IAS 21 – Functional and Presentation Currency

Effects of changes in foreign exchange rates

The standard requires gains or losses to be reclassified from equity to the SOPL
as a reclassification adjustment. When a group has a foreign subsidiary, a
group exchange gain/loss will arise on the re-translation of the subsidiary’s
goodwill and net assets. All these gains/losses are recognized in the OCI, and
accumulated in the OCE. On the disposal of the subsidiary, IAS 21 requires that
the net cumulative balance on the group exchange to be reclassified from
equity to PNL.

According to IAS 21, Presentation currency is the currency in which an entity

prepares its financial statement. It is the choice of company to keep any
presentation currency. But normally this choice is affected by audience
shareholders. Also, sometimes when company is listed with certain stock
market, the company must prepare financial statement in the currency
required by the stock market.

Functional currency is the currency of the primary economic environment in

which the entity operates.
Sometimes, the parent’s functional currency is automatically designated to the
subsidiary’s functional currency. This only happens when the following is the
case:
a) If S. Co is just an extension of the P co.
b) If s co. has no autonomy in carrying out operation
c) If cashflows of s co. are remitted to p co. immediately
d) If s. co is dependent on p co. for source of finance
If these are the cases, then P Co’s functional currency will be S Co. currency
Primary and secondary factors for functional currency.
Primary
1. The currency which mainly influences the sales price of their goods.
2. The currency of the country whose competitive forces determine the
sales price of goods.
3. Currency which influences labor, material, and overhead cost.

Secondary factors.
1. Currency in which source of finance is generated.
2. Reports are retained in which currency.

Foreign exchange differences arise when translating a sub. Into the

presentation currency of the group because of the following:
a) Goodwill is retranslated every year at the closing rate
 b) Opening net assets are retranslated every year at the closing rate
c) Profit for the year is translated in the SPL at the average rate but net
assets are translated at the closing rate
All differences are recorded in the OCI. They’re classified to PNL later in the
future.

IAS 37 - Provisions, Contingent Assets, Contingent Liabilities

Provision - should be recognized when the following criteria have been met:
a) reliable estimate can be made.
b) there is a present obligation as a result of past event.
c) it is probable that an outflow of resources would be required to settle the
obligation.

A constructive obligation for restructuring only arises when there is a detailed

formal plan and a valid expectation to those affected by the restructuring that
will take place has occurred.

IAS 37 specifies that only the direct expenditure which is necessary as a result
of restructuring can be included in the restructuring provision. This includes
cost of making employees redundant and the cost of terminating certain
contracts. However, the provision cannot include the cost of retraining or
relocating staff, marketing or investment in new systems and distribution
networks, because these costs relate to future operations.

States that are provision should be recognized only when there is a legal or
constructive obligation and the fair value can be determined at the
measurement date.

Constructive obligation will only result in the recognition of a provision if there

is an established pattern of past practice, published policies, or a specific
current statement, that company will pay for the damage.

Benefits and limitations from Provision liabilities

Provisions involve uncertainty. Disclosures should provide important
information to help users understand the nature of the obligation, the timing
of any outflow of economic benefits, uncertainties about the amounts or
timing involved, and major assumptions made.

The disclosure note splits the provision between current and non-current
liabilities. This helps users of the financial statements assess the timing of the
cash outflows and the potential impact on Mehran's overall net cash inflows. It
would be useful to provide further information about the expected timing of
the outflows classified as a non-current liability.

Financial reporting focusses on past events, but provisions disclosures also

provide important information about the future. This disclosure note informs
investors about restructuring activities within stores, but also in Finance and IT.
Whilst this restructuring will incur costs, investors may value Mehran's efforts
to streamline its operations and improve efficiency.

The disclosure shows that provisions, as a total balance, increased year on

year. Liabilities always entail risk because there is an obligation to make
payments to settle the obligation even if the company has insufficient liquid
resources to do so. Provisions might be viewed as particularly risky, because
they are estimated and therefore the actual cash outflows required might be
significantly higher than estimated. Some investors may be deterred from
investing in companies with substantial provisions.

With regards to the refund provision, the amount utilised in the reporting
period is less than the provision at the start of the year. This suggests that, in
the prior year, management had over-estimated the refund provision. This
information may cast doubt on management's ability to accurately estimate its
provisions and increase uncertainty regarding Mehran's future cash flows.

ACCA Code of Ethics (COPPI)

1. Confidentiality - Members must not disclose client information to anyone
for their own- or third-party advantage
Exceptions:
- if allowed by client
- public duty to disclosure.
- to protect client’s interest.
- if client is involved in serious event like terrorism or money laundering.
2. Objectivity - means independence. Members must avoid bias and conflict of
interest and take decision in independent manner.
3. Professional competence and due care - members must remain up to date
with all standards to be professionally qualified and do all the work with
extreme care.
4. Professional behavior - members must avoid any action that discreet their
profession.
5. Integrity - members must be straightforward and honest in all professional
dealings.
Independence
a) self-interest threat
b) self review threat
c) familiarity threat
d) intimidation threat
e) advocacy threat

IFRS 5 – Held for sale

IFRS 5 NCAHFS requires a NCA to be classified as held for sale if it's carrying
amount will be principally recovered through a sale transaction rather than
through continuing use. It must be available for immediate sell in its present
condition and sale must be highly probable within 12 months of classification.

The standard only foresees an exception to this rule if the sale is delayed by
events or circumstances which are beyond the entity's control.
Conditions:
 Must be available for immediate sale in its present condition and the
sale must be highly probable
 Sale must be expected to be complete with 12 months
 Asset must be actively marketed at a reasonable price
 Management must be committed to a plan of sale and it is unlikely that
any significant changes to the plan will be made

IFRS 5 states that immediately before classifying a disposal group as held for
sale, the carrying amount of the assets and liabilities of the group are
measured in accordance with the applicable standards. After classification as
held for sale, disposal groups are measured at lower of carrying amount and
fair value less cost to sell.

IFRS 5 defines a discontinued operation as a component of an entity which

either has been disposed of or is classified as held for sale, and:
i) represents a separate major line of business or geographical area of
operations.
ii) is a single coordinated plan to dispose of a separate major line or area of
operations.
iii) is a subsidiary acquired exclusively for resale.

IFRS 15 - Revenue
States that goods or services which are promised to customers are distinct if
both the following criteria are met:
  the customer can benefit from the good or service either on its own or
together with other resources.
 the entity's promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract.

