Certain properties are classified as investment properties for financial reporting purposes in accordance with IAS 40, ‘Investment property’. The distinction is based on whether or not the new debt has substantially different terms from the old debt. These rules are more complex. All other biological assets, including produce growing on a bearer plant, are usually measured at fair value less costs to sell, with the change in the carrying amount reported as part of profit or loss from operating activities. The information in this guide is arranged in six sections: More detailed guidance and information on these topics can be found on inform.pwc.com in the ‘Accounting topic home pages’ and in the ‘IFRS Manual of accounting’. Entities should disclose information that: In May 2017, the IASB issued IFRS 17, ‘Insurance contracts’, and thereby started a new epoch of accounting for insurers. Conventional financial reporting is distorted by inflation. The financial statements of a parent and its subsidiaries used for consolidated financial statements are usually prepared to the same reporting date, unless it is impracticable to do so. Because it is not possible to combine transactions measured in different currencies, the foreign operation’s results and financial position are translated into a single currency, namely that in which the group’s consolidated financial statements are reported (‘presentation currency’). Introduction –Replacing IAS 27 and SIC-12 Criticism of IAS 27 and SIC-12 How addressed? Under IFRS 9, financial liabilities continue to be measured at amortised cost, unless they are required to be measured at fair value through profit or loss or an entity has opted to measure a liability at fair value through profit or loss. An exception has been introduced for investment property measured using the fair value model in IAS 40, with a rebuttable presumption that such investment property is recovered entirely through sale. The IP Group prepares its consolidated financial statements in accordance with IFRS as issued by the IASB (that is, it does not prepare the consolidated financial statements in accordance with IFRS as adopted by the European Union). However, long-term benefits, particularly post-employment benefits, give rise to more complicated measurement issues. There must be an expectation that the value of the hedging instrument and the value of the hedged item will move in the opposite direction as a result of the common underlying or hedged risk. The notes are an integral part of the financial statements. All entities that have financial instruments are affected – even simple instruments such as borrowings, accounts payable and receivable, cash and investments. Analysing contracts for potential embedded derivatives is one of the more challenging aspects of IFRS 9. This test considers current estimates of all contractual and related cash flows. Current and deferred tax is recognised in profit or loss for the period, unless the tax arises from a business combination or a transaction or event that is recognised outside profit or loss, either in other comprehensive income or directly in equity, in the same or different period. Derecognition of financial assets and liabilities; Classification and measurement of financial assets (. The identification of an entity’s operating segments is the core determinant for the level of information included in the segment disclosures. All other leases are operating leases. Financial statements, unadjusted for inflation in most countries, are prepared on the basis of historical cost, without regard either to changes in the general level of prices or to changes in specific prices of assets held. IAS 29 aims to overcome the limitations of historical cost financial reporting in hyper-inflationary environments, but it does not reflect specific price changes in assets and liabilities. There is a presumption of control if an entity owns more than 50% of the equity shareholding in another entity. In May 2014, the IASB and FASB issued their converged standard on revenue recognition – IFRS 15 and ASC 606, Revenue from Contracts with Customers. It applies to an entity’s first IFRS financial statements and the interim reports presented under IAS 34, ‘Interim financial reporting’, that are part of that period. When control of the transferred financial asset is retained, the accounting can be complex. Joint arrangements can be joint operations or joint ventures. After recognition, management applies either the cost model or the revaluation model to the exploration and evaluation assets, based on IAS 16 or IAS 38, according to the nature of the assets. For these assets, lifetime ECL (that is, expected losses arising from the risk of default over the life of the financial instrument) are recognised, and interest revenue is still calculated on the gross carrying amount of the asset. For annual reporting periods beginning on or after 1 January 2018 IFRS 9 replaces IAS 39. A contract modification is treated as a separate contract only if it results in the addition of a separate performance obligation and the price reflects the stand-alone selling price (that is, the price at which the good or service would be sold on a stand-alone basis) of the additional performance obligation. financial statements comply with International Financial Reporting Standards (IFRS) as issued at 31 May 2018 and that apply to financial years commencing on or after 1 January 2018. They also include significant accounting policies, critical accounting estimates and judgements, and disclosures on capital and puttable financial instruments classified as