SIC 18: Consistency - Alternative Methods

SIC 18 offers guidance on how to apply the consistency principle in financial reporting
when faced with alternative accounting policies allowed by accounting standards. The
standard emphasizes the importance of maintaining consistency in applying these
policies and advises management to carefully consider the effects of any changes in
accounting policies on financial statements. Additionally, the standard provides
guidance on when changes in accounting policies are appropriate and how to properly
account for them. SIC 18 also requires the disclosure of any such changes.

NOTE: SIC 18 was superseded by IAS 8 Accounting Policies, Changes in Accounting

Estimates and Errors, effective for annual periods beginning on or after 1 January 2005.

SIC 19: Reporting Currency - Measurement and Presentation of Financial Statements Under
IAS 21 and IAS 29

SIC 19 provides guidance on how to An example of SIC 19 involves a

report financial statements according
to IAS 21 and IAS 29. The standard
requires entities to choose their
functional currency and use it as
their reporting currency for financial
statements, unless there are unusual
circumstances. If the functional
currency is different from the
reporting currency, appropriate
exchange rates should be used to
translate the financial statements.
multinational company that prepares its
consolidated financial statements in USD as its
reporting currency, and has a subsidiary in a
country where the functional currency is the
local currency. The subsidiary's financial
statements are prepared in the local currency
and need to be translated into USD for
consolidation. SIC 19 provides guidance on
how to determine the exchange rate to use for
translation, how to account for exchange
differences arising from the translation, and
how to present the financial statements.

NOTE: SIC 19 was superseded by IAS 21 The Effects of Changes in Foreign Exchange

Rates, effective for annual periods beginning on or after 1 January 2005.
SIC 20: Equity Accounting Method - Recognition of Losses

Under the equity accounting method, the investor recognizes its share of the profits or
losses of the investee in its financial statements. However, if the investor's share of losses
is greater than the carrying amount of the investment, the investor must recognize
additional losses, provided they are committed and able to fund the investee's operations.
The standard provides guidance on how to measure and recognize these losses, including
the amount that can be recognized, the impact of future recoveries or profits, and when to
recognize the losses. The standard also requires additional disclosures to provide
information about the losses incurred.
Example:
Assume that Company X owns 25% of the shares in Company Y, which it accounts for using the
equity method. At the end of the reporting period, the carrying amount of the investment in
Company Y is $500,000, and its recoverable amount is $450,000.
In this case, Company X needs to recognize an impairment loss on its investment in Company Y.
As the carrying amount exceeds the recoverable amount by $50,000 ($500,000 - $450,000),
Company X needs to recognize an impairment loss of $12,500 ($50,000 x 25%) in its income
statement. Company X also needs to adjust the carrying amount of its investment in Company Y
to $487,500 ($500,000 - $12,500) to reflect the impairment loss.

SIC 21: Income Taxes - Recovery of Revalued Non-Depreciable Assets

Key points of SIC 21 includes:

• The interpretation applies to the recovery of revalued non-depreciable assets only.
• The interpretation provides guidance on how to account for the tax effects of the recovery of
a revalued non-depreciable asset when there is a difference between the carrying amount and
the tax base of the asset.
• The standard requires an entity to recognize a deferred tax liability or asset for the tax effect
of the difference between the carrying amount and tax base of the revalued non-depreciable
asset.
• If the revalued non-depreciable asset is disposed of, the deferred tax liability or asset is
recognized in the income statement.
• The interpretation requires additional disclosures to provide information about the nature and
extent of the deferred tax liabilities or assets recognized.

SIC 22: Business Combinations - Subsequent Adjustment of Fair Values and Goodwill
Initially Reported

Key points of SIC 22 includes:

• Applies to subsequent adjustments made to the fair values and goodwill initially reported in
a business combination.
• Requires reassessment of the fair value of the assets and liabilities acquired and any goodwill
initially recognized.
• Any adjustments to the fair value of assets and liabilities should be recognized in the period
in which the adjustment is made.
• Any adjustments to the initial recognition of goodwill should be recognized as a
retrospective adjustment to the acquisition date.
• Additional disclosures are required to provide information about the subsequent adjustments
made.
• The company would also need to reassess the initial recognition of goodwill and determine if
there is any impairment.
• If there is impairment, the company would recognize the impairment as a retrospective
adjustment to the acquisition date, and any additional goodwill would need to be written off.
• The company would also need to provide additional disclosures about the subsequent
adjustments made and the impact on the financial statements.