IFRS 15 Revenue requires that non-cash consideration received should be

measured at fair value of the consideration received.

The fair value of shares in an unlisted start-up company is problematic. IFRS

Thirteen fair value measurement gives advice on how to measure unlisted
shares. Three approaches:
a) Market approach such as transaction price paid for identical or similar
instruments of an investee.
b) Income approach e.g., using discounted cash flows.
c) Adjusted net asset approach
Steps
1. Identify the contract.
2. Identify the different performance obligations in a contract.
3. Determine the transaction price.
4. Allocate the transaction price to the different performance obligations.
5. Recognize revenue accordingly (Either over time or point in time)
Step 1
Contract - is an agreement between two parties that creates rights and
obligations. A contract does not need to be written.
Step 2
Performance obligation - are promises to transfer a distinct goods or services
to our customer.
Step 3
Transaction price is the price the entity expects in exchange for satisfying a
performance obligation.
When determining the transaction price, following must be considered:
o variable consideration
o significant financing component
o non cash consideration
o consideration payable to a customer
Variable consideration can only be included in the transaction price if it is
highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty is resolved.
Step 5
Transfer of control indications
o Entity has present right to payment for asset.
 o Customer has legal title of asset.
o Entity has transferred to physical possession of the asset.
o Customer has significant risk and rewards of ownership of the asset.
o Customer has accepted the asset.

IFRS 15 Revenue from contracts with customers says that a contact with a
customer should only be accounted for if:
 The parties have approved the contract
 Rights and obligations can be identified from the contract
 Payment terms can be identified
 The contract has commercial substance
 It is probable that the seller will collect the consideration they are
entitled to

IFRS 13 - Fair value measurement

As per IFRS 13, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date.

However, IFRS 13 uses the concept of highest and best use, which is the use of
non-financial asset by market participants which would maximize the value of
the asset or group of assets within which the asset will be used.

Fair value is not supposed to be entity specific, but rather market specific.
Essentially the estimate is the amount the market would be prepared to pay
for the asset.

The fair value of shares in an unlisted start-up company is problematic. IFRS 13

fair value measurement gives advice on how to measure unlisted shares. Three
approaches:
a) Market approach such as transaction price paid for identical or similar
instruments of an investee.
b) Income approach e.g., using discounted cash flows.
c) Adjusted net asset approach

Levels of Input
Level 1 inputs are quoted prices for identical assets in active markets.
Level 2 inputs are observable prices that are not level 1 inputs. This may
include:
(a) Quoted prices for similar assets in active markets
(b) Quoted prices for identical assets in less active markets
 (c) Observable inputs that are not prices (such as interest rates).
Level 3 inputs are unobservable. This could include cash or profit forecasts
using an entity's own data.
A significant adjustment to a level 2 input would lead to it being categorised as
a level 3 input.
Priority is given to level 1 inputs. The lowest priority is given to level 3 inputs.

IAS 20 - Government Grant

As per IAS 20, grants can only be recognized if both the following criterias are
met:
 entity will comply with all conditions attached to grant.
 the grant will be received.
A grant receivable as financial support will be recognized as income in the
period in which it is receive.
A grant receivable as help to purchase an asset will be recorded as deferred
income and taken to PNL according to the useful life of the asset being
purchased.

Main accounting choices in this standard (IAS Twenty)

With regards to asset related grants, two methods of presentation is allowed in
the statement of financial position:
 Recognize the grant as deferred income and release to profit or loss over
the useful life of the asset.
 Deduct the grant from the carrying amount of the asset and then
depreciate the asset over its useful life.

The overall net asset and the profit of our entity will not be affected by this
choice. However, it could still have an impact on the investors analysis of the
financial statement.

An entity that uses the deferred income method to present asset-related

grants will report higher non-current asset assets and higher liabilities than an
entity that uses the 'netting off' method.

Reporting a higher level of liabilities may have a detrimental impact on certain

ratios, such as the current ratio. More generally, higher liabilities may increase
the perception of financial risk, potentially deterring investment.
Reporting higher levels of non-current assets could be viewed positively (as a
sign of a strong asset base), or negatively (it may make the entity look less
efficient at generating its profit).
With regards to income related grants, two methods of presentation are
allowed in the statement of profit or loss:
 present the grant as 'other income'
 present the grant as a reduction in the related expense.
The overall profit of an entity will not be affected by this choice. However, it
could still have an impact when analysing financial statements. For instance, an
entity that presents grant income by reducing its expenses may be perceived
as having better cost control and as operating with greater efficiency than an
entity that records its grants within 'other income'.
Cash flows
Accounting policy choices have no impact on the operating, investing or
financing cash flows reported in the statement of cash flows.

IFRS 3 - Business Combination

The acquirer must recognize identifiable intangible assets acquired in a
business combination separately from goodwill.
To be identifiable, the asset must be separate or arise from contractual or legal
right.

IFRS 3 Business Combination defines a business as an integrated set of

activities and assets that can be managed to provide goods or services,
generate investment income (such as dividends or interest), or generate other
income from ordinary activities.

To meet this definition, the acquisition must comprise inputs and processes
that significantly contribute to the ability to turn these inputs into outputs. To
qualify as a business, outputs are not required.

The Board has introduced an optional concentration test that helps entities to
conclude whether an acquisition is not a business. The concentration test is
met if substantially all of the fair value of the total assets acquired is
concentrated in a single identifiable asset or group of similar identifiable
assets.

Per IFRS 3 an acquired process is only substantive if:

o it is critical to convert an input to an output.
 o inputs acquired include a knowledgeable, skilled, organized workforce
able to perform that process on other acquired inputs to produce
outputs

Who is an acquirer? How to identify the acquirer?

IFRS 3 Business Combinations requires an acquirer to be identified in all
business combinations. The acquirer is the combining entity which obtains
control of the other combined entity.

IFRS 10 Definition of Control

Sometimes it is straightforward to assess power by looking at the voting rights

obtained. When the parent acquires more than half of the voting rights of the
entity, it normally has power if the relevant activities of the investee are
directed by a vote.

There is a presumption that an entity achieves control over another entity by

acquiring more than one half of the voting rights, unless it can be
demonstrated that such ownership does not constitute control.