equity. Leases of land and buildings are considered separately under IFRS. Both external indicators (for example, significant adverse changes in the technological, market, economic or legal environment, or increases in market interest rates) and internal indicators (for example, evidence of obsolescence or physical damage of an asset, or evidence from internal reporting that the economic performance of an asset is, or will be, worse than expected) are considered, when considering whether an asset is impaired. As a concession, certain further rules of IAS 8 need not be applied. An embedded derivative is not 'closely related' if its economic characteristics and risks are different from those of the rest of the contract. The amount recognised should not exceed the amount of the related provision. An entity could also allocate discounts and variable amounts entirely to one (or more) performance obligations if certain conditions are met. Non-cash transactions include impairment losses/reversals, depreciation, amortisation, fair value gains/losses, and income statement charges for provisions. The new standard is applicable for annual periods beginning on or after 1 January 2021. An entity whose ordinary shares are listed on a recognised stock exchange, or is otherwise publicly traded, is required to disclose both basic and diluted EPS with equal prominence in its separate or individual financial statements, or in its consolidated financial statements if it is a parent. By topic; By industry; Checklists; Ebooks; Example accounts. 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’. Determining when control transfers will require significant judgement. Investment property is property (land or a building, or part of a building, or both) held by an entity to earn rentals and/or for capital appreciation (for example, property in the course of construction or development). There are additional disclosure requirements in relation to discontinued operations. Each category of investments should be accounted for either at cost, in accordance with IAS 39 and IFRS 9, or using the equity method in the separate financial statements. The redeemable preference share is therefore treated as a liability rather than equity, even though legally it is a share of the issuer. Errors that are discovered in a subsequent period are prior-period errors. IFRS 9 was released in phases from 2009 to 2014. This permits companies in the extractive sector to continue, for the time being, to apply policies that were followed under national GAAP that would not comply with the requirements of IFRS. Any, all or none of the optional exemptions could be applied. As a consequence, the fair value changes are not recognised in profit or loss in the period in which they occur but over the remaining life of the contract. The unearned profit (contractual service margin) is recognised over the coverage period. Is a subsidiary acquired exclusively with a view to resale? Cost of inventories includes import duties, non-refundable taxes, transport and handling costs, and any other directly attributable costs less trade discounts, rebates and similar items. %%EOF Statement of comprehensive income (or, if presented separately, income statement and statement of other comprehensive income): for the current interim period and the current year-to-date information, with comparatives for the equivalent periods in the previous year. Summary observations and anticipated timing. The lessor recognises the leased asset as a receivable. Even if there is an economic relationship, a change in the credit risk of the hedging instrument or the hedged item must not be of such magnitude that it dominates the value changes that result from that economic relationship. The principles concerning consolidated financial statements under IFRS are set out in IFRS 10, ‘Consolidated financial statements’. IFRS 10 has a single definition of control. Assets and liabilities of subsidiaries, associates and joint ventures; Designation of previously recognised financial instruments; Fair value measurement of financial assets or financial liabilities at initial recognition; Decommissioning liabilities included in the cost of property, plant and equipment; Financial assets or intangible assets accounted for in accordance with IFRIC 12; Investments in subsidiaries, joint ventures and associates; Designation of contracts to buy or sell a non-financial item; Extinguishing financial liabilities with equity instruments; Stripping costs in the production phase of a surface. Under the two-statement approach, all components of profit or loss are presented in an income statement. Incremental costs of obtaining a contract (for example, a sales commission) should be recognised as an asset if they are expected to be recovered. Determining whether an entity is the principal or an agent is not a policy choice. Non-controlling interest (‘NCI’) should be presented within equity in the consolidated statement of financial position, separately from equity attributable to owners of the parent (IFRS 10.22). For the purposes of this publication, VALUE IFRS Plc is incorporated outside Hong Kong and listed on the Hong Kong Stock Exchange. The financial statements comply with International Financial Reporting Standards (IFRS) as issued at 30 April 2015 and that apply to financial years … Additional disclosures are required to explain changes in liabilities arising from financing activities, distinguishing cash flows from non-cash changes. Condensed reporting is the most common approach. Other standards require disclosure of commitments that exist at the balance sheet