International financial reporting standards IFRSs

The Conceptual Framework for Financial Reporting The Conceptual Framework was issued by the International Accounting Standards Board in September 2010 It superseded the Framework for the Preparation and Presentation of Financial Statements gcaofficial.org ஽ IFRS Foundation A19 Conceptual Framework CONTENTS from paragraph FOREWORD THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING INTRODUCTION Purpose and status Scope CHAPTERS The objective of general purpose financial reporting OB1 The reporting entity to be added Qualitative characteristics of useful financial information The Framework (1989): the remaining text QC1 4.1 FOR THE ACCOMPANYING DOCUMENTS LISTED BELOW, SEE PART B OF THIS EDITION APPROVAL BY THE BOARD OF THE CONCEPTUAL FRAMEWORK 2010 BASIS FOR CONCLUSIONS ON CHAPTERS AND gcaofficial.org TABLE OF CONCORDANCE A20 ஽ IFRS Foundation Conceptual Framework Foreword The International Accounting Standards Board is currently in the process of updating its conceptual framework This conceptual framework project is conducted in phases As a chapter is finalised, the relevant paragraphs in the Framework for the Preparation and Presentation of Financial Statements that was published in 1989 will be replaced When the conceptual framework project is completed, the Board will have a complete, comprehensive and single document called the Conceptual Framework for Financial Reporting This version of the Conceptual Framework includes the first two chapters the Board published as a result of its first phase of the conceptual framework project—Chapter The objective of general purpose financial reporting and Chapter Qualitative characteristics of useful financial information Chapter will deal with the reporting entity concept The Board published an exposure draft on this topic in March 2010 with a comment period that ended on 16 July 2010 Chapter contains the remaining text of the Framework (1989) The table of concordance, at the end of this publication, shows how the contents of the Framework (1989) and the Conceptual Framework (2010) correspond gcaofficial.org ஽ IFRS Foundation A21 Conceptual Framework The Introduction has been carried forward from the Framework (1989) This will be updated when the IASB considers the purpose of the Conceptual Framework Until then, the purpose and the status of the Conceptual Framework are the same as before Introduction Financial statements are prepared and presented for external users by many entities around the world Although such financial statements may appear similar from country to country, there are differences which have probably been caused by a variety of social, economic and legal circumstances and by different countries having in mind the needs of different users of financial statements when setting national requirements These different circumstances have led to the use of a variety of definitions of the elements of financial statements: for example, assets, liabilities, equity, income and expenses They have also resulted in the use of different criteria for the recognition of items in the financial statements and in a preference for different bases of measurement The scope of the financial statements and the disclosures made in them have also been affected The International Accounting Standards Board is committed to narrowing these differences by seeking to harmonise regulations, accounting standards and procedures relating to the preparation and presentation of financial statements It believes that further harmonisation can best be pursued by focusing on financial statements that are prepared for the purpose of providing information that is useful in making economic decisions gcaofficial.org The Board believes that financial statements prepared for this purpose meet the common needs of most users This is because nearly all users are making economic decisions, for example: (a) to decide when to buy, hold or sell an equity investment (b) to assess the stewardship or accountability of management (c) to assess the ability of the entity to pay and provide other benefits to its employees (d) to assess the security for amounts lent to the entity (e) to determine taxation policies (f) to determine distributable profits and dividends (g) to prepare and use national income statistics (h) to regulate the activities of entities The Board recognises, however, that governments, in particular, may specify different or additional requirements for their own purposes These requirements should not, however, affect financial statements published for the benefit of other users unless they also meet the needs of those other users Financial statements are most commonly prepared in accordance with an accounting model based on recoverable historical cost and the nominal financial capital maintenance concept Other models and concepts may be more appropriate in order to meet the objective of providing information that is useful for making economic decisions although there is at present no consensus for change This Conceptual Framework has been developed so that it is applicable to a range of accounting models and concepts of capital and capital maintenance A22 ஽ IFRS Foundation Conceptual Framework Purpose and status This Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements for external users The purpose of the Conceptual Framework is: (a) to assist the Board in the development of future IFRSs and in its review of existing IFRSs; (b) to assist the Board in promoting harmonisation of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by IFRSs; (c) to assist national standard-setting bodies in developing national standards; (d) to assist preparers of financial statements in applying IFRSs and in dealing with topics that have yet to form the subject of an IFRS; (e) to assist auditors in forming an opinion on whether financial statements comply with IFRSs; (f) to assist users of financial statements in interpreting the information contained in financial statements prepared in compliance with IFRSs; and (g) to provide those who are interested in the work of the IASB with information about its approach to the formulation of IFRSs gcaofficial.org This Conceptual Framework is not an IFRS and hence does not define standards for any particular measurement or disclosure issue Nothing in this Conceptual Framework overrides any specific IFRS The Board recognises that in a limited number of cases there may be a conflict between the Conceptual Framework and an IFRS In those cases where there is a conflict, the requirements of the IFRS prevail over those of the Conceptual Framework As, however, the Board will be guided by the Conceptual Framework in the development of future IFRSs and in its review of existing IFRSs, the number of cases of conflict between the Conceptual Framework and IFRSs will diminish through time The Conceptual Framework will be revised from time to time on the basis of the Board’s experience of working with it Scope The Conceptual Framework deals with: (a) the objective of financial reporting; (b) the qualitative characteristics of useful financial information; (c) the definition, recognition and measurement of the elements