
entity’s financial position:
benefits during the accounting Draft was published in May 2015. The
• An asset is a resource controlled by the period. It takes the form of inflows exposure draft proposes a number of
entity as a result of past events. Future of or increases in assets or decreases enhancements including:
economic benefits are expected to flow in liabilities. It does not include
to the entity from this resource. • a new chapter on measurement that
equity contributions from the entity’s
describes appropriate measurement
• A liability is a present obligation of owners.
bases (historical cost and current
the entity arising from past events. • Expenses are decreases in economic value, including fair value), and the
Settlement of the obligation is benefits during the accounting period. factors to consider when selecting a
expected to result in an outflow of They take the form of outflows or measurement basis;
economic benefits from the entity. reductions of assets or increases in
• confirming that the statement of
• Equity is the residual interest in the liabilities. They do not include equity
profit or loss is the primary source
entity’s assets after deducting all its distributions to the entity’s owners.
of information about a company’s
liabilities. performance, and adding guidance
An asset or a liability is recognised, To be useful, financial on when income and expenses could
that is, included, in the statement of information must be be reported outside the statement of
financial position (balance sheet) if it is relevant (ie capable of profit or loss, in ‘Other Comprehensive
probable that future economic benefits Income’; and
will flow to or from the entity, and if
making a difference in
• refining the definitions of the
its cost or value, or the amount of the the decisions made by
basic building blocks of financial
outflow, can be reliably measured. users) and it should statements—assets, liabilities, equity,
faithfully represent income and expenses.
what it purports to
represent (ie financial
information should be
complete, neutral and
free from error).
©2015 IFRS® This summary has been prepared by IFRS Foundation staff on the basis of the Conceptual Framework issued at 30 June 2015.
IFRS 1
First-time Adoption of International Financial
Reporting Standards
The Standard
This Standard applies when an entity first adopts IFRS in its annual financial statements. It also applies to
interim financial reports for any part of the period covered by the entity’s first IFRS financial statements.
Financial statements include

comparative information for one or An entity’s first IFRS financial statements are the first
more prior periods. To improve the annual financial statements in which the entity adopts
usefulness of financial information,
whenever an entity changes one or
IFRS, by an explicit and unreserved statement in those
more of its accounting policies these financial statements of compliance with IFRS.
comparatives are generally restated
and presented as though the new Such transition provisions do not apply Consequently, in order to provide
accounting policy had always been to entities adopting IFRS for the first a suitable starting point for IFRS
applied. Adopting IFRS for the first time. However, adopting IFRS for the accounting that can be generated at a
time, say, in financial statements for first time gives rise to many practical cost that does not exceed the benefits,
the financial year ended 31 December issues, including: IFRS 1 specifies some mandatory
2015, is no different; the comparatives exceptions, and some optional
presented, say, for 2014 or 2014 and • how many years should an entity go
exemptions, from its general principle
2013, are not left as the figures reported back when restating its comparatives;
that a first-time adopter recognises
under the entity’s immediately previous for example, if it has made business
and measures all assets and liabilities
accounting; in general, they are acquisitions in most years during the
in its first IFRS financial statements
presented as though IFRS had always past 20 years does it have to revisit the
as if it had always applied IFRS. For
been applied. For example, if employee accounting for each of those business
example, an entity may choose not to
share options are not recognised as an combinations to see whether the
revisit the accounting for any business
expense under the previous accounting figures would be different under IFRS?
combinations that occurred before
but are recognised as an expense under • where Standards allow entities a choice the start of the earliest comparative
IFRS, it might look as though 2015 was of accounting, but only if certain period presented. Alternatively it can
less profitable than 2014 if comparatives criteria are met, does the entity have choose a date, before the start of the
are not restated, when in fact it might to determine whether the criteria earliest comparative period presented,
have been more profitable. had been met at the relevant date and restate all business combinations
For pragmatic reasons, new accounting in the past, which might be several occurring after this date. Another
Standards sometimes include transition years earlier, or could it make the example is that an entity may elect to
provisions permitting the new Standard, determination at a later date such as measure an item of property, plant or
or specific parts of it, to be applied upon adoption of IFRS for the first time? equipment at a previous revaluation
prospectively (rather than as though the (if it meets specified criteria for doing so)
new accounting policy had always been or at its fair value and use this as
applied)—see IAS 8 Accounting Policies, deemed cost. At the end of each
Changes in Accounting Estimates and Errors. summary, mandatory exceptions and/or
optional exemptions pertinent to that
Standard are summarised.
continued
This summary has been prepared by IFRS Foundation staff on the basis of Standards issued at 30 June 2015 that are required for annual ©2015 IFRS®
reporting periods beginning on 1 January 2015 assuming no Standards are applied early. This Briefing has not been approved by the IASB. 9
For the requirements reference must be made to the Standards issued by the IASB.
IFRS 1
Reporting Standards continued
In addition, IFRS 1: Assume that an entity presents its Where the accounting policies under
first IFRS financial statements for the IFRS differ from those that were applied
• clarifies that an entity applies the
year ended 31 December 2015 and immediately before adopting IFRS, the
Standards that are effective at
includes comparative information for resulting adjustments are recognised
the end of its first IFRS reporting
one year. Its date of transition to IFRS, directly in retained earnings at the date
period in preparing its first IFRS
the beginning of the earliest period for of transition to IFRS.
financial statements, including the
which full comparative information
comparatives presented in those
in accordance with IFRS is presented,
statements, although an entity may
is 1 January 2014. Consequently, in its
IFRS 1 specifies some
instead early apply a new Standard
2015 financial statements, the entity mandatory exceptions,
that is not effective at that date;
applies the Standards effective for and some optional
• clarifies that when a first-time periods ending on 31 December 2015 exemptions, from its
adopter presents its comparatives in (except for the effects of all mandatory
its first IFRS financial statements it exceptions, any optional exemptions
general principle of
does not update estimates, such as that management elects to follow and retrospective application.
estimates of bad debts, for information any new Standards that management
that it received subsequent to elects to apply early, such as IFRS 15
The financial statements must explain
the authorisation of its financial Revenue from Contracts with Customers)
how the transition from the previous
statements prepared under its when presenting its:
accounting to IFRS affects the company’s
previous accounting; and
• opening IFRS statement of financial reported financial position, financial
• requires disclosure about the position at 1 January 2014; performance and cash flows.
transition to IFRS.
• statement of financial position The following practicalities should be
at 31 December 2015 (including considered when adopting IFRS for the
comparative amounts at first time:
31 December 2014);
• planning the transition, including
• statement of profit or loss and other reviewing all of the entity’s
comprehensive income, statement of accounting policies and disclosure
changes in equity and statement of practices to identify where changes are
cash flows for the year to 31 December needed to comply with IFRS;
2015 (including comparative amounts
for 2014); and
• disclosures (including comparative

information for 2014).
continued
©2015 IFRS® This summary has been prepared by IFRS Foundation staff on the basis of Standards issued at 30 June 2015 that are required for annual
10 reporting periods beginning on 1 January 2015 assuming no Standards are applied early. This Briefing has not been approved by the IASB.
IFRS 1
Reporting Standards continued
• collecting the information necessary Other judgements and estimates are At the date of transition to IFRS,
for preparing an entity’s first IFRS unique to IFRS 1. For example, at the entities may need to make estimates
financial statements; this may date of transition to IFRS an entity can in accordance with IFRS that were not
require significant effort, including elect to measure an item of property, required at that date under previous
information systems changes and plant or equipment: GAAP. The estimates in accordance with
training; IFRS must reflect conditions that existed
(i) at deemed cost (either fair value on
at the date of transition to IFRS and not
• considering what effects IFRS the date of transition or a previous
reflect subsequent information.
adoption might have on contracts GAAP revaluation); or
In particular, at the date of transition to
and agreements, for example,
(ii) in accordance with IAS 16 Property, IFRS estimates of market prices, interest
loan covenants and remuneration
Plant and Equipment applicable at rates or foreign exchange rates must
agreements, and initiating relevant
the end of the entity’s first IFRS reflect market conditions at that date.
discussions; and
reporting period (ie using the general
• communicating to the market, for principle).
example, analysts, the financial effects
The estimates made by a first-time
of IFRS adoption, including significant
adopter at the date of transition to IFRS,
judgements and estimates.
for example, the useful life of property,
Judgements and estimates must be consistent with estimates made

originally, that is, they are not updated
A first-time adopter must develop its for information received subsequently
accounting policies to provide relevant and that was not available when the
financial information to primary users original estimate was made. However,
(existing and potential investors, lenders appropriate adjustments are made
and other creditors) to use in making to reflect any revisions to historical
decisions about providing resources accounting policies and principles as a
to the entity. That information must result of first-time adoption of IFRS.
faithfully represent, at the end of its first
IFRS reporting period, the transactions
that the entity has entered into (and
other events and conditions to which
the entity is subject), in accordance with
IFRS. Developing and applying those
accounting policies often involves using
judgements and making estimates,
which are described in the ‘judgements
and estimates’ section in each summary.
IFRS 2
Share-based Payment
The Standard
IFRS 2 specifies the accounting treatment for purchases of goods or services paid for with the purchasing
entity’s shares, share options or other equity instruments, or those of another group entity, or with cash
or other assets when the amount is based on the price of such shares.
Common forms of share-based payment Share options granted to employees

are share options awarded to employees Share options granted as part of their remuneration package
and long-term incentive plans (LTIPs) to employees are can often be exercised only if specified
in which shares or share appreciation vesting conditions are met. For example,
recognised as expenses share options granted on Day 1 might
rights (SARs) are given to employees.
With SARs, employees receive cash equal in profit or loss. be exercisable between Years 4 and 10
to the increase in the share price over a if the employee holding them remains
specified period. There is a rebuttable presumption that employed with the company up to the
the fair value of the goods or services date of exercise and if the company’s
Before IFRS 2 some companies issuing received can be estimated reliably. If profit for Years 1 to 3 exceeds a specified
share options to employees did not the fair value of the goods or services amount. In this example, the vesting
recognise an expense in profit or received cannot be estimated reliably,
conditions are not related to the price
loss; instead, they simply recognised the fair value of the equity instruments
or value of the company’s shares or
the share issue, when it occurred, in issued (shares, in the inventory example)
those of another group company and so
return for the share option exercise is used as a proxy for the fair value of the
are not market conditions. If they had
price. IFRS 2 clarifies that all goods goods or services received.
been market conditions, they would
or services acquired in share‑based
For employee services, and similar have been reflected in the fair value of
payment transactions, not merely
services, IFRS 2 acknowledges that it the share options. In developing IFRS 2,
employee remuneration (see below),
is difficult to estimate reliably the fair the IASB took account of a number of
are recognised as expenses or assets value of the employee services received practical concerns, one of which was
as appropriate. In addition, the by the entity in exchange for the share the difficulty of reflecting non-market
transaction is recognised in equity options, SARs, etc. Consequently, IFRS 2 vesting conditions in measuring
if equity-settled, or as a liability requires the fair value of the equity the fair value of equity instruments
if cash‑settled or settled using instruments, for example, share options,
issued. Consequently, non-market
other assets. to be used to estimate the fair value of
vesting conditions are not reflected
employee services. As the employees
Goods or services received in in the fair value of the instruments
provide services, the fair value is
equity‑settled share-based payment granted (options, in this example); the
recognised as an expense in profit or
transactions are measured at the fair fair value is measured as though those
loss, unless it qualifies to be capitalised
value of the goods or services received. vesting conditions did not exist. The
as an asset; for example, as part of
For example, if inventory is paid for resulting fair value will be higher than
the cost of inventory. For employee
by issuing shares, both the inventory if those conditions were reflected in
and similar services, the fair value is
acquired and the shares issued in it. Consequently, to compensate, if the
measured at grant date. For all other
exchange for the inventory are measured non-market vesting conditions are not
transactions, whether measured by
at the fair value of the inventory. valuing the goods and services received met the Standard does not require an
or by valuing the equity instruments expense to be recognised.
issued, the fair value is measured at the
date the entity obtains the goods or as
the other party renders the service.
continued
IFRS 2
Share-based Payment continued
For example, using the earlier example, If in the example, it was the company’s In some cases, the entity or the
if 50 share options were given to each share price, not its profit, that had to other party may choose whether
of three employees and it was expected exceed a specified amount, the share the transaction is settled in cash or
that the profit target would be met price condition would be a market by issuing equity instruments. The
but that one of the employees would condition. This means that it has to be accounting treatment depends on
leave before the end of Year 3 (ie, before reflected when measuring the fair value whether the entity or the counterparty
the options become exercisable), the of the share option and the resulting has the choice regarding settlement.
expense would be recognised in Years fair value will be lower than without the
condition. There is therefore no further If the identifiable consideration
1 to 3. In Year 1 the expense would be
adjustment for this condition. Thus, if received appears to be less than the
one-third of the fair value of 100 share
the share price condition was not met fair value of the equity instruments
options, which is, the number of options
because the company’s share price did granted or the liability incurred, then
expected to vest. If the expectations
not reach the specified amount, none unidentifiable goods or services might
were unchanged, the same treatment
of the share options would vest and be have been received. These are measured
would apply in Year 2. Alternatively, if
exercisable but, in contrast to the first by reference to the difference between
in Year 2 it was expected that two of the
employee example, an expense would the fair value of the equity instruments
employees would have left by the end
be charged to profit or loss. Because granted, or liability incurred, and
of Year 3, the expense for Year 2 would
there was also a service condition (the the fair value of the goods or services
be equal to two-thirds of the fair value employee had to remain employed by received.
of 50 options, less the amount that was the company), the expense relates to the
recognised as an expense in Year 1. The IFRS 3 Business Combinations, instead of
options granted to the employees that
expense is trued up each year for the IFRS 2, applies to equity instruments, eg
remain employed by the company at the
number of options expected to vest. shares, that are issued as consideration
end of Year 3. For example, if only one of
In Year 3 the expense is based on the the three employees remained employed in a business combination. In addition,
number of options that actually vested by the company at the end of Year 3, some contracts within the scope of
as a result of the non‑market vesting there is an expense for the 50 share IAS 32 and IAS 39 (or IFRS 9) are excluded
conditions. If the profit target had not options that would have vested if the from the scope of IFRS 2.
been met, none of the share options share price had exceeded the specified
would vest and would thus not be target price.
exercisable. Because this is a non-market
Cash-settled share-based payments, for
vesting condition, there would be no example, SARs, are measured at the fair
expense for the share options, regardless value of the liability. The liability is
of how many employees remained remeasured at the end of each reporting
employed by the company. Any expense period and at the date of settlement.
that had been charged to profit or loss Changes in the fair value of the liability
in Years 1 and 2, on the expectation that are recognised in profit or loss. In
the profit target would be met, would be contrast, equity-settled share-based
reversed in Year 3. payments are not remeasured.
continued
IFRS 2
Share-based Payment continued
Judgements and estimates Similarly, if the shares are subject to When measuring the expense for
restrictions on transfer after vesting a share or share option award that
In some cases, such as when there date, that factor must be taken into includes service or non-market vesting
are choices relating to settlement account, but only to the extent that the conditions, it is necessary to estimate
within the arrangement, judgement is post-vesting restrictions affect the price the likely outcome of these conditions,
required to distinguish equity‑settled that a knowledgeable, willing market and to update that estimate at each
from cash‑settled share‑based payment participant would pay for that share. reporting date.
transactions. The classification of the For example, if the shares are actively
transaction is important, because the Where a company makes a cash-settled
traded in a deep and liquid market,
subsequent accounting is different share-based payment award, such as
post-vesting transfer restrictions may
for equity-settled and cash-settled a SAR, the company measures the
have little, if any, effect on the price
share‑based payment transactions. fair value of the liability using an
that a knowledgeable, willing market
option‑pricing model. As discussed
Measuring fair value involves participant would pay for those shares.
earlier, this must be updated at each
incorporating all the factors and Estimating the fair value of a share
reporting date.
assumptions that market participants option frequently requires selecting
would consider in setting the price. the appropriate valuation model to use, First-time adoption
Judgements and estimates made in such as Black-Scholes, Binomial or Monte
Carlo; whichever model is selected IFRS 1 First-time Adoption of International
measuring the fair value of unlisted
several judgements and estimates will Financial Reporting Standards contains
shares include selecting the appropriate
be required, including the expected no specific mandatory exceptions from
valuation technique. For both listed and
volatility of the share price. its general principle for share‑based
unlisted shares if the employee is not
payment transactions. However, entities
entitled to receive dividends during the Incorporating market conditions into are not required to apply IFRS 2 to:
vesting period, this factor must be taken the valuation of shares or share options (i) e quity-settled share-based payment
into account when estimating the fair adds another layer of judgement. For transactions that were entered into
value of the shares granted. example, if shares vest only if the share on or before 7 November 2002;
price exceeds a predetermined level,
the condition has to be incorporated in (ii) e quity‑settled share-based payment
such a way that it alters, probably by transactions that were entered into
lowering, the single monetary valuation. after 7 November 2002 but that vest
before the date of transition to IFRS;
and
(iii) cash‑settled share-based payment

transactions settled before the date
of transition to IFRS.
Entities are, however, encouraged to

apply IFRS 2 to such transactions.
IFRS 3
Business Combinations
The Standard
A business combination is a transaction or other event in which a reporting entity, the acquirer,
obtains control of one or more businesses, the acquiree.
Any transaction or event in which a In many cases it will be obvious whether First, the acquirer needs to calculate how
reporting entity obtains control of what has been purchased is a business, much it paid to acquire the business(es).
one or more businesses, including a or simply an asset, but in other cases it This is measured as the fair value of
transaction referred to as a ‘true merger’ is not clear. Consequently, IFRS 3 sets what it paid. For example, cash paid
or a ‘merger of equals’, is a business out application guidance. A business immediately will be measured at its
combination to which IFRS 3 applies. consists of inputs and processes applied nominal amount, but cash paid one
An entity controls a business when it to those inputs that have the ability to year later would be measured at the
is exposed, or has rights, to variable create outputs. present value of the payment. Similarly
returns from its involvement with the if shares are given as consideration,
IFRS 3 requires all business
business and has the ability to affect they are measured at their fair value at
combinations to be accounted for
those returns through its power over the the date of acquisition. If contingent
using the acquisition method
business. The most common example consideration is given (for example, a
(which is sometimes also known as
of a business combination is when one further payment will be made if the
the purchase method). It sets out what
company purchases all the issued share first year’s post-acquisition profit of the
the acquisition method is and how that
capital of another company. Although acquired business exceeds a specified
method is applied.
purchasing all the issued share capital amount) this too is recognised at its
of another company will generally give What is set out below reflects the acquisition date fair value.
the purchaser control over the second requirements of IFRS 3. However,
In the same way as the acquirer’s own
company’s business, this will not IFRS 10 Consolidated Financial Statements,
business is represented in its statement
always be the case. Conversely, it is not IAS 36 Impairment of Assets and
of financial position not simply as one
necessary to own all the issued share IAS 38 Intangible Assets also contain
amount, but by each category of assets
capital of another company in order relevant guidance.
(such as property, plant and equipment)
to control that company; indeed, it is When the acquisition method of and liabilities (such as trade payables),
possible to control another company accounting for a business combination the acquirer needs to do the same
while holding less than half of the is used, an acquirer must be identified. for the acquired business(es), but if a
issued share capital or, in some cases, This is the combining entity that subsidiary was acquired (see below) this
no share capital at all. The Standard obtains control of the other combining is only done in consolidated financial
does not only apply to the acquisition of entity/ies or business/es. The accounting statements; see IFRS 10. Consequently,
companies; the business acquired could follows on from this; the acquirer has the acquirer next allocates what it paid
be an unincorporated entity, or it could purchased one or more businesses to each of the assets acquired and to the
be that the acquirer purchases the trade and these need to be reflected in its liabilities it assumed.
and assets of a business, or division of a financial statements.
company, but not the legal entity that
they were previously owned by.
continued
IFRS 3
Business Combinations continued
To reflect this, each asset and liability Goodwill is measured as the difference If the acquirer acquires less than
in the acquired business(es) is valued between the consideration transferred, 100 per cent of the equity interests of a
at its fair value. This amount is then ie the cost of the business combination, subsidiary in a business combination,
brought onto the acquirer’s statement and the fair value of the identifiable the acquirer recognises a non‑controlling
of financial position. This is done for assets and liabilities acquired. If that interest. The acquirer may choose, for
all the assets and liabilities that existed difference is negative, because the value each business combination, to measure a
in the acquired business at the date of the acquired identifiable assets and non‑controlling interest in the acquiree
of acquisition. Consequently, if the liabilities exceeds the consideration at the date of acquisition, either at
acquirer is planning to restructure the transferred, the acquirer recognises fair value or at the non‑controlling
acquired business, it cannot set up a a gain from a bargain purchase interest’s proportionate share of the
provision for the restructuring, as part immediately in profit or loss. acquiree’s identifiable net assets. If the
of allocating the purchase consideration, non‑controlling interest is measured
Acquisition-related costs, except
unless the acquired business was itself at its fair value, for example CU5001,
particular costs of issuing debt or equity
planning the same restructuring and and would have been measured at
securities, are recognised as expenses as
had already set up a provision. Similarly, CU450 if it had been measured at the
they are incurred.
the acquirer will not measure assets that non‑controlling interest’s proportionate
it plans to dispose of in the restructuring A subsidiary is an entity that is share of the acquiree’s identifiable net
at what it expects to sell them for unless controlled by another entity. Some, but assets, then the goodwill on acquisition
this coincides with the asset’s fair not all, businesses that are acquired will be CU50 higher (CU500 less CU450)
value. Some assets and liabilities will be will become subsidiaries of the acquirer than if the non‑controlling interest had
recognised by the acquirer that were not and IFRS 3 contains some explicit been measured at its proportionate
previously recognised by the acquiree. guidance for issues that can arise when share of the acquiree’s identifiable
Examples include intangible assets subsidiaries are acquired. net assets.
generated internally by the acquiree
An acquirer sometimes obtains control
(eg in‑process research, trademarks,
Requires business of an acquiree in which, immediately
brands and patents) and contingent
liabilities.
combinations to be before the business combination,
it was already holding an equity interest.
accounted for using
IFRS 3 contains specified exceptions to For example, it previously held 15 per
the principle that the net identifiable the acquisition method cent and it now acquires the remaining
assets acquired are measured at fair (sometimes called the 85 per cent. In such a step acquisition,
value. Particular requirements apply purchase method). an acquirer remeasures the equity
to contingent liabilities, income taxes, interest that it was already holding
employee benefits, indemnification (15 per cent in the example) to its fair
assets, reacquired rights, share-based value; the resulting gain or loss, if any,
payment awards and assets held for sale. is recognised in profit or loss.
1 ‘CU’ means ‘currency units’. continued

IFRS 3
The acquirer subsequently accounts IFRS 3 applies only to the acquisition Accounting for a business combination
for assets and liabilities acquired in a of a business. If instead an entity requires broad use of fair value
business combination in accordance acquires one or more assets that do measurement—the consideration
with other Standards. However, not together comprise a business, the transferred, the assets acquired and the
IFRS 3 contains requirements for the entity would account for the acquisition liabilities assumed are all measured at
subsequent measurement of reacquired in accordance with the relevant fair value. Measuring the fair value of
rights, contingent liabilities and Standard, eg, IAS 16 Property, Plant and items that are not traded in an active
indemnification assets. Contingent Equipment. In some cases, determining market requires significant judgement
consideration, other than contingent whether a particular set of assets and (see IFRS 13 Fair Value Measurement).
consideration that is classified as equity, activities acquired is a business requires In particular, the acquiree’s identifiable
is subsequently measured at fair value judgement. intangible assets at the acquisition date
through profit or loss. are recognised separately (ie they are not
For each business combination that
included within the amount recognised
Goodwill is not amortised, but is combines two or more entities, one
as goodwill), for example, in-process
tested for impairment in accordance of the combining entities must be
research. Significant judgement can be
with IAS 36 Impairment of Assets at least identified as the acquirer. Identifying
required in identifying and measuring
annually. the acquirer requires the assessment
such assets. Measuring the fair value of
of all rights, powers, facts and
Judgements and estimates circumstances. In some cases, identifying
contingent consideration will similarly
require significant judgement, because
The accounting for business the acquirer involves significant
the final amount is uncertain.
combinations is complex and requires judgement. When equity instruments
valuation estimates and other are issued as consideration in a business When an owner-managed business
judgements. Consequently, even though combination, the entity issuing the is acquired and the previous owner
IFRS 3 does not mandate the use of instruments is usually, but not always, continues to be involved, as an employee,
external advisers, many acquirers seek the acquirer. For example, in a ‘reverse in the newly acquired subsidiary, an
professional assistance to account for a acquisition’, as a consequence of issuing agreement to make future variable
business combination. shares in the business combination, payments to the individual must
the legal acquirer (the entity issuing be carefully analysed to determine
the shares) comes under the control of whether it is remuneration for services
the legal acquiree. Consequently, in a performed after the acquisition date
reverse acquisition the entity issuing the (and consequently recognised in profit
instruments is not the acquirer when or loss after acquisition) or contingent
accounting for the transaction. consideration, in which case its fair
value is included in the cost of the
business acquisition (and consequently
affects the amount of goodwill, if any,
recognised).
continued
IFRS 3
Before an acquisition the employees First-time adoption

in the acquired business might:
(a) have been granted share options For business combinations, there are
over shares in the acquired business; no mandatory exceptions from the
(b) be participating in a long-term general principle in IFRS 1 First-time
incentive plan, which gives them rights Adoption of International Financial Reporting
to shares in the acquired business; or Standards. However, a first-time adopter
(c) hold some other share-based payment may, subject to specified conditions,
award, which gives them rights to elect not to apply IFRS 3 retrospectively
shares in the acquired business. If the to business combinations that occurred
acquirer replaces those awards with before the date of its transition to
new awards, for example, options over IFRS or, if it chooses, before an earlier
its own shares, careful consideration is date selected by the first‑time adopter.
required to determine whether all or Consequently, with limited exceptions, a
part of the replacement award is part of first-time adopter may leave unchanged
the consideration paid for the business its accounting for business combinations
(and consequently affects the amount that it recognised in accordance with
of goodwill, if any, recognised) or is its previous GAAP. Irrespective of any
post‑acquisition employee remuneration elections, the entity must test any
(and consequently is recognised in profit goodwill in the opening IFRS statement
or loss after acquisition). of financial position for impairment.
IFRS 4
Insurance Contracts
The Standard
IFRS 4 specifies accounting for insurance contracts issued by any entity. It also specifies accounting for
reinsurance contracts issued or held by an entity. The Standard applies to these contracts irrespective of
whether the entity is regulated as an insurer and irrespective of whether the contract is regarded as an
insurance contract for legal purposes.
An insurance contract is a contract In most respects, IFRS 4 allows an entity Some insurance contracts contain both
under which one party (the insurer) to continue to account for insurance an insurance component and a deposit
accepts significant insurance risk from contracts in terms of its previous component. In some cases the entity
another party (the policyholder) by accounting policies. The following are must ‘unbundle’ the components and
agreeing to compensate the policyholder some of the limited improvements that account for them separately. This
if a specified uncertain future event the Standard makes to accounting for requirement is particularly relevant
(the insured event) adversely affects the insurance contracts: for long-term insurance products,
policyholder. Insurance risk excludes for example, life insurance, and for
• Provisions for possible claims under
financial risk, eg the risk of changes in reinsurance.
contracts that are not in existence
market prices or interest rates.
at the end of the reporting period The IFRS restricts accounting policy
There are some scope exclusions in (such as catastrophe provisions and changes. Any changes in accounting
IFRS 4. For example, IFRS 4 does not equalisation provisions) are not policies for insurance contracts must
apply to: permitted. They are not liabilities. result in the financial statements being
more relevant and no less reliable, or
• product warranties issued directly by a • The adequacy of insurance liabilities
more reliable and no less relevant, than
manufacturer, dealer or retailer; and must be tested at the end of each
the previous accounting.
reporting period. The liability
• contingent consideration payable or
adequacy test is based on current A significant review of accounting for
receivable in a business combination.
estimates of future cash flows. Any insurance contracts is being considered
IFRS 4 has been issued as a temporary deficiency is recognised in profit or by the IASB in Phase II of its project
measure to fill a gap in IFRS. It loss. Furthermore, reinsurance assets on insurance contracts. Meanwhile,
makes only limited improvements to are tested for impairment. an entity must not introduce, but may
accounting practices for insurance continue, the following practices:
• Insurance liabilities are presented
contracts, but introduces disclosure
without offsetting them against • measuring insurance liabilities on an
requirements about the contracts. In
related reinsurance assets. undiscounted basis;
the absence of IFRS 4, entities would
be required to account for insurance • Discretionary participation features (as • measuring contractual rights to future
contracts following precedents in found in with-profits and participating investment management fees at an
other Standards, and the definitions, contracts) must be reported as amount that exceeds their fair value
recognition criteria and measurement liabilities or as equity (or split into (as implied by current fees charged in
concepts for assets, liabilities, income liability and equity components). They the market);
and expenses in the Conceptual Framework. may not be reported separately from
For many entities, applying the other liabilities and equity.
Standards and the Conceptual Framework
would result in changes from the way
in which they accounted for insurance
contracts under their previous
accounting before adopting IFRS.
continued
IFRS 4
Insurance Contracts continued
• using non-uniform accounting policies Judgements and estimates First-time adoption

for insurance contracts of subsidiaries;
Some contracts that have the legal form There are no specific mandatory
• measuring insurance liabilities with of insurance contracts, or are described exceptions from the general principle in
excessive prudence; and for other purposes as insurance IFRS 1 First-time Adoption of International
• except in unusual cases, using a contracts, may not be insurance Financial Reporting Standards for insurance
discount rate that reflects returns contracts as defined in IFRS 4. If such contracts. However, a first-time adopter
on assets held rather than the contracts create financial assets and may apply the transitional provisions
characteristics of the insurance financial liabilities (deposits) IAS 39 in IFRS 4. The transitional provisions
liabilities. Financial Instruments: Recognition and primarily give relief in respect of
Measurement applies. Judgement may disclosures.
be required to determine the relevant
Specifies financial Standard to apply.
reporting for insurance Financial assets are measured
contracts issued by in accordance with IAS 39 and
any entity. measurement is often at fair value.
To avoid an accounting mismatch,
an entity is permitted to change
its accounting policy for insurance
liabilities, so that both assets and
liabilities reflect changes in market
conditions (particularly interest
rates). If an entity changes the
accounting for some of its liabilities
in this way, additional judgements
could be necessary to ensure that the
measurement of those liabilities reflect
market conditions.
IFRS 5
Non-current Assets Held for Sale and
Discontinued Operations
The Standard
The results and cash flows of a discontinued operation must be presented separately in the financial
statements. If the assets and liabilities remain unsold at the end of the reporting period, they must also be
presented separately, although they can be combined with those of other operations and non-current assets
held for sale at the end of the reporting period.
While financial statements that

report that a group has made a Example:
profit for the year of CU100 provide
Following a strategic review of the group, a large car manufacturing group
useful information, it is more useful
decides to sell its headlight manufacturing subsidiary. The subsidiary is small
if the financial statements explain
and, following expansion of the group over a number of years, the subsidiary
that operations that are continuing
does not have the capacity to provide all the headlights required by the group.
contributed a profit of CU120 and
The subsidiary, although material, is an incidental part of the group’s business
operations sold shortly after the
and its disposal, which is a normal evolutionary change in the business, would
year--end contributed, including an
impairment loss on its assets, a loss not comprise a discontinued operation. If the group had additionally decided
of CU20. IFRS 5 requires the results to sell its luxury sports car manufacturing division, which comprises a key part
of discontinued operations (a defined of the group, allowing it to concentrate on its mass market car manufacturing
term) to be reported separately from and van production activities, its disposal, subject to timing, would probably
the results of continuing operations in meet the definition of a discontinued operation.
the statement of profit or loss and other The group has a 31 December year-end and decides late in 2015 to dispose
comprehensive income. In addition, it of the above two components of the group. If the luxury sports car
requires disclosure of other information
manufacturing division was sold by 31 December 2015 or was being marketed
about discontinued operations, such as
with a sale expected within a year of it being classified as held for sale, and
cash flows, and information about the
other conditions set out in IFRS 5 were met, its results for the year ended
assets and liabilities of discontinued
31 December 2015, not merely for the part of the year since it was marketed,
operations and other disposal groups
would be presented as discontinued operations. The division’s results for all
and non-current assets held for disposal.
periods presented as comparatives would also be presented as discontinued
Discontinued operations operations. They would be reported separately from the group’s continuing
A ‘discontinued operation’ is a operations in the consolidated statement of profit or loss and other
component of an entity that either has comprehensive income. However, the results from the headlight manufacturer
been disposed of, whether sold or closed would be part of the results reported as continuing operations. Nevertheless,
down, or is classified as held for sale, and: disclosures will be required about the headlight manufacturer—see Non‑current
assets and disposal groups held for sale on the next page.
• represents a separate major line of
business or geographical area of If the group had not expected a sale of the luxury sports car division until
operations; early in 2017, it too would form part of continuing operations in 2015. It would
therefore not be classified as discontinued operations until 2016, assuming a
• is part of a single co-ordinated plan
sale was completed when expected.
to dispose of a separate major line
of business or geographical area of
operations; or
• is a subsidiary acquired with the

exclusive aim of reselling it.
continued
IFRS 5
Discontinued Operations continued
In the statement of profit or loss (or the