IAS 36 - Impairment of assets, CGU

States that an asset is impaired if its carrying amount excess its recoverable
amount.
A CGU (Cash generating Unit) is the smallest group of assets that generate
inflows that are largely independent of cash flows from other assets or groups
of assets.

IAS 36 Impairment of assets states that an entity should assess annually

whether there is any indication that an asset may be impaired. If such
indication exists, the entity should estimate the recoverable amount of the
asset. Recoverable amount is the higher of value in use and fair value less costs
to sell.

Recoverable amount – higher of FV less cost to sell and Value in use.

Value in use – PV of future cash flows including disposal cash flows. Future
capital expenditures are irrelevant. Always ignore interest cash flows and tax
cash flows. Take CFs of next 5 years.

Which discount rate to be used?

1. Project specific discount rate
 2. Current market interest rate with inclusion of currency risk, country risk
3. WACC, must be current year WACC

IAS 19 - Employee benefits

At each reporting period, the plan assets and DBO are remeasured to fair
value. All DBOs are brought to their present values and plan assets to their fair
values.

The amount of expense to be recognized in the PNL is comprised of net

interest component and service costs.
Net interest is calculated by multiplying the net DBO by the discount rate at
the start of the reporting period. Service cost are the current service cost
which is the increase in present value of the DBO resulting from employee
services in the current period and ‘past service cost’.

IAS 19 requires all past service cost to be recognized as an expense at the

earlier of the following date:
a) When the plan amendment or curtailment occurs.
b) When the company recognizes the related restructuring cost or
termination benefits.
Re-measurement gains or losses are recorded in the other comprehensive
income.

According to IAS 19, The remeasurement component is presented in the other

comprehensive income. It comprises:
a. Actuarial gains and losses
b. returns on plan assets not included in the net interest component
c. changes in the asset ceiling not included within the net interest
calculation.
Actuarial gains and losses result from differences between actuarial
assumptions and what actually occurred during the period. These will arise in
instances such as unexpected movements in interest rates, unexpectedly high
or low rates of employee turnover or unexpected increase or decrease in wage
growth.

The effect of the redundancy exercise are not part of the remeasurement
component.

Re-measurement
Actuary's calculation of value of plan obligation and asset is based on
assumptions such as life expectancy and final salaries, and this will have
changed year-on-year.
The actual return is different from the amount taken to PNL as part of the net
interest component.
Accounting treatment of DBO
The amount recognized in SOFP is the present value of DBO less fair value of
the plan asset at reporting date.
Opening net position should be unwound using discount rate of good quality
corporate bonds and charged to PNL.

Curtailments should be recognized at the earlier of when the curtailment

occurs or when the related termination benefits are recognized.

Re-measurement component should be included in the OCI and identified as

an item which will not be reclassified to PNL in the future.
Asset ceiling
When plan assets are higher than plan liability, It is a surplus.
We record the surplus at the lower of:
d) the amount calculated as normal.
e) the total of the present value of any economic benefits available in
form of refund from the plan or reduction in future contributions to
the plan.
With a defined contribution scheme, it is the employee who undertakes all of
the risk should the pension plan not perform to expectations. The
contributions is simply recognized as an expense in the profit or loss in the
current period.

When a plan amendment, curtailment or settlement occurs during the annual

reporting period, an entity must:
 Determine current service cost for the remainder of the period after the
plan amendment, curtailment or settlement using the actuarial
assumptions used to remeasure the net defined benefit liability/asset
reflecting the benefits offered under the plan and the plan assets after
that event.
 Determine net interest for the remainder of the period after the plan
amendment, curtailment or settlement using:
(i) the net defined benefit liability/asset reflecting the benefits offered
under the plan and the plan assets after that event; and
(ii) (ii) the discount rate used to remeasure that net defined benefit
liability/asset.
 IFRS 9 – Financial instruments
A financial liability is a contractual obligation to deliver cash or another
financial asset to another entity. Equity is any contract which evidences a
residual interest in the assets of an entity after deducting all of its liabilities.

Equity instruments under IFRS 9 should be measured at fair value in the

statement of financial position with gains/losses recognized in profit or loss. An
irrevocable election can be made on initial recognition to record all
gains/losses in OCI. These gains will not be reclassified to PNL in the future.

Financial asset, financial liability

Financial instrument is any contract that gives rise to a financial asset in one
entity and a financial liability in another entity.
Equity shares:
 Liability - if a variable number of equity shares
 Equity - fixed number of equity shares.

When a financial liability is designated to be measured at fair value through

PNL, to reduce an accounting mismatch, the fair value movement must be split
into:
Fair value movement due to own credit risk which is presented in OCI
The remaining fair value movement, which is presented in profit or loss.

Compound instrument is a financial instrument that has characteristics of both

equity and liabilities.
Investment in financial liabilities - Transaction cost is deducted from
investment value (If FVTOCI)
Investment in equity instrument - transaction cost is added to the fair value (If
FVTOCI). Gains to CI. Not reclassified to PNL on disposal.

Investment in debt instrument

Amortized cost - entities model is to collect the asset's contractual cash flows.
Receive cash as interest and principal amount only.
Measured at fair value plus transaction cost.
FVTOCI
The entity's model involves both collecting contractual cash flows and selling
financial asset.
Measured at fair value plus transaction cost.
Gains to OCI
Re-classified to PNL on disposal
FVTPNL
All other debt instruments.

Impairment of financial asset

Must be recognized for assets measured through amortized cost and fair value
through OCI
If the credit risk on the financial asset has not increased significantly since
initial recognition, the loss allowance should be 12 month expected loss.
If credit risk has increased substantially, loss allowance should equal lifetime
expected credit loss.

Definitions:
Credit loss - present value of the difference between the contractual cash
flows and the cash flow that the entity expects to receive.
Expected credit loss - weighted average credit losses.
Lifetime expected credit loss - expected credit losses that result from all
possible default events over the expected life of the bond.
12 Month expected credit loss - portion of Lifetime expected credit losses that
result from default event that might occur 12 month after reporting date.

Credit impairment hints:

 Breach of contract.
 Financial difficulties
 Borrower being granted concession.
 It becoming probable that the borrower will declare bankruptcy.
If an asset is credit impaired at reporting date, the expected credit losses
should be measured as the difference between the assets gross carrying value
and the present value of the estimated future cash flows when discounted at
the original effective % rate
If asset is credit impaired, interest income is calculated on the assets net
carrying amount (ie gross CV less the loss allowance)
Derivatives
IFRS 9 says that the derivative is a financial instrument with the following
characteristics:
a) Its value changes in response to a change in a specified interest rate,
security price, commodity price, foreign exchange gain, index of prices.
b) it requires little or no initial net investment relative to other types of
contracts that have a similar response to changing market conditions.
c) Settled at a future date

Derivative measured at fair value. Transaction cost to PNL.