from which financial statements are constructed; and (d) concepts of capital and capital maintenance ஽ IFRS Foundation A23 Conceptual Framework CONTENTS from paragraph CHAPTER 1: THE OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING INTRODUCTION OB1 OBJECTIVE, USEFULNESS AND LIMITATIONS OF GENERAL PURPOSE FINANCIAL REPORTING OB2 INFORMATION ABOUT A REPORTING ENTITY’S ECONOMIC RESOURCES, CLAIMS, AND CHANGES IN RESOURCES AND CLAIMS OB12 Economic resources and claims OB13 Changes in economic resources and claims OB15 Financial performance reflected by accrual accounting OB17 Financial performance reflected by past cash flows Changes in economic resources and claims not resulting from financial performance OB20 OB21 gcaofficial.org A24 ஽ IFRS Foundation Conceptual Framework Chapter 1: The objective of general purpose financial reporting Introduction OB1 The objective of general purpose financial reporting forms the foundation of the Conceptual Framework Other aspects of the Conceptual Framework—a reporting entity concept, the qualitative characteristics of, and the constraint on, useful financial information, elements of financial statements, recognition, measurement, presentation and disclosure—flow logically from the objective Objective, usefulness and limitations of general purpose financial reporting OB2 The objective of general purpose financial reporting1 is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit OB3 Decisions by existing and potential investors about buying, selling or holding equity and debt instruments depend on the returns that they expect from an investment in those instruments, for example dividends, principal and interest payments or market price increases Similarly, decisions by existing and potential lenders and other creditors about providing or settling loans and other forms of credit depend on the principal and interest payments or other returns that they expect Investors’, lenders’ and other creditors’ expectations about returns depend on their assessment of the amount, timing and uncertainty of (the prospects for) future net cash inflows to the entity Consequently, existing and potential investors, lenders and other creditors need information to help them assess the prospects for future net cash inflows to an entity gcaofficial.org OB4 To assess an entity’s prospects for future net cash inflows, existing and potential investors, lenders and other creditors need information about the resources of the entity, claims against the entity, and how efficiently and effectively the entity’s management and governing board2 have discharged their responsibilities to use the entity’s resources Examples of such responsibilities include protecting the entity’s resources from unfavourable effects of economic factors such as price and technological changes and ensuring that the entity complies with applicable laws, regulations and contractual provisions Information about management’s discharge of its responsibilities is also useful for decisions by existing investors, lenders and other creditors who have the right to vote on or otherwise influence management’s actions OB5 Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely Throughout this Conceptual Framework, the terms financial reports and financial reporting refer to general purpose financial reports and general purpose financial reporting unless specifically indicated otherwise Throughout this Conceptual Framework, the term management refers to management and the governing board of an entity unless specifically indicated otherwise ஽ IFRS Foundation A25 Conceptual Framework on general purpose financial reports for much of the financial information they need Consequently, they are the primary users to whom general purpose financial reports are directed OB6 However, general purpose financial reports not and cannot provide all of the information that existing and potential investors, lenders and other creditors need Those users need to consider pertinent information from other sources, for example, general economic conditions and expectations, political events and political climate, and industry and company outlooks OB7 General purpose financial reports are not designed to show the value of a reporting entity; but they provide information to help existing and potential investors, lenders and other creditors to estimate the value of the reporting entity OB8 Individual primary users have different, and possibly conflicting, information needs and desires The Board, in developing financial reporting standards, will seek to provide the information set that will meet the needs of the maximum number of primary users However, focusing on common information needs does not prevent the reporting entity from including additional information that is most useful to a particular subset of primary users OB9 The management of a reporting entity is also interested in financial information about the entity However, management need not rely on general purpose financial reports because it is able to obtain the financial information it needs internally gcaofficial.org OB10 Other parties, such as regulators and members of the public other than investors, lenders and other creditors, may also find general purpose financial reports useful However, those reports are not primarily directed to these other groups OB11 To a large extent, financial reports are based on estimates, judgements and models rather than exact depictions The Conceptual Framework establishes the concepts that underlie those estimates, judgements and models The concepts are the goal towards which the Board and preparers of financial reports strive As with most goals, the Conceptual Framework’s vision of ideal financial reporting is unlikely to be achieved in full, at least not in the short term, because it takes time to understand, accept and implement new ways of analysing transactions and other events Nevertheless, establishing a goal towards which to strive is essential if financial reporting is to evolve so as to improve its usefulness Information about a reporting entity’s economic resources, claims against the entity and changes in resources and claims OB12 A26 General purpose financial reports provide information about the financial position of a reporting entity, which is information about the entity’s economic resources and the claims against the reporting entity Financial reports also provide information about the effects of transactions and other events that ஽ IFRS Foundation Conceptual Framework change a reporting entity’s economic resources and claims Both types of information provide useful input for decisions about providing resources to an entity Economic resources and claims OB13 Information about the nature and amounts of a reporting entity’s economic resources and claims can help users to identify the reporting entity’s financial strengths and weaknesses That information can help users to assess the reporting entity’s liquidity and solvency, its needs for additional financing and how successful it is likely to be in obtaining that financing Information about priorities and payment requirements of existing claims helps users to predict how future cash flows