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ACCA – IAS & IFRS for 2013 December 1 | P a g e www.accareloaded.com Summary IAS & IFRS Financial-Corporate Reporting Join us on Facebook: Click Here ACCA – IAS & IFRS for 2013 December 2 | P a g e www.accareloaded.com IAS 1 – Presentation of financial statements • Provides formats for classification and presentation of financial information • Identifies components of financial statements • Note items of OCI must now be classified as either items that may be reclassified to profit or loss in future periods, or those items which will not be reclassified in future periods • Financial statements comprise:- - Statement of financial position - Statement of Profit or Loss - Statement of Profit or Loss and Other Comprehensive Income - statement of changes in equity - statement of cash flows - notes to the financial statements including a note of accounting policies - certain elements of the report of the executives Key points summary : • IAS 1 prescribes the basis for presentation of general purpose financial statements. • A complete set of financial statements includes four statements and notes including a summary of accounting policies. • Fair presentation is presumed by application of IFRSs, with additional disclosure (if necessary). • Inappropriate accounting policies are not rectified by disclosure. • Going concern is presumed. Significant uncertainties must be disclosed. • Accrual basis is required (except for cash flow information). • Consistency must be retained unless a change is justified (must disclose). • Material items must be presented separately. Dissimilar items may be aggregated (if individually immaterial). • Assets and liabilities, and income and expenses may not be offset unless required or permitted by an IFRS. • Comparative information is required unless another Standard requires otherwise. Statement of financial position must normally be classified (current vs non-current). Note disclosure must separate longer-term amounts. • All assets/liabilities other than current assets/liabilities are non-current. • Minimum items are specified for the financial statements. Additional line items may be needed for fair presentation. • “Profit or loss” describes the bottom line of the income statement. • All items of income/expense recognized in a period must be included in profit or loss (unless am IFRS requires otherwise). • Other comprehensive income includes changes in unrealized gains and losses (e.g. on revaluation). ACCA – IAS & IFRS for 2013 December 3 | P a g e www.accareloaded.com • Comprehensive income may be presented as one or two statements. • Allocations to non-controlling interests and owners must be shown. • No item may be presented as “extraordinary item” but material items may be disclosed separately. • A separate statement of changes in equity must include effects of retrospective application and dividends recognized as distributions. ACCA – IAS & IFRS for 2013 December 4 | P a g e www.accareloaded.com IAS 2 - Inventories • Valued at lower of cost and fair value less selling costs (i.e. NRV) for each separate item or product • Include all costs of getting item or product to current location and condition Key Points : • Value at lower of cost and net realizable value (NRV). • NRV is selling price less cost to complete and sell. • Cost includes all costs to bring inventories to their present condition location. • If specific cost is not determinable, use FIFO or weighted average. • Cost of inventory is recognized as an expense in the period in which the related revenue is recognized. • Any write-down is charged to expense. Any reversal in a later period is credited to income by reducing that period’s cost of goods sold. Required disclosures include: • accounting policy; • carrying amount; − by category; − at fair value; − pledged as security for liabilities; • amount of any reversal of a write-down; • cost charged to expense for the period. ACCA – IAS & IFRS for 2013 December 5 | P a g e www.accareloaded.com IAS 7 – Statement of cash flows • Standard format – choice between direct or indirect method – indirect normally used • Three standard headings = operating, investing and financing – within standard heading, can be in any order • Normally begin operating activities with profit before tax and adjust for non-cash items Key points summary : • The statement of cash flows is a required financial statement. • Cash equivalents are short-term, highly liquid investments subject to insignificant risk of changes in value. • Cash flows are classified into operating, investing, and financial activities. • Operating: May be presented using either the direct or indirect methods. - Direct method shows receipts from customers and payments to suppliers, etc. - Indirect method adjusts accrual basis profit or loss for major non-cash items. • Investing: acquisition or sale of property, plant and equipment. • Financing: issue/redemption of equity, debentures, etc. ACCA – IAS & IFRS for 2013 December 6 | P a g e www.accareloaded.com IAS 8 – Accounting policies, changes in accounting estimates and errors • Accounting policies should be appropriate and relevant, be consistently applied and be disclosed • Changes in estimates are taken to SOCI – e.g. change in depreciation method or revised estimate of NRV • Changes in accounting policy and fundamental errors should be accounted for as a Prior Period Adjustment to re-state the opening position and comparative information Key points summary : • Changes in accounting policies are not changes in estimates. • Changes in accounting estimates are not corrections of errors. • A change in policy may be required by a Standard or voluntary. • A change in estimate is accounted for prospectively. • Changes in accounting policy are accounted for retrospectively unless a new/revised standard specifies otherwise (in transitional