At reporting date, it is re-measured to fair value. Changes to Pnl.

Hedge accounting Is a method of managing risk by designating one or more

hedging instrument so that their change in fair value is offset in whole, or in
part, by the change in fair value of the cash flows of the hedged item.
Hedged item is an asset or liability that exposes the entity to risk of changes in
fair value or future cash flows.
There are three types of hedged items:
f) recognized asset or liabilities
g) unrecognized firm commitment
h) highly probable forecast transaction
Hedging instrument is a designated derivative or a non-derivative financial
asset or financial liability whose fair value or cash flows are expected to offset
changes in fair value or future cash flows of the hedged item.

Hedge effectiveness
If an entity chooses to hedge account then it must assess at inception and at
each reporting date whether the hedge effectiveness criteria have been met.
These criteria are as follows:
 'There is an economic relationship between the hedged item and the
hedging instrument
 The effect of credit risk does not dominate the value changes that arise
from that relationship
 The hedged ratio should be the same as that resulting from the quantity
of the hedged item that the entity actually hedges and the quantity of
the hedging instrument that the entity actually uses.'

Types of hedge accounting.

Fair value hedge - Hedge of exposure to changes in fair value of recognized
asset or liabilities.
Cash flow hedge - Hedge of exposure to variability in cash flows that is
attributable to particular risk associated with that recognized asset or liability.

If profit on derivative:
 Dr Derivative
 Cr PNL
 Dr PNL
 Cr Hedged item
Fair value hedge - gains to PNL
Cash flow hedge - gains to OCI
However, if gain or loss on the hedging instrument since the inception of the
hedge is greater than the gain or loss of the hedged item, then the excess gain
or loss on the instrument must be recognized in profit or loss.
When the hedged item is recognized, the OCI gain/loss is reclassified to PNL

Example question
it was decided to buy a plant worth Kr200,000 at fixed $100,000 in the future.
After year end, the KR depreciated and value of KR200,000 is worth $90,000
now.
 Record loss on Derivative: Dr OCI 10,000 Cr Derivation 10,000
 Record plant purchase: Dr plant 90,000 Cr Cash 90,000
 Reclassify OCI: Dr Plant 10,000 Cr OCI 10,000
 Pay for downfall on derivative: Dr Derivative 10,000 Cr Cash 10,000
 Overall cash of $100,000 has gone, as decided at inception of hedge.

IFRS 11 – Joint arrangement

Defines joint control as the contractually agreed sharing of control of an
arrangement which exists only when decision about relevant activities require
the unanimous consent of the parties sharing control.

A joint venturer accounts for an investment in an joint venture using the equity
method in accordance with IAS 28 investment in associate. This means that the
investment is initially recognized at cost. The venturer will subsequently
recognize its share of the profits or OCI.

The following are the characteristics of a joint venture:

 Joint ventures are joint arrangements which are structured through a
separate vehicle which confers legal separation between the joint
venture and the assets and liabilities in the vehicle
 Entity must be under the joint control of the ventures, which is the
contractually agreed sharing of control of an arrangement, which exists
 only when decision about the relevant activities require the unanimous
consent of the parties sharing control
 The venturers must be able to exercise joint control of the entity
 Purpose of the entity must be consistent with the definition of a joint
venture.

Joint arrangement occurs where two or more parties have joint control. Joint
control exists when decisions over the relevant activities required the
unanimous consent of the parties sharing control.

The classification of a joint arrangement as a joint operation or a joint venture

depends upon the right and obligations of the parties to the arrangement. A
joined arrangement which is not structured through a separate vehicle is
normally a joint operation. A joint operator accounts for the assets, liabilities,
revenues and expenses relating to its involvement in a joint operation.

IFRS 10 – Consolidated Financial Statements, Associate, Control, Significant

influence etc.
Significant influence is the ability to participate in the financial and operating
policy decision of the investee, but is not control or joint control over these
policies.
IFRS 10 consolidated financial statements states that an investor controls an
investee only if the investor has all the following:
1. Power over the investee
2. Exposure to or rights to variable returns from its involvement with the
investee
3. The ability to use its power over the investee to affect the amount of
investors return
Control is presumed to exist where the investor has a majority of the voting
rights of the investee. This would usually give the investor the ability to direct
the relevant activities i.e. the activities which significantly affect the investee's
returns.
An ownership of 50% or less of the voting rights does not necessarily preclude
an investor from obtaining control.
Other factors for control
1. Size of P Co’s shareholding relative to other shareholders
2. How dispersed other shareholders are, means other SH are few or many
3. How activity other SH’s participate in AGM
4. Whether P Co’s has power over “Relevant Activities”.
5. Whether P Co’s has nay potential voting rights in S Co’s.ss
 IFRS 2 – Share based Payment
A condition that is market-based condition is usually adjusted for in the
calculation of fair value at the grant date of the option. An expense should be
recorded in the consolidated profit or loss (and a corresponding credit to
equity) irrespective of whether the market based vesting condition is met or
not
All conditions that are non-market based, their expenses and credit to equity
should be adjusted over the vesting period as expectations change regarding
the non-market based vesting condition.

Equity settled share-based payments are measured using the fair value of the
instrument at the grant date (start of Y1)
If equity-based payment is cancelled:
Dr Pnl
Cr Equity
For remaining period:
Dr Pnl (Excess amount)
Dr Equity (FV of option)
Cr Cash (Full price paid)
Cash settled SBP are measured at each reporting date and fair value
recalculated.

Equity settled - FV fixed (grant date fv)

Cash settled - FV changes at each rep. date
Share appreciation rights
Fair value of SAR - comprises of intrinsic value (cash amount payable based
upon the share price at that date) together with time value (based upon the
fact that the share price will vary over time)
Intrinsic value - the value at which rights are exercised (Price paid for exercising
the shares)

IFRS 16 – Leases
IFRS 16 Leases says that lease liabilities are recognized at the PV of payments
yet to be made. This includes fixed lease payments, as well as variable
payments based on the relevant index or rate at the start of the lease. The
liability is reduced by cash payments. Interest on the liability increases it
carrying amount and is charged to profit or loss.