statement of profit or loss section of the
Non-current assets A disposal group is classified as held
for sale if its carrying amount will
statement of profit or loss and other and disposal groups be recovered principally through a
comprehensive income), all the line held for sale sale transaction instead of through
items, for example, revenue and cost continuing use. This will be the case
of sales, are presented for continuing The discontinued operations if it is available for immediate sale in
operations only and the result for requirements of the Standard focus on its present condition, subject only to
discontinued operations is presented as a analysing the statement of profit or terms that are usual and customary
single item. The single item reported for loss and other comprehensive income for sales of such disposal groups, and
discontinued operations is the sum of: and the statement of cash flows, so if its sale is highly probable. Both the
that the results and cash flows from luxury sports car division and the
• the post-tax profit or loss from the discontinued operations and from headlight manufacturing subsidiary
discontinued operations; and continuing operations can be identified. would be classified as disposal groups
• the post-tax gain or loss on disposal To complement this, the requirements held for sale if not sold at 31 December
of the discontinued operations or, about non-current assets and disposal 2015. Although a group that is being
if it has not been disposed of by the groups classified as held for sale focus closed down, instead of being sold, can
year‑end, the impairment loss, if any. on analysing the assets and liabilities meet the definition of a discontinued
presented in the statement of financial operation in the period that it is
An analysis of the single amount, closed down, it cannot be classified as
position so that those held for sale can
showing revenue, expenses, pre-tax a disposal group held for sale at the
be readily identified and distinguished
profit or loss, tax and the gain or loss year-end prior to it being closed down
from all the other assets and liabilities.
on disposal or impairment loss, must (because it is not held for sale).
be shown either in the notes or in the A disposal group is defined more
From the time it is classified as held for
statement of profit or loss and other widely than discontinued operations.
sale, a disposal group is measured at
comprehensive income. The net cash A disposal group is a group of assets,
the lower of its carrying amount and its
flows attributable to the operating, including goodwill if relevant, to
fair value less costs to sell. In addition,
investing and financing activities of be disposed of, by sale or otherwise,
because the assets within the disposal
the discontinued operations must be together as a group in a single
group are expected to be recovered
disclosed in the notes or presented in transaction, and a group of liabilities
principally through sale (instead of
the statement of cash flows. Finally, directly associated with those assets that
being consumed through use) they are
the amount of income from continuing will be transferred in the transaction.
no longer depreciated. Any impairment
operations and from discontinued loss is recognised immediately. In the
operations attributable to the owners of statement of financial position the assets
the parent must be disclosed separately. in the disposal group are presented in
current assets separately from other
assets. In addition, the liabilities
are presented separately in current
liabilities from other liabilities.
continued
IFRS 5
Discontinued Operations continued
Just as a disposal group to be sold is The Standard contains similar guidance Determining whether a component of
separately identified in the statement if an asset or disposal group is held for an entity is a discontinued operation
of financial position, so too is a single distribution rather than for sale. or part of continuing operations will
non‑current asset that is classified as be straightforward in many cases, but
held for sale at the year‑end. In the car Judgements and estimates significant judgement will occasionally
manufacturing example, if the group The classification of a disposal group or an be needed. For example, if a major
had moved its head office function to a asset as ‘held for sale’ is based on actions business segment is being broken
new building and was in the process of taken by management at or before the end up and the parts sold separately,
selling its former head office building at of the reporting period and management’s significant judgement may be needed
31 December 2015, the former head office expectation and judgement that the in determining whether there is a
building would be moved to current disposal group or asset is available for single co‑ordinated plan to dispose of
assets in the statement of financial immediate sale in its present condition a separate major line of business or
position, assuming various conditions and is being marketed at a reasonable geographical area of operations.
were met. These conditions include price, and that a sale will be completed
that it is available for immediate sale within a year of classification. The First-time adoption
in its present condition, subject only to assessment of availability for immediate
There are no specific mandatory
terms that are usual and customary for sale requires judgement of what
exceptions or optional exemptions from
sales of such assets and that a sale was represents usual and customary timing
the general principle in IFRS 1 First-time
expected within one year of classification and other terms for the disposal. An
Adoption of International Financial Reporting
as held for sale. The building would entity may continue to use an asset that
Standards relevant to IFRS 5.
be depreciated until its classification is held for sale, but must be able to cease
changed to held for sale and it would using the asset immediately (subject only
thereafter be carried at the lower of its to usual and customary timing and closing The results and cash
carrying amount and its fair value less conditions). Other judgements include: flows from discontinued
costs to sell. As an asset held for sale, the
building would be shown separately from
• an assessment of the likelihood of operations and from
obtaining shareholder approval when
other current assets in the statement of required;
continuing operations
financial position, although it could be
• judging what constitutes sufficient
must be presented
combined with the assets from a disposal
evidence of management’s commitment separately. Assets and
group held for sale. Various conditions
must be met in order to be classified
to sell; and liabilities in a disposal
as held for sale. For example, if the car • determining whether the price is group held for sale,
manufacturing group decided to renovate reasonable in relation to fair value. and non-current assets
its former head office in order to increase Measuring assets held for sale requires held for sale, must be
the sales proceeds, the building could measuring their fair value and estimating
costs to sell. See IFRS 13 Fair Value
presented separately
not be classified as held for sale while the
renovation works were ongoing, because Measurement for the judgements and in the statement of
the building would not be ‘available for estimates relating to the measurement of financial position.
immediate sale in its present condition’. fair value.
IFRS 6
Exploration for and Evaluation of Mineral
Resources
The Standard
IFRS 6 specifies the financial reporting for expenditures incurred in the search (exploration) for mineral
resources after the entity has obtained the legal rights to explore in a specific area, and the determination
(evaluation) of the technical feasibility and commercial viability of extracting the mineral resources.
Exploration and evaluation expenditures

and mineral rights and mineral reserves In most respects, an entity may continue to account for
are excluded from the scope of the exploration and evaluation expenditures using the same
Standards dealing with intangible assets
and property, plant and equipment.
accounting policies that it applied immediately before
IFRS 6 has limited scope and has been adopting IFRS.
issued as an interim measure to fill a gap
in IFRS. In the absence of IFRS 6, entities
• On initial recognition, exploration The financial statements must identify
would have been required to account for
and evaluation assets are measured and explain amounts recognised in
exploration and evaluation expenditures
at cost. An accounting policy the financial statements arising from
in accordance with Standards dealing
choice is permitted for subsequent the exploration for, and evaluation
with similar items, and the definitions,
measurement; either the cost model or of, mineral resources. The Standard
recognition criteria and measurement
the revaluation model can be chosen. restricts accounting policy changes;
concepts for assets and expenses in the
any changes in accounting policies for
Conceptual Framework. For most entities, • Exploration and evaluation assets
exploration and evaluation expenditures
applying the other Standards and the must be classified as either tangible
must result in financial statements that
Conceptual Framework would have resulted or intangible assets according to
are more relevant and no less reliable, or
in changes from the way in which they their nature.
more reliable and no less relevant, than
accounted for those items under • An exploration and evaluation asset the previous accounting.
their previous accounting before must be tested for impairment when
adopting IFRS. Expenditure incurred before the entity
facts and circumstances suggest that
has obtained legal rights to explore a
The following are some of the limited the carrying amount exceeds the
specific area, and expenditure incurred
improvements that the Standard makes recoverable amount. IFRS 6, not IAS 36
after the technical feasibility and
to accounting for exploration and Impairment of Assets, sets out the facts
commercial viability of extracting a
evaluation expenditures: and circumstances indicating when
mineral resource are demonstrable, are
exploration and evaluation assets
• The entity must determine accounting outside the scope of IFRS 6.
should be tested for impairment.
policies specifying which exploration
The entity determines the ‘level’
and evaluation expenditures are to be
(cash‑generating unit or group of
recognised as assets.
units) at which impairment must be
tested. The ‘level’ must not be larger
than an operating segment used
for purposes of segment reporting.
However, impairment is measured
in accordance with IAS 36.
continued
IFRS 6
Exploration for and Evaluation of Mineral
Resources continued
Judgements and estimates However, there is an optional exemption

that may be relevant to a first‑time
In most respects, an entity may continue adopter. It can be applied when the
to use the accounting policies for exploration and development costs
exploration and evaluation expenditures for oil and gas properties in the
that it applied immediately before development or production phases
adopting IFRS 6. Such policies are accounted for in cost centres
may involve a range of judgements that include all properties in a large
and estimates. Management must geographical area. Where this applies
consider whether expenditures meet an entity may elect to measure oil and
the definition of exploration and gas assets at the date of transition to
evaluation assets and whether they IFRS as follows:
are to be classified as either tangible or
intangible. If the revaluation model is • assets in the development or
used, judgements will be required in production phases can be measured
measuring fair value (see IFRS 13 Fair at the amount determined under
Value Measurement). Various judgements the entity’s previous accounting for
are required in relation to impairment the cost centre and then allocated to
testing (see IAS 36). underlying assets on a pro‑rata basis
using reserve volumes or reserve
values; when the assets are measured
Mineral resources in this way, the decommissioning,
include minerals, oil, restoration and similar liabilities
natural gas and similar recognised in relation to those assets

must be measured as at the date of
non‑regenerative transition to IFRS in accordance with
resources. IAS 37 Provisions, Contingent Liabilities
and Continent Assets (rather than in
First-time adoption accordance with IFRIC 1 Changes in
Existing Decommissioning, Restoration and
Similar Liabilities or with other IFRS 1
exceptions from the general
provisions); and
principle in IFRS 1 First-time Adoption
of International Financial Reporting • exploration and evaluation assets
Standards for exploration and evaluation can be measured at the amount
expenditures. determined under the entity’s
previous accounting.
IFRS 7
Financial Instruments: Disclosures
The Standard
IFRS 7 specifies disclosures for financial instruments. The recognition, measurement and presentation of
financial instruments are the subjects of IAS 39 Financial Instruments: Recognition and Measurement2 and
IAS 32 Financial Instruments: Presentation respectively.
The Standard is not for a specific The required disclosures provide an

industry. It applies to all entities. Its overview of the entity’s use of financial Requires disclosures that
scope is slightly wider than that of instruments and its exposure to the risks enable users to evaluate:
IAS 32 and IAS 39, and IFRS 7 requires they create.
disclosures about some financial • t he significance of
instruments that are not required Judgements and estimates financial instruments
to be recognised in the statement of The significance of financial instruments for the entity’s
financial position, such as some loan
commitments. The disclosures required
for an entity’s financial position and
financial position and
performance is disclosed.
by IFRS 7 focus on the risks arising from performance; and
financial instruments. Judgements and estimates will be
required when making many of the • t he nature and extent
The Standard requires disclosure of: required disclosures, for example, when: of risks arising from
• the significance of financial • grouping financial instruments an entity’s financial
instruments for the entity’s financial into classes that are appropriate instruments and how
position and performance, for
example, the fair value and carrying
to the nature of the information
the entity manages
disclosed and taking into account
amount of each class of financial the characteristics of those financial
those risks.
assets and financial liabilities instruments;
(determined by the entity and not
necessarily the same as the categories • measuring fair value of financial assets
First-time adoption
in the statement of financial position); and financial liabilities; and
For financial instrument disclosures
• qualitative information about the • preparing the required sensitivity
there are no specific mandatory
exposure to risks arising from the analysis for each type of market risk
entity’s financial instruments, for to which the entity is exposed at
example, the entity’s objectives, the reporting date; this will show
policies and processes for managing how profit or loss and equity will
Standards.
those risks and the methods used to be affected if there are changes in
measure the risk; and the risk variable at that date and
judgements include deciding on the
• quantitative information about most appropriate methodologies and
the exposure to risks arising from assumptions to use when conducting
the entity’s financial instruments, the analyses.
for example, specified minimum
disclosures about credit risk, liquidity
risk and market risk.
2 IFRS 9 replaces IAS 39 and is effective for annual periods beginning on or after 1 January 2018. See the Appendix.
IFRS 8
Operating Segments
The Standard
IFRS 8 requires the disclosure of information about an entity’s operating segments, its products and services,
the geographical areas in which it operates, and its major customers.
The Standard generally applies to In general, the financial information

listed entities. Most such entities’ Disclosures are required reported is the same as that used by the
operations are diversified by business about an entity’s entity’s chief operating decision maker.
activity as well as by geographical For each reportable segment, entities
operating segments, its must report segment profit or loss. In
area; the products and services,
and/or geographical areas in products and services, addition, segment assets and segment
which they operate, may differ in the geographical areas liabilities must be disclosed if regularly
reported to the chief operating decision
profitability, future prospects and risks. in which it operates, and maker. The profit or loss and the assets
Consequently, the Standard requires
its major customers to and liabilities will be those reported
financial statements to break down,
by segment, the information that is enable users to evaluate to the chief operating decision maker.
in the statement of profit or loss and the entity’s business Various other items, such as revenues
from external customers, revenues
other comprehensive income and in activities and the from other segments, depreciation
the statement of financial position, so
environment in which and interest expense, must also be
that users get a fuller understanding of
the results. it operates. disclosed if they are either reported
separately to the chief operating
The basic premise in IFRS 8 is that the decision maker or if they are used in
segment information disclosed in the The Standard imposes additional calculating the profit or loss amount
financial statements is that reported requirements regarding when segments reported to the chief operating decision
internally for managing the business. may be combined and when they must maker. For example, if earnings before
This is to allow users to view the be reported separately; the disclosure interest, taxation, depreciation and
results from the same perspective as requirements are applied to an entity’s amortisation (EBITDA) are reported to
management. ‘reportable operating segments’. The the chief operating decision maker and
‘chief operating decision maker’ may depreciation is not separately regularly
Operating segments are components reported, then depreciation does not
be the chief executive officer, chief
of an entity that earn, or may earn, have to be disclosed by segment in the
operating officer, a group of executive
revenues, and incur expenses, about financial statements. Conversely, if
directors or others; the term denotes a
which separate financial information is EBITDA is reported to the chief operating
function, that of allocating resources
available, and whose operating results decision maker and depreciation is
and assessing performance.
are regularly reviewed by the chief also separately regularly reported,
operating decision maker (a defined An entity must report financial and then depreciation must be disclosed by
term) in deciding how to allocate descriptive information about its segment in the financial statements.
resources and in assessing performance. reportable operating segments. Total revenues, profit or loss, assets,
liabilities and other amounts disclosed
for reportable segments must be
reconciled to corresponding amounts in
the entity’s financial statements.
continued
IFRS 8
Operating Segments continued
Entities must disclose information about If a financial report contains the If an operating segment was identified as
the determination of the reportable consolidated financial statements of a a reportable segment in the immediately
operating segments, including the parent as well as its separate financial preceding period but is below the size
judgements made in combining statements, segment information thresholds to be a reportable segment
segments, and the types of products and is required only in the consolidated in the current period, it is nevertheless
services in each segment. In addition, financial statements. classified as a reportable segment in the
entities must give an explanation of current period if it is judged to be of
the measurements of segment profit, Judgements and estimates continuing significance.
segment assets and segment liabilities.
Because the identification of the entity’s When the operations of two or more
This includes providing explanations for
chief operating decision maker is based segments are relatively homogeneous,
differences between the measurement
on a function within the entity rather and when specified criteria are satisfied,
used for segment reporting and the
than on the title associated with a judgement is required in deciding
measurement used in the statement
particular executive position, in some whether the operating segments can
of profit or loss and the statement of
cases identifying the chief operating be combined into a larger reportable
financial position, and any changes
decision maker requires judgement. segment.
in the measurement basis of segment
In some entities (sometimes called
amounts from period to period.
‘matrix form organisations’), some
First-time adoption
IFRS 8 specifies some disclosures that
managers are responsible for different There are no specific mandatory
must be given if the information has
product and service lines worldwide, exceptions or optional exemptions from
not already been disclosed as part of
whereas other managers are responsible the general principle in IFRS 1 First-time
the segmental information disclosed
for specific geographical areas, and Adoption of International Financial Reporting
in accordance with internal reporting.
the chief operating decision maker Standards for operating segments.
These disclosures, which must be
regularly reviews the operating results
calculated using the same basis of
of both sets of components. In such a
preparation as the financial statements,
situation, the entity has to determine
are: revenues by product and service,
which of the two sets of components
or groups of products and services, and
are its operating segments for financial
by country; some non-current assets
reporting purposes. It must do this by
by country; and information about the
determining information about which
extent of reliance on major customers.
of the two sets of components will
However, an entity is exempt from
better enable the users of its financial
reporting information, other than
statements to evaluate the nature and
information about major customers,
financial effects of its business activities
that is not available and if the cost to
and the economic environments in
develop it would be excessive.
which it operates.
IFRS 10
Consolidated Financial Statements
The Standard
IFRS 10 identifies control as the basis for consolidation.
IFRS 10 defines control, which is used

to determine whether an entity has a Control:
subsidiary and is also used in IFRS 3
An investor, the parent, controls an investee, its subsidiary, when the
Business Combinations to determine whether
investor is exposed, or has rights, to variable returns from its involvement
there has been a business combination.
with the investee and has the ability to affect those returns through its power
A subsidiary is defined as an entity that over the investee.
is controlled by another entity, the
parent. An entity may be unincorporated, An investor’s power over an investee arises from existing rights, such as voting
such as a partnership, or incorporated. rights and rights to appoint directors. If an investor owns options to purchase
A business combination might be the voting shares, the votes attached to the shares would not be considered in
acquisition of a subsidiary or it might be assessing whether the investor has power unless the options are exercisable
the acquisition of a business that is not when decisions about the direction of the relevant activities need to be made.
in an entity (and thus is not a subsidiary); Even then, other factors also apply, such as whether the options are deeply out
for example, it might be the acquisition of the money and are expected to remain so, in which case they may not be
of the trade and assets of an entity but considered. Convertible instruments and other potential voting rights are also
not the entity itself. considered. The power must be such that the investor has the current ability
An entity that has one or more to use it to affect its returns. Protective rights are not considered.
subsidiaries (a parent) must, other There are no separate tests for ‘special purpose entities’; the same principles
than in a few limited cases, present and guidance are used to assess whether an investor controls any investee.
consolidated financial statements. An investor can achieve power over an investee in many ways, for example,
The parent and its subsidiaries together in some situations, by having rights to ‘step-in’ and manage the activities of
are known as a group. Consolidated the investee.
financial statements present financial
information for the group as a single
economic entity. • intragroup transactions, that is, A parent need not present consolidated
transactions between one entity in the financial statements if it is itself a
To present financial information for the
group and another group entity, to be wholly-owned subsidiary, if its securities
group as though it were a single entity,
eliminated. are not publicly traded or in the process
it is necessary for:
of becoming publicly traded, and if
• one set of accounting policies to be When a parent owns less than
its parent publishes IFRS-compliant
applied in preparing the consolidated 100 per cent of a subsidiary, it
financial statements that are available
financial statements. For example, if recognises the non-controlling interest, to the public. This is also the case for
one subsidiary accounts for investment that is, the equity in a subsidiary a partly-owned subsidiary if its other
properties at fair value while another that is not attributable to the parent. owners have been informed about,
uses the cost model, it will be necessary Non‑controlling interest is presented in and do not object to, it not presenting
for one of these two policies to be the consolidated statement of financial consolidated financial statements.
selected as the group’s policy and this position within equity, separately from
is what will be used to prepare the the parent shareholders’ equity.
consolidated financial statements.
continued
IFRS 10
Consolidated Financial Statements continued
An exception to the principle that all Judgements and estimates A first‑time adopter applies specific
subsidiaries must be consolidated is requirements of IFRS 10 dealing with
Determining whether control exists
provided for parents that are investment non-controlling interests and dealing
requires an assessment of all relevant
entities. An investment entity is an with loss of control of a subsidiary only
facts and circumstances, including an
entity that: (a) obtains funds from one from its date of transition to IFRS, unless
evaluation of the purpose and design
or more investors for the purpose of the first-time adopter elects to apply
of the investee, the activities of the
providing investment management IFRS 3 to past business combinations,
investee, how decisions about those
services; (b) its business purpose is to in which case it must also apply IFRS 10
activities are made, and the rights held
invest funds solely for returns from retrospectively from the same date.
by the investor in the investee. This will
capital appreciation, investment income, The assessment of whether a first-time
often be a relatively straightforward
or both; and (c) measures and evaluates assessment, eg when one investor owns adopter that is a parent is an investment
the performance of substantially more than 50 per cent of the voting entity is on the basis of facts and
all its investments on a fair value rights of an investee and this ownership circumstances at the date of transition.
basis. A parent that is an investment gives rise to control. In other cases, For accounting periods ending on or
entity measures its investments in its however, that assessment can require before 31 December 2014, investment
subsidiaries at fair value, with changes significant judgement. entities may apply the particular
in fair value recognised in profit or loss temporary transition provisions relevant
The assessment of control can be
for each period, unless that subsidiary to such entities in their first IFRS
particularly challenging for some
is providing investment-related services financial statements.
structured entities, because the relevant
that support its parent’s investment
activities, in which case the subsidiary
activities in those entities are not
usually directed by voting or similar
Recent developments
is consolidated. Investment Entities: Applying the Consolidation
rights. Furthermore, the benefits or
The disclosure requirements for returns expected from such investments Exception (Amendments to IFRS 10,
subsidiaries are specified in IFRS 12 can be more difficult to assess. IFRS 12 and IAS 28) was issued by the
Disclosure of Interests in Other Entities. IASB in December 2014 and is effective
First-time adoption for annual reporting periods beginning
When a subsidiary becomes a first‑time on or after 1 January 2016, although
Consolidated financial adopter earlier than its parent, or it can be applied early. It clarifies the
statements present a parent adopts IFRS in its separate instances when an investment entity
financial information of financial statements earlier than in consolidates a subsidiary rather than
accounts for it at fair value through
a group (a parent and its its consolidated financial statements,
profit or loss. If a subsidiary’s main
the subsidiary’s or parent’s assets
subsidiaries) as a single and liabilities are recognised in the purpose and activities are to provide
economic entity. consolidated financial statements at the investment-related services that support
same amounts they are recognised in its parent’s investment activities, that
the subsidiary’s financial statements or subsidiary is consolidated only if it is not
parent’s separate financial statements, itself an investment entity.
except for any consolidation adjustments.
IFRS 11
Joint Arrangements
The Standard
IFRS 11 specifies the accounting for an interest in an arrangement that is jointly controlled.
Many entities collaborate with one Joint arrangements are classified as

or more other entities. For example, To be a joint either joint operations or joint ventures:
they may collaborate to undertake a arrangement, more than • Joint operations are joint arrangements
construction project, such as building
a road, to carry out research into a
one party must be able in which the parties that have joint
possible new product, or to manufacture to veto decisions about control (joint operators) have rights
to the assets, and obligations for the
items to be sold to third parties. relevant activities. liabilities, relating to the arrangement.
Although IFRS 11 may be the Standard
To be a joint arrangement, more than • Joint ventures are joint arrangements
that will apply to such collaborations,
one party, but not necessarily all parties in which the parties that have joint
it will not always be the relevant
(see next page), must be able to veto control (joint venturers) have rights
Standard. For example, IFRS 10
decisions about relevant activities. to the net assets of the arrangement.
Consolidated Financial Statements or
However, having more than one party The principle of the Standard is that a
IAS 28 Investments in Associates and Joint
that can veto decisions does not party to a joint arrangement recognises
Ventures might instead apply.
automatically make the arrangement its rights and obligations arising from
To be within the scope of IFRS 11 a joint arrangement. To be a joint the arrangement.
an entity must be a party to an arrangement, the right of veto has to be
arrangement in which two or more A joint operator has rights to assets and
over decisions about relevant activities,
parties have joint control, that is, the obligations for liabilities, and is required
that is, activities that significantly affect
contractually agreed sharing of control to recognise those assets and liabilities
the returns of the arrangement. Some
of an arrangement, which exists only and to account for the revenues and
rights might be protective, such as the
when decisions about the relevant expenses relating to its interest in the
rights of a bank that has lent money
activities require the unanimous joint operation (sometimes called ‘gross
to an entity, and might not be over
consent of the parties sharing control. accounting’).
decisions about relevant activities.
The arrangement may be short– or long– A joint venturer has rights only to net
term in nature. assets and accounts for those net assets,
No using the equity method (see IAS 28),
Is there a Outside the
scope of IFRS 11 as a single line item in its statement of
JOINT ARRANGEMENT?
financial position (sometimes called ‘net
Are the parties bound by a contractual
arrangement giving the parties, accounting’).
or a group of the parties, joint control Joint operation
of the joint arrangement? (Account for assets
Rights to assets
and obligations and liabilities
Yes directly)
for liabilities
Classification of the
Rights to
JOINT ARRANGEMENT Joint venture
net assets
Analysis of the parties’ rights and (Account for net
obligations arising from assets using the
the arrangement equity method)
continued
IFRS 11
Joint Arrangements continued
A joint arrangement that is not the resulting effect would be that X, The accounting of a joint arrangement
structured through a separate vehicle Y and Z would be providing all of the will depend on its classification—joint
(ie a separately identifiable financial cash flows for W to settle its liabilities operation or joint venture. Determining
structure, for example, a company) is a and would be receiving the benefits the appropriate classification requires
joint operation. A joint arrangement of all of W’s assets. X would, despite consideration of the structure of the
that is structured through a separate the limited liability company, have joint arrangement and, if it is structured
vehicle can be either a joint venture rights to one‑third of W’s assets and through a separate vehicle, the legal
or a joint operation, depending on have obligations for one-third of W’s form of the separate vehicle, the terms of
the assessment of the parties’ rights liabilities. The same would apply for the contractual arrangement and, when
Y and Z. The arrangement is a joint
and obligations arising from the relevant, other facts and circumstances.
operation and X, Y and Z would each
arrangement. For example, three
parties, X, Y and Z, may each have a
account for one-third of W’s assets and First-time adoption
one third of W’s liabilities (and would
one‑third interest in a manufacturing For joint arrangements there are no
not use the equity method to account for
entity, W, with the contractual specific mandatory exceptions from
the net position).
arrangement between the three the general principle in IFRS 1 First‑time
Not all parties to the joint arrangement
parties establishing that this is a ‘joint Adoption of International Financial Reporting
need to share control, but it is the
arrangement’ within the scope of Standards. However, a first‑time adopter
parties sharing control, each of which
IFRS 11. The contractual arrangement may elect to apply the transition
must have a right of veto, that are joint
requires the agreement of all three provisions in IFRS 11 as at its date of
venturers or joint operators and account
before decisions about relevant activities transition to IFRS (a defined term—
as above. The Standard also stipulates
can be reached. If W is a company whose see IFRS 1) but with the following
how the other parties account for their
legal form confers separation between exception. If an entity changes from
interests in a joint arrangement.
the parties and the company, X, Y and proportionate consolidation to the
The disclosure requirements for joint
Z would probably have legal rights and equity method, the investment must
arrangements are specified in IFRS 12
obligations only for its net assets. be tested for impairment in accordance
Disclosure of Interests in Other Entities.
However, if the contractual arrangement with IAS 36 Impairment of Assets at the
specified that: Judgements and estimates date of transition to IFRS, regardless
Sometimes determining which parties of whether there is any indication
(a) W
cannot sell goods to third parties;
jointly control an arrangement will that the investment may be impaired.
and
be straightforward, while in others Any resulting impairment must be
(b) X
, Y and Z are obligated to each significant judgement may be required. recognised as an adjustment to
purchase one-third of W’s output at a That determination necessarily includes retained earnings.
price that, over each year, covers W’s an assessment of whether the parties
variable and annual fixed costs, but to the arrangement collectively have
no more (ie its pricing ensures that it control of the arrangement. For
operates at break-even); judgements relating to control see
IFRS 10.
IFRS 12
Disclosure of Interests in Other Entities
The Standard
IFRS 12 specifies disclosures about interests in subsidiaries, joint ventures and other entities.
IFRS 12 sets out an overall objective,

which is ‘to require an entity to disclose Structured entity
information that enables users of its
A structured entity is an entity that has been designed so that voting or
financial statements to evaluate:
similar rights are not the dominant factor in deciding who controls the entity,
(a) t he nature of, and risks associated such as when any voting rights relate to administrative tasks only and the
with, its interests in other entities; relevant activities (ie those that significantly affect the investee’s returns) are
and directed by means of contractual arrangements.
(b) t he effects of those interests on

its financial position, financial The Standard requires disclosure of the • the nature of, and changes in, the
performance and cash flows’. significant judgements and assumptions risks associated with consolidated
The Standard then sets out specific made by an entity in determining, structured entities, including the
information that it requires to be among other things, whether it controls, extent of non-contractual support
disclosed about an entity’s interests in: jointly controls or has significant provided.
influence over another entity, for
• subsidiaries (see IFRS 10 Consolidated
Financial Statements);
example, the significant judgements
The disclosures provide
made when it owns less than half of
• joint arrangements, ie joint operations the voting rights of an investee but
information about
and joint ventures (see IFRS 11 Joint concluded that it controls the investee. the nature of, risks
Arrangements);
The disclosures about an entity’s associated with, and
• associates (see IAS 28 Investments in interests in subsidiaries include effects of interests in
Associates and Joint Ventures); and information about: other entities on the
• structured entities (often referred to • details about each subsidiary with financial statements of
as ‘special purpose entities’) that have non-controlling interests that are the investing entity.
not been consolidated. material to the group, including profit
or loss allocated to the non-controlling
If disclosing this specific information, Investment entities that include their
interests and summarised financial
together with the disclosures required investments in subsidiaries at fair
information;
by other Standards, does not result in value in accordance with IFRS 10 have
the overall objective being met, IFRS 12 • the effect of significant restrictions different disclosure requirements.
requires an entity to disclose whatever on consolidated assets and liabilities,
additional information will enable that for example, restrictions affecting
objective to be met. the ability to transfer cash within the
group; and
continued
IFRS 12
Disclosure of Interests in Other Entities continued
The disclosures about an entity’s The disclosures about an entity’s Judgements and estimates
interests in joint arrangements and interests in structured entities that
associates include information about have not been consolidated include The Standard requires disclosure of
the nature, extent and financial effects information about: a number of significant judgements
of interests in joint arrangements and and assumptions that are rooted in
• the nature and extent of interests in the application of other Standards, for
associates; for example:
such entities, for example information example, IFRS 10 and IFRS 11.
• summarised financial information about the nature, purpose,
for: each individually-material size, activities and financing of Compliance with the Standard also
joint venture and associate; in total unconsolidated structured entities and requires the exercise of judgement.
for all joint ventures that are not details of unconsolidated structured Examples of these judgements include:
individually material; and in total for entities that the entity has sponsored identifying unconsolidated structured
all associates that are not individually previously; and entities; calculating maximum exposure
material; to loss; determining when an entity
• the nature of, and changes in, the has acted as a sponsor; and agreeing
• any share of losses of joint ventures risks associated with an entity’s the correct level of aggregation and
and associates that is unrecognised; interests in such entities, including: disaggregation of disclosures to provide
• the fair value of investments in • the carrying amount of the assets meaningful information and meet
individually-material joint ventures and liabilities recognised; the requirements. In addition, there
and associates (if published quoted is an overall judgement to be made to
• the maximum exposure to loss and
prices are available); and determine whether the disclosures that
comparison to carrying amounts;
are explicitly specified are sufficient
• the nature and extent of any and
to satisfy the Standard’s objective
significant restrictions on the ability
• the extent of non-contractual for the entity or whether additional
of joint ventures and associates to
support provided. information should be disclosed.
transfer funds to the entity.
First-time adoption
exceptions or optional exemptions in
IFRS 1 First-time Adoption of International
Financial Reporting Standards for the
disclosure requirements of IFRS 12.
IFRS 13
Fair Value Measurement
The Standard
IFRS 13 defines fair value, sets out a framework for measuring fair value and requires disclosures relating
to fair value measurements. It applies when other Standards require or permit fair value measurements or
disclosures, except in specified circumstances.
IFRS 13 does not mandate when fair For a non-financial asset, such as a The starting point for measuring fair
value should be used as a measurement machine, its fair value must be based on value is a quoted market price in an
basis. Instead it provides a framework the highest and best use to which the active market for an identical asset or
for measuring fair value whenever a asset could be put, whether this would liability, if this is available. For example,
Standard requires or permits fair value be in combination with other assets if the asset being measured at fair
measurements, or measurements or on a stand-alone basis, regardless of value is 100 equity shares in a quoted
based on fair value, to be used as the how the reporting entity is using the company, the quoted market price
measurement basis or to be disclosed. asset. Fair value is for a particular asset would be used. As described below, such
An example of a measurement based on or a particular liability; accordingly, quoted prices are referred to as Level 1
fair value would be IAS 41’s requirement any specific characteristics of the asset inputs in the Standard.
that agricultural produce harvested or liability, such as the condition and
When a Level 1 input for an identical
from an entity’s biological assets is location of an asset, or any restrictions
asset or liability is not available but
measured, at the point of harvest, at fair on its use or sale, must be reflected.
there are observable inputs other than
value less costs to sell. In the case of liabilities, financial and
Level 1 inputs for the asset or liability
non-financial, or an entity’s own equity
Fair value is the price that would be (ie Level 2 inputs) or when inputs
instruments, fair value measurement
received to sell an asset or paid to available for the asset or liability are
assumes that those items would
transfer a liability at the measurement unobservable (ie Level 3 inputs), fair
remain outstanding and that a market
date under current market conditions in value is measured using a valuation
participant transferee would be required
an orderly transaction between market technique. The Standard requires
to fulfil the obligation, or take on the
participants in the principal market, or the use of a valuation technique
rights and responsibilities, associated
in the absence of a principal market, in that maximises the use of relevant
with the instrument, that is, those
the most advantageous market. It is an observable inputs and minimises the
items would not be settled, cancelled
exit price. Fair value is a market-based use of unobservable inputs and requires
or otherwise extinguished on the
measurement, not an entity-specific the valuation technique used to be
measurement date.
measurement, and is measured this appropriate in the circumstances and
way regardless of whether that price is to be applied consistently. Valuation
directly observable or estimated using techniques are consistent with three
another valuation technique. When widely used valuation approaches: the
measuring fair value, the assumptions market approach, the cost approach and
that market participants would use the income approach.
when pricing the asset or liability under
current market conditions, including
assumptions about risk, should be
used. As a result, an entity’s intentions
regarding an asset or liability are not
relevant when measuring the fair value
of the asset or liability.
continued
IFRS 13
Fair Value Measurement continued
The market approach uses prices