provisions). • The correction of prior period errors is accounted for retrospectively. • Retrospective application means: - adjusting opening balances in equity (e.g. retained earnings) for the earliest prior period presented; and restating comparative amounts. ACCA – IAS & IFRS for 2013 December 7 | P a g e www.accareloaded.com IAS 10 – Events after the reporting period • Definition – those events between SOFP date and date of approval of financial statements • Adjusting events – those which provide additional evidence of the situation existing at the SOFP date e.g. insolvency of major debtor notified shortly after the reporting date • Non-adjusting events – those which do not provide evidence of the situation at the SOFP date e.g. Share issue after the reporting date. Disclose only, but may become adjusting even if going concern basis threatened. Key points summary: • Financial statements are adjusted for adjusting events (that provide further evidence of conditions existing at the end of the reporting period). • The basis of preparation of financial statements is changed if events indicate that the going concern assumption is no longer appropriate. • Non-adjusting events (events or conditions that arose after the end of the period) are disclosed if of such importance that non-disclosure would affect the ability of users to make decisions. Disclose: - nature of the event; and - financial effect (or state that this cannot be estimated). • Dividends declared after the reporting period is not a liability at the end of the reporting period (therefore disclose as a non-adjusting event). • The date when the financial statements are authorized for issue (who authorized and who can amend subsequently) must be disclosed. ACCA – IAS & IFRS for 2013 December 8 | P a g e www.accareloaded.com IAS 11 - Construction contracts • This is not relevant for paper P2 • Long-term defined as contract straddling two or more accounting periods • Recognize foreseeable losses – prudent • Recognize element of attributable profit – matching Key points summary : • A construction contract is a contract for the construction assets. • A contract for two or more assets, should be accounted for: - separately if certain criteria are met; - as a single contract if negotiated together and work is inter-related. • Revenue includes amounts initially agreed, for alternations, claims and incentive payments. • Costs include specific costs, costs attributable to the contracting activity and other costs chargeable under the terms of the contract. • If the outcome can be estimated reliably, revenue and costs are recognized in proportion to the stage of completion (“percentage of completion”). • If the outcome cannot be estimated reliably, no profit is recognized. Costs are expensed as incurred and revenue is recognized to the extent that they are expected to be recoverable. • Stage of completion can be determined on costs, work performed or a physical basis. • An expected loss is recognized as an expense as soon as it is probable. • Gross amount due from/to customers is presented as an asset/liability. ACCA – IAS & IFRS for 2013 December 9 | P a g e www.accareloaded.com IAS 12 – Income Taxes • Tax on company income charge in SOCI and recognize as a liability • Deferred tax based upon full provision at reporting date: - Permanent differences ignored - Temporary differences in accounting and tax treatment accounted for, e.g. - Depreciation charge and tax allowances on PPE - Share options annual expense and allowed for tax when exercised - Defined benefit pension plans annual charge and contributions allowed for tax - Need to consider recoverability of deferred tax assets – asset ceiling limit - Note 2011 revision re investment property measured at fair value Key points : • Current tax (for current and prior periods) is a liability to the extent that it has not yet been settled, and an asset to the extent that amounts paid exceeds the amount due. • The benefit of a tax loss which can be carried back to recover current tax of a prior period should be recognized as an asset. • Current tax assets and liabilities are measured using the rates/laws that have been enacted or substantively enacted by the reporting date. • Deferred tax liabilities should be recognized for all taxable temporary differences. Exceptions are liabilities arising from initial recognition of: - goodwill; - an asset/liability in a transaction which is not a business combination and does not affect accounting or taxable profit. • A deferred tax asset should be recognized for deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. • A deferred tax asset is recognized for unused tax losses/credits carried forward to the extent that sufficient future taxable profits are probable. • Deferred tax assets and liabilities are measured at tax rates expected to apply (enacted or substantively enacted by the end of the reporting period). • Deferred tax assets and liabilities are not discounted. • Current and deferred tax is recognized in profit or loss except to the extent that the tax arises from: • transactions recognized in other comprehensive income or directly in equity; • a business combination. • Current tax assets and liabilities should only be offset if there is a legal right to offset and intention to settle on a net basis. Similarly for deferred tax where levied by the same tax authority. ACCA – IAS & IFRS for 2013 December 10 | P a g e www.accareloaded.com IAS 16 – Property, plant & equipment • Initial measurement – cost directly attributable to bringing the asset into working condition; now compulsory to capitalize finance costs. • Capitalize subsequent expenditure which enhances economic benefits of the asset. • May be revalued – take revaluation to revaluation reserve; continue to depreciate asset over remaining expected useful life. Disclose name, date and qualifications of valuer. • Commence depreciation