A right-of-use asset is recognized at the value of the initial lease liability plus
payments made before or at commencement and initial direct costs. Assuming
the cost model is chosen, the asset is depreciated over the lower of the lease
term and its remaining useful economic life.
A lease is a contract, or part of a contract that conveys the right to use an asset
for a period of time in exchange of consideration.
Lessor - entity that provides the right of use asset
Lessee - entity that obtains the ROU.
Lease liability contains the following:
 Fixed payments
 Variable payments that depend on an index or rate
 Amounts expected to be payable under residual value guarantee
 Options to purchase an asset that are reasonably certain to be exercised
 Termination penalties if the lease term reflects the expectation that this
will be incurred.
Right of use comprises:
 Amount of the initial measurement of the lease liability (PV of
payments)
 Lease payments made at or before commencement date
 Initial direct cost
 Estimated cost of removing or dismantling the underlying asset as per
the conditions of the lease
How to clarify a lease
IFRS 16 leases states that a lease is probably a finance lease if one of the
following apply:
 Ownership is transferred to the lessee at the end of the lease.
 The lessee has the option to purchase the asset at end of lease and it is
reasonably certain that it will be exercised.
 The lease term (including secondary periods) is of the major part of
asset's economic life.
 At the inception of the lease the present value of lease payments
amounts to at least substantially all of the FV of the leased asset.
 The leased asset is of a specialized nature, so only the lessee can use
them without any major modifications being made.
 The lessee will compensate the lessor for their losses if the lease is
cancelled.
 Gains or losses from fluctuations in the FV of the asset fall to the lessee.
 The lessee can continue the lease for a secondary period in exchange for
a lower market rent payment.
Instead of applying the recognition requirements of IFRS 16 Leases, a lessee
may elect to account for lease payments as an expense on a straight-line basis
over lease term for the following two types of leases
 Leases with a lease term of 12 months or less and no purchase option
 Leases where the underlying asset has low value
The effect of applying this iFRS 16 exemption will be that no asset or liability
will be recognized, therefore no effect in the SOFP. No ROU or lease liability
would be recognized. An expense will instead be recognized in the profit or
loss

Materiality
Omission of information would influence economic decisions of users
Mis-statement of information would influence economic decisions of users
Obscuring information would influence economic decisions of users

An item is material if its omission or misstatement might influence the

economic decisions of the users of the financial statements.
When an entity is assessing materiality, it is considering whether information is
relevant to the readers of its own financial statements - in other words,
materiality is entity specific. An entity should assume that the users of its
financial statements have a reasonable knowledge of business and accounting.

The materiality Practice Statement emphasises that materiality judgements are

not just quantitative transactions that trigger non-compliance with laws, or
which impact future operations, may affect user decisions even if the
monetary amounts involved are small.

Importance of materiality to financial reporting

The purpose of financial reporting is to provide information that will help
investors, lenders and other creditors to make economic decisions about
providing an entity with resources.
It is important that management consider materiality throughout the process
of preparing financial statements. This should ensure that relevant information
is not omitted or misstated. The Practice Statement details a four step process:
 Identify information that might be material
 Assess whether that information is material
 Organise the information in draft financial statements
 Review the draft financial statements.
Management should produce financial statements that are free from error.
However, the impact of certain transactions might be omitted or simplified as
long as the resulting errors are immaterial. The materiality Practice Statement
recognises that simplified accounting procedures, such as writing off all capital
expenditure below $1,000 to profit or loss, can greatly reduce the burden of
financial reporting without causing material misstatements.

The concept of materiality does not just help to determine whether

transactions are recognised in the financial statements, but also how they are
presented. Management may decide to present some material transactions as
separate line items in its financial statements, whereas the effects of other
immaterial transactions might be aggregated.

The Practice Statement emphasises the importance of these decisions: too

much detail can obscure important information, whereas over-aggregation
leads to a loss of relevant detail. Materiality assessments also impact
disclosure notes. Guidance in this area is important because financial
statements have become increasingly cluttered in recent years as the
disclosure requirements in IFRS Standards have expanded. However, as IAS 1
Presentation of Financial Statements states, an entity need not provide a
specific disclosure required by an IFRS Standard if the information is
immaterial. The Practice Statement emphasises that the common information
needs of primary user groups should always be considered and that the
disclosure requirements in IFRS Standards should not be treated as a simple
checklist.
IFRS 8 – Operating segments
IFRS 8 Operating Segments states that an operating segment is a component of
an entity which engages in business activities from which it may earn revenues
and incur costs. In addition, discrete financial information should be available
for the segment and these results should be regularly reviewed by the entity's
chief operating decision maker (CODM) when making decisions about resource
allocation to the segment and assessing its performance.

If a function is an integral part of the business, it may be disclosed as a

segment even though it may not earn revenue.

According to IFRS 8, an operating segment should be reported if it meets one

of the following quantitative thresholds:
 Its reported revenue, including both sales to external customers and
intersegment sales or transfers, is 10% or more of the combined
revenue, internal and external, of all operating segments.
  The absolute amount of its reported profit or loss is 10% or more of the
greater, in absolute amount, of (i) the combined reported profit of all
operating segments which did not report a loss and (ii) the combined
reported loss of all operating segments which reported a loss.
 Its assets are 10% or more of the combined assets of all operating
segments.
According to IFRS 8 Operating Segments, an operating segment is a component
of an entry that engages in business activities, and which has a discrete
financial information available that is monitored by the entity's chief decision
maker.
Operating segments can be aggregated if they have similar economic
characteristics. Such segments would normally have similar long term margins
and also be similar in terms of the products that they sell, the customers that
they sell to, and the distribution methods used.
• That engages in business activities from which it earns revenue and
incurs cost. AND
• Its results are monitored by chief operating decision maker. AND
• For which discrete financial information is available.

Aggregation criteria:
• Nature of the product or service is same
• Production process is same
• Distribution channel is same
• Regulatory environment is same
• Class of customers are same
it is a segment in an operating segment if:
• Its revenue is 10% or more of all segments OR
• Its assets are 10% or more of all segments OR
• Its profit or loss is 10% or more of all segments

IAS 23 – Borrowing Costs

States that borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset form part of the cost of that
asset. A qualifying asset is one that takes a long time to get ready for use.