will be distributed among those with a claim against the reporting entity OB14 Different types of economic resources affect a user’s assessment of the reporting entity’s prospects for future cash flows differently Some future cash flows result directly from existing economic resources, such as accounts receivable Other cash flows result from using several resources in combination to produce and market goods or services to customers Although those cash flows cannot be identified with individual economic resources (or claims), users of financial reports need to know the nature and amount of the resources available for use in a reporting entity’s operations gcaofficial.org Changes in economic resources and claims OB15 Changes in a reporting entity’s economic resources and claims result from that entity’s financial performance (see paragraphs OB17–OB20) and from other events or transactions such as issuing debt or equity instruments (see paragraph OB21) To properly assess the prospects for future cash flows from the reporting entity, users need to be able to distinguish between both of these changes OB16 Information about a reporting entity’s financial performance helps users to understand the return that the entity has produced on its economic resources Information about the return the entity has produced provides an indication of how well management has discharged its responsibilities to make efficient and effective use of the reporting entity’s resources Information about the variability and components of that return is also important, especially in assessing the uncertainty of future cash flows Information about a reporting entity’s past financial performance and how its management discharged its responsibilities is usually helpful in predicting the entity’s future returns on its economic resources Financial performance reflected by accrual accounting OB17 Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period This is important because information about a reporting entity’s economic resources and claims and changes in its economic resources and claims during a period provides a better basis for ஽ IFRS Foundation A27 Conceptual Framework assessing the entity’s past and future performance than information solely about cash receipts and payments during that period OB18 Information about a reporting entity’s financial performance during a period, reflected by changes in its economic resources and claims other than by obtaining additional resources directly from investors and creditors (see paragraph OB21), is useful in assessing the entity’s past and future ability to generate net cash inflows That information indicates the extent to which the reporting entity has increased its available economic resources, and thus its capacity for generating net cash inflows through its operations rather than by obtaining additional resources directly from investors and creditors OB19 Information about a reporting entity’s financial performance during a period may also indicate the extent to which events such as changes in market prices or interest rates have increased or decreased the entity’s economic resources and claims, thereby affecting the entity’s ability to generate net cash inflows Financial performance reflected by past cash flows OB20 Information about a reporting entity’s cash flows during a period also helps users to assess the entity’s ability to generate future net cash inflows It indicates how the reporting entity obtains and spends cash, including information about its borrowing and repayment of debt, cash dividends or other cash distributions to investors, and other factors that may affect the entity’s liquidity or solvency Information about cash flows helps users understand a reporting entity’s operations, evaluate its financing and investing activities, assess its liquidity or solvency and interpret other information about financial performance gcaofficial.org Changes in economic resources and claims not resulting from financial performance OB21 A28 A reporting entity’s economic resources and claims may also change for reasons other than financial performance, such as issuing additional ownership shares Information about this type of change is necessary to give users a complete understanding of why the reporting entity’s economic resources and claims changed and the implications of those changes for its future financial performance ஽ IFRS Foundation IFRS 15 a customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence is granted if the intellectual property to which the customer has rights will not change (see paragraph B61) In those cases, any activities undertaken by the entity merely change its own asset (ie the underlying intellectual property), which may affect the entity’s ability to provide future licences; however, those activities would not affect the determination of what the licence provides or what the customer controls B58 B59 The nature of an entity’s promise in granting a licence is a promise to provide a right to access the entity’s intellectual property if all of the following criteria are met: (a) the contract requires, or the customer reasonably expects, that the entity will undertake activities that significantly affect the intellectual property to which the customer has rights (see paragraph B59); (b) the rights granted by the licence directly expose the customer to any positive or negative effects of the entity’s activities identified in paragraph B58(a); and (c) those activities not result in the transfer of a good or a service to the customer as those activities occur (see paragraph 25) Factors that may indicate that a customer could reasonably expect that an entity will undertake activities that significantly affect the intellectual property include the entity’s customary business practices, published policies or specific statements Although not determinative, the existence of a shared economic interest (for example, a sales-based royalty) between the entity and the customer related to the intellectual property to which the customer has rights may also indicate that the customer could reasonably expect that the entity will undertake such activities gcaofficial.org B60 If the criteria in paragraph B58 are met, an entity shall account for the promise to grant a licence as a performance obligation satisfied over time because the customer will simultaneously receive and consume the benefit from the entity’s performance of providing access to its intellectual property as the performance occurs (see paragraph 35(a)) An entity shall apply paragraphs 39–45 to select an appropriate method to measure its progress towards complete satisfaction of that performance obligation to provide access B61 If the criteria in paragraph B58 are not met, the nature of an entity’s promise is to provide a right to use the entity’s intellectual property as that intellectual property exists (in terms of form and functionality) at the point in time at which the licence is granted to the customer This means that the customer can direct the use of, and obtain substantially all of the remaining benefits from, the licence at the point in time at which the licence transfers An entity shall account