and other information from market Fair value hierarchy:
transactions involving identical or
Level 1 inputs are quoted prices (unadjusted) in active markets for identical
similar assets or liabilities. For example,
assets or liabilities that the entity can access at the measurement date.
if an entity is measuring the fair value
of a building it may look at the price Level 2 inputs are inputs (other than quoted prices included within Level 1) that
of an identical neighbouring building are observable for the asset or liability, either directly or indirectly. Examples
that was sold six months earlier or include quoted prices for similar assets in active markets and quoted prices for
there may not be an identical building identical, or similar, assets in markets that are not active.
that was sold recently so it may look at Level 3 inputs are unobservable inputs for the asset or liability. Unobservable
prices of similar buildings recently sold inputs must reflect the assumptions that market participants would use when
in the same area. Another example is pricing the asset or liability, including assumptions about risk. An example
measuring the fair value of a business of a Level 3 input would be a financial forecast (eg of cash flows or profit or
using price-earnings multiples from loss) developed using the entity’s own data if there is no reasonably available
recent sales of similar businesses. These information that indicates that market participants would use different
amounts, the price of recent building assumptions.
sales or price-earnings ratios, would
form the starting point for measuring
IFRS 13 establishes the fair value The objective of the disclosures in
the fair value of the entity’s asset, and
hierarchy that categorises the inputs IFRS 13 is to provide users with
would need appropriate adjustments.
used to measure fair value into three information to assess the valuation
The cost approach reflects the amount levels, as referred to above, in order to techniques and inputs used to develop
that would currently be required to increase consistency and comparability the fair value measurements and, for
replace the service capacity of an asset; in the fair value measurements and recurring fair value measurements using
this is often referred to as current related disclosures. The resulting fair significant unobservable inputs (Level 3),
replacement cost. value measurements are then also the effect of the measurements on profit
categorised, into the same three levels, or loss or other comprehensive income
The income approach converts future with the category of measurement
for the period.
amounts, for example, cash flows being determined by the lowest input
or income and expenses, to a single level used that is significant to the
current, ie discounted, amount. Present entire measurement. For example, if
value techniques, such as discounting a quoted price that is a Level 2 input is
future expected cash flows and option- adjusted by an unobservable input that
pricing models, are examples of is significant to the entire measurement,
valuation techniques that are consistent the resulting fair value measurement
with the income approach. would be categorised as Level 3. The
categorisation of the resulting fair
value measurement determines which
disclosures must be made in the
financial statements. continued
IFRS 13
Fair Value Measurement continued
Judgements and estimates • Determining the highest and best First-time adoption
use of a non-financial asset. That
The primary areas of managerial There are no specific mandatory
determination is made from the
judgement in this Standard would exceptions or optional exemptions from
perspective of market participants,
include, among others: the general principle in IFRS 1 First-time
even if the reporting entity puts the
asset to a different use. Adoption of International Financial Reporting
• Identifying the characteristics of
Standards that apply to the requirements
an asset or a liability that market
• Determination of the appropriate of IFRS 13 for first‑time adopters.
participants would take into account
valuation technique, as well as the
when pricing that asset or liability.
inputs to be used in that valuation
• Determining whether a principal technique. Judgement will also be Fair value is the price
market for an asset or a liability necessary when determining the level that would be received
exists and whether the entity has in which to categorise a fair value
measurement. For example, if an
to sell an asset or paid
access to that market. The principal
market is the market with the greatest adjustment, that is an unobservable to transfer a liability in
volume and level of activity for the input, to a Level 2 input is significant an orderly transaction
asset or liability. In the absence of a to the entire measurement it will between market
principal market, it will be necessary result in a fair value measurement
participants at the
to identify the most advantageous that would be categorised within
market for the asset or liability. The Level 3 of the fair value hierarchy, measurement date, ie an
most advantageous market is the whereas if it is not significant the exit price.
market that maximises the amount fair value measurement would be
that would be received to sell the asset categorised within Level 2.
or minimises the amount that would
be paid to transfer the liability, after
taking into account transaction costs
and transport costs.
IAS 1
Presentation of Financial Statements
The Standard
IAS 1 sets out the overall requirements for the preparation and presentation of financial statements.
IAS 1 is the cornerstone of financial Financial statements must present In preparing financial statements,
statement preparation and presentation. fairly the entity’s financial position, transactions are aggregated. However,
It lays down the fundamental basics: financial performance and cash IAS 1 specifies minimum line items to
what is in a complete set of financial flows. Fair presentation requires the be presented, if they are material, in
statements; the underlying principles faithful representation of the effects the statement of financial position,
governing their preparation; minimum of transactions, other events and statement of profit or loss and other
line items and requirements regarding conditions in accordance with the comprehensive income and statement
overarching note disclosures; and the definitions and recognition criteria of changes in equity. IAS 7 Statement
frequency of reporting. Other Standards for assets, liabilities, income and of Cash Flows provides guidance on line
specify the recognition, measurement items in the statement of cash flows.
expenses set out in the Conceptual
and disclosure of specific transactions Additional items must be presented if
Framework. The application of the
they are relevant to understanding the
and events. Standards, with additional disclosure
entity’s financial position and financial
when necessary, is presumed to result
A complete set of financial statements, performance. Dissimilar items are
in financial statements that achieve a
which should be presented, including presented separately, unless they are
fair presentation.
comparatives, at least annually, immaterial.
comprises: In general, financial statements are
Items in other comprehensive income
prepared on a going concern basis, that
• a statement of financial position must be classified by nature and be
is, assessing that the entity will continue grouped into those that will, and
(sometimes called the balance sheet);
in operation for the foreseeable future. those that will not, be subsequently
• either: a single statement of profit or IAS 1 requires financial statements to reclassified to profit or loss.
loss and other comprehensive income; be prepared on a going concern basis
or two statements—a statement of Assets and liabilities are classified as
unless management intends to, or has
profit or loss (sometimes called an current or non-current, except when a
no realistic alternative but to, liquidate
income statement), and a statement of presentation based on liquidity would
the entity or to cease trading. Financial
comprehensive income (starting with provide information that is reliable and
statements are prepared using the
profit or loss and presenting income more relevant. In addition to cash and
accruals basis of accounting, for example,
cash equivalents, items classified as
and expenses that are not recognised if goods are sold in one year but payment
current are: assets expected to be realised,
in profit or loss); is not received until the subsequent year,
used or sold and liabilities expected to
• a statement of changes in equity; the revenue, and profit, is recognised in
be settled within the entity’s normal
the earlier year, because this is when the operating cycle; held for trading; or
• a statement of cash flows; and
revenue and profit was earned. expected to be realised or settled within
• notes, comprising a summary of twelve months after the reporting period.
significant accounting policies, The classification is based on conditions
significant management judgements, at the end of the reporting period,
sources of estimation uncertainty and and is not affected by events, such as
other explanatory information. refinancing, after that date.
continued
IAS 1
Presentation of Financial Statements continued
Management exercises judgement when • Judging whether to present an analysis

Financial statements are assessing whether or not an item is of expenses recognised in profit or loss
required to present fairly material. An item is material if it could, using a classification based on their
individually or collectively, influence nature, or instead basing the analysis
the financial position, the economic decisions that users make on their function within the entity,
financial performance on the basis of the financial statements. depends on management’s assessment
and cash flows of the Materiality depends on the size and of which presentation format provides
entity. nature of the omission or misstatement, information that is reliable and more
as judged after taking into consideration relevant. An analysis of expenses by
the surrounding circumstances. The size function can sometimes provide more
Judgements and estimates or nature of the item, or a combination relevant information to users than the
of both, could be the determining factor. classification of expenses by nature,
Management must assess whether
but allocating costs to functions
the financial statements as a whole Judgement is required in determining
(eg cost of sales, distribution costs,
present fairly the financial position, the best way to present information in
administrative expenses) may require
financial performance and cash flows financial statements. For example:
arbitrary allocations and involve
of the entity. • Judging when to present additional considerable judgement.
Management must assess the entity’s line items, headings and subtotals
• Judging whether to present current
ability to continue as a going concern. in the primary financial statements
assets and current liabilities separately
In some cases that assessment requires depends on assessing when such
from non-current items, or whether
much judgement. If management presentation is relevant to an
to present assets and liabilities in
determines that the going concern basis understanding of the entity’s financial
order of their liquidity, depends
is appropriate, but there is nevertheless position, financial performance or
on management’s assessment of
significant doubt about the entity’s cash flows.
which presentation format provides
ability to continue as a going concern,
information that is reliable and more
IAS 1 requires disclosures to be given in
relevant.
the financial statements.
• Judgement is required to select the
best way in which to present the
financial statements; for example,
determining the most appropriate
order for the notes to the financial
statements.
continued
IAS 1
Presentation of Financial Statements continued
In the process of applying an entity’s

accounting policies, management will Items in other
make various judgements. Entities must comprehensive income
disclose, in the notes, a summary of
the significant accounting policies they
must be grouped into
have adopted and the judgements made those that will and
in applying those policies that have the those that will not be
most significant effect on the amounts subsequently reclassified
recognised in the financial statements.
In addition, entities must disclose
to profit or loss.
the assumptions they made about the
future, and other sources of estimation
Recent developments
uncertainty that may cause a material
adjustment to amounts in the financial The IASB is undertaking a broad-based
statements in the following year. initiative (‘the Disclosure Initiative’) to
explore how disclosures in IFRS financial
First-time adoption reporting can be improved. The
Disclosure Initiative is made up of a
number of implementation and research
projects. As part of this project, limited
amendments to IAS 1 were issued in
December 2014—see the Appendix. One
aspect of the Disclosure Initiative being
of IAS 1 for first‑time adopters.
considered is the disclosure of alternative
performance measures, also known as
non-GAAP measures. The amendments to
IAS 1, published in December 2014, have
taken the first step to providing guidance
on alternative performance measures; the
guidance aims to ensure that subtotals
presented in the statement of profit or
loss and other comprehensive income or
in the statement of financial position are
fairly presented.
IAS 2
Inventories
The Standard
IAS 2 specifies requirements for the recognition of inventory as an asset and an expense and the measurement
of, and disclosures about, inventories.
Inventories are assets held for sale The cost of an item of inventory is its Cost is calculated for each item of
in the ordinary course of business cost of purchase, cost of conversion inventory. For example, a small bespoke
(finished goods), work in progress, raw and other costs incurred in bringing construction business probably knows
materials and supplies to be consumed the inventory to its present location the unique cost of each property that
in the production process or in the and condition. IAS 2 sets out further it built or completed during the year
rendering of services (sometimes called guidance to ensure consistent and of the two part-built properties
‘consumables’). application. For example, it clarifies at its year-end. On the other hand,
IAS 2 applies to all inventories, except that trade discounts, rebates and its supplier of bricks manufactured
work in progress on construction other similar items are deducted in 10 million bricks during the year, had
contracts, financial instruments, determining the costs of purchase and opening inventory of 12,000 bricks and
biological assets related to agricultural that the allocation of fixed production closing inventory of 10,000 bricks and
activity, and agricultural produce at the overheads to the costs of conversion is unlikely to be able to identify how
point of harvest. is based on the normal capacity of much each brick in its closing inventory
production facilities. Normal capacity is had cost to manufacture. Consequently,
In summary, inventory is measured the production expected to be achieved the cost of items of inventory that
initially at its cost to the entity, either on average over a number of periods or are neither unique nor segregated
the cost of buying it or the cost of seasons under normal circumstances, for specific projects is assigned using
production. If, before being sold, the taking into account the loss of capacity either the first-in, first-out (FIFO) or the
amount expected to be recoverable from resulting from planned maintenance. weighted average cost formula. The
selling the inventory, net of selling Directly attributable borrowing costs same cost formula must be used for all
costs and, if relevant, net of any costs are included in the cost of some inventories having a similar nature and
to complete, is less than the inventory’s inventories—see IAS 23 Borrowing Costs. use. For inventories having a different
cost at that date, the carrying amount Not included in cost are abnormal nature or use, a different cost formula
of the inventory is written down to wastage, storage costs (unless they are a may be justified, and thus dissimilar
that lower amount. The lower amount necessary part of the production process lines of business within a reporting
is referred to as net realisable value. before a subsequent production process), entity might apply different methods of
Hence, inventories are measured in administrative overheads that are not inventory measurement. A difference
the statement of financial position production costs, and selling costs. in geographical location or in tax rules
at the lower of their cost and net does not, on its own, justify the use of a
realisable value. The carrying amount different formula for similar inventories.
is recognised as an expense in profit or Inventories are measured Use of the last-in, first-out (LIFO) formula
loss in the same reporting period that in the statement of to estimate cost is not permitted.
the revenue from selling the inventory
is recognised.
financial position at
their cost or, if lower, net
realisable value.
continued
IAS 2
Inventories continued
A reduction in the carrying amount to • differentiating between normal and First-time adoption
net realisable value may be required abnormal wastage, and determining
when inventory is damaged, or becomes whether storage is a necessary part of
wholly or partially obsolete, or when the the production process before a further
selling price for the product is reduced production stage can commence, may
(or is expected to reduce), or the costs require judgement; and
Standards for inventories.
to complete the product and to get it
• when a production process results
ready for sale increase (or are expected
in more than one product being
to increase).
produced simultaneously, the costs The net realisable value
There is an exception from the of conversion of each product may of inventory is its
measurement principle in IAS 2 not be separately identifiable and, if estimated selling price
for inventories held by commodity so, requires total costs to be allocated
broker‑traders and for inventories held between the products on a rational
less any costs to complete
by entities in a limited number of and consistent basis, which is likely to and any costs to sell.
other specified industries. Commodity require judgement.
broker‑traders measure their inventories
Assessing whether any inventories
at fair value less costs to sell and entities
should be written down to net realisable
in the other specified industries measure
value requires judgement. Net realisable
them at net realisable value. Changes in
value is an entity-specific value and
the fair value less costs to sell, or in the
may not be the same as fair value less
net realisable value, of such inventories
costs to sell. Measuring net realisable
are recognised in profit or loss in the
value requires estimates of the entity’s
period of the change.
expected selling prices and costs to
Judgements and estimates complete and sell. Those estimates

must be based on the most reliable
Measuring the cost of inventory, evidence available and must take into
especially the costs of conversion, often consideration, for example, fluctuations
requires judgement. For example: in price and the purpose for which
• when allocating fixed production the inventory is held. The assessment
overheads (for example, machine should take account of events occurring
depreciation and factory rent), after the end of the period, but only
determining what is normal capacity, to the extent they confirm conditions
what maintenance is planned, and existing at the end of the period (see
which overheads to allocate, all IAS 10 Events after the Reporting Period).
require judgement and estimation;
IAS 7
Statement of Cash Flows
The Standard
A statement of cash flows is required as part of a complete set of financial statements and provides
information about changes in the cash and cash equivalents of an entity.
The statement of cash flows, and IAS 7 requires the cash flows to be The Standard allows cash flows from
related notes, is an important piece in classified into three activities, namely, operating activities to be presented
the financial statement jigsaw. Used investing, financing and operating. using either:
in conjunction with the rest of the
Investing activities comprise the • the direct method—major classes of
financial statements, a statement of
acquisition and disposal of long-term gross cash receipts and gross cash
cash flows provides information to
assets and investments that are not payments are shown, for example,
assist users to evaluate the changes
cash equivalents. Examples include a the cash received from customers is
in the net assets of the entity, its
cash payment to purchase machinery shown; or
financial structure, including its
and a cash payment to purchase equity
liquidity and solvency, and its ability to • the indirect method—the starting
investments. Financing activities are
affect the amounts and timing of cash point is profit or loss and this is
changes in the borrowings and in the
flows in order to adapt to changing adjusted for non-cash items, for
contributed equity capital of the entity.
circumstances and opportunities. example, depreciation and the
Examples include a cash payment to
increase, or decrease, in trade
Although its title is ‘Statement of Cash redeem preference shares, cash proceeds
receivables, to determine net cash
Flows’, the statement actually portrays from issuing debentures and the capital
inflow, or outflow, from operating
the movements in cash and cash element of a lessee’s payment under
activities.
equivalents. Cash is defined as cash a finance lease. Operating activities
on hand and demand deposits. Cash are the revenue-producing activities of Even where the direct method is
equivalents are short-term, highly liquid the entity, and all other activities that presented, the information does not
investments that are readily convertible are neither investing nor financing. have to be derived directly from the cash
to known amounts of cash and are Examples include the cash received book and other accounting records. It
subject to an insignificant risk of from customers for goods sold to them can be derived indirectly; for example,
change in value. Investments normally and cash paid to suppliers for goods and cash receipts from customers can be
qualify as cash equivalents only when services, such as gas and electricity, that calculated by adjusting the revenue, as
they have a short maturity of, say, were purchased from them. reported in the statement of profit or
three months or less from the date of loss and other comprehensive income,
acquisition; the further from maturity, for the increase or decrease in trade
the greater the scope for changes in Analyses the movements receivables from the start to the end of
value. Unless an equity investment in cash and cash the reporting period.
is, in substance, a cash equivalent, for equivalents of an entity Cash flows from investing and financing
example, a redeemable preference share
acquired within a short period of a fixed
during the reporting activities must be presented using the
direct method, regardless of the method
redemption date, it is excluded from period.
adopted for the reporting of operating
being classified as a cash equivalent.
activities.
continued
IAS 7
Statement of Cash Flows continued
Dividends paid can be classified as Another disclosure required by IAS 7 Judgement is required to determine
operating or financing cash flows. is the amount, if significant, of cash whether particular deposits and other
Similarly, for non-financial entities, and cash equivalents held that are balances are cash equivalents. Cash
interest paid can be classified as not available for use by the group, equivalents must be subject to an
operating or financing cash flows, together with appropriate management insignificant risk of change in value
whereas interest and dividends received commentary. An example might be and typically have a short maturity, for
can be classified as operating or cash and cash equivalents held by a example, three months or less from the
investing cash flows. subsidiary that operates in a country date they were acquired by the reporting
where exchange controls prevent their entity. While bank borrowings are
Except for the reconciliation from
use generally in the group. usually classified as financing activities,
profit or loss to net cash inflow from
operating activities when using the Some other Standards require disclosure a bank overdraft that is repayable on
indirect method, transactions that of additional cash flow information. demand may be considered a component
do not require the use of cash or For example, IFRS 5 Non-current Assets of ‘cash and cash equivalents’.
cash equivalents, that is, non-cash
transactions, are excluded from the
Held for Sale and Discontinued Operations
requires the net cash flows of a
First-time adoption
statement of cash flows. An example discontinued operation to be disclosed There are no specific mandatory
of a non-cash transaction is if an entity and analysed into operating, investing exceptions or optional exemptions from
acquires machinery under a finance and financing. the general principle in IFRS 1 First-time
lease; the lessee’s financial statements Adoption of International Financial Reporting
will show an addition to property, plant Judgements and estimates Standards for the cash flow statement.
and equipment but, at that point, there Entities are required to present their
is no impact on the lessee’s balance of cash flows from operating, investing and
cash and cash equivalents. Instead, its financing activities in a manner that is
liabilities increase. There is no cash flow most appropriate to their business. The
until the lessee makes lease payments appropriate classification into each of
to the lessor for using the machine. these categories reflects management’s
Accordingly, the acquisition of the judgement. For example, for
machine and the corresponding increase non‑financial entities, management will
in liabilities will not feature in the cash need to determine whether to classify
flow statement. In order to help users interest paid as operating or financing.
understand the transactions during the
reporting period, IAS 7 requires non-cash
investing and financing transactions to
be disclosed in the financial statements.
IAS 8
Accounting Policies, Changes in Accounting
Estimates and Errors
The Standard
IAS 8 sets out the criteria for selecting and changing accounting policies and specifies the accounting and
disclosure requirements when an accounting policy is changed. It also prescribes the accounting and
disclosure requirements for changes in accounting estimates and corrections of prior period errors.
It is the selection and application of Having selected accounting policies, When a new Standard has been issued
an entity’s accounting policies that these must be applied consistently to but is not yet effective and an entity
determines whether its profit (or loss) is similar transactions and events over chooses not to apply it early, IAS 8
one amount or another amount. IAS 8 time. IAS 8 permits an entity to change requires the entity to disclose in its
is therefore fundamental to financial an accounting policy in only two financial statements the possible impact
statement preparation, because it scenarios: of applying it.
sets out the criteria for determining
• if a new or amended Standard requires In addition to changing accounting
accounting policies and when those
a change in an accounting policy; or policies, entities revise estimates and
policies may be changed.
• it is a voluntary change that results in correct material errors. IAS 8 also
If a Standard specifies the accounting for specifies how companies account for,
financial statements providing reliable
a transaction or event, an entity must and disclose, these other changes, to
and more relevant information than
comply with that Standard. Hence, ensure there is consistency between
the old policy.
the entity’s accounting policy must be entities.
consistent with the requirements in the Financial statements include comparative
Many items in financial statements
Standard. When there are no specific information for one or more prior
cannot be measured with precision and
requirements in IFRS that are applicable periods. To improve the usefulness of
can only be estimated. Estimates are
to a particular transaction or event, financial information, when an entity
based on the latest available reliable
management is required to determine changes one or more of its accounting
information and are revised as a
an accounting policy that results in policies these comparatives are generally
result of new information or changed
relevant and reliable information about restated and presented as though the
circumstances. Because a change in
the transaction or event. In doing so, new accounting policy had always been
estimate is recognised in response to
IAS 8 requires the entity’s management applied. This is referred to as applying
information or circumstances that were
to consider the requirements in the policy retrospectively. This allows for not available in earlier periods, prior
Standards that deal with similar issues a direct comparison between the financial period amounts are not adjusted. The
and, if that is not sufficient to determine position and the results of the reporting change in estimate is recognised in the
an appropriate accounting policy, to period and of the comparative period(s) current period and in any future periods
consider the definitions, recognition presented. Disclosure is made about the affected. For example, at the end of the
criteria and measurement concepts in change and its effect on the financial 2014 reporting period the management
the Conceptual Framework. Provided there statements. The disclosures include, for of a manufacturer-retailer will not know
is no conflict with the requirements in entities that publish earnings per share, exactly the cost of warranty repairs
Standards that deal with similar issues the impact that the change in accounting relating to goods it made and sold in
nor with the definitions, recognition policy had on basic and diluted earnings 2014; it can only be estimated. The
criteria and measurement concepts in per share. For pragmatic reasons some provision that the entity makes at the
the Conceptual Framework, management new or amended Standards include end of 2014 includes an estimate of the
may also consider the most recent specific transition provisions giving relief costs that it expects to incur in 2015 and
pronouncements of standard-setters that from the requirement to apply the new the costs that it expects to incur in 2016.
use a similar conceptual framework. accounting policy retrospectively.
continued
IAS 8
Accounting Policies, Changes in Accounting
Estimates and Errors continued
While undertaking repairs at the end Judgements and estimates An entity may voluntarily change an
of 2015, it detects a defect in a model accounting policy only if the change
released in 2014, which means that To a large extent, financial reports results in the financial statements
at the end of 2015 it expects to incur are based on estimates, judgements
providing reliable and more
more costs in 2016 than originally and models rather than being exact
relevant information. Making that
expected. In preparing its 2015 financial depictions. Consequently, the use of
determination will in some cases require
statements, the entity increases the reasonable estimates is an essential
judgement. However, for some assets for
provision for warranty costs that it part of the preparation of financial
which a choice of measurement models
expects to incur in 2016 in respect of statements and does not undermine
is available, for example, investment
goods sold in 2014. This extra cost is their reliability. Estimation involves
property, it is highly unlikely that a
recognised as an expense in calculating judgements based on the latest available,
reliable information. Estimates will change from the fair value model to the
its 2015 profit or loss; the entity does not
inevitably require adjusting. The effect cost model will result in more relevant
adjust the provision included in its 2014
of revising estimates made in the information.
comparatives.
previous period’s financial statements Judgements are also made in relation
Errors can arise from mistakes and will therefore be reflected in current, to the accounting for the correction of
oversights or misinterpretations of and possibly future, periods. prior period errors. For example, an
available information. Errors are
In the absence of a Standard that entity must determine if an error is
corrected in the first set of financial
specifically applies to a transaction, material, because, if so, the entity must
statements issued after their discovery.
Because an error relates to information other event or condition, management restate comparatives to correct that
that was available when preparing exercises its judgement in developing error. Materiality is not determined
the financial statements for an earlier and applying an accounting policy that purely by size and can be highly reliant
period, material errors are corrected results in information that is relevant on judgement.
by restating the comparative amounts, and reliable.
for the prior period(s) presented, as if First-time adoption
the error had never occurred. The error
Aims to enhance the In essence, IFRS 1 First-time Adoption of
and the effect of its correction on the International Financial Reporting Standards
financial statements are disclosed. For relevance and reliability
is a special version of IAS 8 dealing
example, if during the preparation of of an entity’s financial with changing accounting policies
the 2015 financial statements an entity statements, and the when adopting IFRS for the first
discovers that in 2014 it had provided
for the expected cost of warranty
comparability of those time. However, the criteria in IAS 8
on selecting appropriate accounting
repairs for goods sold in 2014 twice in financial statements
policies apply to a first-time adopter in
error, the amounts for 2014 included over time and with the the same way as they apply to entities
as a comparative in the 2015 financial
statements would be adjusted if the error
financial statements of that adopted IFRS in an earlier
was material. That is, if the error was other entities. reporting period.
material, the correcting adjustment does

not affect the 2015 profit or loss.
IAS 10
Events after the Reporting Period
The Standard
Specifies which of the events that occur after the end of the reporting period affect the amounts included in
the financial statements and which require only disclosure.
IAS 1 Presentation of Financial Statements IAS 10 contains specific guidance on

requires a complete set of financial Dividends declared after dealing with one particular adjusting
statements to be presented at least the end of the reporting event. It mandates that an entity must
annually; for example, Entity A not prepare its financial statements on
prepares financial statements for
period are not recognised
a going concern basis if management
each 31 December financial year. as a liability at the end of determines after the reporting period
Financial statements are authorised the reporting period. that it intends either to liquidate the
for issue some time after the end of entity or to cease trading, or that it has
the reporting period; in this example, Amounts reported in financial no realistic alternative but to do so. In
mid‑March. IAS 8 requires, among other statements are adjusted for events this instance, events after the reporting
things, that estimates are based on the after the reporting period that provide period indicate that the going concern
latest available reliable information. evidence of conditions that existed at assumption is not appropriate.
Continuing with the example and the end of the reporting period; these
In contrast, non-adjusting events reflect
using financial statements for the year are called adjusting events. An example
conditions that arise after the reporting
ending 31 December 2015, IAS 10 sets of an adjusting event is the judgement,
period. Examples of non-adjusting
out which of the events that occur after the end of the reporting period, in
events are changes in the market
after the end of a reporting period, for a court case that relates to a customer
value of investments, and changes
example, events occurring in February claim made during the reporting
in currency exchange rates, after the
2016, are reflected in amounts reported period. Depending on the outcome, it
reporting period. Reverting back to
in the 2015 financial statements and will either confirm that the entity had a
liability (present obligation) at the end the post‑year‑end sale of inventory, if
which events are only disclosed in the
of the reporting period, and if so, the the inventory was silver ingots and the
2015 financial statements (and affect
amount of that liability, or confirm that reason that the sale was below cost
the amounts recognised in the 2016
the entity did not have a liability at the was that the market price of silver fell
financial statements).
end of the previous reporting period. after the end of the reporting period,
Events after the reporting period are Another example of an adjusting event is then the sale at below cost would not
events that occur between the end of the receipt of information that indicates be an indication that the inventory was
the reporting period and the date the that an asset was impaired at the end impaired and needed to be written down
financial statements are authorised of the reporting period. For example, to its net realisable value at the end of
for issue. the bankruptcy of a customer that the reporting period. The fall in market
occurs after the end of the reporting price, and the sale at below cost, would
period usually confirms that the trade be a non-adjusting event.
receivable due from that customer at
the end of the reporting period was not
recoverable, or not recoverable in full.
Similarly, the sale of inventories below
cost after the reporting period may give
evidence about their net realisable value
at the end of the reporting period.
continued
IAS 10
Events after the Reporting Period continued
Disclosure is required of major

non‑adjusting events, for example, Specifies when an entity should adjust its financial
a major business combination after statements for events after the reporting period. Requires
the end of the reporting period or a
disclosures about events after the reporting period
change in the rate of tax after the end
of the reporting period that will have and about the date when the financial statements were
a significant effect on current and authorised for issue.
deferred tax assets and liabilities.
IAS 10 contains specific guidance on Judgements and estimates Deterioration in operating results and
a particular non-adjusting event. If financial position after the reporting
Deciding whether to disclose a period may indicate a need to consider
dividends are declared after the end
non‑adjusting event in the notes to the whether the going concern assumption
of the reporting period but before the
entity’s financial statements requires is still appropriate. In some cases this is
financial statements are authorised for
management to assess the materiality likely to require significant judgement.
issue, IAS 10 states that the dividends are
of those events. If non-disclosure could When management judges that, on
not recognised as a liability at the end of
influence the economic decisions that balance, the going concern basis is
the reporting period.
users make on the basis of the financial appropriate, but there is nevertheless
It is important for users to know statements, then the entity must significant doubt about the entity’s
when the financial statements were disclose the nature of the event and ability to continue as a going concern,
authorised for issue, because it is only an estimate of its financial effect, or a IAS 1 requires disclosures to be given in
events occurring up to this date that are statement that such an estimate cannot the financial statements.
reflected (either recognised or disclosed) be made.
in the financial statements. Accordingly, First-time adoption
the Standard requires this date to be
disclosed in the financial statements. There are no specific mandatory
IAS 11
Construction Contracts
The Standard
IAS 11 sets out the accounting treatment for the revenue and costs associated with construction contracts.
It applies to contractors, including those providing services directly related to a construction project, such as
project managers and architects.
A construction contract is a contract When the outcome of a construction When the outcome of a construction
specifically negotiated for the contract can be estimated reliably, contract cannot be estimated reliably, all
construction of an asset, for example, contract revenue is recognised as the contract costs are recognised as expenses
a bridge, a road or a building such work is performed and is matched with when incurred. Contract revenue is
as a head office for a business, or, if contract costs for the work performed. recognised only to the extent that costs
specified conditions are met, a group For example, if a contract is 30 per cent incurred are recoverable. Consequently,
of assets, for example, an oil refinery. complete, 30 per cent of the revenue no profit is recognised until the contract
Contracts for services directly related will normally be recognised. This is is completed or the outcome can be
to the construction of an asset under a commonly referred to as the ‘percentage estimated reliably. If, despite not being
construction contract, such as project of completion method’. Consequently, able to estimate the outcome of the
managers and architects, are also within contract profit is reported as the work is contract reliably, it is probable that
the scope of IAS 11, as are contracts to performed, rather than on completion there will be a loss, that loss has to be
restore or demolish assets and contracts of the contract. However, if the expected recognised as an expense immediately.
to restore the environment following outcome is that the contract will result
Costs incurred that relate to future
the demolition of assets. Determining in a loss, that loss must be recognised as
activity on the contract, for example,
whether an agreement for the an expense immediately, regardless of
paying in advance to hire a machine for
construction of real estate is within the the stage of completion of the contract.
the next three months, are recognised as
scope of IAS 11 or IAS 18 Revenue depends
The percentage of completion of a an asset if it is probable that they will be
on the terms of the agreement and all
contract can be estimated in a number recovered. If not, they are immediately
the surrounding facts and circumstances.
of ways, including: the proportion recognised as an expense.
If the buyer can specify the major
of contract costs incurred for work
structural elements of the design of the
performed compared with total expected Judgements and estimates
real estate before construction begins
costs; surveys of work performed; and Determining whether a contract is a
and/or specify major structural changes
completion of a physical proportion of construction contract accounted for in
once construction is in progress, the
the contract work. accordance with IAS 11, or is a contract
contract will be within the scope of
IAS 11. accounted for in accordance with IAS 18,
requires judgement with respect to
each agreement in the light of all the
surrounding facts and circumstances;
for example, determining whether some
real estate contracts are within the scope
of IAS 11.
continued
IAS 11
Construction Contracts continued
In determining whether to apply the When the outcome of a construction First-time adoption
percentage of completion method to contract cannot be estimated reliably,
a construction contract at the end of contract revenue is recognised only There are no specific mandatory
each reporting period, management to the extent that costs incurred are exceptions or optional exemptions from
must determine whether the outcome recoverable. Similarly, costs incurred the general principle in IFRS 1 First-time
of the contract can be estimated reliably. that relate to future activity are Adoption of International Financial Reporting
This requires assessing, as a minimum, recognised as an asset if it is probable Standards that apply to the requirements
whether the total contract revenue that they will be recovered. Judging of IAS 11 for first‑time adopters.
is reliably measurable, whether it is when costs are recoverable can be
probable that the economic benefits problematic.
Recent developments
will flow to the entity and whether the IFRS 15 Revenue from Contracts with
costs incurred, and those necessary to Customers was issued by the IASB in
complete the contract, can be measured The revenue and costs May 2014 and is effective for annual
reliably. of a profitable contract reporting periods beginning on or
Judgement is needed to determine the whose outcome can be after 1 January 2017, although it can be
applied early. IFRS 15 replaces IAS 11
stage of completion of a contract, which estimated reliably are
and IAS 18. A summary of IFRS 15 and
costs are recoverable and the outcome
recognised using the recent developments is included in
of a number of uncertainties. These
uncertainties include the likelihood that
percentage of completion the Appendix.
variations in contract work will result method.