IAS 24 – Related Party transaction

Requires an entity's financial statements to contain disclosures necessary to
draw attention to the possibility that its financial statements may have been
affected by the existence of related parties and by transactions and
outstanding balances with such parties.
IAS 24 Related party disclosures states that a person or a close member of
their family is related to the reporting entity if that person:
 Has control, joint control or significant influence over the reporting
entity
 Is a member of key management personnel of the reporting entity or its
parent.
The main circumstances that lead to an entity being related to the reporting
entity are as follows:
the entity and the reporting entity are members of the same group
one entity is an associate or joint venture of the other
both entities are joint ventures of the same third party
the entity is controlled or jointly controlled by a person who is a related party
of the reporting entity.

In the absence of related party disclosures, users of financial statements would

assume that an entity has acted independently and in its own best interests.
Most importantly, they would assume that all transactions have been entered
into willingly and at arm's length (i.e. on normal commercial terms at fair
value). Where related party relationships and transactions exist, this
assumption may not be justified.

Related party relationships and transactions may distort financial position and
performance, both favourably and unfavourably. The most obvious example of
this type of transaction would be the sale of goods from one party to another
on non- commercial terms.

IAS 1, IAS 32, Offsetting amounts in the financial statements

IAS 1 presentation of financial statements states that an entity shall not offset
assets and liabilities unless required or permitted by an IFRS standard.
Offsetting a financial asset and a financial liability is permitted, according to IAS
32, financial instruments: presentation when, ad only when, entity has a legal,
enforceable right to set off the recognized amounts and intends either to settle
on a net basis, or to realize the asset and settle the liability simultaneously.

IAS 32, Equity, Financial liability, Financial Assets

IAS 32 defines an equity instrument as any contract which evidences a residual
interest in the assets of an entity after deducting all of its liabilities. An equity
instrument has no contractual obligation to deliver cash or another financial
asset, or to exchange financial assets or financial liabilities under potentially
unfavorable conditions. If settled by the issuers on equity instrument, an
equity instrument has no contractual obligation to deliver variable number of
shares.
A critical feature in differentiating a financial liability from an equity
instrument is the existence of a contractual obligation of the issuer either to
deliver cash or another financial asset to the holder, or to exchange financial
assets or financial liabilities with the holder, under conditions which are
potentially unfavorable to the issuer.

IAS 12 – Income taxes

In accordance with IAS 12, a deferred tax asset shall be recognized for the carry
forward of unused tax losses to the extent that it is probable that future
taxable profits will be available against which the unused tax losses can be
utilized.
However, the existence of unused tax losses is strong evidence that future
taxable profit may not be available.
Therefore, when an entity has a history of recent losses, the entity recognizes
are deferred tax asset arising from unused tax losses only to the extent that it
has convincing evidence that sufficient taxable profit will be available against
which the unused tax losses can be utilized. In such circumstances, the amount
of deferred tax asset and the nature of the evidence supporting its recognition
must be disclosed.

IAS 7 – Statement of cash flow

IAS 7 statement of cash flows says that cash flow from operating activities are
those related to the revenue-producing activities of an entity, such as cash
received from customers and cash paid to suppliers. Cash flows from financing
activities are those that change the equity or borrowing structure of an entity.
Cash flows from investing activities shows the cash generated or spent relating
to investment activities.

IAS 16 – Property, Plant and Equipment

-Property, plant and equipment states that revaluation gains on property,
plant and equipment are recorded in the other comprehensive income (OCI)
and held in a revaluation reserve in equity (other components of equity).
Revaluation loss is charged to OCI to the extent that a revaluation reserve
exists for that specific asset. Any revaluation loss in excess of the balance on
the revaluation reserve is charged to profit or loss.

Under the standard property, plant and equipment (PPE), the cost of an item
of property, plant and equipment must include the initial estimate of the cost
of dismantling and removing the item and restoring the site on which it is
located.

IAS 16 Property, Plant and Equipment defines residual value as the estimated
amount which an entity would currently obtain from disposal of the asset,
after deducting the estimated costs of disposal, if the asset were already at the
age and in the condition expected at the end of its useful life. IAS 16 requires
the residual value to be reviewed at least at the end of each financial year end.
If the estimated residual value is higher than an asset's carrying amount then
no depreciation is charged.

Main accounting choices in this standard (IAS Sixteen)

After initial recognition, the standard allows property plant and equipment to
be measured using either:
The cost model - cost less accumulated depreciation and impairment losses
The revaluation model - fair value less accumulated depreciation and
impairment losses

Assuming that property prices are increasing, an entity that revalues its PPE to
fair value will record lower profits than one that is used the cost model.
Although the gains arising from the revaluation of PPE are recognized outside
of profit, in other comprehensive income, the depreciation charge in the
revalued asset will be higher than if the cost model was used. As such, using
the revaluation model may have a detrimental impact on stakeholders’
assessment of an entity's financial performance. Moreover, the higher asset
value recorded in the statement of financial position under the revaluation
model might also make the entity look less efficient than one that uses the cost
model.

However, on the positive side, revaluation gains will increase equity, which is
improve the gearing ratio. This will make the entity look like a less risky
investment. Moreover, some stakeholders may place importance on the asset
base as this could be used as security for obtaining new finance. Thus, a higher
PPE value in the statement of financial position could be viewed positively.

Another thing to note is the revaluation model will make the asset position of
entity more volatile than an entity that uses the cost model. Volatility can
increase the perception of risk. However, the statement of profit or loss will be
much less volatile than the statement of financial position because revaluation
gains are recorded in the other comprehensive income.
It should be noted that entities using the revaluation model for PPE are
required to disclose the carrying amount that will be recognized if the cost
model had been used. Such disclosures enable better comparison entities that
account for PPE using different measurement models.

Ethics
The directors have a responsibility to faithfully represent the transactions that
the entity has entered into during the year. This is because various user groups
rely on the financial statement to make economic decisions. Accountants are
trusted as professionals and it is important that this trust is not broken.
Therefore, it is vital that the principles outlined in the ACCA Code of ethics are
understood and followed.

IAS 8 – Accounting Policies, Changes in Accounting Estimates and Prior period

Errors
Only permits a change in accounting policy if the change is:
 Required by an IFRS Standard
 Results in the financial statements providing reliable and more relevant
information.
A retrospective adjustment is required unless the change arises from a new
accounting policy with transitional arrangements to account for the change.
It is possible to depart from the requirements of IFRS and IAS Standards but
only in the extremely rare circumstances where compliance would be so
misleading that it would conflict with the overall objectives of the financial
statements. This override is rarely, if ever, invoked.

