IAS 31 & 32

IAS 31:
IAS 31 is an International Accounting Standard issued by the International Accounting
Standards Board (IASB), which outlines the accounting and financial reporting requirements
for investments in associates. An associate is an entity over which the investor has significant
influence but not control, generally evidenced by ownership of between 20% and 50% of the
voting rights.
Here are some key aspects covered by IAS 31:
1. Definition of Associates: IAS 31 defines an associate as an entity in which the
investor has significant influence, but not control, over the financial and operating
policies. Significant influence is generally presumed to exist when the investor holds
between 20% and 50% of the voting rights of the investee.

2. Equity Method: Investments in associates are accounted for using the equity
method. Under this method, the investment is initially recognized at cost and
adjusted thereafter to reflect the investor's share of the associate's profits or losses
and other comprehensive income, as well as changes in equity resulting from
transactions between the investor and the associate.

3. Recognition: The investor's share of the associate's profits or losses is recognized in

the investor's income statement, and its share of other comprehensive income is
recognized directly in equity. Unrealized gains and losses resulting from transactions
between the investor and the associate are eliminated to the extent of the investor's
interest in the associate.

4. Disclosure: IAS 31 requires disclosures about the nature and extent of the investor's
interests in associates, including the investor's share of the associate's profits or
losses, any contingent liabilities relating to the investor's interests in associates, and
any restrictions on the investor's ability to access or use assets of the associate.

5. Joint Ventures: IAS 31 also addresses joint ventures, which are jointly controlled
entities in which the investor has rights to the net assets of the entity rather than
equity interests. Joint ventures are accounted for using proportionate consolidation
or the equity method, depending on the investor's rights and obligations.
Overall, IAS 31 ensures that investments in associates are accounted for appropriately,
providing users of financial statements with relevant and reliable information about the
investor's interests in associates and their financial performance. Please note that the
standard may have been updated or replaced since my last update.
IAS 32:
IAS 32 is an International Accounting Standard that provides guidelines for the presentation
and disclosure of financial instruments. It focuses primarily on the presentation of financial
instruments in an entity's financial statements and the classification of financial instruments
as liabilities or equity.
Here are some key aspects covered by IAS 32:
1. Classification of Financial Instruments: IAS 32 provides criteria for distinguishing
between financial liabilities and equity instruments. The standard emphasizes the
importance of substance over form in determining the classification of financial
instruments.

2. Presentation: Financial instruments are presented separately in the balance sheet

according to their nature and characteristics. Liabilities and equity are presented
separately, with equity instruments classified as equity and financial liabilities
classified as liabilities.

3. Offsetting Financial Assets and Financial Liabilities: IAS 32 provides guidance on

when an entity has a legally enforceable right to set off recognized financial assets
and financial liabilities and presents the net amount in the balance sheet.

4. Disclosure Requirements: The standard includes extensive disclosure requirements

related to financial instruments. Entities are required to provide information about
the nature and extent of financial instruments and their associated risks, including
credit risk, liquidity risk, and market risk.

5. Compound Financial Instruments: IAS 32 addresses the accounting treatment for

compound financial instruments, which contain both a liability and an equity
component. The standard specifies how to allocate the proceeds of such instruments
between the liability and equity components.

6. Derivative Financial Instruments: IAS 32 provides guidance on the classification and

presentation of derivative financial instruments, including options, forwards, futures,
and swaps.
 7. Embedded Derivatives: The standard addresses the accounting treatment for
embedded derivatives, which are components of hybrid instruments such as
convertible bonds or embedded options in debt instruments.

Overall, IAS 32 aims to ensure that entities provide transparent and relevant information
about their financial instruments in their financial statements, enabling users to assess the
entity's financial position and performance accurately. Please note that the standard may
have been updated or replaced since my last update.