for the promise to provide a right to use the entity’s intellectual property as a performance obligation satisfied at a point in time An entity shall apply paragraph 38 to determine the point in time at which the licence transfers to the customer However, revenue cannot be recognised for a licence that provides a right to use the entity’s intellectual property before the beginning of the period during which the customer is able to use and benefit from the A724 ஽ IFRS Foundation IFRS 15 licence For example, if a software licence period begins before an entity provides (or otherwise makes available) to the customer a code that enables the customer to immediately use the software, the entity would not recognise revenue before that code has been provided (or otherwise made available) B62 An entity shall disregard the following factors when determining whether a licence provides a right to access the entity’s intellectual property or a right to use the entity’s intellectual property: (a) Restrictions of time, geographical region or use—those restrictions define the attributes of the promised licence, rather than define whether the entity satisfies its performance obligation at a point in time or over time (b) Guarantees provided by the entity that it has a valid patent to intellectual property and that it will defend that patent from unauthorised use—a promise to defend a patent right is not a performance obligation because the act of defending a patent protects the value of the entity’s intellectual property assets and provides assurance to the customer that the licence transferred meets the specifications of the licence promised in the contract Sales-based or usage-based royalties B63 Notwithstanding the requirements in paragraphs 56–59, an entity shall recognise revenue for a sales-based or usage-based royalty promised in exchange for a licence of intellectual property only when (or as) the later of the following events occurs: gcaofficial.org (a) the subsequent sale or usage occurs; and (b) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated has been satisfied (or partially satisfied) Repurchase agreements B64 A repurchase agreement is a contract in which an entity sells an asset and also promises or has the option (either in the same contract or in another contract) to repurchase the asset The repurchased asset may be the asset that was originally sold to the customer, an asset that is substantially the same as that asset, or another asset of which the asset that was originally sold is a component B65 Repurchase agreements generally come in three forms: (a) an entity’s obligation to repurchase the asset (a forward); (b) an entity’s right to repurchase the asset (a call option); and (c) an entity’s obligation to repurchase the asset at the customer’s request (a put option) A forward or a call option B66 If an entity has an obligation or a right to repurchase the asset (a forward or a call option), a customer does not obtain control of the asset because the customer is limited in its ability to direct the use of, and obtain substantially all ஽ IFRS Foundation A725 IFRS 15 of the remaining benefits from, the asset even though the customer may have physical possession of the asset Consequently, the entity shall account for the contract as either of the following: (a) a lease in accordance with IAS 17 Leases if the entity can or must repurchase the asset for an amount that is less than the original selling price of the asset; or (b) a financing arrangement in accordance with paragraph B68 if the entity can or must repurchase the asset for an amount that is equal to or more than the original selling price of the asset B67 When comparing the repurchase price with the selling price, an entity shall consider the time value of money B68 If the repurchase agreement is a financing arrangement, the entity shall continue to recognise the asset and also recognise a financial liability for any consideration received from the customer The entity shall recognise the difference between the amount of consideration received from the customer and the amount of consideration to be paid to the customer as interest and, if applicable, as processing or holding costs (for example, insurance) B69 If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue A put option gcaofficial.org B70 If an entity has an obligation to repurchase the asset at the customer’s request (a put option) at a price that is lower than the original selling price of the asset, the entity shall consider at contract inception whether the customer has a significant economic incentive to exercise that right The customer’s exercising of that right results in the customer effectively paying the entity consideration for the right to use a specified asset for a period of time Therefore, if the customer has a significant economic incentive to exercise that right, the entity shall account for the agreement as a lease in accordance with IAS 17 B71 To determine whether a customer has a significant economic incentive to exercise its right, an entity shall consider various factors, including the relationship of the repurchase price to the expected market value of the asset at the date of the repurchase and the amount of time until the right expires For example, if the repurchase price is expected to significantly exceed the market value of the asset, this may indicate that the customer has a significant economic incentive to exercise the put option B72 If the customer does not have a significant economic incentive to exercise its right at a price that is lower than the original selling price of the asset, the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20–B27 B73 If the repurchase price of the asset is equal to or greater than the original selling price and is more than the expected market value of the asset, the contract is in effect a financing arrangement and, therefore, shall be accounted for as described in paragraph B68 A726 ஽ IFRS Foundation IFRS 15 B74 If the repurchase price of the asset is equal to or greater than the original selling price and is less than or equal to the expected market value of the asset, and the customer does not have a significant economic incentive to exercise its right, then the entity shall account for the agreement as if it were the sale of a product with a right of return as described in paragraphs B20–B27 B75 When comparing the repurchase price with the selling price, an entity shall consider the time value of money B76 If the option lapses unexercised, an entity shall derecognise the liability and recognise revenue Consignment arrangements B77 When an entity delivers a product to another party (such as a dealer or a distributor) for sale to end customers, the entity shall evaluate whether that other party has obtained control of the product at that point in time A product that has been delivered to another party may be held in a consignment arrangement if that other party has not obtained control of the product Accordingly, an entity shall not recognise revenue upon delivery of a product to another party if the delivered product is held on consignment B78 Indicators that an arrangement is a consignment arrangement