Prior period errors are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising from a failure to use,
or misuse of, reliable information that:
 Was available when financial statements for those periods were
authorized for issue
 Could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial
statements.
Such errors include mathematical mistakes, mistakes in applying accounting
policies and fraud.

IAS 38 – Intangible assets

The recognition criteria for intangible assets, as per IAS 38 are Identifiability,
control over the resource and existence of future economic benefits.
Requires an entity to recognize an intangible asset if:
 Probable that future economic benefits will flow to the entity
 Cost of asset can be measured reliably
IAS 38 states that an entity controls an asset if the entity has power to obtain
the future economic benefits flowing from the underlying resource and to
restrict the access of others to those benefits.

3 conditions:
1. No physical substance
2. Non-monetary
3. Identifiable/separate or arises through legal or contractual rights
Purchased assets (Recognition criteria)
1. Probable chances of economic benefits
2. Cost reliably measured

Development criteria
PIRATE
Profitability
Intention to complete
Resources available
Ability to use or sell the asset
Technically feasibility
Expenditure reliably measured

The standard states that I.A have an indefinite useful life when there is no
foreseeable limit to the period the asset is expected to generate net cash flows
for the entity. They are not amortized, but they should be tested for
impairment at every year end.

These assets should be reviewed each period to determine whether events

and circumstances continue to support an indefinite useful life assessment for
that asset. If they do not, the change in the useful life assessment from
indefinite to definite should be accounted as a change in an accounting
estimate, as per IAS eight Accounting policies, changes in accounting estimates
and errors.

IAS 27 – Separate financial statements

Requires an entity which prepares separate financial statements to account for
investments in subsidiaries, joint ventures and associates either:
 At cost
 In accordance with IFRS 9 Financial instrument
  Using the equity method as per IAS 28 Investment in associates

Sustainability
Sustainability has become an increasingly crucial aspect of investing. There is a
growing recognition that sustainability can have a significant effect on
company financial performance. Investors are increasingly integrating
consideration of sustainability issues and metrics into their decision-making.
Investors require a better understanding of the wider social and environmental
context in which the business operates. This creates a greater trust and
credibility with investors and a reduced risk of investors using inaccurate
information to make decisions about the company.

Investors have shown an appetite for products which recognize and reflect the
relationship between their investments and social and environmental conduct.
Investors need to completely understand the nature of the companies in which
they are looking to invest and need to incorporate material sustainability
factors into investment decisions. They need to understand whether there are
material risks or opportunities connected with sustainability factors which do
not appear in traditional financial reports.

Their materiaIity will differ from sector to sector, industry to industry.

Sustainability is often unique to the sector. This analysis can be the deciding
factor between otherwise identical companies. If the company is viewed
poorly based on its sustainability performance, it could lead to a non-
investment decision. The increasing availability of data from companies offers
the opportunity for rating and ranking analysis, as well as observing trends.
These advances have led to the quantitative application of sustainability data
in investment analysis and decision making. Companies need a greater
knowledge of investor needs and perspectives to help make reporting more
relevant to investors and to clearly communicate the financial value of the
company's sustainability efforts.

SME Standard (Small, Medium enterprises)

The principal aim when developing the SMEs Standard was to provide a
framework that generated relevant, reliable and useful information and the
provision of a high quality and understandable accounting standard suitable
for SMEs. The Standard itself is self-contained, and incorporates accounting
principles based on full IFRS standards. It comprises a single standard divided
into simplified sections for each relevant IFRS standard but which have also
omitted certain IFRS standards such as earnings per share and segmental
reporting. In addition, there are certain accounting treatments that are not
allowable under the SMES Standard. For example, there is no separate
guidance for non-current assets held for sale.

To this end, the SMEs Standard makes numerous simplifications to the

recognition, measurement and disclosure requirements in full IFRS standards.

Examples of these simplifications are:

Intangible assets must be amortized over their useful lives. If the useful life is
not determinable then it is presumed to be 10 years.
The cost model (investment is measured at cost less any accumulated
impairment losses) can be used for investments in associates. This model may
not be used for investments for which there is a published price quotation, in
which case the fair value model must be applied.

The disclosure requirements in the SMEs Standard are also substantially

reduced when compared with those in full IFRS standards partly because they
are not considered appropriate for users' needs and for cost-benefit
considerations.

Integrated Reporting
Integrated reporting could help SMEs better understand and better
communicate how they create value. It can provide a roadmap for SMEs to
consider the multiple capitals that make up its value creation. An integrated
report represents a more complete corporate report which will help SMEs
understand their business so they can implement a business model that will
help them grow. SMEs use a range of resources and relationships to create
value.

An integrated reporting approach helps SMEs build a better understanding of

the factors that determine its ability to create value over time. Integrated
thinking helps SMEs gain a deeper understanding of the mechanics of their
business. This will help them assess the strengths of their business model and
spot any deficiencies. These will create a forward-looking approach and sound
strategic decision making.

Some SMEs have few tangible assets and operate in a virtual world. As such,
conventional accounting will fail to provide a complete picture as to its ability
to create value. Capitals, such as employee expertise, customer loyalty, and
intellectual property, will not be accounted for in the financial statements
which are only one aspect of an SME's value creation. As a result, SME
stakeholders can be left with insufficient information to make an informed
decision.
Integrated reporting will include key financial information but that information
is alongside significant non-financial measures and narrative information.
Integrated reporting can help fulfil the communication needs of financial
capital and other stakeholders and can optimize reporting.

IAS 41 – Agriculture
According to the standard, a biological asset, such as a dairy cow, is initially
recorded at fair value less costs to sell. It should be remeasured at each
reporting date to its fair value less cost to sell. Gains or losses on
remeasurement are recorded in the statement of profit or loss.

Disclosures
Importance of optimal level of disclosure
It is important that financial statements are relevant and understandable.
Excessive disclosure can obscure relevant information. This makes it harder for
users to find the key points about the performance of the business and its
prospects for long-term
success
Materiality
An item is material if its omission or misstatement will influence the economic
decisions of the users of financial statements.
The Board feels that the poor application of materiality contributes to too
much irrelevant information in financial statements and not enough relevant
information. As such, they have issued a Practice Statement called Making
Materiality Judgements.