in revenue, how successful will be the
claims for reimbursement of costs not
in the contract price, the impact of cost
escalation clauses, and the likelihood of
any penalties and incentive payments.
Reliable internal financial information
is usually necessary for an effective
estimation process.
IAS 12
Income Taxes
The Standard
IAS 12 specifies the accounting for taxes based on income, setting out how to account for current
and deferred tax.
Income taxes, for the purposes of IAS 12 requires deferred tax to be Temporary differences are defined as
IAS 12, are: all domestic and foreign recognised on temporary differences. differences between the carrying amount
taxes that are based on taxable profits; The combined effect of current and of assets and liabilities in the statement
and taxes, such as withholding taxes, deferred tax is that the tax effect of a of financial position, and the amount
payable by a subsidiary, associate or transaction is recognised when that attributed to that asset or liability for tax
joint arrangement on distributions to transaction is recognised. purposes. IAS 12 refers to the amount
the reporting entity. Sales taxes such as attributed to that asset or liability for tax
Deferred tax arising on the acquisition
value added tax are not income taxes. purposes as the tax base.
of a business is recognised as part of the
Income tax expense recognised in accounting for that business acquisition, For example, if interest receivable of
financial statements comprises current that is, it is recognised as part of the fair CU100 is carried as an asset in the
tax and deferred tax. value of identifiable net assets acquired. statement of financial position, whether
The tax consequences, both current or not there is a temporary difference will
Current tax is the amount of income depend upon the tax position.
and deferred, of other transactions and
tax payable, or recoverable, in respect of
events are recognised in the same place If interest income is taxed when
taxable profit, or tax loss, for the period.
as the transaction or event that resulted recognised in profit or loss, the interest
Because the rules for determining in the tax consequence—ie either in will be included in the taxable profit for
taxable profit are not the same as those profit or loss or in other comprehensive the reporting period, and therefore its tax
for determining accounting profit, income or directly in equity. effect will be in the current tax charge
differences arise and, generally, taxable for the reporting period. When the cash
profit for a period does not equal the is received (ie the asset is recovered) no
accounting profit for that period. Some The combined effect of further tax arises. Consequently, the
of these differences are permanent current and deferred tax tax base of the receivable will be CU100.
differences, such as if the taxation
is that the tax effect of a Hence, there will be no temporary
authorities do not permit a particular difference and no deferred tax.
expense to be deducted in calculating transaction is recognised
taxable profits. Others are temporary when that transaction is However, if interest is taxed when
received in cash, the amount will not
differences. For example, some items recognised. be included in the taxable profit for the
of income or expense will be recognised
reporting period, and therefore it will
in profit or loss in an earlier, or later,
have no impact on the current tax charge
period than when they are recognised in There are a number of different
for the reporting period. When the cash
the current tax computation. Another approaches to deferred tax. The
is received (ie the asset is recovered) tax
example of a temporary difference is approach that IAS 12 takes is a balance
will be charged. Consequently, the tax
when there is a business combination sheet approach, requiring, as stated base of the receivable is nil. Hence, a
and a number of the acquired assets and above, deferred tax to be recognised temporary difference of CU100 arises
liabilities are recognised at their fair on temporary differences, thus, giving and the deferred tax (a liability in this
values; accounting profit will be based rise to deferred tax assets or deferred instance) equals the temporary difference
on the fair values, while taxable profit in
tax liabilities. multiplied by the relevant tax rate.
many jurisdictions will be based on cost.
continued
IAS 12
Income Taxes continued
Example: Interest receivable of CU100 recognised in Year 1, but cash not received Judgements and estimates
until Year 2. Consequently, interest receivable of CU100 is carried as an asset in There are several aspects of accounting
the statement of financial position at the end of Year 1. The applicable tax rate is for income taxes that require
25 per cent. Is there a deferred tax liability at the end of Year 1? management judgements and estimates.
Scenario 1: interest is Scenario 2: interest is For example, deferred tax assets can be
taxed when recognised taxed when received recognised only if it is probable that
in profit or loss future taxable profit will be available
Interest income is included in taxable to absorb tax losses or credits or other
profits of Year 1?   deductible differences. Consequently:
Tax effect of interest is included in • Management must judge whether

current tax for Year 1?   it is probable that taxable profit
Does tax arise in Year 2?   will be available against which a
deductible temporary difference can
Tax base at end of Year 1 CU100 nil
be utilised. This can only happen if
Temporary difference
there are sufficient taxable temporary
(= receivable of CU100 less tax base) nil CU100
differences relating to the same
Deferred tax taxation authority and the same
(= temporary difference x 25%) nil CU25 taxable entity, which are expected to
reverse: (a) in the same period as the
A deferred tax asset can result from In jurisdictions where asset revaluations expected reversal of the deductible
unused tax losses and tax credits as do not affect their tax base, that is, temporary difference; or (b) in periods
well as from temporary differences. where the tax deductible amount is not into which a tax loss arising from the
Deferred tax assets, ie tax recoverable, similarly increased, deferred tax arises deferred tax asset can be carried back
can only be recognised if it is probable on the revaluation gain. or forward.
that there will be taxable profit available
The tax rate that is used to compute • When management judges that it
against which the tax losses, or other tax
deferred tax is the rate that is expected is not probable that there will be
deductible items, can be utilised. The
to apply when the tax is recovered or sufficient taxable profit, as set out
taxable profit can be available either in
paid, based on tax rates and laws that above, to utilise all the deferred tax
the future or, if carry-back of losses is
have been wholly or substantively asset, management must estimate
allowed, in an earlier period. There are
enacted by the end of the reporting the extent of the taxable profit as set
some specified exceptions to recognising
period. out above or through tax planning
deferred tax assets and deferred tax
opportunities available to the entity
liabilities, for example, deferred tax is
that will create taxable profit in
not recognised when goodwill is first
appropriate periods.
recognised.
continued
IAS 12
Income Taxes continued
• Furthermore, when an entity has a • estimate the average rates that are First-time adoption
history of recent losses, additional expected to apply to the taxable profit
judgement is required. Where (tax loss) of the periods in which the Despite there being no specific
there will not be sufficient taxable temporary differences are expected to mandatory exceptions or optional
temporary differences to utilise the tax reverse. exemptions from the general principle
losses or other tax-deductible items, in IFRS 1 First-time Adoption of International
For some share-based payment Financial Reporting Standards that apply to
the Standard requires management to
transactions, the amount that the the requirements of IAS 12 for first‑time
consider whether there is ‘convincing
taxation authorities will permit as a adopters, a number of mandatory
other evidence’ that there will be
deduction in future periods might not exceptions and optional exemptions
sufficient taxable profit available
be known at the end of the period. might affect the carrying amount of
against which the unused tax losses or
Consequently, the tax base must recognised assets and liabilities and
unused tax credits can be utilised by
be estimated, based on information consequently affect the deferred tax
the entity. Disclosure of the amount
available at the end of the balance recognised by an entity.
recognised and the nature of the
reporting period.
evidence supporting its recognition
have to be disclosed.
Deferred tax assets and liabilities are

measured at the tax rates that are
expected to apply when the tax is
Example: Interest receivable of CU100 recognised in Year 1, but cash not received
recovered or paid. These rates are based
until Year 2. Applicable tax rate is 25 per cent.
on tax rates and laws that have been
wholly or substantively enacted by the The illustration shows that, regardless of when the interest is taxed, the tax effect
end of the reporting period, and that is reflected in the financial statements in the same reporting period that the
reflect the manner in which the entity interest is recognised.
expects, at the end of the reporting
Scenario 1: interest is Scenario 2: interest is
period, to recover (settle) the carrying
taxed when recognised in taxed
amount of its assets (liabilities). This
profit or loss when received
gives rise to a number of judgements
and estimates, for example, when Year 1 Year 2 Year 1 Year 2
different tax rates apply in different Profit before tax
periods and/or to different levels of (interest income) 100 – 100 –
taxable income, management must: Current tax (25) – – (25)
• forecast the period in which Deferred tax – – (25) 25
temporary differences are expected to Profit after tax 75 – 75 –
reverse; and
IAS 16
Property, Plant and Equipment
The Standard
Property, plant and equipment are tangible assets expected to be used for more than one accounting period
in the production or supply of goods and services, for rental to others, or for administration. However,
accounting for investment property is specified in IAS 40 Investment Property, not in IAS 16.
Most, if not all, businesses will have Cost also includes an estimate of The estimate of disposal proceeds,
property, plant and/or equipment; dismantling and site restoration costs referred to as ‘residual value’, is the
for example, a head office building, at the end of the asset’s life when the amount that the entity would receive for
machinery to manufacture a product, obligation arises on the acquisition or the asset at the financial reporting date
or equipment, such as delivery vehicles. installation of the asset (rather than if the asset were already as old and
IAS 16 sets out how entities should as the asset is used to manufacture worn (eg after producing 8 million units)
account for these assets; for example, inventories). Cost is measured as the as it will be at the end of its useful life.
what should and should not be included fair value of what is paid, so if payment It is not the estimate of what the entity
in cost, how cost is measured, how the is deferred beyond normal credit terms, expects to receive in several years’ time.
assets are accounted for subsequently, cost is the present value of the cash The reason for this is that the effect
including calculating depreciation and payment. of inflation, or other factors, might
minimum requirements if assets are to increase the expected disposal proceeds
Because the item will be used over
be carried at revalued amounts. over time and because depreciation is a
more than one accounting period, it is
method of cost allocation, the IASB did
Other Standards apply to some items recognised as an asset in the statement
not want future increases in estimated
that would otherwise be accounted of financial position, instead of as
disposal proceeds to override the need
for in accordance with IAS 16. For an expense in full in the period it is
for depreciation.
example, if an item of property, plant or acquired. The cost does nevertheless
equipment is held for sale, it ceases to be need to be recognised as an expense, Useful life is either expressed as a period
within the scope of IAS 16 and is instead and depreciation is the method of of time or the number of production, or
within the scope of IFRS 5. Similarly, accounting that is used to recognise similar, units expected to be obtained
IAS 40 applies to investment property. that cost, or the relevant part of it, as from the asset, whichever is the most
an expense as the asset is consumed relevant to the asset and to how it will
Property, plant and equipment are
through its use in the business. The be used by the entity. Unless an entity
recorded initially at their cost, which
total amount that is recognised as an intends to keep an asset for its full
includes all expenditure to get the item
expense over the asset’s ‘useful life’ life, useful life will not be the asset’s
ready for use, ie in the location and
is the cost less the estimated disposal total life, but how much of that total
condition for it to be ready for use. Site
proceeds; this is called the asset’s life the entity expects to benefit from
preparation costs and costs of testing
depreciable amount. the asset. For example, if a machine is
equipment are examples of expenditure
capable of generating 10 million units
that form part of the cost of an item of
of production but an entity plans to
property, plant or equipment. Directly
dispose of the machine after it has
attributable borrowing costs are
produced 8 million units, the
included in the cost of a self-constructed
machine’s useful life for that entity
asset—see IAS 23 Borrowing Costs.
is 8 million units.
continued
IAS 16
Property, Plant and Equipment continued
If an entity purchases a building, it The depreciation method applied, for After acquisition, an entity may
may need to replace the roof on the example, the straight-line method or choose to measure property, plant
building halfway through the life of units of production method, must reflect and equipment either at cost less
that building. Instead of having one the pattern in which the asset’s service accumulated depreciation and
useful life and one depreciation method potential is expected to be consumed by accumulated impairment, or at a
for the entire building, the entity the entity. The depreciation method revalued amount, namely at its fair
would depreciate the roof separately and rate are reviewed at the end of each value at the date of valuation less any
from the rest of the building. It may reporting period. In addition, IAS 36 subsequent accumulated depreciation
divide the rest of the building into a Impairment of Assets requires an entity and accumulated impairment. If an
number of components; for example, to assess at the end of each reporting entity chooses the revaluation model,
it may depreciate the lift separately. period whether there is any indication valuations must be performed with
This is because IAS 16 requires each that an item of property, plant and sufficient regularity to ensure that the
part of an item of property, plant and equipment is impaired. carrying amount of the asset does not
equipment with a cost that is significant differ materially from its fair value at
in relation to the total cost of the item, the end of the reporting period and
to be depreciated separately unless
The depreciation all assets within the same class of
such separation has no material effect method, for example, property, plant and equipment must
on depreciation expense because the the straight‑line method be revalued. Depreciation is calculated
depreciation method and useful life is
or units of production using the revalued amount in place
the same as that for another significant of cost. Revaluation increases are
part. Generally, the replacement of
method, must reflect usually credited to other comprehensive
a component of property, plant and the pattern in which the income, ie outside profit or loss, and
equipment is recognised as an asset, and asset’s service potential is accumulated in a separate component of
expenditure on day‑to‑day repairs and expected to be consumed equity called a ‘revaluation surplus’.
maintenance is treated as an expense.
by the entity. If an item of property, plant and
equipment is disposed of, the gain or
loss on disposal is included in profit
or loss.
continued
IAS 16
Judgements and estimates • judging whether expenditure on First-time adoption

property, plant and equipment
A number of judgements and estimates For property, plant and equipment, there
subsequent to its acquisition should
are required in relation to property, are no specific mandatory exceptions
be capitalised, ie recognised as an
plant and equipment; for example: from the general principle in IFRS 1
asset, or recognised as an expense
• Classifying a property. This requires immediately; for example, day-to-
Reporting Standards.
judging whether a property, or portion day servicing of an item should be
of a property, should be classified as treated as an expense—‘repairs and There is an optional exemption in
investment property or property, plant maintenance’. IFRS 1 that allows a first-time adopter
and equipment; for example, where to measure an item of property, plant
• Calculating depreciation expense—
or equipment at a deemed cost if that
part of a property is held for capital identifying the significant components deemed cost is either:
appreciation/rental and part is held of an item, and their cost, which
for an entity’s own use, and also where must be depreciated separately. Then • fair value at the date of transition to
an entity provides significant ancillary estimating the useful life and residual IFRS; or
services to the occupants of a property value and determining the appropriate • a revaluation in accordance with
it holds (see the summary on IAS 40). depreciation method for an item, or the entity’s previous accounting at,
• Measuring the cost of property, plant component of an item. or before, the date of transition to
and equipment. In many cases this IFRS if the revaluation was broadly
• Measuring the fair value of items
will be straight-forward, but a number comparable to fair value at the date it
that are carried using the revaluation
of judgements and estimates may be was undertaken or it reflects cost or
model and for which an active market
involved. For example: depreciated cost, determined by IFRS,
for the identical item does not exist
as adjusted by a relevant price index.
• determining the cost of a (see the summary on IFRS 13 Fair Value
Measurement). This non-mandatory exemption, if used,
self‑constructed item. If an entity
does not result in the entity having
makes similar assets for sale in the • Determining the classes of assets (a to apply the revaluation model to the
normal course of business, the cost grouping of assets of a similar nature asset (and its class of asset) for which
of the asset is usually the same as and use in an entity’s operations) in the election was made. After the date
the cost of constructing an asset for which to present property, plant and of transition, the cost model may be
sale (see the summaries on IAS 2 equipment in the financial statements. applied to the asset if it is applied to
Inventories and IAS 23 Borrowing Costs).
the class of asset to which the asset
• estimating the cost of the future belongs. Further guidance on applying
dismantling or removal of an asset this optional exemption, and limited
and the restoration of the site (see additional options, including a narrow
the summary on IAS 37 Provisions, exemption regarding the use of an
Contingent Assets and Contingent additional deemed cost, are contained
Liabilities). in IFRS 1 for specific scenarios.
continued
IAS 16
Some optional exemptions apply to the Recent developments

requirements specified in IFRIC 1 Changes
in Existing Decommissioning, Restoration and Clarification of Acceptable Methods
Similar Liabilities—in some instances this of Depreciation and Amortisation
will affect the amount recognised for (Amendments to IAS 16 and IAS 38) was
the relevant item of property, plant issued in May 2014 and is effective for
and equipment on the date of transition annual reporting periods beginning on
to IFRS. or after 1 January 2016, although it can
be applied early. It clarifies that the use
There is also an optional exemption in of a revenue-based method to calculate
IFRS 1 for the treatment of borrowing the depreciation of an asset is not
costs, which may affect items of appropriate, because revenue generated
property, plant and equipment (see the by an activity that includes the use of
summary on IAS 23). To avoid double an asset generally reflects factors other
counting, if the entity uses a deemed than the consumption of the economic
cost for an item of property, plant and benefits embodied in the asset.
equipment, the entity may not capitalise
borrowing costs incurred before the date Agriculture: Bearer Plants (Amendments
of the measurement of the deemed cost. to IAS 16 and IAS 41) was issued in
June 2014 and is effective for annual
Another optional exemption allows reporting periods beginning on or after
a first-time adopter applying IFRIC 18 1 January 2016, although it can
Transfer of Assets from Customers to be applied early. It excludes bearer plants
substitute IFRIC 18’s effective date with (a defined term) that are related to
the date of transition. This provides agricultural activity, for example, grape
relief from establishing the carrying vines, from the scope of IAS 41
amount, by determining historical fair and adds them into the scope of IAS 16.
values, for assets transferred before the The produce on those plants, for
date of transition. example, grapes, remains within the
scope of IAS 41.
IAS 17
Leases
The Standard
A lease is an agreement that conveys to the lessee a right to use an asset for a specified period of time.
For accounting purposes, leases are classified as either finance leases or operating leases.
IAS 17 requires a lease to be classified In accordance with IAS 17, finance If a lessor receives a guarantee of the
as a finance lease or an operating leases are accounted for as though the value of the leased asset at the end
lease, based on the substance of the lessee has purchased the asset using a of the lease, from a party unrelated
transaction. A finance lease is one that loan from the lessor. Consequently the to both the lessor and lessee, in some
transfers to the lessee substantially lessee initially recognises the asset in circumstances the lessor would conclude
all the risks and rewards incidental to its statement of financial position and that its lease is a finance lease, while
ownership of the leased asset. All other a liability for the same amount. The the lessee concludes that it has an
leases are operating leases. The Standard asset is measured at the lower of its operating lease.
applies to any agreement that is, in fair value and the present value of the
Operating lease payments are usually
substance, a lease of an asset, whether minimum lease payments. The leased
recognised in profit or loss on a
or not the legal form of the agreement asset is depreciated in accordance with
straight‑line basis by both the lessee and
is that of a lease. Similarly, if there is a IAS 16. The lease payments, excluding
the lessor. The leased asset remains in
series of linked transactions that involve any contingent rentals, are divided
the statement of financial position of
the legal form of a lease but the overall into an interest element, which is
the lessor and is not recognised by the
commercial effect cannot be understood recognised as interest expense in profit
lessee.
without reference to the entire series or loss, and a repayment of capital,
of transactions, the transactions are which is deducted from the liability. When a lease includes both land and
accounted for as a whole. For example, The interest is calculated as a constant buildings elements, the classification
a series of transactions together might percentage of the outstanding balance of each element must be considered
in substance be the provision of a loan of the liability. Contingent rentals are separately. The Standard highlights
to an entity, secured on an asset of recognised as expenses as incurred. that in determining whether the land
that entity. Consequently, although Generally, the lessor reflects the same element is an operating or finance lease,
one of the transactions includes a substance; the lessor removes the an important consideration is that land
lease, it might be that the appropriate asset from its statement of financial normally has an indefinite economic life.
accounting does not involve application position and replaces it with a receivable If an asset is sold and immediately
of IAS 17. and apportions receipts between leased back under a finance lease, the
interest income and a reduction of sale is not recognised in the financial
the receivable. If a lessor sells assets statements. If the sales proceeds
as well as leasing them, the lessor, in exceeded the asset’s carrying amount,
the same way that it would recognise the excess is deferred and amortised over
a selling, or gross, profit on sale of an the lease term. There are special rules
asset, recognises a selling profit at the for transactions in which the leaseback
commencement of a finance lease, is an operating lease.
because a finance lease is in substance
the selling of the asset.
continued
IAS 17
Leases continued
Judgements and estimates First-time adoption Recent developments

In some cases it is necessary for There are no specific mandatory The IASB is near to completing a joint
management to determine whether exceptions from the general project with the FASB to develop a new
an arrangement contains a lease. principle in IFRS 1 First-time Adoption Standard on leases. The Boards have
Judgement is required to determine of International Financial Reporting both tentatively decided that a lessee
whether a lease is a finance lease or an Standards for accounting for leases. would be required to recognise assets
operating lease. Management must Consequently, an outstanding finance and liabilities arising from all leases,
determine, at the inception of a lease, lease contract at the transition date with some exemptions. This accounting
whether the lease transfers substantially must be recognised as if it had always reflects that, at the start of a lease, the
all the risks and rewards of ownership been accounted for in accordance with lessee obtains a right to use an asset
to the lessee. Further judgement and IAS 17 since its inception. However, for a period of time, and the lessor
estimation are necessary to measure a non‑mandatory exemption exists has provided or delivered that right.
the fair value of the leased asset at the relating to the determination of whether The IASB currently expects to issue a
inception of the lease, the useful life an arrangement contains a lease. The Standard in the fourth quarter of 2015.
of the leased asset, the interest rate exemption permits an entity to classify
implicit in the lease or the entity’s the lease using facts and circumstances
incremental borrowing rate, and the that exist at transition date, instead of
residual value of the leased asset. those that existed on the date that the
arrangement was originally entered into,
or, if earlier, the date when it classified
A finance lease is one the lease in accordance with its previous
that transfers to the lessee accounting rules provided that the
substantially all the risks outcome of that classification was the
and rewards incidental same as IFRS.
to ownership of the
leased asset.
IAS 18
Revenue
The Standard
IAS 18 prescribes the accounting for revenue from the sale of goods, the rendering of services, and the use by
others of entity assets yielding interest, royalties and dividends.
Revenue is a subset of income (as defined For example, an entity sells a piece of • the entity has neither continuing
in the Conceptual Framework). Revenue equipment and agrees to service that managerial involvement to the degree
is an entity’s gross earnings from its equipment for the two years immediately usually associated with ownership, nor
ordinary activities; for example, what it following the sale. The Standard effective control, over the goods.
earns for selling goods to its customers requires the total revenue to be divided,
For example, if goods are shipped
or for providing services to them. If with part recognised for the sale of the
subject to installation and inspection,
a company that sells new and used equipment and part recognised for the
when the installation and inspection
bicycles as well as renting out bicycles, servicing contract. The revenue for
are substantial, assuming all other
sells one of its buildings because it selling the goods is likely to be recognised
conditions are met, revenue is
moved to larger premises during the immediately, while the revenue for
not normally recognised until the
year, its revenue for that year would be the servicing will be recognised over
installation and inspection are complete.
from the sale of new and used bicycles two years. In other scenarios, two or
This is because until then the significant
and rental income from renting out more separate transactions may need
risks and rewards of ownership are not
the bicycles, but it would not include to be combined in order to identify the
generally regarded as having transferred
an amount for the sale of the land and substance. For example, an agreement
to the buyer until this time. This would
building. This is because occasionally to sell goods, and a separate agreement
apply even in situations in which the
selling properties is incidental to the to repurchase those goods, might in
entity has a long history of successful
main revenue-generating activities. effect be a contract for the short-term
delivery and installation.
Amounts collected on behalf of third hire of the goods, be a sale or return type
parties, such as sales taxes, are excluded agreement, be a loan with the goods Revenue from the rendering of services
from revenue. In general, revenue is acting as security, or be something else. is recognised as the work is performed
recognised when it is probable that if the outcome of the contract can be
If loyalty points are awarded to a customer
economic benefits from the transaction estimated reliably. This is commonly
purchasing goods and the loyalty points
will flow to the entity and those benefits referred to as the ‘stage of completion
can be redeemed for other goods in the
can be measured reliably. method’. For example, if a contract is
future, the consideration received from
45 per cent complete, 45 per cent of
Revenue is measured at the fair value of the customer is allocated partly to the
the revenue is recognised. However,
the consideration received or receivable goods sold and partly to the loyalty points.
when the outcome of a service contract
by the entity. It is stated after reflecting
Revenue from the sale of goods is cannot be estimated reliably, revenue is
any trade discounts and volume rebates
recognised when specified conditions are recognised only to the extent of expenses
allowed by the entity.
satisfied, including: recognised that are recoverable.
The Standard requires an entity to look Nevertheless, if it is not probable that
• significant risks and rewards of
at the substance of a transaction or the costs incurred will be recovered, no
ownership of the goods have been
series of transactions in order to identify revenue is recognised even though the
transferred to the buyer; and
when revenue should be recognised. costs are recognised as expenses.
Interest is recognised over time,

computed on the effective yield on
the asset.
continued
IAS 18
Revenue continued
Royalties are usually recognised as they Determining whether an agreement for services delivered in parts over time;
accrue in accordance with the terms of the construction of real estate is within sales of products with an agreement
the relevant agreement unless, having the scope of IAS 11 or IAS 18 depends on to provide future services; barter
regard to the substance of the agreement, the terms of the agreement and all the transactions, including capacity swaps;
it is more appropriate to recognise surrounding facts and circumstances. commitment fees received to make a
revenue on some other systematic and If the buyer can specify the major loan; and franchise fees.
rational basis. structural elements of the design of the
real estate before construction begins, Determining the percentage of
Dividends are recognised when the
and/or can specify major structural completion of a service contract may
shareholder has the right to receive
changes once construction is in require judgement, as does assessing
payment.
progress, the contract will be within whether the outcome of the contract can
An exchange of similar goods or services the scope of IAS 11. be estimated reliably.
does not give rise to revenue, because the
transaction lacks commercial substance. Judgements and estimates
Revenue is measured
For example, exchanging a quantity of Management exercises judgement
a certain grade of oil in one location for when identifying separate components
at the fair value of the
the same quantity of the same grade of of a multiple element sale and in consideration received or
oil in a second location might simply be allocating the consideration received, receivable.
a practical expedient to be able to fulfil or to be received, to the components.
a contract to supply oil to a particular Management also exercises judgement
customer located in the second location. in determining the timing of the First-time adoption
In this case the exchange transaction recognition of the resulting revenues. There are no specific mandatory
would not give rise to revenue. Only exceptions or optional exemptions from
Judgement and estimation may also
the transaction with the end customer
be necessary when determining the general principle in IFRS 1 First-time
would give rise to the recognition of
the appropriate fair value of the Adoption of International Financial Reporting
revenue. An exchange of dissimilar
consideration received or receivable. Standards that apply to the requirements
items is regarded as having commercial
substance; the resulting revenue is Determining when the criteria for the
measured at the fair value of the goods or recognition of sale or service revenue Recent developments
services received. are first satisfied can be challenging in
IFRS 15 Revenue from Contracts with
some cases. Examples of circumstances
IAS 18 prescribes the accounting for Customers was issued by the IASB in
in which the timing of recognition of
revenue only from the sale of goods, the May 2014 and is effective for annual
revenue requires careful consideration
rendering of services, and the use by reporting periods beginning on or
include: sales with delayed delivery;
others of entity assets yielding interest, after 1 January 2017, although it can be
sales subject to conditions including
royalties and dividends. Other Standards applied early. IFRS 15 replaces IAS 11
installation and inspection and right of
prescribe how to account for other and IAS 18. A summary of IFRS 15 and
return; sale and repurchase agreements;
revenue. For example, IAS 11 Construction recent developments is included
consignment sales; sales to others for
Contracts specifies accounting for revenue in the Appendix.
resale; multiple element contracts;
associated with construction contracts.
subscriptions for products or fees for
IAS 19
Employee Benefits
The Standard
IAS 19 is applied by employers in accounting for all employee benefits, except those to which
IFRS 2 Share-based Payment applies.
IAS 19 is perhaps most known for the

In summary, IAS 19 requires:
fact that it sets out how an employer
accounts for its pension promises to its • an expense to be recognised when the employees provide the services to the
employees. However, with the exception entity, unless the cost can be capitalised such as in inventories or property, plant
of employee share options and other and equipment; and
employee remuneration based on, • a liability to be recognised when employee remuneration for services provided
or in the form of, the entity’s equity today will be paid in the future, whether paid directly to the employee or funded
instruments, which are within the scope through a benefits trust.
of IFRS 2, IAS 19 sets out the accounting
for all forms of employee remuneration. Short-term employee benefits are Post-employment benefits, including
These include holiday pay, sick pay benefits expected to be settled within those provided through multi-employer
and remuneration paid when someone twelve months of the reporting entity’s plans, are classified as either defined
ceases to be an employee (referred to in financial year-end. The expected cost of contribution plans or defined benefit
IAS 19 as ‘termination benefits’). IAS 19 an employee having time off work with plans. The arrangements may be funded
divides remuneration into the following pay, such as sick leave or paid holiday, or unfunded.
four categories: is recognised when the leave is taken,
In a defined contribution plan, an
• short-term benefits, such as wages, eg sick leave, unless the leave is in the
entity’s obligation for employee benefits
salaries, paid annual leave and sick form of an annual allowance for which
is limited to the fixed contributions, for
leave, profit-sharing and bonuses, some or all of the allowance can be
example, 2 per cent of an employee’s
and non-monetary benefits (such as carried forward to another period. For
annual salary, that the employing entity
medical care, housing, cars, and free example, if employees are permitted to
pays to a separate entity, a fund. The
or subsidised goods or services); carry forward up to five days’ holiday
employing entity has no obligation to
allowance to the following period, then
• post-employment benefits, such as contribute further; the fund merely pays
the leave is recognised in the period
pensions, life insurance, and medical out what it has. If the fund depletes
in which it is earned, although the
care; its assets, the employing entity has no
leave expected to be taken in the next
obligation to the fund and no further
• other long-term benefits, such as period will be measured at the rate of
obligation to its employee. All other
long‑service leave, and bonuses and pay expected to be payable when the
post-employment benefit plans are
other benefits not payable within accumulated leave is expected to be
defined benefit plans.
twelve months; and used. Similarly, profit-sharing and bonus
payments are recognised when the
• termination benefits, such as benefits
entity has an obligation to pay
payable on early retirement or
these amounts.
redundancy.
continued
IAS 19
Employee Benefits continued
Contributions payable to a defined For a defined benefit plan, an entity is The net interest on the net defined
contribution plan by an entity are required to recognise a liability equal benefit liability/asset is also recognised
recognised as an expense as the to the present value of the obligation to in arriving at profit or loss, while
employee provides services to the entity pay pensions that have accrued based on actuarial gains and losses are
in exchange for the contributions, employees’ service to date (the defined recognised outside profit or loss,
unless they form part of the costs of an benefit obligation). If the scheme is in other comprehensive income, in
asset, for example, inventories. In the funded, the entity deducts from this the the year in which they arise. Other
example, pension expense would be fair value of the plan assets to give the remeasurements of the net defined
2 per cent of the salary expense. net defined benefit obligation, or asset. benefit obligation, for example, as a
Current service cost is recognised in result of changes to the discount rate
An example of a defined benefit would
arriving at profit or loss. It is the present used or to the mortality assumptions,
be a promise to pay an annual pension
value of the amount of benefit, to be paid are also recognised outside profit or loss,
equal to 1 per cent of an employee’s final
post-employment, earned by employees in other comprehensive income, in the
salary for each year that the employee during the year. The calculation of the year in which they arise. If employees
works for the entity. Defined benefit current service cost and of the defined are required to contribute to the scheme,
plans may be unfunded, or wholly or benefit obligation are both based on
their contributions will reduce the
partly funded. the expected final salary (applicable to
employer’s expense.
the calculation of the defined promise),
rather than the current period’s salary.
Defined benefit pension:

Net interest Actuarial losses/gains
net of fund asset
remeasurements
Current
service cost
Present value
of net liability
Present value
at 31.12.15
of net liability
at 31.12.14
Statement of Profit or loss for the year Other Comprehensive Statement of

financial position ended 31.12.15 Income for the year financial position
at 31.12.14 ended 31.12.15 at 31.12.15
continued
IAS 19
Employee Benefits continued
For defined benefit post‑employment

For a defined benefit plan, entities are required to plans, the long time scale involved
recognise a liability equal to the present value of the typically exacerbates the uncertainties.
Consequently, management often
obligation to pay pensions that have accrued based on
employ actuaries to assist them in
employees’ service to date. If the scheme is funded, making the actuarial assumptions
the obligation is presented net of the fair value of the (including mortality, employee turnover,
plan assets. age at date of retirement, future salary
and benefit levels, future medical
costs, and the discount rate) and other
Accounting for any other long-term Judgements and estimates estimates and judgements in accounting
benefit, for example, long-service leave, for those plans in accordance with
is the same as accounting for a defined The judgements in accounting for
IAS 19.
benefit plan, with the exception that all short‑term employee benefits arise
mainly on the uncertainties about the Judgement is also required to determine
changes are recognised in arriving at
extent of expected future payments. the amount of the entity’s obligation for
profit or loss.
For example, an entity’s obligation for profit-sharing, bonuses and termination
Termination benefits arise only on holiday leave can be carried forward for benefits, and the obligations for various
termination of employment, rather one year, but the employee forfeits the employment benefits that arise from the
than during employment. They are leave if it is not taken by the end of the entity’s informal practices.
recognised as an expense and a liability year after the year in which it is ‘earned’.
when the entity is demonstrably Management must, on the basis of First-time adoption
committed to the termination. For the scheme, estimate the number of There are no specific mandatory
example, when management has accumulated days that its employees are exceptions or optional exemptions from
initiated a restructuring programme and expected to use in the following period the general principle in IFRS 1 First-time
that programme involves the payment and the employees’ salary at the time of Adoption of International Financial Reporting
of those benefits, and management expected use. Standards that apply to the requirements
cannot realistically withdraw from the
programme.
IAS 20
Accounting for Government Grants and
Disclosure of Government Assistance
The Standard
IAS 20 specifies the accounting for, and disclosure of, government grants and the disclosure of other forms of
government assistance to the entity.
Government assistance is action by If an entity receives a government Government grants that relate to assets
government to provide an economic loan at a below-market rate of interest, can be recognised in the statement of
benefit to entities that satisfy qualifying the loan is recognised initially, in financial position either:
criteria. Government grants are one accordance with IAS 39, at its fair value.
• as deferred income, with the related
form of government assistance. The difference between its initial fair
asset recognised separately—if so, the
value and the amount of cash received
Government grants are transfers of cash asset will be depreciated in the usual
is the grant; this is the benefit of the
or other resources to an entity in return way in accordance with IAS 16 and the
below-market rate of interest.
for compliance with specified conditions. deferred income will be recognised in
Grants take many forms, including Government grants are recognised on profit or loss over the useful life of the
cash, a reduction in a liability to the a systematic basis in profit or loss in asset; or
government, or a government loan at a the same periods as the costs for which
• as a deduction in the carrying
rate of interest below the market rate. they are intended to compensate. For
amount of the asset—if so, the grant
Explicitly excluded from government example, a grant received to contribute
is recognised in profit or loss as a
grants are transactions with government towards the cost of some equipment will
reduced depreciation expense.
that cannot be distinguished from the be recognised in profit or loss over the
entity’s normal trading transactions period that the depreciation expense A government grant that becomes
and assistance that cannot reasonably for the equipment is recognised. In repayable is accounted for by reversing
have a value placed on it. The Standard contrast, a grant received to contribute any remaining deferred income. Any
mentions free technical or marketing towards employee costs over the next excess is recognised as an expense. If the
advice as examples of what is excluded. three years will be recognised in profit or grant relates to an asset, the deferred
loss in those three years (assuming there income is reduced or the carrying
Government grants are recognised in
is reasonable assurance, in both cases, amount of the asset is increased.
the financial statements only when
that all necessary conditions will be Either way, the cumulative additional
there is reasonable assurance that the
complied with). A grant to compensate depreciation that would have been
entity will comply with any specified
for past expenses or losses is recognised charged in the absence of the grant is
conditions and that the grants will be
in full in profit or loss when it first recognised immediately in profit or loss.
received. Non-monetary grants in the
becomes receivable. Disclosure of government grants and of
form of the transfer by the government
to the entity of a non-monetary asset, other government assistance is required.
for example, land, are either recognised However, the Standard does not require
at the fair value of the asset transferred recognition of government assistance
or, alternatively, both the grant and the other than government grants, because
non-monetary asset can be recognised at this cannot reasonably have a value
a nominal amount. placed on it.
continued
IAS 20
Accounting for Government Grants and
Disclosure of Government Assistance continued
Judgements and estimates First-time adoption