include, but are not limited to, the following: (a) the product is controlled by the entity until a specified event occurs, such as the sale of the product to a customer of the dealer or until a specified period expires; (b) the entity is able to require the return of the product or transfer the product to a third party (such as another dealer); and (c) the dealer does not have an unconditional obligation to pay for the product (although it might be required to pay a deposit) gcaofficial.org Bill-and-hold arrangements B79 A bill-and-hold arrangement is a contract under which an entity bills a customer for a product but the entity retains physical possession of the product until it is transferred to the customer at a point in time in the future For example, a customer may request an entity to enter into such a contract because of the customer’s lack of available space for the product or because of delays in the customer’s production schedules B80 An entity shall determine when it has satisfied its performance obligation to transfer a product by evaluating when a customer obtains control of that product (see paragraph 38) For some contracts, control is transferred either when the product is delivered to the customer’s site or when the product is shipped, depending on the terms of the contract (including delivery and shipping terms) However, for some contracts, a customer may obtain control of a product even though that product remains in an entity’s physical possession In that case, the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the product even though it has decided not to exercise its right to take physical possession of that product ஽ IFRS Foundation A727 IFRS 15 Consequently, the entity does not control the product Instead, the entity provides custodial services to the customer over the customer’s asset B81 B82 In addition to applying the requirements in paragraph 38, for a customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria must be met: (a) the reason for the bill-and-hold arrangement must be substantive (for example, the customer has requested the arrangement); (b) the product must be identified separately as belonging to the customer; (c) the product currently must be ready for physical transfer to the customer; and (d) the entity cannot have the ability to use the product or to direct it to another customer If an entity recognises revenue for the sale of a product on a bill-and-hold basis, the entity shall consider whether it has remaining performance obligations (for example, for custodial services) in accordance with paragraphs 22–30 to which the entity shall allocate a portion of the transaction price in accordance with paragraphs 73–86 Customer acceptance B83 In accordance with paragraph 38(e), a customer’s acceptance of an asset may indicate that the customer has obtained control of the asset Customer acceptance clauses allow a customer to cancel a contract or require an entity to take remedial action if a good or service does not meet agreed-upon specifications An entity shall consider such clauses when evaluating when a customer obtains control of a good or service B84 If an entity can objectively determine that control of a good or service has been transferred to the customer in accordance with the agreed-upon specifications in the contract, then customer acceptance is a formality that would not affect the entity’s determination of when the customer has obtained control of the good or service For example, if the customer acceptance clause is based on meeting specified size and weight characteristics, an entity would be able to determine whether those criteria have been met before receiving confirmation of the customer’s acceptance The entity’s experience with contracts for similar goods or services may provide evidence that a good or service provided to the customer is in accordance with the agreed-upon specifications in the contract If revenue is recognised before customer acceptance, the entity still must consider whether there are any remaining performance obligations (for example, installation of equipment) and evaluate whether to account for them separately B85 However, if an entity cannot objectively determine that the good or service provided to the customer is in accordance with the agreed-upon specifications in the contract, then the entity would not be able to conclude that the customer has obtained control until the entity receives the customer’s acceptance That is because in that circumstance the entity cannot determine that the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the good or service gcaofficial.org A728 ஽ IFRS Foundation IFRS 15 B86 If an entity delivers products to a customer for trial or evaluation purposes and the customer is not committed to pay any consideration until the trial period lapses, control of the product is not transferred to the customer until either the customer accepts the product or the trial period lapses Disclosure of disaggregated revenue B87 Paragraph 114 requires an entity to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors Consequently, the extent to which an entity’s revenue is disaggregated for the purposes of this disclosure depends on the facts and circumstances that pertain to the entity’s contracts with customers Some entities may need to use more than one type of category to meet the objective in paragraph 114 for disaggregating revenue Other entities may meet the objective by using only one type of category to disaggregate revenue B88 When selecting the type of category (or categories) to use to disaggregate revenue, an entity shall consider how information about the entity’s revenue has been presented for other purposes, including all of the following: (a) disclosures presented outside the financial statements (for example, in earnings releases, annual reports or investor presentations); (b) information regularly reviewed by the chief operating decision maker for evaluating the financial performance of operating segments; and gcaofficial.org (c) B89 other information that is similar to the types of information identified in paragraph B88(a) and (b) and that is used by the entity or users of the entity’s financial statements to evaluate the entity’s financial performance or make resource allocation decisions Examples of categories that might be appropriate include, but are not limited to, all of the following: (a) type of good or service (for example, major product lines); (b) geographical region (for example, country or region); (c) market or type of customer non-government customers); (d) type of contract (for example, fixed-price and time-and-materials contracts); (e) contract duration (for example, short-term and long-term contracts); (f) timing of transfer of goods or services (for example, revenue from goods or services transferred to customers at a point in time and revenue from goods or services transferred over time); and (g) sales channels (for example, goods sold directly to consumers and goods sold through intermediaries) (for ஽ IFRS Foundation example, government and A729 IFRS 15 Appendix C Effective date and transition This appendix is an integral part of the Standard and has the same