In the Practice Statement, the Board re-iterate that an entity only needs to
apply the disclosure requirements in an IFRS Standard if the resulting
information is material. When making such decisions, an entity must consider
the common information needs of the primary user groups of its financial
statements.

When organizing disclosure notes, entities should:

 Emphasize material matters
 Ensure material information is not obscured by immaterial information
 Ensure information is entity-specific
 Aim for simplicity and conciseness without omitting material detail
 Ensure formats are appropriate and understandable (e.g. tables, lists,
narrative)
 Provide comparable information
  Avoid duplication
Entities may sometimes need to provide additional disclosures, not required by
an IFRS Standard, if necessary to help financial statement users understand the
financial impact of its transactions during the period.

Conceptual Framework
The purpose of the Conceptual Framework is to assist:
 the Board when developing new IFRS Standards, helping to ensure that
these are based on consistent concepts
 preparers of financial statements when no IFRS Standard applies to a
particular transaction, or when an IFRS Standard offers a choice of
accounting policy
 all parties when understanding and interpreting IFRS Standards.
Fundamental characteristics
Relevance
Relevant information will make an impact on the decisions made by users of
the financial statements.
Relevance requires management to consider materiality. An item is materiaI if
omitting, misstating or obscuring it would influence the economic decisions of
users.

Faithful representation
A faithful representation of a transaction would represent its economic
substance rather than its legal form.
A perfectly faithful representation would be:
 complete
 neutral
 free from error.
The Board note that this is not fully achievable, but that these qualities should
be maximised.
When preparing financial reports, preparers should exercise prudence.
Prudence means that assets and income are not overstated and liabilities and
expenses are not understated. However, this does not mean that assets and
income should be purposefully understated, or liabilities and expenses
purposefully overstated. Such intentional misstatements are not neutral.

Enhancing characteristics
Comparability - investors should be able to compare an entity's financial
information year-on-year, and one entity's financial information with another.
Timeliness - older information is less useful.
Verifiability - knowledgeable users should be able to agree that a particular
depiction of a transaction offers a faithful representation.
Understandability - information should be presented as clearly and concisely
as possible.

Asset – present economic resource controlled by an entity as a result of a past

event
Liability – present obligation of the entity to transfer an economic resource as
result of past event
Equity – the residual interest in the net assets of an entity
Income – increase in assets or decrease in liabilities that result in an increase
to equity
Expenses – decrease in assets or increase in liabilities that result in decrease to
equity.

*Economic resource is a right that has the potential to produce economic

benefits

The Conceptual Framework defines an asset as a resource of an entity that has

the potential to produce economic benefits.

According to the Conceptual Framework, an element is recognised in the

financial statements if recognition provides relevant financial information, and
a faithful representation of the underlying transaction.

The Conceptual Framework states that the statement of profit or loss is the
primary source of information about an entity's performance. This statement
should enable investors to understand the entity's returns for the period, to
assess future cash flows, and to assess stewardship of the entity's resources.

When developing or revising standards, the Board notes that it might require
an income or expense to be presented in other comprehensive if it results
from remeasuring an item to current value and if this means that:
 profit or loss provides more relevant information, or
 a more faithful representation is provided of an entity's performance.

The Conceptual Framework states that income and expenditure included in

other comprehensive income should be reclassified to profit or loss when
doing so results in profit or loss providing more relevant information.

KPI (Key Performance Indicators)

The Integrated Reporting Framework does not specify which KPIs should be
disclosed, or how they should be disclosed, but instead leaves this to
management judgement. However, the Integrated Reporting Framework does
identify characteristics of useful quantitative indicators.

KPIs should be focused on matters that management have identified as

material. They should be consistent with the KPIs used internally by
management.

KPIs should be presented with comparative figures so that users of the <IR>
can appreciate trends. Targets should also be disclosed, as well as projections
for future periods.

The KPIs selected should be consistent with those used within the industry in
which the entity operates.

The same KPIs should be reported each period, unless they are no longer
material. KPIs should be calculated in a consistent manner in each reporting
period.

Qualitative information and discussion is required to add context to KPIs, such

as the assumptions used and the reasons for significant trends.

Prudence
Prudence is the inclusion of a degree of caution in the exercise of the
judgements needed in making the estimates. Prudence is generally taken to
mean that assets or income are not overstated and liabilities or expenses are
not understated.

Exercising prudence can lead to increased subjectivity in the financial

statements, which will affect the evaluation of the entity's performance.
Deliberate understatement or deliberate overstatement of the financial
statements, even in the name of prudence, is not neutral. Overstating liabilities
and expenses in the current period will lead to higher reported profits in the
next reporting period. As such, this would not offer a faithful representation of
an entity's financial performance and position.

However, to offer a faithful representation, financial statements should be free

from bias. Preparers of financial statements have a natural bias towards
optimism - often as a result of incentives to report higher profits and/or assets
- and therefore prudence might counteract this. Investors are often concerned
about financial risk relating to potential losses and so some form of
conservatism certainly has a role to play in financial reporting.

Factors to consider when accounting standard offers a choice of

measurement basis
The Conceptual Framework identifies two broad measurement bases:
historical cost and current value.
When selecting a measurement base, preparers of the financial statements
should ensure that the resulting financial information is as useful as possible to
primary user groups. To be useful, financial information must be relevant and
it must faithfully represent an entity's underlying transactions.
To maximise relevance, preparers of financial statements should consider the
characteristics of the asset or liability they are measuring. In particular, they
should consider how the asset contributes to future cash flows, and whether
those cash flows are sensitive to market factors.
Depreciated cost is unlikely to provide relevant information about an asset
with a volatile market value that will be traded in the short-term. Similarly,
reporting an asset or liability at fair value will not provide relevant information
if the item is held to collect contractual cash flows.
In order to faithfully represent an entity's transactions, consideration must be
given to measurement uncertainty. This arises when estimation techniques are
used. If measurement uncertainty is too high then information provided by
that measurement basis is unlikely to be useful.
When selecting a measurement basis, preparers of financial statements should
consider whether the benefits of the information it provides to the users of the
financial statements outweigh the costs providing that information.
Consideration should also be given to the enhancing qualitative characteristics
of useful financial information. Using the same measurement basis as other
entities in the same sector would enhance comparability. Using many different
measurement bases in a set of financial statements reduces understandability.
Verifiability is maximized by using measurement bases that can be
corroborated.