Unfulfilled conditions
Accounting for government grants There are no specific mandatory
requires several judgements and
and other contingencies exceptions or optional exemptions from
estimates. For example, managers must relating to grants that the general principle in IFRS 1 First-time
decide when a grant first satisfies the have been recognised Adoption of International Financial Reporting
criteria to be recognised, which requires must be disclosed. Standards that apply to the requirements
reasonable assurance that the specified of IAS 20 for first‑time adopters.
conditions attached to the grant will
Judgement may be required to measure
be met.
the fair value and the ‘useful life’ of a
It is necessary to determine the costs non-monetary grant, such as a piece of
for which the grant is intended to specialised equipment.
compensate and the periods in which
In order to determine the fair value
these costs are expected to be
of a government loan at a below-market
recognised as an expense. This is
rate of interest, an entity would need to
because IAS 20 requires a grant to
determine the market rate of interest for
be recognised in profit or loss on a
a similar debt (in order to use this as a
systematic basis over the periods in
discount rate). This may be difficult and
which an entity recognises as expenses
may require estimating if there
the costs that the grant is intended to
is no published information for similar
compensate. For example, the benefit
debts; for example, if the debt has
of a below-market rate of interest
unusual features or is for a long or
government loan, that is, the grant,
undefined term.
might not be allocated to profit or loss
consistent with the interest expense
because the conditions might make it
clear that the costs that the grant relates
to are specific operational costs.
A number of conditions might be
attached to one grant and it might be
necessary to allocate part of a grant
on one basis and part of the grant on
another basis.
IAS 21
The Effects of Changes in Foreign Exchange Rates
The Standard
IAS 21 prescribes how to determine an entity’s functional (or measurement) currency; how to account for
foreign currency transactions and foreign operations; and how to translate financial statements into a
presentation currency.
The Standard requires each entity to If the entity’s year-end is 31 December • Non-monetary items are not
determine its functional currency and and the entity does not pay the machine retranslated at the year-end. They
to measure the items in its financial manufacturer until January, the account are recognised in the statement of
statements in that currency, although payable will be in the entity’s statement financial position translated using
the financial statements may be of financial position at 31 December. the applicable rate at the date the
presented in a different currency—see Similarly, if the machine has a useful life original cost, or subsequent fair
below. An entity’s functional currency of 10 years, it too will be in the entity’s value, was measured. In the example
is the currency of the primary economic statement of financial position at above, if the machine has a nil
environment in which it operates. 31 December. When items denominated residual value and a useful life of 10
IAS 21 lists a number of indicators that in a foreign currency are still recognised years, it will be translated into the
must be considered by an entity when at the end of a reporting period in the entity’s functional currency using the
determining its functional currency. statement of financial position, the exchange rate on 1 December and the
One of the key indicators listed is the approach to the translation of the items resulting amount will be recognised
currency that mainly influences the depends on whether the items are as depreciation expense over the
pricing of the entity’s goods or services. monetary or non-monetary items: 10 years. It will not be retranslated
While this may often be the currency unless it is impaired or revalued using
• Foreign currency monetary assets and
the goods and services are priced in, it IAS 16’s revaluation model and the
liabilities (those for which an entity
is not necessarily so. The currency that recoverable amount or valuation is
expects to receive or pay a fixed or
mainly influences the entity’s costs is measured in a currency other than
determinable amount of currency) are
another primary indicator of the entity’s functional currency. In
retranslated using the spot exchange
its functional currency. this case, the new carrying amount
rate at the end of the reporting period
(recoverable amount or valuation) will
Transactions in a currency other than (the closing rate). The resulting
be translated at the exchange rate on
the functional currency are translated exchange differences are recognised
the date of measurement; subsequent
into the functional currency using as income or expense in the period.
depreciation will be based on this
the spot exchange rate on the date the In the example above, the liability
revised amount.
transaction qualifies for recognition (the to pay the machine manufacturer
transaction date rate). For example, an is a monetary item and will be
entity whose functional currency is CU retranslated using the exchange
purchases a specialist machine from rate at 31 December. The difference
an overseas company for FCU1,0003, from the previous carrying amount
first recognising it on 1 December. The will be recognised as income or an
machine and the account payable will expense in profit or loss.
be recognised by translating the amount
using the spot rate on 1 December.
3 ‘FCU’ means ‘foreign currency units’. continued

IAS 21
The Effects of Changes in Foreign Exchange Rates continued
When financial statements are In the example above, if the company If an entity’s functional currency is
consolidated financial statements, that that purchased the specialist machine the currency of a hyperinflationary
is, they include the entity and one or was a subsidiary of a company that economy, the entity must restate its
more subsidiaries as though they were presented its consolidated financial financial statements in accordance
one economic entity, or the financial statements in currency PCU4, the with IAS 29 Financial Reporting in
statements include a foreign operation, subsidiary would translate the account Hyperinflationary Economies.
the following procedure is applied. payable and the machine into CU as
First, the financial statements of each described above. All its assets and Judgements and estimates
subsidiary and foreign operation are liabilities would then be translated Judgement may be required to
measured in their own functional into PCU using the CU-PCU exchange determine the functional currency of an
currency as set out above. Those rate on 31 December so that these entity, especially within the context of
financial statements are then translated amounts could be incorporated in the an entity with geographically diversified
into the currency that the consolidated consolidated financial statements. operations; for example, where inputs
financial statements will be presented
IAS 21 allows an entity to present its are in a number of different currencies
in, if it is different, as follows:
financial statements in any currency. and sales of the product are to customers
• all (monetary and non-monetary) If the presentation currency differs from in several jurisdictions and consequently
assets and liabilities are translated the functional currency, the entity has in several currencies.
using the closing rate; to translate its results and financial Even some single business entities
• income and expenses in the position into the presentation currency. that operate in only one location may
statement of profit or loss and other The procedure is the same as set out require significant judgement when the
comprehensive income are translated above for incorporating the results of a IAS 21 functional currency indicators
using the transaction date rates, or, subsidiary into consolidated financial are mixed.
for practical reasons, an average rate statements.
for the period can be used if it is a
reasonable approximation of the
transaction rates; and
• all resulting exchange differences are

recognised in other comprehensive
income and the cumulative exchange
differences are presented in a
separate component of equity until
the foreign operation is sold, or
otherwise disposed of, at which time
the cumulative exchange difference is
reclassified to profit or loss.
4 ‘PCU’ means ‘presentation currency units’. continued

IAS 21
The Effects of Changes in Foreign Exchange Rates continued
First-time adoption
An entity’s functional
currency is the currency exceptions from the general principle in
of the primary economic IFRS 1 First-time Adoption of International
environment in which it Financial Reporting Standards that apply to
operates. the requirements of IAS 21 for first‑time
adopters. However, a first-time adopter
may elect to apply a non-mandatory
IAS 21 lists additional factors to exemption on its transition date. The
be considered when assessing the exemption allows the first-time adopter
functional currency of a foreign to assume that, at its date of transition,
subsidiary or other foreign operation. the cumulative translation difference
They include the degree of autonomy in respect of its foreign operations is
of the subsidiary or other foreign zero. Consequently, on the subsequent
operation, the significance of disposal of any of those foreign
transactions with the reporting entity, operations, the resulting gain or loss on
and the level of its financial dependence disposal will include only the effect of
on the reporting entity. A foreign translation differences that arose after
operation, regardless of its legal form, the date of transition.
may operate as an extension of the
reporting entity. If a reporting entity does not use the
optional exemption, it will need to
determine, in accordance with IFRS, the
translation differences arising on the
translation of the results and financial
position of each of its foreign operations,
since the date the foreign operation was
acquired or established.
IAS 23
Borrowing Costs
The Standard
IAS 23 requires interest and other borrowing costs that are directly attributable to the acquisition, construction
or production of an asset, that necessarily takes a substantial time to get ready for its intended use or sale, to
be included as part of the cost of that asset.
Borrowing costs are interest and other

costs incurred in connection with Capitalisation of borrowing costs takes place during
the borrowing of funds. For example, the development of the asset and cannot begin until
exchange differences arising on
expenditure on the asset has been incurred, borrowing
borrowings in a foreign currency will
form part of the borrowing costs if costs have been incurred and activity that is necessary to
they are regarded as an adjustment to prepare the asset for its intended use or sale has started.
interest costs. Where preference shares Capitalisation of borrowing costs ends when the asset is
are classified as a liability in accordance
substantially ready for its intended use or sale.
with IAS 32 Financial Instruments:
Presentation the resulting finance cost is
a borrowing cost, as too is the finance An entity may borrow funds specifically Capitalisation of borrowing costs takes
charge arising on a finance lease. to help fund its construction of an place during the development of the asset
asset; for example, it may obtain and cannot begin until expenditure on
Not all borrowing costs are capitalised.
a bank loan or it may acquire a the asset has been incurred, borrowing
It is only those that are directly
machine, by finance lease, that it costs have been incurred and activity
attributable to the acquisition,
requires for the construction. In that is necessary to prepare the asset
construction or production of a
this case, the actual borrowing costs for its intended use or sale has started.
‘qualifying asset’ that are capitalised.
less, if relevant, any interest income Capitalisation of borrowing costs ends
A qualifying asset is one that necessarily
earned on the temporary investment when the asset is substantially ready for
takes a substantial period of time to
of such borrowings are capitalised. its intended use or sale. When the asset
get ready for its intended use or sale.
Alternatively, the entity may use general is completed in parts and each part is
However, an entity need not apply the
funds, in which case the amount to capable of being used while construction
Standard to such an asset that will
be capitalised is the entity’s weighted continues on other parts, capitalisation
be measured at fair value, such as a
average cost of borrowing applied to the of borrowing costs ceases in respect of a
biological asset, or to inventories that
expenditure that relates to the asset. part when that part is ready for intended
are manufactured in large quantities on
Another subsidiary in the group may use or sale.
a repetitive basis. Directly attributable
obtain the external finance and pass it
borrowing costs are those that would Borrowing costs that are not capitalised
to the entity by way of inter-company
have been avoided if expenditure on the are recognised as an expense in profit
loan. Consequently, in the consolidated
asset had not been incurred. or loss.
financial statements it is the interest on
the external finance that is capitalised,
even though this is in a separate legal
entity to the entity undertaking the
construction of the asset.
continued
IAS 23
Borrowing Costs continued

It may be difficult to identify a direct There are no specific mandatory
relationship between particular exceptions from the general principle in
borrowings and a qualifying asset and IFRS 1 First-time Adoption of International
to determine the borrowings that would Financial Reporting Standards that apply to
otherwise have been avoided. This the requirements of IAS 23 for first‑time
could arise, for instance, if the financing adopters. However, a first-time adopter
activity of an entity is co‑ordinated may elect to apply a non-mandatory
centrally, or when a group uses a range exemption on the transition date. The
of debt instruments to borrow funds at exemption allows a first-time adopter to
varying rates and currencies. choose to apply IAS 23 to borrowing costs
incurred after the transition date, or any
Borrowing costs include exchange
other date prior to the transition date.
differences arising from foreign
If so, the entity leaves capitalised any
currency borrowings to the extent that
borrowing costs that it had capitalised
they are regarded as an adjustment
under its earlier accounting prior to the
to interest cost. The extent to which
date that it adopts IAS 23.
exchange differences can be regarded as
an adjustment to interest cost depends
on the terms and conditions of the
foreign currency borrowing.
IAS 24
Related Party Disclosures
The Standard
IAS 24 requires disclosures about the existence of specific types of related parties and about transactions and
outstanding balances with any related party.
Related party relationships are a normal

A person or a close member of that person’s family is related to a reporting
feature of commerce and business. An
entity if that person:
entity’s profit or loss and financial
position may be affected by a related • has control or joint control of, or significant influence over, the reporting entity; or
party relationship even if related party
transactions do not occur; the mere • is a member of the key management personnel of the reporting entity or its
existence of the relationship may be parent.
sufficient to affect transactions between
the entity and other parties. On the
An entity is related to a reporting entity when:
other hand, related parties may enter
into transactions that would not be • they are both members of the same group;
undertaken by unrelated parties. IAS 24
aims to ensure that financial statements • one entity is an associate or joint venture of the other entity or of another entity
contain the disclosures necessary to in the same group as the other entity;
draw attention to the possibility that
• both entities are joint ventures of the same third party;
the entity’s financial position and profit
or loss might have been affected by • one entity is a joint venture of a third party and the other is an associate of the
the existence of related parties and by third party;
transactions and outstanding balances
with such parties. • the entity is a post-employment benefit plan for the benefit of employees of the
reporting entity or an entity related to the reporting entity;
A related party is a person or an entity
that is related to the reporting entity, • the entity is controlled or jointly controlled by any person identified as a related
that is, a person or an entity that is party in the other table;
related to the entity that is preparing its
• a person with control or joint control over the reporting entity, or a close member
financial statements. The Standard lists
of that person’s family, has significant influence over the entity or is a member of
some specific relationships that meet
the key management personnel of the entity or of the entity’s parent; or
the definition of related party—see the
two tables on this page.
• the entity, or any member of a group of which it is a part, provides key
‘Key management personnel’ is a defined management personnel services to the reporting entity or to the reporting
term meaning those persons having entity’s parent.
authority and responsibility for planning,
directing and controlling the activities Within a group, each parent, subsidiary Similarly, merely lending money to a
of the entity, directly or indirectly, and fellow subsidiary is related to the company does not, of itself, make the
including any director of that entity. others. Simply having a director in company and lender related parties,
common with another company does even though the terms of the loan
The Standard requires the substance,
not, of itself, make the two companies agreement may affect the freedom of
and not merely the legal form, of a
related. action of the company.
relationship to be considered.
continued
IAS 24
Related Party Disclosures continued
Disclosure is required of: The Standard provides a partial

Judgements and estimates
exemption from the disclosure
• the name of the reporting entity’s In some cases determining whether
requirements if the related party is:
parent and, if different, its ultimate
a person or an entity is a related
controlling party, irrespective of • a government that has control, joint
party of the reporting entity requires
whether there have been transactions control or significant influence over
significant judgement. For example,
between them; the reporting entity; or
the decision might require assessing
• if neither of the above parties • another entity that is a related party the degree of influence exerted by one
produces consolidated financial because the same government has party over another—is it control, joint
statements available for public use control, joint control or significant control, significant influence or a lower
(for example, if the first is exempt influence over both the reporting degree of influence? Similarly, in some
from producing consolidated entity and the other entity. cases, assessing whether an individual
financial statements and the second is a close member of the family of a
is an individual) the name of the first Other specified disclosures are required
person (for example, of a director of
parent that is above the immediate when the partial exemption applies.
the reporting entity) requires judging
parent that does so; and When an entity (the ‘management whether that individual may be expected
• details of key management personnel entity’) provides key management to influence, or to be influenced by, that
compensation in total and by category personnel services to the reporting person (in the example, the director) in
of benefit, for example, share-based entity, the fee that the reporting their dealings with the reporting entity.
payment would be disclosed separately entity pays to the management entity
When disclosing information about
from short-term employee benefits. is disclosed as a transaction with a
related party transactions, judgement
When there are transactions with related party. The compensation paid
is required to determine the extent
related parties during the periods by the management entity to the key
to which related party disclosures are
covered by the financial statements, management personnel is excluded
disaggregated.
that is, the current period and any from the details of key management
comparative periods presented, personnel compensation disclosure
First-time adoption
disclosure is required, by category of required by IAS 24.
related party, of: There are no specific mandatory
• the nature of the related party In considering each the general principle in IFRS 1 First-time
relationship; and related party relationship, Adoption of International Financial Reporting
• details of the transactions and the substance, and not Standards that apply to the requirements
outstanding balances, including of IAS 24 for first‑time adopters.
merely the legal form, of
commitments, to enable users to
understand the potential effect of the relationship must be
the relationship on the financial considered.
statements, including disclosure of the
transaction amount and any bad debt
expense recognised during the period.
IAS 26
Accounting and Reporting by Retirement Benefit Plans
The Standard
IAS 26 is applicable to the financial statements of retirement benefit plans. Such plans are sometimes referred
to as ‘pension plans’ or ‘superannuation schemes’. The accounting for such plans in the financial statements
of employers is specified in IAS 19 Employee Benefits.
Retirement benefit plans are formal A defined contribution plan’s financial Judgements and estimates
or informal arrangements providing statements must contain a statement
benefits for employees on or after In some cases judgement is required to
of net assets available for benefits and a
termination of their employment. determine whether a retirement benefit
description of the funding policy. For
plan is a defined contribution or a
Benefits may be an annual income defined benefit plans, the financial
defined benefit plan. Some plans contain
or a lump sum payment or both. statements must contain the policy for
characteristics of both; such hybrid plans
Whatever its form or structure, IAS 26 funding the benefits and a statement
are treated as defined benefit plans for
regards a retirement benefit plan as a showing either:
the purposes of IAS 26.
reporting entity that is separate from
• the net assets available for benefits,
the employer. The Standard does not Measuring the actuarial present value
the actuarial present value of the
mandate when a retirement benefit plan of the promised retirement benefits of a
promised retirement benefits, defined benefit plan requires judgements
should prepare financial statements; it
distinguishing between vested and and estimates, including actuarial
applies where such financial statements
non-vested benefits, and the resulting assumptions. Measuring the fair value of
are prepared.
excess or deficit; or the plan’s assets also requires judgements
Retirement benefit plans may be defined and estimates (see the summary on
• the net assets available for benefits
contribution plans or defined benefit IFRS 13 Fair Value Measurement).
and either a note disclosing the
plans. In a defined contribution plan,
actuarial present value of the
retirement benefits are determined by
promised retirement benefits,
First-time adoption
reference to contributions to the plan
distinguishing between vested and There are no specific mandatory
and investment earnings of the plan.
non-vested benefits, or a reference to exceptions or optional exemptions from
In a defined benefit plan, retirement
this information in an accompanying the general principle in IFRS 1 First-time
benefits are usually based on the
actuarial report. Adoption of International Financial Reporting
employee’s earnings or years of service Standards that apply to the requirements
or both; for example, a plan may pay an IAS 26 requires retirement plan
annual pension equal to 1 per cent of investments to be measured at fair value.
However, to the extent that another
final salary for each year of service. The present value of the expected future Standard is also applied, for example,
The financial statements of all payments to be made by the retirement IAS 16 Property, Plant and Equipment,
retirement benefit plans are required benefit plan may be measured using any mandatory exceptions or optional
current salary levels or projected exemptions in IFRS 1 applicable to that
to include: a description of the plan;
salary levels up to the time that the Standard will be available.
a statement of changes in net assets
available for benefits showing, among participants retire.
other things, employer contributions,
employee contributions, investment
This Standard does not mandate when a retirement
income, changes in value of investments
and benefits paid; and a summary of
benefit plan should prepare financial statements; it applies
significant accounting policies. where such financial statements are prepared.
IAS 27
Separate Financial Statements
The Standard
IAS 27 specifies accounting and disclosure requirements for investments in subsidiaries, joint ventures and
associates when an entity presents separate financial statements.
An entity that has one or more IAS 27 requires investments in For separate financial statements,
subsidiaries is a parent and must present subsidiaries, joint ventures and the focus is on the performance as
consolidated financial statements. associates to be accounted for at either investments (rather than on the
Consolidated financial statements cost or fair value, with dividends performance of the assets, liabilities
present the financial position and receivable recognised in profit or loss and underlying businesses within the
financial performance of the group, that when the right to receive the dividend is entities). Separate financial statements
is, the parent and all its subsidiaries, as established. that elect to use fair value provide
a single economic entity. Consolidated a measure of the economic value of
The same method is applied to all
financial statements are the subject of the investments, whereas using the
investments in a particular category,
IFRS 10 Consolidated Financial Statements. cost alternative can result in relevant
for example, subsidiaries, joint ventures
information, for example, when they
An entity that has a joint venture or associates. However, investments
are needed only by particular parties to
and/or an associate must include the accounted for at cost that are
determine the dividend income from
joint venture and/or associate in its subsequently classified as ‘held for sale’
subsidiaries.
consolidated financial statements are then accounted for in accordance
using the equity method of accounting,
whereby it recognises its investment
with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations.
initially at cost and then adjusts the For each category of investments,
Some specific investments in
investment, each year, for its share of the management determines the
subsidiaries, joint ventures and
changes in the investee’s net assets. See appropriate accounting treatment:
associates, for example, an investment
IAS 28 Investments in Associates and Joint cost or fair value. For any investments
entity’s subsidiaries, are, by exception,
Ventures. If an entity has a joint venture measured at fair value, significant
measured in the consolidated financial
and/or an associate, but no subsidiaries, judgements and estimates may be
statements at fair value through profit
it still uses equity accounting to account required to measure the fair value
or loss. Such investments must be
for its joint venture and/or associate. of unlisted investments. For any
accounted for in the same way in the
investments measured at cost, it will be
Separate financial statements, sometimes separate financial statements; the cost
necessary to consider and, if appropriate,
referred to as ‘parent entity financial option is not available.
measure any impairment (see the
statements’, are presented in addition
summary on IAS 36 Impairment of Assets).
to the financial statements referred
to above. In some jurisdictions the
local laws require an entity to present
separate financial statements, while in
other jurisdictions entities can choose
to present separate financial statements
voluntarily. IAS 27 only applies when
an entity prepares separate financial
statements that comply with IFRS.
continued
IAS 27
Separate Financial Statements continued
First-time adoption
Requires investments
exceptions from the general principle in
in subsidiaries, joint
IFRS 1 First-time Adoption of International ventures and associates
Financial Reporting Standards that apply to to be accounted for
the requirements of IAS 27 for first‑time in separate financial
adopters. However, a first-time adopter
that elects to measure an investment
statements either at cost
at cost has the choice to use either cost or at fair value.
determined in accordance with IAS 27
or a deemed cost. The deemed cost is
either the fair value of the investment
Recent developments
at the date of transition to IFRS or the Equity Method in Separate Financial
carrying amount as determined by the Statements (Amendments to IAS 27)
adopter’s previous accounting at the was issued by the IASB in August 2014
transition date. and is effective for annual reporting
periods beginning on or after 1 January
Further exemptions apply when a parent
2016, although it can be applied early.
does not adopt IFRS in its separate
It introduces an option to account
financial statements at the same time as
for investments in subsidiaries, joint
in its consolidated financial statements
ventures and associates in separate
and when a subsidiary becomes a
financial statements using the equity
first‑time adopter later than its parent.
method (which is in addition to the
two choices (cost or fair value)
described above).
IAS 28
Investments in Associates and Joint Ventures
The Standard
IAS 28 sets out how to determine if an investment is an associate and prescribes the use of the equity method
of accounting for investments in associates and joint ventures.
An associate is an entity over which the In assessing whether an entity has Investments in associates and joint
investor has significant influence and a significant influence, the existence and ventures are accounted for using the
joint venture is a joint arrangement in the effect of potential voting rights (such equity method. The equity method
which the investors sharing joint control as share options and convertible loan involves the investor recognising its
have rights to the net assets of the notes) that are currently exercisable or investment initially at cost and then
arrangement. convertible, held by the entity and/or adjusting the investment for its share
others, are considered. of subsequent changes in the investee’s
Significant influence is ‘the power
net assets. Distributions received
to participate in the financial and IFRS 11 specifies whether an investee
from an associate or joint venture
operating policy decisions of the is a joint venture or not.
reduce the carrying amount of the
investee but is not control or joint
investment, which the investor presents
control of those policies’. Control is
defined in IFRS 10 Consolidated Financial An associate is an entity as a separate asset in its statement
Statements and joint control is defined in over which the investor of financial position. The investor’s
share is determined based on existing
IFRS 11 Joint Arrangements. has significant influence ownership interests and does not reflect
Where an investor holds 20 per cent or and a joint venture is the conversion of potential voting rights,
more of the voting power of an a joint arrangement in unless the rights currently give the
investee, it is presumed that the
investor has significant influence and
which the parties that investor access to the returns.
that the investment is an associate of have joint control of the An associate or joint venture might
the investor. This does not apply if the arrangement have rights apply different accounting policies to
those applied by the investor. When
investor can clearly demonstrate to the net assets of the this is the case, the investor will need
that the holding does not give it
arrangement. to make adjustments to the investee’s
significant influence. Conversely, where
financial statements to calculate its
an investor holds less than 20 per cent
share of the investee’s net assets and
of the voting power of an investee,
changes in net assets (so that they
it is presumed the investor does not
are calculated using the investor’s
have significant influence and that the
accounting policies) to incorporate into
investment is not an associate of the
its own financial statements.
investor. Again, this does not apply if
the investor can clearly demonstrate
that it does have significant influence,
for example, by the investor seconding
managerial personnel to the investee,
or by the investor providing essential
technical information to the investee.
continued
IAS 28
Investments in Associates and Joint Ventures continued
The investor recognises, in profit or loss, Judgements and estimates

its share of the investee’s post-tax profit Investments in associates
Judgement is required in determining
or loss as one amount and presents it
whether an investor has significant
and joint ventures are
before its own tax expense.
influence over an investee. Although accounted for using the
If an associate or joint venture is loss- there is a presumption that an investor equity method. The
making, the investor stops recognising
its share of the investee’s losses at the
who holds 20 per cent or more of investor recognises its
the voting power of an investee has
point that the carrying amount of its significant influence, the investor may
investment initially at
interest in the associate or joint venture be able to demonstrate that this is not cost and then adjusts the
reaches zero. For this purpose, its the case. The existence and effect of investment for its share
interest includes any long-term interests,
such as a loan, that, in substance,
potential voting rights is likely to of subsequent changes in
require the investor to exercise
form part of its net investment in the further judgement.
the investee’s net assets.
associate or joint venture. However, Distributions received
An entity is not exempt from applying
additional losses are provided for to the
the equity method when severe
from an associate or
extent the investor has incurred legal
or constructive obligations or made long‑term restrictions impair an joint venture reduce the
payments on behalf of its associate or associate’s or joint venture’s ability to carrying amount of the
joint venture. transfer funds to the investor. However, investment.
an investor should consider whether, in
There are several exemptions from the its judgement, such restrictions, taken
requirement to use the equity method, with other factors, indicate that it does First-time adoption
for example, when the investor is a not have significant influence or joint
wholly-owned subsidiary and meets When an associate or joint venture
control.
other conditions. becomes a first-time adopter earlier than
IFRS 12 requires disclosure of the its investor, IFRS 1 First-time Adoption of
When an investment, or a portion of an significant judgements and assumptions International Financial Reporting Standards
investment, in an associate or a joint made when an entity determines specifies how the investor must measure
venture meets the criteria to be classified whether it jointly controls or has the associate’s or joint venture’s assets
as ‘held for sale’ in accordance with significant influence over another entity. and liabilities when accounting for such
IFRS 5 Non-current Assets Held for Sale and an investment by the equity method
Discontinued Operations it is accounted in its first IFRS financial statements.
for in accordance with IFRS 5 rather An optional exemption applies to the
than IAS 28. associate’s or joint venture’s financial
statements when the associate or joint
venture adopts IFRS later than its
reporting investor.
IAS 29
Financial Reporting in Hyperinflationary Economies
The Standard
IAS 29 requires the financial statements of any entity whose functional currency is the currency of a
hyperinflationary economy to be restated for changes in the general purchasing power of that currency so
that the financial information provided is more meaningful.
Functional currency is the currency of The currency of a hyperinflationary For example, consider a company with a
the primary economic environment in economy loses purchasing power so 31 December year-end. At 31 December
which the entity operates (see IAS 21 The quickly that comparison of amounts 2015 it held, among other things, cash
Effects of Changes in Foreign Exchange Rates). from transactions and other events that at bank in its local currency, which
IAS 29 does not give a ‘bright line’ have occurred at different times, even is its hyperinflationary functional
above which an economy is deemed to within the same accounting period, is currency, of HCU1,0005 and a property
be hyperinflationary and below which misleading. that it bought for HCU100,000 one year
it is not hyperinflationary. Instead earlier that is being depreciated evenly
Consequently, the Standard requires
the Standard lists factors that indicate over 50 years to a nil residual value. If
that in a hyperinflationary environment,
an economy is hyperinflationary; the consumer price index, or whichever
the figures included in the financial
for example, the general population general price index the company had
statements, including all comparative
of the economy prefers to keep its determined to be representative, had
information, must be expressed in units
wealth in non-monetary assets or in increased by 40 per cent in the year to
of the functional currency current, in
monetary assets invested in a relatively 31 December 2015, the company would
terms of purchasing power, as at the end
stable foreign currency, and sales and include cash at bank of HCU1,000 and
of the reporting period.
purchases taking place on credit are property of HCU137,200 in its 2015
transacted at prices that compensate Restatement to current units of currency financial statements.
for the expected loss of purchasing is made using the change in a general
The cash at bank is a monetary amount
power during the credit period, even price index, such as the consumer price
expressed in the local currency and so
if that period is short. The Standard index in the jurisdiction.
does include some quantification; one is already expressed in terms of current
of the indicators of hyperinflation is if purchasing power. Consequently it
cumulative inflation over a three‑year needs no adjustment. The property
period approaches, or is in excess of, cost, if accounting on the historical
100 per cent. cost basis, is increased by 40 per cent
to HCU140,000 and is then reduced by
2015: Per original Adjustment For inclusion one‑fiftieth for one year’s depreciation.
accounting (increase in financial The depreciation expense recognised in
records by 40%) statements the 2015 profit or loss is HCU2,800, that
HCU HCU HCU is, expressed in terms of purchasing
power at the end of 2015 and so
Property—cost 100,000 40,000 140,000
one‑fiftieth of HCU140,000.
Property—accumulated
depreciation (one year) (2,000) (800) (2,800)
Property—net book amount 98,000 39,200 137,200
Cash 1,000 – 1,000
99,000 39,200 138,200
5 ‘HCU’ stands for ‘hyperinflationary currency unit’. continued

IAS 29
Financial Reporting in Hyperinflationary Economies continued
At 31 December 2014 the property was

2014: For inclusion
carried at its cost of HCU100,000 and the
Per published Adjustment in 2015
company had cash at bank of HCU900.
2014 financial (increase financial
The 2014 figures, although presented
statements by 40%) statements
in the 2014 financial statements as
HCU100,000 and HCU900 respectively, HCU HCU HCU
will be presented as HCU140,000 and Property—cost 100,000 40,000 140,000
HCU1,260 when they are comparatives
Property—accumulated
to the 2015 figures, that is, both are
depreciation – – –
increased by 40 per cent as they need
to be expressed in terms of purchasing Property—net book amount 100,000 40,000 140,000
power at 31 December 2015. Cash 900 360 1,260
The gain or loss on restating the 2014 100,900 40,360 141,260
net monetary items for the change in
purchasing power over 2015 is recognised
in the 2015 profit or loss and separately The Standard requires a number After restatement in accordance with
disclosed. Using the example above, and of disclosures, including: the fact this Standard, the financial statements
assuming that the entity had no other that the figures for the current and may be presented in any other currency
monetary assets and had no monetary comparative periods have been restated by translating the results and financial
liabilities, the loss on restating the net for changes in the general purchasing position in accordance with IAS 21,
monetary items to be recognised in its power of the functional currency; the because an entity does have a free choice
2015 profit or loss would be HCU360 (the price index used for the restatement; for its presentation currency.
adjustment in respect of the cash). its level at the end of the reporting
Restatement cannot be avoided

period; and the change in the index Judgements and estimates
during the current period and during Because IAS 29 does not establish an
by electing to use a stable currency
the comparative period. absolute rate at which hyperinflation
for measurement purposes, because
an entity determines its functional is deemed to arise, it is a matter of
currency; it cannot select a judgement when the restatement of
functional currency. financial statements in accordance with
this Standard becomes necessary. In
making that judgement all facts and
The gain or loss on restating the prior period’s (eg 2014) circumstances must be considered.
net monetary items for the change in purchasing
power over the reporting period (eg 2015) is recognised
in the reporting period’s (eg 2015) profit or loss and
separately disclosed.
continued
IAS 29
Financial Reporting in Hyperinflationary Economies continued
Whether or not a country is considered However, there is a non-mandatory

to be experiencing hyperinflation exemption for entities whose functional
will normally be determined on a currency was subject to ‘severe
countrywide basis; for example, by an hyperinflation’ before the date of
agreement of the accounting profession, transition to IFRS. IFRS 1 introduces the
not by an individual entity. term severe hyperinflation and states
that a currency is subject to severe
It is preferable that all entities that
hyperinflation if a reliable general price
report in the currency of the same
index is not available to all entities
hyperinflationary economy apply this
with transactions in the currency, and
Standard from the same date.
exchangeability between the currency
When multiple price indices are and a relatively stable foreign currency
available, the entity must restate its does not exist. When an entity’s date of
financial statements using a general transition to IFRS is on or after the date
price index that reflects changes in that severe hyperinflation ceases (the
general purchasing power. Identifying ‘normalisation date’), the entity may
the appropriate general price index may, elect to measure all assets and liabilities
in some cases, require judgement. held before the normalisation date at
fair value on the date of transition and
First-time adoption treat this as the deemed cost of those
There are no specific mandatory assets and liabilities.
exceptions from the general principle in
IFRS 1 First-time Adoption of International
Financial Reporting Standards that apply
to the requirements of IAS 29 for
first‑time adopters.
IAS 32
Financial Instruments: Presentation
The Standard
IAS 32 establishes principles for presenting financial instruments as financial assets, financial liabilities or
equity and for offsetting financial assets and financial liabilities.
The recognition and measurement of Differentiation between a financial It might not be appropriate for an issuer
financial instruments is the subject of liability and equity largely depends on to classify an instrument in its entirety
IAS 39 Financial Instruments: Recognition whether there is an obligation to deliver as a financial asset, financial liability
and Measurement6 while the disclosure either cash or some other financial or equity. If a financial instrument
requirements for financial instruments asset. Instruments that embody an comprises two or more components,
are contained in IFRS 7 Financial obligation to deliver cash or other each component is classified separately
Instruments: Disclosures. financial asset meet the definition of a (ie the instrument is bifurcated). For
liability, whereas an equity instrument example, the issuer of a convertible note
IAS 32 requires a financial instrument
is a contract that evidences a residual where the decision whether to convert
to be classified as a financial asset,
interest in an entity’s net assets and rests with the holder (the lender),
financial liability or an equity instrument
thus, there is no contractual obligation would split the note into equity and
in accordance with the substance of
to deliver cash. However, exceptions liability components. From the issuer’s
the arrangement and reflecting the
apply; when a transaction will be (borrower’s) perspective, the substance is
definitions in the Standard. For example,
settled in the issuer’s own shares, that it has obtained a loan (the liability
a preference share that is mandatorily
classification depends on whether the component) and has issued an option to
redeemable for a specified amount of
number of shares to be issued is fixed issue a fixed number of its own equity
cash on a specified date will be classified,
or variable. For example, an obligation shares (the equity component).
by the entity issuing the share, as a
on a reporting entity to deliver, on a
financial liability, even though its legal
specified date, its equity shares that, on
form is that of a share. Classification as
the date of delivery, are worth CU10,000
Requires a financial
a liability is not precluded if the share
will be classified as a financial liability instrument, or its
can be redeemed only, for example, if
the issuer has sufficient distributable
of CU10,000 by the reporting entity. On component parts, to be
reserves; there is still an obligation on the
the other hand, if the reporting entity classified as a financial
issues an option to another entity that,
issuer to transfer a specified amount of
if exercised, will require the reporting
asset, financial liability
cash to the holder on a specified date. It
entity to issue a fixed number of its or an equity instrument
might be that the issuer cannot fulfil the
obligation immediately, but this does not
equity shares, say, 500 shares, and in accordance with
negate the obligation. On the other hand,
receive a fixed amount of cash, say, the substance of the
CU2,000, the reporting entity will
a preference share that gives the issuer the
recognise the option in equity and does
arrangement and
choice of whether to redeem in cash or to
not recognise a financial liability. reflecting the definitions
convert to a specified number of its own
equity shares will not be classified by the
in the Standard.
issuer as a financial liability, because the
issuer cannot be obligated to transfer cash;
the choice lies with the issuer, not with
the holder of the share.
6 I FRS 9 replaces IAS 39 and is effective for annual periods beginning on or after 1 January 2018.
See the Appendix. continued
IAS 32
Financial Instruments: Presentation continued
When the instrument is issued, the

fair value of the liability component is Convertible note, assuming the liability component
regarded as being equal to the fair value of is measured at amortised cost:
a similar loan without a conversion option Cash received
attached. For example, Entity A issues a CU100
convertible loan note and receives CU100. Day 1
The terms of the convertible loan note
require Entity A to pay interest of CU8 Option (Equity) Loan (Liability)
each year for four years and the holder CU3.24 CU96.76
has the choice of receiving CU100 cash Interest of CU8 per

annum per contract
at the end of the four years or receiving Remains Plus CU3.24 charged
20 ordinary shares in Entity A. Annual in equity as finance cost
interest on the CU100 convertible loan
note is 8 per cent, because the conversion
option is part of the instrument, whereas Option (Equity) Loan (Liability) Immediately
CU3.24 CU100 before
the annual market rate for a loan with no redemption/
conversion option, and equivalent credit conversion
status, would be 9 per cent. The fair value
of the liability component is measured as If a financial instrument has been Presentation includes determining
the present value of the contractual cash classified as a financial liability, the return whether an entity has one net asset,
flows, that is, an annual interest cash flow payable on that instrument is classified or liability, or whether it has a, larger,
at 8 per cent and the repayment of CU100 as interest expense even though its legal separate asset and separate liability.
at the end of the four years, discounted at form might be a dividend, such as the IAS 32 requires a financial asset and a
the market rate of 9 per cent, giving a fair dividends payable on a mandatorily financial liability to be offset when the
value of CU96.76. redeemable preference share classified entity has a legally enforceable right to set
The fair value of the equity component as a financial liability. off the two amounts, and intends either to
is measured as the difference between settle on a net basis, or to realise the asset
Treasury shares are an entity’s own shares
the fair value of the liability component, and settle the liability simultaneously.
that it acquires but does not cancel;
CU96.76, and the CU100 received on Otherwise assets and liabilities are not
instead it holds them for later use, for
issuing the convertible note. In this offset. If the financial asset and financial
example, when it needs to transfer shares
example the fair value of the equity liability are with different counterparties
to employees as part of a long‑term
component would therefore be CU3.24. offsetting is generally inappropriate.
incentive plan or upon exercise of
If the liability component is measured
employee share options. IAS 32 requires
subsequently using the ‘amortised cost
treasury shares held to be deducted from
method’ (see IAS 39), the difference
equity. They are not regarded as an asset.
between its fair value and the nominal
amount, CU3.24 in the example, will be
recognised in profit or loss as interest
expense over the life of the loan.
continued
IAS 32
Financial Instruments: Presentation continued