authority as the other parts of the Standard Effective date C1 An entity shall apply this Standard for annual reporting periods beginning on or after January 2017 Earlier application is permitted If an entity applies this Standard earlier, it shall disclose that fact Transition C2 C3 For the purposes of the transition requirements in paragraphs C3–C8: (a) the date of initial application is the start of the reporting period in which an entity first applies this Standard; and (b) a completed contract is a contract for which the entity has transferred all of the goods or services identified in accordance with IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations An entity shall apply this Standard using one of the following two methods: gcaofficial.org (a) retrospectively to each prior reporting period presented in accordance with IAS Accounting Policies, Changes in Accounting Estimates and Errors, subject to the expedients in paragraph C5; or (b) retrospectively with the cumulative effect of initially applying this Standard recognised at the date of initial application in accordance with paragraphs C7–C8 C4 Notwithstanding the requirements of paragraph 28 of IAS 8, when this Standard is first applied, an entity need only present the quantitative information required by paragraph 28(f) of IAS for the annual period immediately preceding the first annual period for which this Standard is applied (the ‘immediately preceding period’) and only if the entity applies this Standard retrospectively in accordance with paragraph C3(a) An entity may also present this information for the current period or for earlier comparative periods, but is not required to so C5 An entity may use one or more of the following practical expedients when applying this Standard retrospectively in accordance with paragraph C3(a): A730 (a) for completed contracts, an entity need not restate contracts that begin and end within the same annual reporting period; (b) for completed contracts that have variable consideration, an entity may use the transaction price at the date the contract was completed rather than estimating variable consideration amounts in the comparative reporting periods; and ஽ IFRS Foundation IFRS 15 (c) C6 C7 for all reporting periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to the remaining performance obligations and an explanation of when the entity expects to recognise that amount as revenue (see paragraph 120) For any of the practical expedients in paragraph C5 that an entity uses, the entity shall apply that expedient consistently to all contracts within all reporting periods presented In addition, the entity shall disclose all of the following information: (a) the expedients that have been used; and (b) to the extent reasonably possible, a qualitative assessment of the estimated effect of applying each of those expedients If an entity elects to apply this Standard retrospectively in accordance with paragraph C3(b), the entity shall recognise the cumulative effect of initially applying this Standard as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application Under this transition method, an entity shall apply this Standard retrospectively only to contracts that are not completed contracts at the date of initial application (for example, January 2017 for an entity with a 31 December year-end) gcaofficial.org C8 For reporting periods that include the date of initial application, an entity shall provide both of the following additional disclosures if this Standard is applied retrospectively in accordance with paragraph C3(b): (a) the amount by which each financial statement line item is affected in the current reporting period by the application of this Standard as compared to IAS 11, IAS 18 and related Interpretations that were in effect before the change; and (b) an explanation of the reasons for significant changes identified in C8(a) References to IFRS C9 If an entity applies this Standard but does not yet apply IFRS Financial Instruments, any reference in this Standard to IFRS shall be read as a reference to IAS 39 Financial Instruments: Recognition and Measurement Withdrawal of other Standards C10 This Standard supersedes the following Standards: (a) IAS 11 Construction Contracts; (b) IAS 18 Revenue; (c) IFRIC 13 Customer Loyalty Programmes; (d) IFRIC 15 Agreements for the Construction of Real Estate; (e) IFRIC 18 Transfers of Assets from Customers; and (f) SIC-31 Revenue—Barter Transactions Involving Advertising Services ஽ IFRS Foundation A731 IFRS 15 Appendix D Amendments to other Standards This Appendix describes the amendments to other Standards that the IASB made when it finalised IFRS 15 An entity shall apply the amendments for annual periods beginning on or after January 2017 If an entity applies IFRS 15 for an earlier period, these amendments shall be applied for that earlier period ***** The amendments contained in this appendix when this Standard was issued in 2014 have been incorporated into the text of the relevant Standards included in this volume gcaofficial.org A732 ஽ IFRS Foundation Preface to IFRSs Preface to International Financial Reporting Standards1 This Preface is issued to set out the objectives and due process of the International Accounting Standards Board and to explain the scope, authority and timing of application of International Financial Reporting Standards The Preface was approved by the IASB in April 2002 and superseded the Preface published in January 1975 (amended November 1982) In 2007 the Preface was amended in January and October to reflect changes in the IASC Foundation’s2 Constitution and in September as a consequence of the changes made by IAS Presentation of Financial Statements (as revised in 2007) In January 2008 paragraph was amended to update the reference to the body now known as the IPSASB In 2010 the Preface was amended to reflect the Constitution as revised in January 2009 and January 2010 and the publication of the Conceptual Framework in September 2010 The International Accounting Standards Board (IASB) was established in 2001 as part of the International Accounting Standards Committee (IASC) Foundation In 2010 the IASC Foundation was renamed the IFRS Foundation The governance of the IFRS Foundation rests with twenty-two Trustees The Trustees’ responsibilities include appointing the members of the IASB and associated councils and committees, as well as securing financing for the organisation The IASB comprises fifteen full-time members (the IFRS Foundation’s Constitution provides for membership to rise to sixteen by July 2012) Approval of International Financial Reporting Standards (IFRSs) and related documents, such as the Conceptual Framework for Financial Reporting, exposure drafts, and other discussion documents, is the responsibility of the IASB gcaofficial.org The IFRS Interpretations Committee3 comprises fourteen voting members and a non-voting Chairman, all appointed by the Trustees The role of the Committee is to prepare interpretations of IFRSs for approval by the IASB and, in the context of the Conceptual Framework, to provide timely guidance on financial reporting issues The Committee (then called the International Financial