when asset available for use and charge to reflect economic benefits consumed during the period • May be possible not to charge depreciation if it is immaterial due to very long expected useful life of asset and/or high residual values. If this is the case, asset to be maintained to a high standard and is unlikely to suffer from economic or technical obsolescence. • Refer also to IAS 36 – impairment of assets. Key points summary: • An item of property, plant and equipment is recognized when: - it is probable that future economic benefits will flow from it; and - its cost can be measured reliably. • Initial measurement is at cost. • Subsequently, use: - depreciated (amortized) cost – “cost model”; - up-to-date fair value – “revaluation model”. • Long-lived assets (except land) are depreciated on a systematic basis over their useful lives: - base is cost less estimated residual value (or revalued amount); - method should reflect the consumption of economic benefits; - ‰ useful life should be reviewed annually (and any change reflected in the current period and prospectively). • Significant costs to be incurred at the end of an asset’s useful life are reflected by: - recognizing as a cost element (if IAS 37 liability criteria met); or - reducing the estimated residual value. - In either case the amount is effectively expensed over the life of the asset. • Revaluations should be made with sufficient regularity. • The entire class to which a revalued asset belongs must be revalued. • Revaluation gains are recognized in other comprehensive income and accumulated in equity (unless reversing a previous charge to profit or loss). • Decreases in valuation are charged to profit or loss (unless reversing a revaluation surplus). • When a revalued asset is sold/disposed of, any remaining revaluation surplus is transferred directly to retained earnings (not through profit or loss). • Gain/loss on retirement/disposal is calculated by reference to the carrying amount. [...]... for financial instruments is covered by IAS 32, IAS 39, IFRS 7 and IFRS 9 Instruments must be distinguished between equity and liabilities Convertible instruments that are a mix of equity and liability must be split; the liability is the present value of future cash flows and the equity element the balancing figure 20 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December • • Financial... Reporting syllabus Recognize assets and liabilities per Framework document and applicable IAS/ IFRS Measure assets and liabilities per applicable IAS/ IFRS Derecognize assets and liabilities that do not comply with IAS/ IFRS Re-state comparative year(s) Provide reconciliation between old SOFP and opening IAS/ IFRS SOFP IFRS 2 – Share-based payment • Not in F7 Financial Reporting syllabus • Equity settled... associate’s other comprehensive income are recognized in other comprehensive income 19 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 32 - Financial Instruments – Presentation IAS 39 - Financial Instruments – Recognition and Measurement IFRS 7 – Financial Instruments – Disclosures IFRS 9 - Financial Instruments • Use definitions of asset and liability per Framework to classify...ACCA – IAS & IFRS for 2013 December • Required disclosures include: - Reconciliation of movements; - Items pledged as security; - Capital commitments; - If assets are revalued, historical cost amounts; - Change in revaluation surplus 11 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 17 - Leases • Operating lease – any lease not a... included in equity on SOFP 16 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 23 – Borrowing costs • • Compulsory to capitalize borrowing cost during construction of a non-current asset Part of convergence between IAS/ US GAAP Key points summary : • Compliance with IAS 23 is not mandatory for: - qualifying assets measured at fair value (e.g IAS 41); - “mass produced” inventories •... dilutive instruments excluded from the calculation because they are anti-dilutive for the period(s) presented 22 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 34 – Interim financial reporting • • • • • Not in F7 Financial Reporting syllabus May be required by local law or listing regulations Include condensed SOFP with comparative dated at end of previous financial year-end Include... impairment assets not yet in use • Disclosure requirements are comparable to IAS 16, Also: - basis for determining an indefinite life; - description and carrying amount of individually material assets; - amount of research and development expensed in the current period 27 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 40 – Investment property • Definition – development completed, held... to investment property (IAS 16 applies to date of reclassification) • Transfers under cost model do not change carrying amount • Disclosures include use of qualified independent valuer, rental income, contractual obligations, restrictions on sale, reconciliation between carrying amounts (including transfers) 28 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IFRS 1 – First-time adoption... related parties, plus transactions and terms IAS 27 (revised) – Separate financial statements • Applies if consolidated financial statement not prepared – disclose why • Disclose basis upon which subsidiaries, associates and joint arrangements have been accounted for in these financial statements 18 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IAS 28 (revised) – Investment in associates... 30 | P a g e www .accareloaded. com ACCA – IAS & IFRS for 2013 December IFRS 11 – Joint arrangements • Not in F7 Financial Reporting syllabus • Definition – two or more parties having joint control which requires unanimous consent • Joint venture – where parties have joint control and have rights to net assets of a separate entity formed for the joint venture – use equity accounting per IAS 28 • Joint