Some financial instruments that take There are no specific mandatory
the legal form of equity may be financial exceptions from the general principle
liabilities in substance. Significant in IFRS 1 First-time Adoption of International
judgement may be required in some cases Financial Reporting Standards that apply to
to determine the appropriate classification the requirements of IAS 32 for first‑time
of a financial instrument. adopters. However, if at the date
of transition to IFRS, the liability
Separating the liability and equity
component of a compound financial
components of a compound financial
instrument is no longer outstanding, the
instrument involves measuring the fair
first-time adopter may elect not to separate
value of the liability component based
the equity component into two portions
on the expected stream of future cash
(a retained earnings portion and the
flows, discounted at the market rate that
original equity portion).
would have been applied without the
conversion option. Some judgements may
be required, for example, in determining
the appropriate discount rate.
IAS 33
Earnings per Share
The Standard
IAS 33 sets out how to calculate earnings per share (EPS). Basic EPS and diluted EPS must be presented with
equal prominence.
EPS is an important measure in the Basic EPS is the profit or loss attributable The denominator for basic EPS is the
analysis of financial statements. It is to the ordinary equity holders of the weighted average number of ordinary
commonly used, for example, in the parent entity, that is, the earnings shares outstanding for the period.
calculation of price/earnings ratios and number, divided by the weighted average When new shares are issued the
other multiple-based business valuations. number of ordinary shares outstanding resources available to the entity increase
during the reporting period. and so profits are expected to increase
IAS 33 applies to entities whose ordinary
too. By using a weighted average number
shares or potential ordinary shares, for Because the profit is divided by the of shares, the increase in number
example, convertible debt, share options number of ordinary shares outstanding, of shares applies from the date the
and share warrants, are publicly traded or the numerator needs to be the profit entity’s resources increase, thus aiding
whose ordinary shares are in the process attributable to the ordinary shareholders. comparability. For example, Companies A
of being publicly traded. Entities that Consequently, the profit figure used in and B each have 100 ordinary shares
disclose EPS voluntarily must also apply the calculation is the profit as reported outstanding at the start of a year, 150
the Standard. in the statement of profit or loss less at the end of the year, and both earn
any amounts attributable to preference an identical percentage post-tax return
Earnings per share is exactly that; it is
shareholders (such as dividends and on their equity. The difference is that
the amount of profit, or loss, earned
differences arising on settlement) for Company A issues its new shares at the
during the reporting period attributable
preference shares classified as equity. If start of the reporting period, so the
to each ordinary share. The Standard
preference shares have been classified additional resources are available to it
requires both a basic and a diluted EPS
as liabilities, no adjustment is needed; throughout the entire reporting period,
to be presented.
any dividends and redemption premium whereas Company B issues its shares on
will have been reflected in profit or loss the last day of the reporting period.
through the finance charge. See the illustration below.
Both have an identical EPS even

though the first has a larger profit than
the second.
A B
Profit for 2015 CU300 CU200
Shares at 1 January 2015 100 100
Shares issued for cash on 2 January 2015 50 –
Shares issued for cash on 31 December 2015 – 50
Shares at 31 December 2015 150 150
Weighted average number of shares for 2015 150 100
EPS for 2015 CU2 per share CU2 per share
continued
IAS 33
Earnings per Share continued
Any treasury shares held by a company

Company A 2015 2016
are not regarded as shares outstanding
for this purpose. Profit for year CU300 CU300
Shares at 1 January 100 150
If, at any point during the period or
after the period end but before the Shares issued for cash on 2 January 2015 50 –
financial statements are authorised Bonus issue on 1 September 2016 – 150
for issue, there has been a bonus issue
Shares at 31 December 150 300
of ordinary shares, a share split or
some other change in the number of Weighted average number of shares
ordinary shares with no corresponding for year:
change in cash or other resources, Per IAS 33 (adjusting for bonus issue) 300 300
other than the conversion of ‘potential
Without adjusting for bonus issue 150 200
ordinary shares’ (see below), the
number of shares is adjusted as though EPS:
the bonus issue, share split, etc had Per IAS 33 CU1 per share CU1 per share
occurred at the start of the earliest
Without adjusting for bonus issue CU2 per share CU1.5 per share
comparative period presented. Because
the entity’s resources do not change,
but the number of shares does change, Diluted EPS aims to show what the Potential ordinary shares are any
comparability is increased if the earnings attributable to each ordinary financial instrument or other contract
calculations assume the change shareholder would have been on the that may lead to its holder receiving
in number of shares was valid assumption that contracts that might ordinary shares, for example, convertible
for all periods presented. This is lead to ordinary shares being issued, debt and share options. If a company’s
illustrated in the table on the right for example, share options, had led to dilutive potential ordinary shares
where it is assumed that Company A ordinary shares being issued. However, include convertible debt, the company,
(from the earlier example) made a the adjustment is not made for all such when calculating diluted EPS, adjusts
bonus issue doubling the number of shares, but is made only for those shares the earnings number to eliminate the
its shares in issue two-thirds of the way that, if issued, will reduce EPS; these are finance cost on the convertible debt (that
through 2016. the dilutive shares. was charged in profit or loss) and all
consequential amendments such as the
The starting point for calculating diluted
effect, if any, on tax and the bonus pool for
EPS is the earnings number and the
employee bonuses. It adjusts the weighted
weighted average number of ordinary
average number of ordinary shares for the
shares as used to calculate basic EPS. Each
shares that would be issued on conversion
is then adjusted as though the ‘potential
of the debt.
ordinary shares’ that are dilutive had been
converted to ordinary shares.
continued
IAS 33
Earnings per Share continued
The Standard sets out how different Some companies report an ‘adjusted Judgements and estimates
potential ordinary shares affect the EPS’, that is, using an adjusted earnings
calculation of diluted EPS; for example, number to calculate the per share amount, Profit or loss, the numerator in the
when share options are exercised, cash for example, earnings per share excluding calculation of EPS, is determined in
proceeds are received and the Standard the effect of a reorganisation. IAS 33 accordance with IFRS. Consequently,
shows how this is incorporated into the requires companies doing so to present a the judgements and estimates made in
calculation. basic and a diluted version of the adjusted applying other Standards affect EPS.
EPS, both using the number of shares, Where a company has share options in
The earnings of two entities subject to
for basic and for diluted, as specified issue, determining the average market
identical transactions and events may
in IAS 33. These must be in addition price of its ordinary shares during
nevertheless differ because they have
to, and not in place of, the basic and the period may require the exercise of
adopted different accounting policies.
diluted EPS figures required by IAS 33. In judgement. Management must also
These differences are not adjusted for
addition the company must give specified make judgements about the extent of
when calculating EPS.
disclosures including a reconciliation of explanations of EPS and changes in EPS to
The numerators used in the calculation of the numerator (in the example, earnings include in any management commentary
basic and diluted EPS must be reconciled excluding the costs of the reorganisation) issued with the annual financial
to profit or loss attributable to the to a figure reported in the statement of statements.
ordinary equity holders of the parent. profit or loss and other comprehensive
The denominators in the calculations income; for example, profit for the period. First-time adoption
of basic EPS and diluted EPS must be
reconciled to each other.
If a company wishes to exceptions or optional exemptions from
When a company has continuing and the general principle in IFRS 1 First-time
discontinued operations (see IFRS 5), disclose an adjusted EPS Adoption of International Financial Reporting
IAS 33 requires the company to present (that is, an amount per Standards that apply to the requirements of
basic and diluted EPS for profit or loss in share other than earnings IAS 33 for first-time adopters.
total and for profit or loss from continuing
per share as defined in
operations. They must be presented in the
statement of profit or loss, if presented, IAS 33) it must present
otherwise in the statement of profit or a basic and a diluted
loss and other comprehensive income. version, both using the
However, basic and diluted EPS for
number of shares as
discontinued operations may be presented
only in the notes. When an entity
specified in IAS 33.
presents consolidated financial statements In addition it must give
and separate financial statements, EPS specified disclosures.
measurements are required only for the
consolidated profit or loss.
IAS 34
Interim Financial Reporting
The Standard
An interim financial report is a complete or condensed set of financial statements for a period shorter than a
full financial year.
Neither IAS 34 nor any other Standard IAS 34 applies if an entity publishes an The condensed statements should
requires the publication of an interim interim financial report in accordance include, as a minimum, each of the
financial report. However, securities with IFRS, whether because it is headings and subtotals that were
regulators or other authorities to which required to do so or because it chooses included in the entity’s latest full-year
particular entities are subject often to voluntarily do so. The Standard financial statements. For example, an
require the publication of interim prescribes the minimum content and entity’s condensed statement of financial
financial reports at specified intervals, specifies the accounting recognition and position should include as a minimum
for example, half-yearly or quarterly. measurement principles applicable to an the headings and subtotals that were
interim financial report. included in its full year statement of
financial position. IAS 34 specifies note
Minimum content of an interim financial report (the example dates assume an disclosures that should be included in
entity with a 31 December year-end that reports quarterly and is reporting for the the interim financial reports. Additional
three months to 30 September 2015): line items or notes are required if their
omission would make the interim
As at end of financial statements misleading.
As at end of preceding
The same accounting policies are
interim period full year
applied in the interim report as in the
(eg at 30.09.15) (eg at 31.12.14)
most recent annual financial statements,
Condensed statement of financial position   subject to any changes in accounting
For interim For current year policy that are to be reflected in the
period* to date* financial statements for the full year.
(eg 3 months (eg 9 months The Standard prescribes that the
to 30.09.15) to 30.09.15) frequency of an entity’s interim
Condensed statement(s) of profit or loss reporting, half-yearly, quarterly, etc,
and other comprehensive income   should not affect the measurement
Condensed statement of changes in equity of its full year results. Consequently,

measurements for interim reporting are
Condensed statement of cash flows  to be made on a year-to-date basis. This
Selected explanatory notes Generally, year-to-date does not mean that results for the first
* Comparatives are required for the equivalent period in the preceding year six months of a year should be half of
the anticipated full year results. The
interim report for the first six months
should reflect the transactions that
arose in that six months. If a company’s
business is seasonal, those transactions
could be much higher or lower than half
those expected for the full year.
continued
IAS 34
Interim Financial Reporting continued
However, IFRIC 10 Interim Financial IAS 34 requires one disclosure to Judgements and estimates
Reporting and Impairment clarifies that be made in the full year financial
entities must not reverse an impairment statements. If an estimate that is used While measurements in both annual
loss recognised in a previous interim in one interim period, say, in the interim financial statements and interim
period in respect of goodwill. If financial report for the six months to financial reports are often based on
income tax is calculated by the tax 30 June 2015, is changed significantly reasonable estimates, the preparation of
authorities on the results for the full during the final interim period of a interim financial reports will generally
year, the charge in the interim results is financial year, say, in the six months require a greater use of estimates
calculated using the best estimate of the to 31 December 2015, and an interim than annual financial statements; for
weighted average annual income tax rate financial report is not published for that example, estimating the weighted
expected for the full year. If the interim final period, IAS 34 requires the nature average annual income tax rate expected
results are consolidated results, a tax and amount of the change in estimate to for the full year, in order to measure
rate is estimated for each jurisdiction be disclosed in the financial statements the tax charge, is necessary for interim
in which the group operates and the for the year; in the example, the year to financial reports but not for full year
average applied to the interim results for 31 December 2015. financial statements.
that jurisdiction, instead of making one
estimate for the group as a whole.
First-time adoption
The frequency of An entity is required to apply IFRS 1
Disclosures required in interim financial
an entity’s interim First-time Adoption of International Financial
reports include: commentary about
the seasonal or cyclical nature of the
reporting should not Reporting Standards in each interim
operations; issues, repurchases and affect the measurement financial report that it prepares in
accordance with IAS 34 for part of
repayments of debt and/or equity; of its full year results. the period covered by its first IFRS
dividends paid; and, if significant, Consequently, financial statements. In addition to
commitments to purchase property,
plant and equipment, litigation
measurements for interim the requirements of IAS 34, IFRS 1
settlements and related party reporting are to be made requires additional disclosures in the
interim financial report, for example,
transactions. on a year‑to‑date basis. reconciliations between the entity’s
However, IFRIC 10 previous accounting and IFRS.
clarifies that entities
must not reverse
an impairment loss
recognised in a previous
interim period in respect
of goodwill.
IAS 36
Impairment of Assets
The Standard
If the carrying amount of an entity’s asset exceeds the amount the entity will recover through using it, or can
realise by selling it, whichever is higher, the entity must reduce the carrying amount of the asset and recognise
an impairment loss.
The principle in the Standard is that The recoverable amount of an asset Fair value, for an asset, is the amount
an asset must not be carried in an is the higher of its value in use in the that would be received if the asset were
entity’s financial statements at more business and its fair value less costs of sold in an orderly transaction between
than the amount that the entity could disposal. For example, if an asset was market participants at the measurement
recover through use or sale of the asset, recognised in the statement of financial date (see IFRS 13 Fair Value Measurement).
whichever is the higher; this is the position at CU100 (its carrying amount), Costs of disposal are the incremental
asset’s recoverable amount. and had a fair value less costs to sell of costs directly attributable to the
CU90 but a value in use of CU120, the disposal, excluding finance costs and tax
If an asset is being carried at more than
asset would not be impaired and would expenses. The value in use of an asset
its recoverable amount, the asset is
continue to be recognised at CU100. Its is the expected future net pre-tax cash
impaired and has to be written down
recoverable amount is the higher of flows that the asset will produce in its
to its recoverable amount. ‘Testing for
CU90 and CU120, and is thus CU120. On current condition, discounted to present
impairment’ therefore means assessing
the other hand, if the value in use were value using a pre-tax discount rate. The
an asset’s recoverable amount and
CU94, an impairment loss of CU6 would discount rate should reflect risks specific
comparing it with the asset’s carrying
be recognised and the carrying amount to the asset that have not been reflected
amount.
of the asset would be reduced to CU94. in the cash flows.
Intangible assets with indefinite useful If value in use was lower than fair value
lives, intangible assets not yet available less costs to sell, for example, value in
for use, and goodwill acquired in a use was CU90 and fair value less costs to
Goodwill acquired in a
business combination must each be sell was CU94, the asset would be written business combination and
tested annually to see whether they are down to CU94 even if the entity intended specific intangible assets
impaired. to continue using the asset and did not must be tested annually
plan to sell it. If the amount recoverable
Other assets (for example, property,
through using an asset is lower than
to see whether they are
plant and equipment and investments
in associates and joint ventures) have to the amount that management would impaired. Other assets
be tested for impairment only if there realise by selling the asset, the Standard have to be tested for
is an indication that the asset may be assumes that management would sell impairment only if there
the asset. If management did not sell
impaired. However, entities are required
the asset and the asset is carried at the
is an indication that the
to assess at the end of each reporting
period whether there are any indicators amount recoverable through sale, CU94 asset may be impaired.
that an asset may be impaired. The in the example, the operating results
Standard specifies minimum indicators would, over time, reflect a loss for this
that must be considered. For example, asset, or business line, because only
an entity must consider whether there CU90 of its carrying amount is recovered
have been any significant changes in through its use.
legislation during the reporting period
that have an adverse effect on it.
continued
IAS 36
Impairment of Assets continued
The value in use of an individual asset For the purpose of impairment testing, An impairment loss for goodwill is never
sometimes cannot be determined, goodwill acquired in a business reversed. For other assets prior period
because the asset does not generate combination is, from the acquisition impairments can reverse. However,
cash flows that are largely independent date, allocated to each of the group’s impairment reversals cannot result in an
of those from other assets. In this CGUs or collection of CGUs that are asset’s carrying amount being increased
case, the value in use, and hence expected to benefit from the synergies above the amount that it would have
recoverable amount, is determined of the combination. This allocation been if there had been no impairment
for the smallest group of assets to is made irrespective of whether other loss in prior years.
which the asset belongs that generates assets or liabilities of the acquiree are
independent cash flows. This is known assigned to those CGUs or collection of Calculating value in use of an asset
as a cash‑generating unit (‘CGU’). For CGUs. The impairment of goodwill is or CGU involves the entity:
example, a company operating several assessed by considering the recoverable
• estimating the future cash flows
bus routes has three maintenance depots amount of the CGU, or collection of
that it expects the asset/CGU, in its
each servicing particular geographical CGUs, to which it is allocated.
current condition, to generate
areas. The maintenance depots do not
When an impairment loss is identified, it and/or use; and
generate cash flows. Each maintenance
is recognised immediately as an expense • discounting those cash flows by
depot will be allocated to a CGU that
and the carrying amount of the asset is the current market risk-free pre-tax
contains the buses that are maintained
reduced. If a CGU is impaired, goodwill rate of interest.
by that depot. The CGU will comprise
is reduced first, then other assets are
the buses that operate those routes and Either the cash flows or the discount
reduced pro rata based on their carrying
the maintenance depot. The value in use rate above should be adjusted for the
amounts and subject to specified limits.
of the CGU will be calculated using the following:
Where applicable, the depreciation
income expected from those bus routes • expectations about possible
(amortisation) charge on assets is
and all the costs necessary to operate variations in the amount or timing
adjusted in future periods to allocate
those routes, for example, salaries of of the cash flows;
the asset’s revised carrying amount
bus drivers and the cost of the relevant • the price for bearing the
less residual value over its estimated
maintenance depot. uncertainty inherent in the
remaining useful life. The asset’s
residual value and remaining useful life asset/CGU; and
should also be reviewed. • other factors, such as illiquidity,
that market participants would
reflect in pricing the future
cash flows.
continued
IAS 36
Impairment of Assets continued
Judgements and estimates For example, management must: First-time adoption

At the end of each reporting period, • assess how reasonable the assumptions There are no specific mandatory
management must consider whether are on which its current cash flow exceptions or optional exemptions
there have been any indications that projections are based, by examining from the general principle in IFRS 1
an asset or CGU might be impaired. the causes of differences between past First-time Adoption of International Financial
Although a number of indicators are cash flow projections and actual cash Reporting Standards that apply to the
specified in the Standard and must be flows; requirements of IAS 36 for first‑time
considered, an entity may identify • ensure that the assumptions on which adopters. Consequently, an entity must
other indications. its current cash flow projections are assess whether, at its date of transition
based are consistent with past actual to IFRS, there is any indication that its
Identifying the lowest level of
outcomes, unless subsequent events or assets might be impaired. If indications
independent cash inflows for a group
circumstances require otherwise; and of impairment are found, the entity must
of assets (ie the CGU) requires
test the asset, or assets, for impairment
judgement. Allocating goodwill to • ensure that variations in the amount
at the transition date. Furthermore,
CGUs for the purpose or timing of future cash flows are
regardless of whether there is any
of impairment testing might also reflected in the expected present value
indication of impairment, goodwill
require significant judgement. of the future cash flows.
acquired in a business combination,
Estimating the recoverable amount of Management must also determine intangible assets with indefinite useful
an asset or CGU can involve significant the extent of disclosure to provide. lives, and intangible assets not yet
judgements and estimates. For the For example, key assumptions used to available for use must be tested for
judgements and estimates in measuring measure the recoverable amount of impairment at the date of transition to
an asset’s fair value, refer to the CGUs containing goodwill or intangible IFRS. Any impairment losses at the
summary on IFRS 13. Calculating value assets with indefinite useful lives date of transition are recognised in
in use involves forecasting the expected must be disclosed if the goodwill or retained earnings.
future cash flows from using, and intangible assets allocated to a CGU,
ultimately disposing of, the asset and or group of CGUs, is significant and if
determining the appropriate discount recoverable amount is based on value
rate. Risks specific to the asset must be in use. Disclosure of the effects of
reflected. Those cash flow projections reasonably possible changes in those key
must be based on reasonable and assumptions is also required.
supportable assumptions that represent
management’s best estimate of the
economic conditions that will exist over
the remaining useful life of the asset.
IAS 37
Provisions, Contingent Liabilities and
Contingent Assets
The Standard
IAS 37 specifies when a provision should be recognised and the amount at which it should be measured.
The Standard also specifies disclosure requirements for provisions, contingent liabilities and contingent assets.
Provisions A provision is recognised when it is • Restructuring costs—a provision is

more likely than not (ie greater than a recognised only when specified criteria
A provision is ‘a liability of uncertain 50 per cent probability) that an outflow set out in the Standard are met. The
timing or amount’; for example, an of resources will be required to settle the criteria are designed to ensure that the
entity considers it probable that it will obligation and when a reliable estimate entity has a constructive obligation
be unsuccessful in a court action that is can be made of the amount of the to restructure. To have a constructive
being brought against it by a customer, obligation. It is measured at the amount obligation to restructure, the entity
but does not know the exact amount of that the entity would have to pay either needs to have a detailed formal plan,
damages that the court will award to the to the other party, say, the customer identifying specified items, and have
customer. either started to implement the plan
bringing the court action against the
or announced its main features to
A liability ‘is a present obligation of entity, to settle the obligation at the
those affected by it.
the entity arising from past events, end of the reporting period or to a third
the settlement of which is expected to party for that third party to take on the IFRIC 21 Levies deals with another specific
result in an outflow from the entity obligation. Risks and uncertainties are case, government-imposed levies. It
of resources embodying economic taken into account when measuring a clarifies that where the payment of a
benefits’ and can result from a legal provision. Provisions are discounted levy is triggered by operating in a future
obligation or a constructive obligation. to their present value using the period (2016), an entity does not have,
A constructive obligation arises from appropriate pre-tax discount rate. at the end of the earlier period (2015), a
constructive obligation as a result of the
the entity’s actions whereby it has IAS 37 elaborates on the following three entity being economically compelled to
indicated to others that it will accept specific cases: continue to operate in that future period
specified responsibilities and, as a result,
• Future operating losses—a provision (2016). Consequently the entity would not
has created a valid expectation that it
cannot be recognised, because recognise a provision at the end of the
will discharge those responsibilities, for
there is no obligation at the end of earlier period (2015). Similarly, the going
example, as might arise from a retailer’s
the reporting period, although the concern assumption that underlies the
custom of refunding dissatisfied
preparation of the financial statements
customers when it has no contractual or expectation of future operating losses
(see IAS 1 Presentation of Financial Statements)
legal obligation to do so. will trigger the need for an impairment
does not imply that a present obligation
review (see IAS 36 Impairment of Assets).
exists at the end of the earlier period
• An onerous contract—that is, a (2015) even though the assumption is that
contract in which the unavoidable the entity will continue trading in the
costs of meeting the obligations next reporting period. For example, on
exceed the expected economic 24 February 2016 Entity A must pay a levy
benefits from it, for example, a vacant equal to 1 per cent of its revenue for 2015
leasehold property. An onerous if it has traded at any point during January
contract gives rise to a provision. 2016. On 31 December 2015 Entity A does
not recognise a provision to pay the levy
on 24 February 2016.
continued
IAS 37
Contingent Assets continued
Contingent assets are not recognised

A provision for restructuring costs cannot be recognised in the statement of financial position.
without the entity having a detailed formal plan which When it is more likely than not that an
inflow of benefits will occur, disclosure
identifies specified items, and having either started to
of contingent assets is provided in the
implement the plan or announced its main features to notes to the financial statements. In
those affected by it. By its actions it will have raised a the example above, disclosure would be
valid expectation in those affected that it will carry out given if it is probable that the entity will
be successful, but no disclosure would be
the restructuring.
given if it is only possible that the entity
will be successful.
Contingent liabilities Unless the possibility of an outflow
However, when the inflow of benefits is
of economic resources is remote, a
Contingent liabilities comprise two virtually certain, the inflow is no longer
contingent liability is disclosed in the
strands, neither of which is recognised considered to be contingent, and an
notes to the financial statements.
as a liability in the financial statements. asset is recognised in the statement of
The first is a possible, but not probable, Contingent assets financial position.
obligation arising from past events
whose existence will be confirmed
Contingent assets are possible assets Judgements and estimates
arising from past events whose existence
by the occurrence or non-occurrence IAS 37 explicitly acknowledges that the
will be confirmed by the occurrence
of uncertain future events that are use of estimates is an essential part of
or non-occurrence of uncertain future
not wholly within the control of the the preparation of financial statements
events that are not wholly within the
entity. An example is when available and does not undermine their reliability.
control of the entity. An example is a
evidence suggests that it is possible, This is especially true in the case of
possible, or probable, award of damages
but not probable, that an entity will be provisions, which by their nature are
from a legal action that the entity is
unsuccessful in a court action that is more uncertain than most other items
taking against a competitor.
being brought against it by a customer. in the statement of financial position.
The second strand is an obligation, that
is, a liability, that is not recognised
either because its amount cannot be
measured with sufficient reliability,
or because it is not probable that an
outflow of resources will be required to
settle the obligation.
continued
IAS 37
Contingent Assets continued
In some cases, significant judgement In estimating the amount of the

may need to be applied in evaluating the The use of estimates obligation, such as a provision for
available evidence to determine whether is an essential part cleaning up a site at the end of its life,
an entity has a present obligation, a future events, such as future changes in
of the preparation of
possible obligation or no obligation at technology, should be reflected but only
the reporting date. This may involve, for financial statements and if there is sufficient objective evidence
example, seeking the opinion of experts does not undermine that they will occur.
or examining additional evidence from their reliability. This In the rare event that it is concluded
events occurring after the reporting
is especially true in that a reliable estimate cannot be
period. This judgement will determine
whether an entity has a provision, a the case of provisions, made of an obligation, disclosure as a
contingent liability is required. Such
contingent liability or neither. For which by their nature disclosures include an estimate of its
example, a lawsuit is brought against are more uncertain than financial effects and an indication of the
an entity seeking compensation for
most other items in the uncertainties relating to the amount or
damages to third parties’ health as a
result of environmental contamination statement of financial timing of the outflow.
alleged to have been caused by waste position. First-time adoption

from that entity’s production process, but
it is unknown whether the entity is the There are no specific mandatory
Once it has been concluded that it is exceptions or optional exemptions from
source of the contamination—the true
more likely than not that an entity will the general principle in IFRS 1 First-time
source of the contamination will become
need to make a payment, a provision is Adoption of International Financial Reporting
known only after extensive testing.
recognised only if a reasonable estimate Standards that apply to the requirements
Furthermore, if it is more likely than of the amount of the obligation can of IAS 37 for first‑time adopters.
not that an entity will need to make be made. This will generally require
a payment, for example, as a result further significant judgement. The
of a court case brought against it, a Standard states that, ‘except in
provision is recognised (assuming a extremely rare cases, an entity will be
reliable estimate of the amount can able to determine a range of possible
be made); otherwise a contingent outcomes and can therefore make
liability is disclosed. In some cases an estimate of the obligation that is
significant judgement may be required sufficiently reliable to use in recognising
in determining whether it is more likely a provision’.
than not that a payment will be made.
IAS 38
Intangible Assets
The Standard
IAS 38 sets out when intangible assets must be recognised, how they must be measured and what information
about them must be disclosed.
An intangible asset is an identifiable The fundamentals in the two Standards • subsequently measured using either
non-monetary asset without physical are the same. However, the unique the cost model or the revaluation
substance; for example, computer nature of many intangible assets results model:
software, licences, patents and in IAS 38 containing additional guidance
• in accordance with the cost
copyrights. Identifiable means either and safeguards. As for assets within the
model, assets are measured at cost
it is separable, that is, it could be sold scope of IAS 16, intangible assets are:
less accumulated depreciation/
separately from the business, or it arises
• recognised only if it is probable that amortisation (amortisation is the
from contractual or other legal rights
economic benefits will flow to the equivalent of depreciation) less
regardless of whether it is separable.
entity and the cost of the asset can be accumulated impairment losses;
Goodwill acquired in a business measured reliably; IAS 38 supplements
• in accordance with the revaluation
combination is accounted for in these two criteria with more specific
model, assets are carried at fair
accordance with IFRS 3 Business criteria for internally generated
value less subsequent accumulated
Combinations and is outside the scope of intangible assets (see below) and also
depreciation/amortisation
IAS 38. Internally generated goodwill requires entities to use reasonable
less subsequent accumulated
is within the scope of IAS 38. However, and supportable assumptions
impairment losses. For tangible
IAS 38 prohibits its recognition as when assessing the probability that
assets fair value, must be capable
an asset. economic resources will flow to the
of reliable measurement, but for
entity from an intangible asset;
To be an asset, the entity must intangible assets fair value must be
have control of it. Some intangibles • measured at cost on initial recognition measured by reference to an active
might benefit an entity but not be if acquired separately; cost is purchase market. Because active markets for
controlled by the entity, for example, price plus directly attributable costs intangible assets are uncommon,
customer loyalty. (plus, for tangible assets, an estimate it will be rare for any intangible
of the cost of dismantling and assets to be revalued. If an asset
IAS 16 Property, Plant and Equipment
restoring the site where relevant); cost is measured using the revaluation
sets out the appropriate accounting
is measured as the fair value of what is model, all assets in the same class
for tangible assets (apart from
paid, so if payment is deferred beyond must also be measured using the
inventories, investment properties,
normal credit terms, cost is the revaluation model unless, for
biological assets and agricultural
present value of the cash payment; intangible assets, there is no active
produce) expected to be used for more
market for those assets;
than one accounting period. IAS 38 is • measured at cost on initial
the equivalent Standard for intangible recognition if internally generated • there is explicit acknowledgement
assets, although IAS 38 does not limit its (self‑constructed if tangible); that the useful life of an intangible
scope to those assets used in more than asset might be indefinite;
• measured at fair value on initial
one accounting period.
recognition if acquired in a business
combination; this is the cost of the
asset to the acquirer;
continued
IAS 38
Intangible Assets continued
• the amortisation method must The cost of generating an intangible