Reporting Interpretations Committee) replaced the former Standing Interpretations Committee (SIC) in 2002 The IFRS Advisory Council4 is appointed by the Trustees It provides a formal vehicle for participation by organisations and individuals with an interest in international financial reporting The participants have diverse geographical and functional backgrounds The Council’s objective is to give advice to the IASB on priorities, agenda decisions and on major standard-setting projects The IASB was preceded by the Board of IASC, which came into existence on 29 June 1973 as a result of an agreement by professional accountancy bodies in Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United including IFRIC and SIC Interpretations In July 2010 the IASC Foundation was renamed the IFRS Foundation Before March 2010 the Interpretations Committee was called the International Financial Reporting Interpretations Committee (IFRIC) Before March 2010 the IFRS Advisory Council was called the Standards Advisory Council (SAC) ஽ IFRS Foundation A13 Preface to IFRSs Kingdom and Ireland, and the United States of America A revised Agreement and Constitution were signed in November 1982 The Constitution was further revised in October 1992 and May 2000 by the IASC Board Under the May 2000 Constitution, the professional accountancy bodies adopted a mechanism enabling the appointed Trustees to put the May 2000 Constitution into force The Trustees activated the new Constitution in January 2001, and revised it in March 2002.5 At its meeting on 20 April 2001 the IASB passed the following resolution: All Standards and Interpretations issued under previous Constitutions continue to be applicable unless and until they are amended or withdrawn The International Accounting Standards Board may amend or withdraw International Accounting Standards and SIC Interpretations issued under previous Constitutions of IASC as well as issue new Standards and Interpretations When the term IFRSs is used in this Preface, it includes standards and Interpretations approved by the IASB, and International Accounting Standards (IASs) and SIC Interpretations issued under previous Constitutions Objectives of the IASB The objectives of the IASB are: (a) to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based on clearly articulated principles These standards should require high quality, transparent and comparable information in financial statements and other financial reporting to help investors, other participants in the various capital markets of the world and other users of financial information make economic decisions; gcaofficial.org (b) to promote the use and rigorous application of those standards; (c) in fulfilling the objectives associated with (a) and (b), to take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings; (d) to promote and facilitate the adoption of IFRSs, being the standards and interpretations issued by the IASB, through the convergence of national accounting standards and IFRSs Scope and authority of International Financial Reporting Standards The IASB achieves its objectives primarily by developing and publishing IFRSs and promoting the use of those standards in general purpose financial statements and other financial reporting Other financial reporting comprises information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions In developing IFRSs, the IASB The Constitution was further revised in July 2002, June 2005, October 2007, January 2009, January 2010 and January 2013 A14 ஽ IFRS Foundation Preface to IFRSs works with national standard-setters to promote and facilitate adoption of IFRSs through convergence of national accounting standards and IFRSs IFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements They may also set out such requirements for transactions and events that arise mainly in specific industries IFRSs are based on the Conceptual Framework, which addresses the concepts underlying the information presented in general purpose financial statements Although the Conceptual Framework was not issued until September 2010, it was developed from the previous Framework for the Preparation and Presentation of Financial Statements, which the IASB adopted in 2001 The objective of the Conceptual Framework is to facilitate the consistent and logical formulation of IFRSs The Conceptual Framework also provides a basis for the use of judgement in resolving accounting issues IFRSs are designed to apply to the general purpose financial statements and other financial reporting of profit-oriented entities Profit-oriented entities include those engaged in commercial, industrial, financial and similar activities, whether organised in corporate or in other forms They include organisations such as mutual insurance companies and other mutual co-operative entities that provide dividends or other economic benefits directly and proportionately to their owners, members or participants Although IFRSs are not designed to apply to not-for-profit activities in the private sector, public sector or government, entities with such activities may find them appropriate The International Public Sector Accounting Standards Board (IPSASB) prepares accounting standards for governments and other public sector entities, other than government business entities, based on IFRSs gcaofficial.org 10 IFRSs apply to all general purpose financial statements Such financial statements are directed towards the common information needs of a wide range of users, for example, shareholders, creditors, employees and the public at large The objective of financial statements is to provide information about the financial position, performance and cash flows of an entity that is useful to those users in making economic decisions 11 A complete set of financial statements includes a statement of financial position, a statement of comprehensive income, a statement of changes in equity, a statement of cash flows, and accounting policies and explanatory notes When a separate income statement is presented in accordance with IAS Presentation of Financial Statements (as revised in 2007), it is part of that complete set In the interest of timeliness and cost considerations and to avoid repeating information previously reported, an entity may provide less information in its interim financial statements than in its annual financial statements IAS 34 Interim Financial Reporting prescribes the minimum content of complete or condensed financial statements for an interim period The term ‘financial statements’ includes a complete set of financial statements prepared for an interim or annual period, and condensed financial statements for an interim period 12 Some IFRSs permit different treatments for given transactions and events The IASB’s objective is to require like transactions and events to be accounted for and ஽ IFRS Foundation A15 Preface to IFRSs reported in a like way and unlike transactions and events to be accounted for and reported differently, both within an entity over time and among entities Consequently, the IASB intends not to permit choices in accounting treatment Also, the IASB has reconsidered, and will continue to reconsider, those transactions and