reflect the pattern in which the asset internally is often difficult to Expenditure incurred during
asset’s service potential is expected distinguish from the cost of maintaining development or the development
to be consumed by an entity; for or enhancing the entity’s operations. phase of an internal project should
intangible assets, there is a fall-back For this reason, internally generated be recognised as an intangible asset
to the straight-line method; and brands, mastheads, publishing titles, only if the entity can demonstrate:
customer lists and similar items are • the technical feasibility of
• the depreciable amount of an asset
not recognised as intangible assets. completing the asset;
is cost, or revalued amount, less
As stated above, internally generated • its intention to complete the
residual value. For an intangible
goodwill is also precluded from being asset;
asset with a finite useful life,
recognised as an asset. For all other
residual value is deemed to be nil, • its ability to use or sell the asset;
internally generated intangible assets,
unless a third party has committed • how the asset will generate
the Standard imposes some additional
itself to buy the asset or unless probable future economic
conditions that must be met before
there is an active market for the benefits;
an asset can be recognised in the
intangible assets and it is probable
statement of financial position. First, • the availability of adequate
there will still be such a market at
the generation of the other internally technical, financial and other
the end of the asset’s useful life.
generated intangible assets must resources to complete the
Because of the nature of intangible be classified into a research phase development and to use or sell
assets, the Standard includes guidance and a development phase. Research the asset; and
on determining useful life. An expenditure is always recognised as • its ability to measure reliably the
intangible asset with an indefinite an expense when incurred; it cannot expenditure attributable to the
useful life is not amortised, but is tested be recognised as an intangible asset. asset during development.
annually for impairment. Expenditure incurred during the
development phase is recognised as an
intangible asset but only to the extent it Judgements and estimates
was incurred after specified criteria (see
The assessment of whether an entity
box) have been met. Other development
controls intangible resources that are
expenditure is recognised as an expense
expected to generate economic benefits
when incurred.
may be difficult. Unless the entity has
control, it is precluded from recognising
the intangible item as an asset.
continued
IAS 38
Intangible Assets continued
Judgement is required when capitalising However, there is an optional exemption If a first-time adopter elects not to
the costs associated with internally in IFRS 1 that allows a first-time adopter apply IFRS 3 retrospectively to business
generated intangible assets, because an to measure individual intangible assets combinations that occurred before
entity needs to assess whether and, if at a deemed cost, but only if an active the date of transition to IFRS, some
so, at which point, the criteria for the market for the asset exists and a number intangible assets will not be recognised
capitalisation of costs incurred in the of other conditions are satisfied. When that would have been recognised if
development phase are met. the conditions are satisfied, the deemed IFRS 3 had been applied retrospectively,
cost of an intangible asset is permitted while others may be measured at a
Subsequent measurement of intangible
to be either: different amount.
assets involves judgement and
estimation, for example, in determining
whether the intangible asset has
• its fair value, determined by reference
to the active market, at the date of
Recent developments
a finite or an indefinite useful life, transition to IFRS; or Clarification of Acceptable Methods
determining the useful life and the of Depreciation and Amortisation
• a revaluation in accordance with
appropriate amortisation method (Amendments to IAS 16 and IAS 38) was
the entity’s previous accounting at,
if the life is finite, determining the issued in May 2014 and is effective for
or before, the date of transition to
recoverable amounts of assets when annual reporting periods beginning
IFRS if the revaluation was broadly
performing impairment tests (see the on or after 1 January 2016, although
comparable either to fair value at the
summary on IAS 36 Impairment of Assets), it can be applied early. It establishes a
date it was undertaken or to cost or
determining whether an active market rebuttable presumption that the use
amortised cost, determined by IFRS, as
exists, and is expected to continue to of a revenue‑based method to calculate
adjusted by a relevant price index.
exist, for particular intangibles and the amortisation of an intangible asset is not
determination of the associated residual If used, this non-mandatory exemption appropriate, because revenue generated
values and, if appropriate, the fair values does not result in the entity being by an activity that includes the use of
of the intangibles. obliged to apply the revaluation model an asset generally reflects factors other
to the assets (and classes of assets) for than the consumption of the economic
First-time adoption which the election was made; after the benefits embodied in the asset. The
date of transition, the cost model may be presumption can be rebutted if the
For intangible assets there are no specific
applied. Further guidance on applying contract establishing the intangible
mandatory exceptions from the general
this optional exemption, and limited asset specifies a fixed total amount of
principle in IFRS 1 First-time Adoption of
additional options, including a narrow revenue to be generated, or if the entity
International Financial Reporting Standards.
exemption regarding the use of an can demonstrate that revenue and the
additional deemed cost, are contained in consumption of the intangible asset’s
IFRS 1 for specific scenarios. economic benefits are highly correlated.
IAS 39
Financial Instruments: Recognition and Measurement
The Standard
IAS 39 establishes principles for recognising and measuring financial assets, financial liabilities and some
contracts to buy or sell non-financial items. It includes principles for hedge accounting. The presentation and
disclosure of financial instruments are the subjects of IAS 32 Financial Instruments: Presentation and
IFRS 7 Financial Instruments: Disclosures respectively.
A financial instrument is ‘any contract The Standard sets out a number of However, when an entity transfers an
that gives rise to a financial asset of examples of what might constitute asset to another party (‘the transferee’),
one entity and a financial liability or settling net in cash. They include: when whether that asset is removed from the
equity instrument of another entity’. the non-financial item that is the subject entity’s statement of financial position
For example, a bank loan gives rise to of the contract is readily convertible to or whether it has to remain and a
a receivable for the bank and a payable cash; and when an entity has a practice of liability to the transferee is recognised,
for the other party. Similarly, a foreign taking physical delivery but then selling depends on whether substantially all the
currency forward contract that is to be the item within a short time to take risks and rewards of ownership of the
net settled will give rise to a payable or advantage of short-term price fluctuations. asset have transferred to the transferee
receivable, depending on the way the and, if neither party has substantially
exchange rate moves, for one party and
Recognition and all the risks and rewards of ownership,
the opposite for the other party. derecognition on which party has control of the asset.
For example, a company enters into
If a derivative (for example, an option, The financial asset or financial liability
an invoice discounting arrangement,
interest rate cap or foreign currency arising under a financial instrument is
recognised in the statement of financial whereby it receives money (less than face
forward) is contained, or ‘embedded’,
position when the entity becomes a value), from a bank, for invoices it has
in a contract, the Standard requires,
party to the contract. This is regardless issued to its customers and later pays to
if specified conditions are met, that
of whether anything has been paid. For the bank the cash that it subsequently
the derivative is separated from the
example, many derivatives, such as a receives from the customers and pays
‘host contract’ and accounted for in
forward contract to purchase a foreign a fee and interest to the bank. The
accordance with this Standard, as if
currency, need no payment until the end receivables from the customers (the
it were a stand-alone derivative. In
of the contract, when the currencies are asset) will be removed from the entity’s
such circumstances, an entity may
exchanged. However, under the Standard statement of financial position if
opt to account for the combined
an asset or liability is recognised once the substantially all the risks and rewards
hybrid contract, instead of merely the
exchange rate has moved in such a way of ownership of the receivables have
embedded derivative, at fair value
that the contract is either ‘in’ or ‘out of transferred to the other party (the bank)
through profit or loss in accordance
the money’. or if neither party has substantially all
with this Standard.
If an entity’s contractual rights to an the risks and rewards of ownership but
In addition to financial instruments, the bank has control of the receivables.
asset’s cash flows cease or its obligations
the Standard also applies to contracts Otherwise the receivables will remain
under the contract are extinguished, the
to buy or sell a non-financial item, entity will ‘derecognise’ the financial asset and a liability to the bank will be
such as a contract to purchase crude or financial liability; that is, the entity recognised. Consideration of matters
oil, if the contract can be settled net will remove the asset or liability from such as which party bears the loss if the
in cash. However, such contracts are its statement of financial position; for customer does not settle the invoice is
excluded if the item is ordered for use example, once the currencies have been relevant.
in the business and is within expected exchanged at the end of a foreign currency
purchase, sale or usage requirements. forward contract, or once a debtor has
repaid its loan balance to the lender.
continued
IAS 39
Financial Instruments: Recognition and Measurement continued
Measurement If there is evidence of impairment of a Hedge accounting

financial asset measured at amortised
On initial recognition, a financial asset cost, the impairment loss is measured as A hedging transaction is when an entity
or liability is measured at its fair value. the difference between the asset’s carrying enters into a transaction with another
Transaction costs are added to the fair amount and the present value of the party with the intention of reducing or
value for all assets and liabilities except estimated future cash flows, discounted by eliminating its exposure to a particular
those classified at fair value through the asset’s original effective interest rate. risk or to the variability in cash flows.
profit or loss. Subsequent measurement The loss is recognised in profit or loss by a An example would be entering into a
depends on its classification. Some direct reduction in the asset or through an contract to purchase foreign currency
categories are measured at amortised allowance account. In subsequent periods, at a specified rate on a specified date
the impairment loss may decrease and be (the hedging instrument) to reduce the
cost, and some at fair value. In limited
reversed. If so, the carrying amount of the variability in future cash flows from
circumstances other measurement bases
asset after such a reversal may not exceed the purchase of a piece of equipment
apply; for example, certain financial
what the carrying amount of the asset that has been ordered from an overseas
guarantee contracts.
would have been at that date if there had supplier (the hedged item).
Impairment and been no impairment. In the absence of hedge accounting,
uncollectability of financial If an available-for-sale asset is impaired, the gains and losses on the hedging
instrument and the hedged item are not
there is no need to reduce the carrying
assets amount of the asset, because it is carried always recognised in profit or loss in the
at fair value; instead the cumulative same accounting period as one another.
An entity must assess at the end of
loss that has been recognised in other Hedge accounting does not change the
each reporting period whether there is
comprehensive income is reclassified (or, overall performance/profits of the entity
objective evidence of impairment for
as it is sometimes called, ‘recycled’) to over time: it affects only the timing
a financial asset or group of financial
profit or loss. and presentation of profits or losses. By
assets measured at amortised cost,
applying hedge accounting, the gains
measured at cost (equity investments
and losses on the hedged item and the
whose fair value cannot be measured
hedging instrument are recognised in
reliably) or categorised as available-for-
profit or loss in the same accounting
sale. An example of objective evidence period as one another.
for a lender would be a borrower
defaulting on an interest payment.
continued
IAS 39
There are three types of hedging • The hedge of a net investment in a Judgements and estimates
relationships: foreign operation as defined in
Identification of what is within the
IAS 21 The Effects of Changes in Foreign
• Fair value hedge: a hedge of the scope of the Standard can sometimes
Exchange Rates. Such hedges are
exposure to changes in the fair be difficult. For example, determining
accounted for in a similar way to cash
value of all or an identified portion whether a contract for a non-financial
flow hedges.
attributable to a particular risk, of item is within the scope of the Standard
recognised assets or liabilities, or Strict conditions must be met before can require judgement: can it be net
unrecognised firm commitments. hedge accounting is possible: settled; is it within the entity’s expected
An example is an interest rate swap purchase, sale or usage requirements, etc.
• There must be formal designation
hedging a fixed interest rate loan by
and documentation of the hedge, While classification will often be clear, if
swapping to variable rate interest. ‘more than an insignificant amount’ of
including the risk management
Changes in the fair value (attributable ‘held-to-maturity’ investments are sold or
strategy for the hedge.
to the hedged risk) of the hedged reclassified in the current or preceding
item and the hedging instrument • The hedging instrument must be
two years, assets cannot be categorised as
are recognised in profit or loss in the expected to be highly effective in
held to maturity. Measurement contains
period in which they occur. achieving offsetting changes in fair many judgements and estimates.
value or cash flows of the hedged item While determining fair value can be
• Cash flow hedge: a hedge of the
that are attributable to the hedged risk. straightforward, it is not always so.
exposure to variable cash flows that
• For cash flow hedges, the forecast Judgement is required in determining
could affect profit or loss and that
transaction being hedged must be whether a financial asset is impaired, and
are attributable to recognised assets
highly probable and the variability in if so, the extent to which expected future
or liabilities or highly probable
cash flows from the financial asset have
forecast transactions. An example cash flows that it gives rise to could
declined and whether an impairment loss
is an interest rate swap hedging a ultimately affect profit or loss.
must be reversed.
variable interest rate loan by swapping • Hedge effectiveness, ie the fair value or
to fixed rate interest. The portion Hedge accounting can be used only if
cash flows of the hedged item and the
of the gain or loss on the hedging the hedge is documented and designated
fair value of the hedging instrument,
instrument that is determined to up front, and is demonstrated to be
can be reliably measured.
be an effective hedge is recognised highly effective.
in other comprehensive income in • The hedge must be assessed on an
Derecognition can require judgement if a
the period in which it occurs. The ongoing basis both prospectively and
financial asset has been transferred, such
ineffective portion is recognised in retrospectively; the actual results must as with debt factoring, rather than the
profit or loss. The amount recognised be within a range of 80-125 per cent. asset having been terminated, such as an
in other comprehensive income option expiring. When an asset has been
and accumulated within equity transferred, it is necessary to determine
is reclassified to profit or loss in which party has substantially all the risks
accordance with the requirements of and rewards of ownership and, if it is
the Standard. neither, which party controls the asset.
continued
IAS 39
Categories of financial assets and financial liabilities accounted for at AMORTISED COST using the effective interest method
Held-to-maturity (HTM) Non-derivative financial assets with fixed maturity and fixed or determinable
payments that the entity has the positive intention and ability to hold to maturity.
Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market.
Financial liabilities Financial liabilities that are not carried at fair value through profit or loss
or otherwise required to be measured in accordance with another
measurement basis.
Categories of financial assets and financial liabilities accounted for at FAIR VALUE
Financial assets and financial liabilities Includes those held for trading, those that the entity has designated for
at fair value through profit or loss measurement at fair value, derivatives and contingent consideration of an
(FVTPL) acquirer if the business combination has an acquisition date on or after
1 July 2014.
Changes in fair value go to profit or loss.

Financial assets available-for-sale (AFS) All financial assets not falling into one of the three other categories. Changes in
fair value go to other comprehensive income.
continued
IAS 39
First-time adoption A first-time adopter is not required Recent developments

to go back and revisit decisions on
There are some mandatory exceptions IFRS 9 Financial Instruments was issued by
derecognition that it took under its
from the general principle in IFRS 1 the IASB in July 2014 and is effective for
previous accounting prior to its date of
First-time Adoption of International Financial annual reporting periods beginning on
transition to IFRS. A first-time adopter
Reporting Standards relating to hedge or after 1 January 2018, although earlier
may choose to revisit the derecognition
accounting. There are also some application is permitted. If an entity
decisions and, if it does, it can determine
optional exemptions. elects to designate a financial liability
from which date it does so. However,
as at fair value through profit or loss,
Transactions entered into prior to it can only do so if the necessary
IFRS 9 requires the entity to recognise
the date of transition that were information to enable the appropriate
the effects of changes in the credit risk
not designated as hedges cannot be accounting in accordance with IAS 39
of that liability in other comprehensive
retrospectively designated as hedges. was obtained when the entity initially
income rather than in profit or loss.
accounted for the transactions.
In a situation in which a first-time This aspect of IFRS 9 can be applied
adopter had, in terms of its previous Although the designation of a early without applying any other
GAAP, designated a net position as a financial asset as available-for-sale or aspect of IFRS 9.
hedged item, the first-time adopter may the designation of a financial asset
When IFRS 9 is first applied by an entity,
designate individual items that are or financial liability as at fair value
the entity has an accounting policy
within the net position as hedged items through profit or loss should be on
choice to apply the hedge accounting
if the requirements of IAS 39 are met. initial recognition, a first-time adopter
requirements of IFRS 9 or of IAS 39.
may make the designation at its date of
If the first-time adopter had, before When an entity applies IFRS 9’s hedge
transition to IFRS.
the date of transition, designated a accounting requirements, it may
transaction as a hedge, but such a nevertheless elect to apply the IAS 39
transaction does not meet the conditions requirements for a fair value hedge of
for hedge accounting in terms of IAS 39, the interest rate exposure of a portfolio
the entity must discontinue hedge of financial assets or financial liabilities.
accounting prospectively. This latter option has been permitted
until the IASB completes its project on
the accounting for macro hedging.
A summary of IFRS 9 is included in the

Appendix.
IAS 40
Investment Property
The Standard
Investment property is land and/or buildings, or part of a building, held to earn rentals and/or for capital
appreciation rather than held for use in the production or supply of goods or services, or for administrative
purposes or held for sale in the ordinary course of business.
In accordance with the Standard, Investment property is initially Under the cost model, investment
owner‑occupied property is property measured at its cost, including related property is measured at cost less
used in the production or supply of transaction costs. accumulated depreciation and any
goods or services or for administration accumulated impairment losses. Gains
On subsequent measurement, an entity
and is excluded from the definition of and losses on disposal of investment
must adopt either the fair value model
investment property. property are recognised in profit or loss.
or the cost model for all investment
A business owns three properties: one
from which it manufactures goods
properties. The Board had proposed
requiring the use of fair value for all
that it sells to wholesalers; the second investment property. Although fair Determining whether a property is
that houses the administrative staff; value provides more useful information, an investment property sometimes
and the third, which previously housed the Board permitted this choice to requires judgement. When a property
administrative staff, but since becoming give preparers and users time to gain is held partly for own use and partly
surplus to the entity’s requirements has experience with using a fair value for investment purposes (for example,
been rented out to a third party. The first model and to allow time for countries the first three floors of a building are
and second buildings must be accounted with less-developed property markets for own use and the top three floors are
for in accordance with IAS 16 Property, Plant and valuation professions to mature. rented out to a third party) each part of
and Equipment while the third building, Consequently, it is highly unlikely the building is accounted for separately
since its change in use, is accounted for in that a voluntary change from the fair if the parts could be sold separately
accordance with IAS 40. value model to the cost model could be or leased separately under a finance
justified. If the cost model is adopted, lease. If the parts cannot be sold or
Investment property might be owned by
fair value is a required disclosure. leased separately, the building can be
an entity or might be held by an entity
Consequently, all entities must estimate classified as an investment property only
as the lessee under a finance lease.
the fair value of their investment if an insignificant portion is for own
Furthermore, a property interest held
properties. Fair value reflects the rental use. Similarly, when an entity provides
by a lessee under an operating lease may
income from current leases and market ancillary services, such as security
also be classified and accounted for as
conditions at the end of the reporting and maintenance, to the occupants
an investment property, but only if the
period and is measured in accordance of a property it holds, it treats such a
property otherwise meets the definition
with IFRS 13 Fair Value Measurement. property as investment property only
of an investment property and the lessee
if the services are insignificant to the
uses the fair value model (see below) to Under the fair value model, investment
arrangement as a whole.
account for the property interest asset property is remeasured at the end of
recognised. This classification is available each reporting period. Changes in fair
on a property‑by‑property basis for such value are recognised in profit or loss in
property under operating leases. However, the period in which the change in fair
selection of this alternative for one or value occurs.
more operating leases results in the entity
being required to use the fair value model
for all its investment properties.
continued
IAS 40
Investment Property continued
Determining whether own use or Sometimes an entity may hold both First-time adoption
ancillary services are an insignificant investment properties and development
part can require a high level of properties. Judgement may be needed For investment property, there are no
judgement. For example, an owner of a to determine whether a property has specific mandatory exceptions from
hotel may transfer some responsibilities moved from one category to the other. the general principle in IFRS 1 First‑time
to third parties under a management Development properties are accounted Adoption of International Financial Reporting
contract. If the owner’s position is, in for in accordance with IAS 2 Inventories. Standards. However, there is an optional
substance, that of a passive investor, exemption in IFRS 1 that allows a
Measuring the fair value of investment first-time adopter that uses the cost
the property is investment property.
properties requires the exercise of model for subsequent measurement
If the owner has outsourced the
judgement. See the summary on of investment property to measure
day‑to‑day functions while retaining
IFRS 13. investment property at a deemed cost if
significant exposure to variation
in the cash flows generated by the If an entity elects to use the cost model, that deemed cost is either:
operations, the hotel is property, plant it must also make judgements and • fair value at the date of transition to
and equipment. Between these two estimates to depreciate such property, IFRS; or
extremes, it may be difficult to judge eg determining the residual value,
depreciation method and useful life (see • a revaluation in accordance with
whether the services are insignificant.
the summary on IAS 16 Property, Plant and the entity’s previous accounting at,
Consequently, management is required
Equipment), and to test it for impairment or before, the date of transition to
to develop criteria to assist consistent
(see the summary on IAS 36 Impairment IFRS if the revaluation was broadly
exercise of judgement for all properties
of Assets). comparable to fair value at the date it
in accordance with the definition of
was undertaken or it reflects cost or
investment property and with the
depreciated cost, determined by IFRS,
related guidance in IAS 40. When
An entity must adopt as adjusted by a relevant price index.
classification is difficult, an entity is
required to disclose the criteria used.
either the fair value Further guidance on applying this
model or the cost model optional exemption, and limited
Similarly, when an entity acquires a new
investment property judgement may be
for all investment additional options, are contained in
needed to determine whether what has properties. If the cost IFRS 1 for specific situations.
been acquired is an investment property, model is used, the fair

is an investment property together with
value of the property
one or more other assets or is instead
a business that includes an investment
must be disclosed.
property. In the latter case, IFRS 3
Business Combinations must be applied
to the acquisition and IAS 40 must be
applied to the subsequent accounting for
the investment property.
IAS 41
Agriculture
The Standard
IAS 41 prescribes the accounting for and reporting of biological assets related to agricultural activity and of
agricultural produce at the point of harvest.
Agricultural activity is the management The Standard specifies that biological Agricultural produce at the point of
by an entity of the biological assets related to agricultural activity are harvest is also measured at fair value less
transformation and harvest of living measured at fair value less costs to sell and costs to sell; if the produce is subsequently
animals or plants (biological assets) that the change in fair value less costs to within the scope of IAS 2, fair value
for sale or for the conversion into sell during a year is recognised in profit less costs to sell at the point of harvest
agricultural produce or into additional or loss for the year. The presumption is its cost when applying IAS 2. In the
biological assets. For example, operating that fair value can be measured reliably salmon farming example, if the entity
a salmon farm would constitute can only be rebutted when the asset is had a division that processed the salmon,
agricultural activity, whereas fishing first recognised. If the presumption is for example, it filleted the salmon and
wild salmon in the ocean would not rebutted, the biological asset is measured packaged them for sale and then sold
because the former, but not the latter, at cost less accumulated depreciation them to wholesalers and retailers, the
involves managing the biological and any accumulated impairment losses. harvested salmon would be measured
transformation—processes of growth, However, when fair value becomes reliably at their fair value less costs to sell at
production and procreation—of the measurable, the asset must be measured the point of harvest. The subsequent
salmon stocks, for example, by feeding at fair value less costs to sell. In the processing would be accounted for
them and maintaining their health. salmon farming example, the salmon under IAS 2.
Keeping guard dogs exclusively in order will be measured at their fair value less
Biological assets that are attached to land,
to provide security services to clients is costs to sell at the end of each reporting
for example, trees in a plantation forest,
not within the scope of IAS 41; although period, and the change in fair value less
are measured and accounted for separately
the guard dogs are biological assets and costs to sell will be included in profit or
from the land. The land is accounted for
the entity providing security services loss for the period. In a historical cost
in accordance with other Standards, for
feeds the dogs and ensures they are accounting model, the effects of biological
example, IAS 16.
healthy, the dogs are not deployed in transformation are not recognised until
agricultural activity—they are instead harvest and sale, which, in the case IAS 41 applies to government grants when
used exclusively to provide security of forestry, can be many decades after they relate to biological assets measured
services. The guard dogs would be planting. In contrast, the fair value at fair value less costs to sell. IAS 41 differs
within the scope of IAS 16 Property, Plant model recognises and measures biological from IAS 20 Accounting for Government Grants
and Equipment. transformation and other value changes and Disclosure of Government Assistance with
as they occur. regard to the recognition of government
IAS 41 does not address the processing
grants. Unconditional grants related to
of agricultural produce after harvest (eg
biological assets measured at fair value
processing grapes into wine, or wool into Biological assets and less costs to sell are recognised as income
yarn), because this is within the scope agricultural produce at when the grant becomes receivable.
of IAS 2 Inventories or another applicable
Standard.
the point of harvest are Conditional grants are recognised
generally measured at fair as income only when the conditions
attaching to the grant are met.
value less costs to sell.
continued
IAS 41
Agriculture continued
Products that are the result of

Biological assets Agricultural produce
processing after harvest
Sheep Wool and carcasses Yarn, carpet
Dairy cattle Milk and carcasses Cheese

Beef cattle Carcasses Meat cuts, sausages
Trees in a timber plantation Felled trees Logs, lumber
Judgements and estimates In measuring biological assets and First-time adoption

agricultural produce, estimates of,
Sometimes it may be difficult to for example, physical quantities and There are no specific mandatory
determine whether a particular the physical condition of the assets exceptions or optional exemptions
biological asset is within the scope may be complex. For judgements and from the general principle in IFRS 1
of IAS 41; for example, is keeping estimates in measuring fair value see First-time Adoption of International Financial
birds (biological assets) in an exotic the summary on IFRS 13 Fair Value Reporting Standards that apply to the
bird‑breeding zoo agricultural activity? Measurement. Furthermore, some requirements of IAS 41 for first‑time
If an entity operated a bird-breeding biological assets are physically attached adopters. The deemed cost exemption
business only (and did not permit bird- to land (eg trees in a plantation forest), in IFRS 1 may not be applied to
viewing), the birds would be within the which causes additional measurement biological assets by analogy.
scope of IAS 41. On the other hand, if issues. There may be no separate market
the entity only provided a bird-viewing for biological assets that are attached
Recent developments
service, there would be no agricultural to the land, but an active market might Agriculture: Bearer Plants (Amendments
activity and the birds would be within exist for the combined assets, that to IAS 16 and IAS 41) was issued in
the scope of IAS 16. Consequently, is, for the biological assets, raw land, June 2014 and is effective for annual
if an entity breeds birds and offers and land improvements, as a package. reporting periods beginning on or
bird‑viewing services then judgement Estimates to determine fair value for after 1 January 2016, although it can be
must be applied in classifying the birds the biological assets may be made based applied early. It excludes bearer plants
to determine which Standard applies. on information about the combined (a defined term) that are related to
assets. For example, the fair value of agricultural activity, for example, grape
raw land and land improvements may vines, from the scope of IAS 41 and adds
be deducted from the fair value of the them into the scope of IAS 16.
combined assets to arrive at the fair The produce on those plants, for
value of biological assets. example, grapes, remains within the
scope of IAS 41.
The International Financial Reporting

Standard for Small and Medium-sized Entities
(IFRS for SMEs)
The Standard
The IFRS for SMEs is intended to apply to the general purpose financial statements of entities that do not have
public accountability. It is built on a foundation of full IFRS, but with simplifications that reflect the needs of
the users of SMEs’ general purpose financial statements and that reflect cost‑benefit considerations.
Small and medium-sized entities are Most of the principles in the IFRS for • permitting a simplified method to be
defined in the Standard as entities that: SMEs for recognising and measuring used to calculate the defined benefit
(a) do not have public accountability, assets, liabilities, income and expenses obligation and related expense if
and (b) publish general purpose financial are consistent with those in full IFRS. calculating them using the projected
statements for external users. Examples However, many have been simplified, for unit credit method would result in
of such users include owners who are example: undue cost or effort; and
not involved in managing the business,
• recognising all borrowing costs and • requiring a single method of
existing and potential creditors, and
development costs as expenses when accounting for all government grants.
credit rating agencies.
incurred;
The IFRS for SMEs also requires
Entities that have public accountability
• reducing the number of categories substantially fewer disclosures (roughly
include publicly traded entities and
of financial assets, with most basic 10 per cent of the disclosures that are
entities that hold assets in a fiduciary
financial instruments being measured required in full IFRS).
capacity for a broad group of outsiders
at cost or amortised cost;
as a primary business, which is typically An entity whose financial statements
the case for banks and insurance • amortising goodwill and all intangible comply with the IFRS for SMEs must
companies. If a publicly accountable assets, including indefinite life include an explicit and unreserved
entity uses the IFRS for SMEs, its financial intangible assets, over their estimated statement of such compliance in the
statements must not be described as useful lives, which is presumed to be notes to its financial statements. Unless
conforming to the IFRS for SMEs—even 10 years if a reliable estimate cannot financial statements comply with all the
if law or regulation in its jurisdiction be made; requirements of the IFRS for SMEs, the
permits or requires the IFRS for SMEs to financial statements cannot be described
• permitting the cost model for
be used by publicly accountable entities. as complying with the IFRS for SMEs.
investments in associates and in
A subsidiary whose parent uses full joint ventures that involve the
IFRS is not prohibited from using establishment of a corporation, A stand-alone Standard
partnership or other entity;
the IFRS for SMEs in its own financial built on a foundation
statements if that subsidiary does not
have public accountability.
• eliminating the option to use the of full IFRS, but with
revaluation model for property, plant
and equipment and intangible assets;
simplifications that
The IFRS for SMEs can be applied instead
of full IFRS. It is organised by topic,
reflect SMEs’ user
with each topic presented in a separate needs and cost‑benefit
numbered section. considerations.
continued
The International Financial Reporting

Standard for Small and Medium-sized Entities
(IFRS for SMEs) continued
SMEs are defined in the Standard as entities that:

(a) do not have public accountability, and (b) publish
general purpose financial statements for external users.

Judgements and estimates are Section 35 Transition to the IFRS for
required when applying the IFRS for SMEs details the necessary procedures
SMEs. However, because measurement for a first-time adopter of the IFRS for
simplifications were made when SMEs. Like IFRS 1 First-time Adoption of
developing the IFRS for SMEs, there will International Financial Reporting Standards,
generally be fewer and less complex Section 35 includes some mandatory
estimates and judgements than for full exceptions and optional exemptions
IFRS. For example, all borrowing and from full restatement of the financial
development costs are recognised as statements as if they had always applied
expenses when incurred under the the IFRS for SMEs.
IFRS for SMEs, so there will be no need
to make judgements about which Recent developments
costs qualify for capitalisation, when In May 2015 the IASB published
capitalisation commences and whether 2015 Amendments to the IFRS for SMEs
the related asset might be impaired, as containing limited amendments
are required under full IFRS. following the initial comprehensive
review of the IFRS for SMEs.
See the Appendix.
IFRS Practice Statement

Management Commentary
The IFRS Practice Statement

This Statement provides a broad, non-binding, framework for the presentation of management commentary
that relates to financial statements that have been prepared in accordance with IFRS. The Practice Statement
is not a Standard and entities applying IFRS are not required to comply with it.
Management commentary is a narrative

report relating to financial statements Management should present commentary that is
that have been prepared in accordance consistent with the following principles: (a) to provide
with IFRS. The IASB’s objective in
management’s view of the entity’s performance, position
issuing the Practice Statement is to
improve the usefulness of the financial and progress; and (b) to supplement and complement
information provided in management’s information presented in the financial statements.
commentary so that, together with the
financial statements, primary users,
that is, existing and potential investors,
The information in the management Elements of management
commentary should possess the
lenders and other creditors that cannot qualitative characteristics described commentary
demand information from the entity, in the Conceptual Framework for Financial Management commentary should
are better able to make decisions about Reporting, in particular, relevance and include information about:
providing resources to the entity. faithful representation.
• the nature of the business;
Management commentary provides a Forward-looking information should be
context for the financial statements. • management’s objectives and its
included. In addition, the commentary
The Practice Statement states that the strategies for meeting those objectives;
should explain how and why the entity’s
management commentary should performance met, exceeded or fell short • the entity’s most significant resources,
explain management’s view not only of forward-looking disclosures, such as risks and relationships;
about what has happened, including targets, made in the previous period’s
• the results of operations and
positive and negative circumstances, but management commentary.
prospects; and
also why it has happened and what the
Management commentary provides
implications are for the entity’s future. • the critical performance measures
information to help users to understand,
Management commentary should also and indicators that management uses
for example: the entity’s risk exposures,
explain the main trends and factors that to evaluate the entity’s performance
its strategies for managing risks and
are likely to affect the entity’s future against stated objectives.
the effectiveness of those strategies;
performance, position and progress.
how resources that are not presented When preparing its commentary,
in the financial statements could management should consider the needs
affect the entity’s operations; and how of the primary users of financial reports.
non‑financial factors have influenced The primary users are existing and
the information presented in the potential investors, lenders and
financial statements. other creditors.
continued
©2015 IFRS® This summary has been prepared by IFRS Foundation staff on the basis of Practice Statements issued at 30 June 2015.
IFRS Practice Statement

Management Commentary continued
Judgements and estimates Management commentary includes

forward-looking information, for
Management commentary encompasses example, management’s view on future
reporting that different jurisdictions plans and prospects. Consequently, it
might describe as ‘management’s includes subjective information and
discussion and analysis’, ‘operating and its preparation requires the exercise of
financial review’, ‘business review’ or professional judgement. Management
‘management’s report’. should disclose its assumptions used
Some areas of judgement and estimates in providing the forward-looking
that will apply to management information.
commentary are similar to those
applicable to financial statements
prepared in accordance with IFRS. Other
areas of judgement will relate to which
information and explanations should
be included and how the information
should be presented so that the focus is
on the most important information.
Management commentary
should derive from
the information that is
important to management
in managing the business.
This summary has been prepared by IFRS Foundation staff on the basis of Practice Statements issued at 30 June 2015. ©2015 IFRS®
Appendix
Standards issued at 30 June 2015 and,
although not mandatory for annual reporting periods
beginning on 1 January 2015, can be applied early
Introduction to Appendix 114