events for which IFRSs permit a choice of accounting treatment, with the objective of reducing the number of those choices 13 Standards approved by the IASB include paragraphs in bold type and plain type, which have equal authority Paragraphs in bold type indicate the main principles An individual standard should be read in the context of the objective stated in that standard and this Preface 14 Interpretations of IFRSs are prepared by the Interpretations Committee to give authoritative guidance on issues that are likely to receive divergent or unacceptable treatment, in the absence of such guidance 15 IAS (as revised in 2007) includes the following requirement: An entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs 16 Any limitation of the scope of an IFRS is made clear in the standard Due process gcaofficial.org 17 IFRSs are developed through an international due process that involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities, academics and other interested individuals and organisations from around the world The IASB consults, in public meetings, the Advisory Council on major projects, agenda decisions and work priorities, and discusses technical matters in meetings that are open to public observation Due process for projects normally, but not necessarily, involves the following steps (the steps that are required under the terms of the IFRS Foundation’s Constitution are indicated by an asterisk*): (a) the staff are asked to identify and review all the issues associated with the topic and to consider the application of the Conceptual Framework to the issues; (b) study of national accounting requirements and practice and an exchange of views about the issues with national standard-setters; (c) consulting the Trustees and the Advisory Council about the advisability of adding the topic to the IASB’s agenda;*6 (d) formation of an advisory group to give advice to the IASB on the project; (e) publishing for public comment a discussion document; (f) publishing for public comment an exposure draft (including any dissenting opinions held by IASB members) approved by at least nine Beginning no later than 30 June 2011 the IASB is required to carry out a public consultation on its agenda every three years A16 ஽ IFRS Foundation Preface to IFRSs votes of the IASB if there are fewer than sixteen members, or by ten of its members if there are sixteen members;* 18 (g) normally publishing with an exposure draft a basis for conclusions and the alternative views of any IASB member who opposes publication;* (h) consideration of all comments received within the comment period on discussion documents and exposure drafts;* (i) consideration of the desirability of holding a public hearing and of the desirability of conducting field tests and, if considered desirable, holding such hearings and conducting such tests; (j) approval of a standard by at least nine votes of the IASB if there are fewer than sixteen members, or by ten of its members if there are sixteen members;* and (k) publishing with a standard (i) a basis for conclusions, explaining, among other things, the steps in the IASB’s due process and how the IASB dealt with public comments on the exposure draft, and (ii) the dissenting opinion of any IASB member.* Interpretations of IFRSs are developed through an international due process that involves accountants, financial analysts and other users of financial statements, the business community, stock exchanges, regulatory and legal authorities, academics and other interested individuals and organisations from around the world The Interpretations Committee discusses technical matters in meetings that are open to public observation The due process for each project normally, but not necessarily, involves the following steps (the steps that are required under the terms of the IFRS Foundation’s Constitution are indicated by an asterisk*): gcaofficial.org (a) the staff are asked to identify and review all the issues associated with the topic and to consider the application of the Conceptual Framework to the issues; (b) consideration of the implications for the issues of the hierarchy of IAS Accounting Policies, Changes in Accounting Estimates and Errors; (c) publication of a draft Interpretation for public comment if no more than four Committee members have voted against the proposal;* (d) consideration of all comments received within the comment period on a draft Interpretation;* (e) approval by the Interpretations Committee of an Interpretation if no more than four Committee members have voted against the Interpretation after considering public comments on the draft Interpretation;* and (f) approval of the Interpretation by at least nine votes of the IASB if there are fewer than sixteen members, or by ten of its members if there are sixteen members.* ஽ IFRS Foundation A17 Preface to IFRSs Timing of application of International Financial Reporting Standards 19 IFRSs apply from a date specified in the document New or revised IFRSs set out transitional provisions to be applied on their initial application 20 The IASB has no general policy of exempting transactions occurring before a specific date from the requirements of new IFRSs When financial statements are used to monitor compliance with contracts and agreements, a new IFRS may have consequences that were not foreseen when the contract or agreement was finalised For example, covenants contained in banking and loan agreements may impose limits on measures shown in a borrower’s financial statements The IASB believes the fact that financial reporting requirements evolve and change over time is well understood and would be known to the parties when they entered into the agreement It is up to the parties to determine whether the agreement should be insulated from the effects of a future IFRS, or, if not, the manner in which it might be renegotiated to reflect changes in reporting rather than changes in the underlying financial condition 21 Exposure drafts are issued for comment and their proposals are subject to revision Until the effective date of an IFRS, the requirements of any IFRS that would be affected by proposals in an exposure draft remain in force Language gcaofficial.org 22 A18 The approved text of any discussion document, exposure draft or IFRS is that approved by the IASB in the English language The IASB may approve translations in other languages, provided that the translation is prepared in accordance with a process that provides assurance of the quality of the translation, and the IASB may license other translations ஽ IFRS Foundation ... and limitations of general purpose financial reporting OB2 The objective of general purpose financial reporting1 is to provide financial information about the reporting entity that is useful to... non-comparability The cost constraint on useful financial reporting QC35 Cost is a pervasive constraint on the information that can be provided by financial reporting Reporting financial information imposes costs,... OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING INTRODUCTION OB1 OBJECTIVE, USEFULNESS AND LIMITATIONS OF GENERAL PURPOSE FINANCIAL REPORTING OB2 INFORMATION ABOUT A REPORTING ENTITY’S ECONOMIC