IFRS 9 Financial Instruments 116
IFRS 14 Regulatory Deferral Accounts 122
IFRS 15 Revenue from Contracts with Customers 124
This Appendix has been prepared by IFRS Foundation staff on the basis of Standards issued at 30 June 2015 that are required ©2015 IFRS®
for annual reporting periods beginning later than 1 January 2015; these Standards can be applied early. This Briefing has
not been approved by the IASB. For the requirements reference must be made to the Standards issued by the IASB.
A Briefing for Chief Executives, Audit Committees & Boards of Directors 2015: Appendix
Introduction to Appendix
This Appendix lists the Standards and changes to Standards that have been published by 30 June 2015 that,
although not required for annual reporting periods beginning on 1 January 2015, could be applied for such
periods. If the Standards and changes to Standards are not applied early, disclosure of the possible impact
when applied is required in the financial statements.
Changes to Standards that are not Summaries of the first three, namely, • Agriculture: Bearer Plants (Amendments
mandatory for annual reporting periods IFRS 9, IFRS 14 and IFRS 15, are on the to IAS 16 and IAS 41) was issued
beginning on 1 January 2015, but that following pages. in June 2014 and is effective for
can be applied early if wished, are found annual periods beginning on or after
The other changes include:
in the following publications: IFRS 9 1 January 2016, although it can be
Financial Instruments; IFRS 14 Regulatory • Clarification of Acceptable Methods applied early. It excludes bearer plants
Deferral Accounts; IFRS 15 Revenue from of Depreciation and Amortisation (a defined term) that are related
Contracts with Customers; Accounting for (Amendments to IAS 16 and IAS 38) to agricultural activity, for example,
Acquisitions of Interests in Joint Operations was issued in May 2014 and is effective grape vines, from the scope of IAS 41
(Amendments to IFRS 11); Clarification for annual periods beginning on or and adds them into the scope of
of Acceptable Methods of Depreciation and after 1 January 2016, although it can IAS 16 Property, Plant and Equipment.
Amortisation (Amendments to IAS 16 be applied early. It clarifies that the The produce on those plants, for
and IAS 38); Agriculture: Bearer Plants use of a revenue-based method to example, grapes, remains within the
(Amendments to IAS 41); Equity Method in calculate the depreciation of property, scope of IAS 41.
Separate Financial Statements (Amendments plant or equipment is not appropriate,
• Equity Method in Separate Financial
to IAS 27); Sale or Contribution of Assets whereas for intangible assets it
Statements (Amendments to IAS 27)
between an Investor and its Associate or establishes a rebuttable presumption
was issued by the IASB in August
Joint Venture (Amendments to IFRS 10 that the use of a revenue-based
2014 and is effective for annual
and IAS 28); Annual Improvements to method to calculate amortisation is
reporting periods beginning on or
IFRSs 2012–2014 Cycle; Disclosure Initiative not appropriate.
after 1 January 2016, although it can
(Amendments to IAS 1); Investment
be applied early. It introduces an
Entities: applying the Consolidation Exception
option to account for investments
(Amendments to IFRS 10, IFRS 12 and
in subsidiaries, joint ventures and
IAS 28); and 2015 Amendments to the
associates in separate financial
IFRS for SMEs.
statements using the equity method,
which is in addition to the choice of
cost or fair value already permitted.
continued
©2015 IFRS® This Appendix has been prepared by IFRS Foundation staff on the basis of Standards issued at 30 June 2015 that are required
114 for annual reporting periods beginning later than 1 January 2015; these Standards can be applied early. This Briefing has
Introduction to Appendix continued
• Disclosure Initiative (Amendments • Investment Entities: Applying the • 2015 Amendments to the IFRS for SMEs was
to IAS 1) was issued by the IASB in Consolidation Exception (Amendments to issued by the IASB in May 2015 and
December 2014 and is effective for IFRS 10, IFRS 12 and IAS 28) was issued is effective for annual reporting
annual reporting periods beginning by the IASB in December 2014 and is periods beginning on or after
on or after 1 January 2016, although effective for annual reporting periods 1 January 2017, although it can be
it can be applied early. The beginning on or after 1 January 2016, applied early. It comprises limited
amendments to IAS 1 are designed although it can be applied early. In amendments to the IFRS for SMEs
to further encourage companies to accordance with IFRS 10, a parent following a comprehensive review.
apply professional judgement in that is an investment entity measures The most significant changes,
determining what information to its investments in its subsidiaries which relate to transactions
disclose in their financial statements. at fair value, with changes in fair commonly encountered by SMEs,
For example, the amendments make value recognised in profit or loss for are: (a) permitting SMEs to revalue
clear that materiality applies to the each period, unless that subsidiary is property, plant and equipment; and
whole of financial statements and providing investment-related services (b) aligning the main recognition
that the inclusion of immaterial that support its parent’s investment and measurement requirements
information can inhibit the activities, in which case the subsidiary for deferred income tax with IFRS.
usefulness of financial disclosures. is consolidated. The Amendment The majority of the amendments
The amendments also make it clear clarifies that if a subsidiary’s main clarify existing requirements or add
that a ‘required’ disclosure is only purpose and activities are to provide supporting guidance, rather than
required if the information that investment-related services that change the underlying requirements
results is material. Furthermore, the support its parent’s investment in the IFRS for SMEs.
amendments clarify that companies activities, the subsidiary is
should use professional judgement consolidated only if it is not itself an
in determining where and in what investment entity.
order information, including the
significant accounting policies, is
presented in the notes to the financial
statements. The amendments also
aim to ensure that subtotals presented
in the statement of profit or loss and
other comprehensive income or in the
statement of financial position are
fairly presented.
for annual reporting periods beginning later than 1 January 2015; these Standards can be applied early. This Briefing has 115
IFRS 9
Financial Instruments
The Standard
IFRS 9 was finalised in July 2014. It specifies the requirements for recognising and measuring financial assets,
financial liabilities and some contracts to buy or sell non-financial items. The Standard replaces IAS 39
Financial Instruments: Recognition and Measurement in its entirety. It does not change the definitions of
financial instrument, financial asset or financial liability. Similarly its scope is essentially the same as that
of IAS 39, with the addition of contracts for non-financial assets that can be settled net in cash or another
financial instrument that eliminate or significantly reduce an accounting mismatch.
The presentation and disclosure of A financial asset is subsequently measured An entity reclassifies financial assets
financial instruments remain the at amortised cost if both of the following only when it changes its business model
subjects of IAS 32 Financial Instruments: conditions are met: for managing financial assets.
Presentation and IFRS 7 Financial • the asset is held within a business model Financial liabilities
Instruments: Disclosures respectively. whose objective is to hold assets in order
to collect contractual cash flows; and As is the case in IAS 39, in IFRS 9 most
Recognition, classification • the contractual terms of the financial
financial liabilities are measured at
and measurement asset give rise on specified dates to

amortised cost. Liabilities that are held
for trading (including all derivative
cash flows that are solely payments of
Financial assets and financial liabilities liabilities) are measured at fair value
principal and interest on the principal
arising under a financial instrument through profit or loss.
amount outstanding.
are recognised in the statement of
A financial asset is subsequently measured The Standard includes an option to
financial position when the entity
at FVOCI if both of the following irrevocably designate a financial liability
becomes a party to the contract. This
conditions are met: as measured at fair value through profit
is regardless of whether anything has
or loss if particular conditions are met,
been paid. Financial assets and financial • the asset is held within a business
for example, if doing so eliminates or
liabilities are initially measured at fair model whose objective is achieved by
significantly reduces an accounting
value. Transaction costs are added to both collecting contractual cash flows
mismatch. When this option is elected,
(or deducted from) the fair value of and selling financial assets; and
an entity is usually required to recognise
financial assets (or financial liabilities) • the contractual terms of the financial
directly in other comprehensive income,
other than those subsequently measured asset give rise on specified dates to
rather than in profit or loss, the change
at fair value through profit or loss. cash flows that are solely payments of
in the fair value of the financial liability
Financial assets principal and interest on the principal
arising from changes in the issuer’s own
amount outstanding.
Financial assets are classified based credit risk. Before IFRS 9 such changes
The Standard requires all other financial were recognised in profit or loss and
on the entity’s business model for
assets to be measured at fair value many had found this counterintuitive,
managing the financial assets and the
through profit or loss. The Standard also because a decline in an entity’s credit
contractual cash flow characteristics
includes an option to irrevocably designate quality previously led to a gain in
of the financial asset. Financial assets
a financial asset that would otherwise be
are classified into one of the following profit or loss. This aspect of IFRS 9 may
measured at amortised cost or FVOCI as
three categories, which determines how be applied early by a preparer that is
measured at fair value through profit or
it is measured subsequent to initial otherwise still applying IAS 39.
loss if doing so eliminates or significantly
recognition: reduces an accounting mismatch. In No financial liability shall be reclassified
• Amortised cost; addition, the Standard includes an option by the entity.
to irrevocably elect to present the change
• Fair value through other in fair value of some equity instruments in
comprehensive income (FVOCI); and other comprehensive income. See the flow
• Fair value through profit or loss. chart on classification and measurement
of financial assets. continued
IFRS 9
Financial Instruments continued
Impairment of financial Process for determining the classification and measurement of financial assets:
assets Instruments within the

scope of IFRS 9
IFRS 9 requires entities to recognise
expected credit losses on financial assets
Contractual cash flows are solely No
measured at amortised cost.
principal and interest?
The fair value of a financial asset Yes
should reflect any expectation of
Held to collect contractual No Held to collect contractual
losses. Consequently, for financial
assets measured at fair value through cash flows only? cash flows and for sale?
profit or loss there is no requirement Yes No Yes
to separately assess whether there are
Fair value option? Fair value option?
expected credit losses. However, when
debt instruments are measured at FVOCI No Yes Yes No
it is necessary to assess how much of
the change in fair value is attributable Amortised Fair value through other
Fair value through profit or loss*
cost comprehensive income
to the change in expected credit losses
and recognise this amount in profit or * Presentation option for equity investments to present fair value changes in OCI
loss rather than in other comprehensive

income. The amount is measured the
If there has been a significant increase Hedge accounting
in the credit risk, the expected lifetime
same way that expected credit losses are A hedging transaction is when an entity
credit losses are recognised. If there
measured for a financial asset carried at enters into a transaction with another
has not been a significant increase in
amortised cost. party with the intention of reducing or
the credit risk on an instrument since
eliminating its exposure to a particular
Even if an entity expects to receive it was initially recognised, an entity is risk or to the variability in cash flows. For
all the contractual cash flows from a only required to recognise the 12-month example, an entity enters into a contract
financial asset, there will still be an expected credit losses. to purchase foreign currency at a specified
expected credit loss if the entity expects
rate on a specified date (the hedging
to receive some of those contractual instrument) to reduce the variability in
cash flows late. This is because the future cash flows that it would otherwise
calculation of credit losses is the present have on the purchase of a piece of
value of the difference between the equipment that it has ordered and which
contractual cash flows and the expected is priced in a foreign currency (the hedged
cash flows, taking account of the timing item). In the absence of hedge accounting,
as well as the amount of the expected the gains and losses on the hedging
cash flows. Expected credit losses are instrument and the hedged item are not
the weighted average of the credit losses always recognised in profit or loss in the
weighted by the risk of default. same accounting period.
continued
IFRS 9
Hedge accounting does not change the When IFRS 9 is first applied by an entity, If an entity chooses to apply IFRS 9’s
overall performance/profits of the entity the entity has an accounting policy hedge accounting requirements, it may
over time: it affects only the timing choice to apply the hedge accounting nevertheless elect to apply the IAS 39
and presentation of profits or losses. By requirements of IFRS 9 or of IAS 39. Either requirements for a fair value hedge of
applying hedge accounting, the gains and way, the entity can describe its accounts as the interest rate exposure of a portfolio
losses on the hedged item and the hedging complying with IFRS 9. of financial assets or financial liabilities.
instrument are recognised in profit or loss This latter option has been permitted
in the same accounting period. until the IASB completes its project on
accounting for macro hedging.
In IFRS 9, as in IAS 39, there are three

types of hedging relationships—see the
box below:
Description Accounting
Fair value A hedge of the exposure to changes in Changes in the fair value of the hedging instrument and changes in
hedge the fair value of, all or a component the fair value attributable to the hedged risk of the hedged item are
of, recognised assets or liabilities, or recognised in profit or loss in the period in which they occur. For
unrecognised firm commitments, equity instruments for which the entity has elected to present changes
attributable to a particular risk. For in fair value in OCI, the gains and losses are recognised in OCI rather
example, an interest rate swap hedging than in profit or loss.
a fixed-interest-rate loan by swapping to
variable-rate interest.
Cash flow A hedge of the exposure to variable The portion of the gain or loss on the hedging instrument that
hedge cash flows that are attributable to, all is determined to be an effective hedge is recognised in other
or a component of, recognised assets or comprehensive income. The ineffective portion is recognised in profit
liabilities or highly probable forecast or loss. The amount recognised in other comprehensive income and
transactions. For example, an interest accumulated within equity is either reclassified to profit or loss when
rate swap hedging a variable‑interest‑rate the hedged item affects profit or loss or included in the cost of a
loan by swapping to fixed-rate interest. non‑financial asset/liability.
The hedge A hedge of a net investment in a foreign Accounted for in a similar way to cash flow hedges. That is,
of a net operation as defined in IAS 21 The Effects the portion of the gain or loss on the hedging instrument that
investment of Changes in Foreign Exchange Rates. For is determined to be an effective hedge is recognised in other
in a foreign example, a US$ loan to hedge the net comprehensive income. The ineffective portion is recognised in profit
operation assets of a US subsidiary. or loss. The amount recognised in other comprehensive income and
accumulated within equity is reclassified to profit or loss on disposal
of the foreign operation.
continued
IFRS 9
As with IAS 39, strict conditions must However, when an entity transfers an Otherwise the receivables will remain
be met before hedge accounting is asset to another party (‘the transferee’), and a liability to the bank will be
possible. Risk management activities whether that asset is removed from the recognised. Consideration of matters
have advanced considerably since IAS 39 entity’s statement of financial position such as which party bears the loss if the
was issued and financial markets are or whether it has to remain and a customer does not settle the invoice is
much more highly developed and the liability to the transferee is recognised, relevant to this determination. This is
conditions in IFRS 9 reflect this. For depends on whether substantially all the unchanged from IAS 39.
example, under IFRS 9 it is possible to risks and rewards of ownership of the
hedge a component of a non-financial asset have transferred to the transferee
and, if neither party has substantially IFRS 9 is effective for
item such as the crude oil component
of jet fuel. Another example is that
all the risks and rewards of ownership, annual reporting periods
IAS 39’s 80-125% test has been removed.
on which party has control of the asset.
beginning on or after
For example, a company enters into
1 January 2018. Early
Derecognition an invoice discounting arrangement,
application is permitted.
whereby it receives money (less than face
If an entity’s contractual rights to an value) from a bank for invoices it has In addition, entities are
asset’s cash flows cease or its obligations issued to its customers and later pays to
under the contract are extinguished, the the bank the cash that it subsequently
permitted to adopt the
entity will ‘derecognise’ the financial receives from the customers and pays own credit changes early
asset or financial liability; that is, the a fee and interest to the bank. The in isolation without
entity will remove the asset or liability receivables from the customers (the
changing the accounting
from its statement of financial position; asset) will be removed from the entity’s
for example, once the currencies have statement of financial position if for any other aspect of
been exchanged at the end of a foreign substantially all the risks and rewards financial instruments.
currency forward contract, or once a of ownership of the receivables have
debtor has repaid its loan balance transferred to the other party (the bank)
to the lender. or if neither party has substantially all
the risks and rewards of ownership but
the bank has control of the receivables.
continued
IFRS 9
Judgements and estimates • calculating the amount of change in the • Hedge accounting: a first-time adopter
fair value of a liability that is attributable cannot retrospectively designate a
Accounting for financial instruments to changes in own credit risk. transaction as a hedge if it had not been
can be very complex. A number designated as a hedge under its previous
• assessing hedge effectiveness and
of judgements and estimates are accounting. However, if a first-time
determining hedge ineffectiveness.
necessary when accounting for financial adopter had, in terms of its previous
instruments. Areas to which particular • determining the point at which there GAAP, designated a net position as a
attention needs to be paid include, has been a significant increase in hedged item, the first-time adopter
among others: credit risk. may designate individual items that
• determining whether substantially all are within the net position as hedged
• determining an instrument’s fair
the risks and rewards of ownership items if the requirements of IFRS 9
value.
of a transferred asset have been are met. If a first-time adopter had
• determining the appropriate transferred and, if neither party has accounted for a transaction as a hedge
classification. For example, if an substantially all the risks and rewards under its previous accounting but hedge
entity has a business model whose of ownership, which party has control. accounting would not be permitted by
objective is to hold assets in order IFRS 9, the entity discontinues hedge
to collect contractual cash flows, First-time adoption accounting prospectively.
some sales of financial assets are • The classification and measurement
For financial instruments, there are a
nevertheless consistent with that of financial assets: an entity assesses
number of mandatory exceptions from
objective, such as the sale of a whether debt instruments meet
financial asset because its credit risk the conditions to be measured at
has increased. The determination Standards. These mandatory exceptions amortised cost, or fair value through
of whether the business model is to include: other comprehensive income, on the
hold assets to collect contractual cash basis of the facts and circumstances
• The derecognition of financial assets that existed at the date of transition to
flows, to collect contractual cash flows
and financial liabilities: a first-time IFRS. A number of practical expedients
and sell assets or something else will
adopter is not required to go back and are allowed to establish the opening
require considering the volume of, and
revisit decisions on derecognition that measurement.
reasons for, sales. It is also necessary
it took under its previous accounting
to apply judgement to determine
prior to its date of transition to IFRS.
whether payments are solely payments
A first-time adopter may choose to
of principal and interest.
revisit the derecognition decisions
• deciding whether to designate and, if it does, it can determine from
financial instruments at fair value which date it does so. However,
through profit or loss at initial it can only do so if the necessary
recognition. information to enable the appropriate
accounting in accordance with IFRS 9
was obtained when the entity initially
accounted for the transactions.
continued
IFRS 9
• Impairment of financial assets: if undue A first-time adopter may also, subject

cost or effort would be required to to specified conditions, elect not to
determine, at the date of transition, apply particular aspects of IFRS 9
whether there has been a significant (regarding the designation and fair
increase in credit risk since the initial value measurement of financial assets
recognition of a financial asset, a and financial liabilities) retrospectively
first-time adopter recognises lifetime for financial instruments that the
expected credit losses at each reporting entity recognised before the date of its
date until that financial asset is transition to IFRS.
derecognised (unless the financial asset
is low credit risk at a reporting date).
Contract to buy a non-financial asset:
Contractual terms: Yes

must be settled net in cash or
another financial instrument?
Apply
IFRS 9
No
‘Own-use’ exemption:
Contractual terms: Yes contract entered into for the No
can be settled net in cash or purpose of meeting normal
another financial instrument? purchase, sale or usage
requirements?
No Yes
Yes
Is underlying readily Choose fair value Yes

convertible into cash? measurement to address an
accounting mismatch?
No No
Outside the scope of IFRS 9
IFRS 14
Regulatory Deferral Accounts
The Standard
IFRS 14 applies to the first IFRS financial statements of an entity whose activities, or some of its activities,
are subject to rate regulation. It also applies to the subsequent financial statements of such entities.
Activities that are subject to rate

regulation are activities in which the A regulatory deferral account balance is the balance
prices charged to customers for goods of an expense, or income, account that would not be
or services are regulated by a body recognised as an asset, or liability, in accordance with
authorised by statute or regulation. The other Standards but that qualifies for deferral because it is
pricing of the goods or services is often
designed to reduce price volatility for
included, or expected to be included, by the rate regulator
customers. Consequently, the regulator
in establishing the rate(s) that can be charged to customers.
may require the recovery of certain
IFRS 14 is not available to an entity An entity with rate-regulated activities
costs or the benefit of cost savings to be
that has already been applying IFRS in that does not apply IFRS 14 is required to
deferred and passed to customers in a
its annual financial statements. The account for regulatory deferral account
later year.
Standard can only be applied by a balances, in accordance with IAS 8
In some jurisdictions, these deferred first‑time adopter of IFRS, that is, an Accounting Policies, Changes in Accounting
amounts are recognised as assets and entity that presents its first annual Estimates and Errors, by following
liabilities in accordance with local financial statements in which it adopts precedents in other Standards, and
accounting standards or practice. IFRS by an explicit and unreserved the definitions, recognition criteria
However, if IFRS 14 is not applied, statement of compliance with IFRS. and measurement concepts for assets,
they are not usually recognised in Even then, adoption of the Standard is liabilities, income and expenses in the
IFRS financial statements because it has not mandatory. Conceptual Framework. This has led to
not been established that they meet the the established practice that precludes
IFRS definitions of assets and liabilities. recognising regulatory deferral account
Consequently, the amounts are referred balances as assets or liabilities.
to in IFRS 14 as ‘regulatory deferral How will IFRS 14 affect IFRS financial statements?
account balances’.
No impact on existing IFRS preparers of financial statements
The IASB has embarked on a
comprehensive project to consider the
No impact on cash flows
broad issues of accounting and reporting
rate regulation. IFRS 14 has been issued
as a temporary measure until that Isolated impact of recognising regulatory deferral account
project is completed and consequently balances in IFRS financial statements
it addresses only the accounting for Two line items in the statement of Two line items in the statement of profit or
regulatory deferral account balances. It financial position: loss and OCI:
• regulatory deferral account debit • movement in regulatory deferral account
does not address any other aspect of the
balances— after total assets; and balances related to profit or loss; and
financial statements of an entity with • regulatory deferral account credit • movement in regulatory deferral account
rate-regulated activities. balances— after total liabilities. balances related to OCI.
Additional disclosure required when regulatory deferral

account balances are recognised
continued
IFRS 14
Regulatory Deferral Accounts continued
If applied, IFRS 14 restricts accounting Judgements and estimates First-time adoption

policy changes. It allows a first-time
adopter to continue to account for A regulatory deferral account balance Only first-time adopters can apply
regulatory deferral account balances, in is the balance of an expense, or income, IFRS 14. There are no specific
its first and subsequent IFRS financial account that would not be recognised mandatory exceptions from the general
statements, in accordance with its as an asset, or liability, in accordance principle in IFRS 1 First-time Adoption of
previous accounting policies, that is, with other Standards but that qualifies International Financial Reporting Standards
the policies that it applied immediately for deferral because it is included, or for the rate-regulated activities of an
before adopting IFRS. However, IFRS 14 expected to be included, by the rate entity. However, there is one optional
prohibits an entity from changing its regulator in establishing the rate(s) that exemption. Where, in accordance with
policies in order to start to recognise can be charged to customers. Judgement accounting policies applied prior to
regulatory deferral account balances. will be needed when considering adopting IFRS, an entity has included in
whether an item can be deferred if it the carrying amount for property, plant
To enhance comparability with other
is only expected that the rate regulator or equipment or for intangible assets, a
entities, the Standard requires the
will allow it to be included in the price regulatory component that would not
regulatory deferral account balances to
that can be charged to customers but the be included if applying IFRS, the entity
be presented separately from other items
regulator is yet to consider it. is permitted to leave the component
in the statement of financial position.
in the carrying amount at the date of
In addition, movements in the balances IFRS 14 contains a number of disclosure
transition to IFRS and treat the balance
recognised in profit or loss must be requirements that are designed to
as deemed cost.
presented separately and movements enable users to assess the nature of,
recognised in other comprehensive and the risks associated with, the All the other mandatory exceptions or
income must also be presented separately. rate-regulated activities. For example, optional exemptions in IFRS 1 will be
disclosure is required of how the future available for the other balances and items
IFRS 14 contains a section explaining
recovery or reversal of each type of in the entity’s first set of annual financial
how other Standards interact with
cost or income in a regulatory deferral statements in which IFRS is adopted.
its requirements and clarifying
account balance is affected by risks
specific exceptions to, and exemptions
from, other Standards and giving
and uncertainty, such as from changes IFRS 14 is effective if
in consumer attitudes, the level of
additional presentation and disclosure
competition, assessment of expected
an entity’s first IFRS
requirements. For example, when
future regulatory actions, changes in financial statements are
earnings per share (EPS) is presented
in accordance with IAS 33 Earnings per
currency exchange rates, etc. for a period beginning on
Share, an additional basic and diluted or after 1 January 2016.
EPS must be disclosed which exclude the Earlier application is
net movement in the regulatory deferral
account balances.
permitted.
IFRS 15
Revenue from Contracts with Customers
The Standard
IFRS 15 was finalised in May 2014 and was issued jointly with the US Financial Accounting Standards Board
(FASB). It specifies when to recognise revenue and how much revenue to recognise. The Standard replaces
IAS 18 Revenue and IAS 11 Construction Contracts in their entirety.
The publication of IFRS 15 results The Standard sets out five steps to help 2. I dentify the performance obligations
in converged requirements for the entities determine when to recognise in the contract
recognition of revenue in both IFRS revenue and how much revenue to Performance obligations are the promises
and US GAAP. IFRS 15 specifies the recognise. In straightforward cases, such an entity needs to fulfil to earn its
requirements for recognising revenue as the bakery example with no loyalty revenue. One contract may contain several
from all contracts with customers except scheme, it is not necessary to go through performance obligations; for example,
for contracts that are within the scope each step as the amount of revenue to an entity may contract to sell a piece of
of the Standards on leasing, insurance recognise and when to recognise it are equipment and service the equipment
contracts and financial instruments. obvious. The steps are: for the three years following the sale.
Revenue is fundamental to 1. I dentify the contract(s) with the Although only one price might be specified
understanding an entity’s performance customer in the contract there are two performance
and is the starting point in calculating In many instances there will be a written obligations—the sale of equipment and
its profit or loss. Revenue is the amount contract, but it is not necessary to be in the servicing of the equipment. In the
receivable by an entity in exchange for writing as, for example, in the first bakery second bakery example, one performance
providing goods and/or services to its example. The Standard lists criteria obligation was to provide a loaf of bread
customers. In some businesses this is that must be fulfilled before an entity and the second performance obligation was
simple and straightforward to determine. can account for a contract; for example, the awarding of rights under the customer
For example, a bakery sells a loaf of bread the contract has to have commercial loyalty programme. Another aspect to be
in its store for CU2 to a customer who substance and it is probable that the considered is whether an entity is acting
pays in cash immediately; revenue is CU2 entity will collect the consideration for as principal or as agent, for example, when
and would be recognised at the point the goods and services. it sells goods. It will recognise the selling
of sale. However, many complications price as revenue if it acts as principal but
arise in practice. For example, if the only a sales commission if it acts as agent.
bakery introduces a loyalty scheme for its IFRS 15 is effective 3. Determine the transaction price
customers in which a customer is entitled for annual reporting The transaction price is the amount of
to a loaf of bread ‘for free’ once it has
purchased nine loaves from the bakery, periods beginning on consideration that the entity expects to
be entitled to in exchange for transferring
the bakery needs to allocate some of the or after 1 January 2017, the goods and/or services under the
CU2 from each sale of the first nine loaves
although the IASB has contract. The Standard contains
to the loyalty points, stamps etc. that
the customer will redeem for its ‘free’ subsequently proposed guidance to determine the amount of
consideration, including:
loaf. Assuming the bakery expects every deferring application
• If the timing of the payment of the
customer to ‘purchase’ ten loaves, the
until annual reporting consideration is in advance or deferred
bakery will recognise revenue of CU1.80
for each of the ten loaves. periods beginning on and the timing provides a significant
or after 1 January 2018. financing benefit to either the entity
(payments in advance) or the customer
Early application is (payments deferred), the payments are
permitted. adjusted for the time value of money;
revenue and interest will be recognised.
continued
IFRS 15
Revenue from Contracts with Customers continued
• Non-cash consideration is measured at its 4. A

llocate the transaction price to 5. R
ecognise revenue when (or as)
fair value. the performance obligations in the the entity satisfies a performance
• If the consideration includes a variable contract obligation
amount, the transaction price includes If the amount determined in Step 3 relates The revenue determined in Step 4 is
an estimate of what the entity will be to more than one performance obligation, recognised when (or as) the entity
entitled to receive. The entity must the Standard requires it to be allocated to satisfies each performance obligation.
estimate the amount using either The Standard specifies three criteria (see
each performance obligation (for example,
the Box below) and if any one of them is
the expected value or the most likely to the sale of a piece of equipment and
met, a performance obligation is satisfied
amount, depending on which measure to the servicing of that equipment) in
over time and the revenue is recognised
it expects will better predict the amount proportion to the stand-alone selling prices over time. For example, the revenue for
of consideration to which it will be of the underlying goods or services. If a servicing equipment over a three‑year
entitled. For example, if there are only good or service is not sold separately, a period is recognised over the three years.
two possible amounts, CU100 or CU110, selling price for it must be estimated. In all other cases, the performance
depending on whether the entity obligation is satisfied, and the revenue is
completes a project for a customer by a recognised, at a point in time, which is
specified date, the most likely amount when the customer obtains control of the
may be the most appropriate estimate of goods or services. The Standard contains
revenue. On the other hand, if the entity guidance on a number of practical issues
had a large portfolio of such contracts, that arise when determining when
to recognise revenue; for example, in
the expected value approach may give
consignment arrangements, bill and hold
the most appropriate estimate of revenue
sales, and granting licences.
for the portfolio. The estimate of revenue
is included in the transaction price only Performance obligations are satisfied over time if one of the following
if it is highly probable that there will not criteria is met:
be a significant reversal in the amount
(a) the customer simultaneously receives and consumes the benefits provided
of cumulative revenue recognised when
by the entity’s performance as the entity performs (for example, the entity
the uncertainty is resolved. Where the
provides cleaning services to customers);
possibility of significant reversal is such
(b) the entity’s performance creates or enhances an asset that the customer
that some revenue is excluded from the
controls as the asset is created or enhanced (for example, the entity is building
transaction price initially, the amount
a property on a customer’s land); or
will be included subsequently if it later
(c) the entity’s performance does not create an asset with an alternative use to
becomes highly probable that there will
the entity and the entity has an enforceable right to payment for performance
not be a significant reversal.
completed to date (for example, the entity provides consulting services that
results in it providing a professional opinion to a customer based on facts and
circumstances that are specific to the customer and the contract would require
the customer to compensate the entity for its costs incurred plus a 15 per cent
margin if the customer terminated the contract early).
continued
IFRS 15
Revenue from Contracts with Customers continued
Judgements and estimates • determining when to recognise Recent developments

revenue. Issues include: selecting
Areas of judgements and estimates that Since the publication of IFRS 15 the
a suitable measure of progress for
an entity might encounter include: IASB and the FASB have set up a Joint
long‑term contracts and other contracts
Transition Resource Group for Revenue
• determining the amount of in which revenue is recognised other
Recognition (TRG). The TRG informs
consideration that the entity expects to than evenly over a period of time
the IASB and the FASB about potential
be entitled to in return for transferring and estimating the progress towards
implementation issues that could arise
the goods and/or services under the completion of the contract; and
when entities implement the new
contract; in particular, estimating the determining whether and, if so, when
Standard. As a result of discussing the
amount of variable consideration, for a customer takes control of the goods
issues raised by the TRG, the IASB is
example, where a unit price is reduced or services, such as in consignment planning to issue an Exposure Draft
if a customer purchases more than arrangements when products, for of targeted amendments to IFRS 15.
a specified quantity of units during example, cars, are delivered to a dealer This will include clarifying some of its
a year, and when goods are sold on for sale to end customers. requirements (for example, those relating
a sale or return basis. Sometimes to principal versus agent considerations
determining whether there is a First-time adoption and licensing) and adding illustrative
significant financing component and, There are no specific mandatory examples to aid implementation.
if so, estimating that component, may exceptions from the general principle in Consequently, on 19 May 2015 the IASB
also require significant judgement. IFRS 1 First-time Adoption of International published an Exposure Draft proposing
Measuring the fair value of non‑cash Financial Reporting Standards that apply to defer the effective date of IFRS 15 by
consideration may also require to the requirements of IFRS 15 for first- one year to 1 January 2018.
judgement. time adopters. However, a first-time
adopter may apply optional exemptions
• identifying the performance
permitting it not to restate various
obligations.
completed contracts.
• determining whether the entity is
acting as principal or agent. Identify the contract(s) Identify the performance
• allocating the transaction price to with a customer obligations in the contract
each performance obligation. If a
stand-alone selling price for a good or Recognise revenue when
service is not directly observable, it (or as) the entity satisfies a
must be estimated. performance obligation
Allocate the transaction

price to the performance Determine the
obligations in the contract transaction price
Notes
Notes
2015
IAS®
International Financial Reporting Standards® IFRIC® Audit Committees & Boards of Directors
IFRS Foundation® SIC® Summaries, in non-technical language, of the Standards required for annual reporting periods beginning on 1 January 2015,
assuming no early application. In addition, an Appendix provides summaries of IFRS 9, IFRS 14 and IFRS 15 that, although not
IFRS® IASB® mandatory for annual reporting periods beginning on 1 January 2015, can be applied early.
Contact the IFRS Foundation for details of countries where its Trade Marks are in use and/or have been registered.

A Briefing for Chief Executives, Audit Committees & Boards of Directors
This briefing provides summaries, in non-technical language, of the Standards that are required for
annual reporting periods beginning on 1 January 2015, assuming no early application.
In addition, an Appendix provides summaries of IFRS 9 Financial Instruments, IFRS 14 Regulatory Deferral Accounts
and IFRS 15 Revenue from Contracts with Customers, that, although not mandatory for annual reporting periods
beginning on 1 January 2015, can be applied early. If the Standards are not applied early, disclosure of the
possible impact when applied is required in the financial statements.
A summary of the significant judgements and estimates to be made by those preparing financial statements
when applying each Standard is provided. This will assist preparers and others in understanding the main
judgements and estimates that are often necessary when applying IFRS.
This concise and easy-to-use briefing has been specially prepared for Chief Executives, members of Audit
Committees, Boards of Directors and others who want a broad overview of the International Accounting
Standards Board’s (IASB®) Standards.
When applying IFRS, or when using IFRS financial statements, reference must be made to the full text of the
Standards issued by the IASB.
IFRS Foundation®
Telephone: +44 (0)20 7246 6410 | Fax: +44 (0)20 7246 6411
Email: info@ifrs.org | Web: www.ifrs.org
Publications Department
Telephone: +44 (0)20 7332 2730 | Fax: +44 (0)20 7332 2749
Email: publications@ifrs.org

04.2 - ESTP - Desk Prof - IFRS Briefing Book (By IASF) (2015)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

04.2 - ESTP - Desk Prof - IFRS Briefing Book (By IASF) (2015)

Uploaded by

Copyright:

Available Formats

2015

International Financial Reporting Standards® (IFRS®)

International Financial Reporting Standards® (IFRS®)

International Financial Reporting Standards (IFRS® )

A Briefing for Chief Executives,

Copyright © 2015 International Financial Reporting Standards Foundation®

International Financial Reporting Standards Foundation Publications Department

The Conceptual Framework for Financial Reporting 7

IFRS 1 First-time Adoption of International Financial Reporting Standards 9

IFRS 2 Share-based Payment 12

IFRS 3 Business Combinations 15

IFRS 4 Insurance Contracts 19

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 21

IFRS 6 Exploration for and Evaluation of Mineral Resources 24

IFRS 7 Financial Instruments: Disclosures 26

IFRS 8 Operating Segments 27

IFRS 10 Consolidated Financial Statements 29

IFRS 11 Joint Arrangements 31

IFRS 12 Disclosure of Interests in Other Entities 33

IFRS 13 Fair Value Measurement 35

International Accounting Standards

IAS 1 Presentation of Financial Statements 38

IAS 7 Statement of Cash Flows 43

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 45

IAS 10 Events after the Reporting Period 47

IAS 11 Construction Contracts 49

IAS 12 Income Taxes 51

IAS 16 Property, Plant and Equipment 54

IAS 19 Employee Benefits 62

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance 65

IAS 21 The Effects of Changes in Foreign Exchange Rates 67

IAS 23 Borrowing Costs 70

IAS 24 Related Party Disclosures 72

IAS 26 Accounting and Reporting by Retirement Benefit Plans 74

IAS 27 Separate Financial Statements 75

IAS 28 Investments in Associates and Joint Ventures 77

IAS 29 Financial Reporting in Hyperinflationary Economies 79

IAS 32 Financial Instruments: Presentation 82

IAS 33 Earnings per Share 85

IAS 34 Interim Financial Reporting 88

IAS 36 Impairment of Assets 90

IAS 37 Provisions, Contingent Liabilities and Contingent Assets 93

IAS 38 Intangible Assets 96

IAS 39 Financial Instruments: Recognition and Measurement 99

IAS 40 Investment Property 104

IAS 41 Agriculture 106

Practice Statement as issued at 30 June 2015

IFRS 9 Financial Instruments 116

IFRS 14 Regulatory Deferral Accounts 122

IFRS 15 Revenue from Contracts with Customers 124

▪▪ Amendments to IFRS 2, 3, 8 and

The Conceptual Framework for

The Conceptual Framework

statements. and other creditors expect from an

The Conceptual Framework for

Financial statements include

• disclosures (including comparative

Judgements and estimates must be consistent with estimates made

Common forms of share-based payment Share options granted to employees

(iii) cash‑settled share-based payment

Entities are, however, encouraged to

1 ‘CU’ means ‘currency units’. continued

Before an acquisition the employees First-time adoption

(iii) cash‑settled share-based payment

(b) t he effects of those interests on