date that will affect future periods, such as capital commitments and operating lease commitments. Management discloses the accounting policy adopted, as well as the amount of assets, liabilities, income and expense and investing cash flows arising from the exploration and evaluation of mineral resources. Once an entity identifies and determines whether to separately account for all of the performance obligations in a contract, the transaction price is allocated to these separate performance obligations, based on relative stand-alone selling prices. IFRS 10’s objective is to establish principles for presenting and preparing consolidated financial statements when an entity controls one or more entities. This is because, in practice, the latter two can override the principles derived from the legal form of the separate vehicle. Derecognition is the term used for ceasing to recognise a financial asset or financial liability on an entity’s statement of financial position. IFRS 15 also provides certain practical expedients that an entity could elect to apply, to simplify transition. The concepts underlying accounting practices under IFRS are set out in the IASB's 'Conceptual Framework for Financial Reporting’ issued in March 2018 (the Framework). For trade receivables or contract assets that do not contain a significant financing component, the loss allowance should be measured, at initial recognition and throughout the life of the receivable, at an amount equal to lifetime ECL. These changes are likely to have a significant impact on entities that have significant financial assets (in particular, financial institutions). The standard could significantly change how many entities recognise revenue. For example, an entity cannot recognise a provision based solely on the intent to incur expenditure at some future date or the expectation of future operating losses. The variable fee approach is a variation on the general model. Under an operating lease, the lessee does not recognise an asset and lease obligation. The carrying amount of a non-depreciable asset (such as land) can only be recovered through sale. The timing of such recognition in profit or loss will also depend on the fulfilment of any conditions or obligations attaching to the grant. Alternatively, an entity might negotiate with its third party lenders to exchange existing debt for equity. The accounting for employee benefits, and for pensions in particular, is complex. Adjustments to stabilise the unit of measurement – to measure items in units of constant purchasing power – make the financial statements more relevant and reliable. Management only recognises a deferred tax asset for deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. Management could subsequently measure investment properties at fair value or at cost. This could result in an increased number of performance obligations within an arrangement, possibly changing the timing of revenue recognition. Visit www.pwcinform.com. The amounts of dividends recognised as distributions to owners during the period, and the related amount of dividends per share, should be disclosed. The recoverable amount should be calculated for the CGU to which the asset belongs only where the recoverable amount for the individual asset cannot be identified. The lessor continues to recognise the leased asset and depreciates it. Standards are normally published in advance of the required implementation date. Practical guide to Phase 1 amendments IFRS 9, IAS 39 and IFRS 7 for IBOR reform: PwC In depth INT2019-04; IFRS 16, ‘Leases’ – interaction with other standards: PwC In depth INT2019-02; New IFRSs for 2019: PwC In depth INT2019-01; IFRS 13 European real estate survey – 2018 update: PwC … Assets and liabilities held for sale – The total of assets classified as held for sale and assets included in disposal groups classified as held for sale; and liabilities included in disposal groups classified as held for sale in accordance with. Net interest costs (that is, the unwinding of the discount on the defined benefit obligation and a theoretical return on plan assets). Introduction ; Year end Illustrative financial statements; Interim Illustrative financial statements; Industry Illustrative financial statements. Under IFRS 17, the ‘general model’ requires entities to measure an insurance contract, at initial recognition, at the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment for non-financial risk) and the contractual service margin. The amount of expected consideration captures: (1) variable consideration if it is ‘highly probable’ (IFRS) or ‘probable’ (US GAAP) that the amount will not result in a significant revenue reversal if estimates change; (2) an assessment of time value of money (as a practical expedient, an entity need not make this assessment where the period between payment and the transfer of goods or services is less than one year); (3) non-cash consideration, generally at fair value; and (4) less any consideration paid to customers. The first step is to determine whether the licence is distinct or combined with other goods or services. Basic EPS is calculated by dividing the profit or loss for the period attributable to the equity holders of the parent by the weighted average number of ordinary shares outstanding (including adjustments for bonus and rights issues). The lessee depreciates the asset. This might involve a preliminary consideration of IFRS 12 issues, such as the level of disaggregation required. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not to control those policies. An associate is an entity in which the investor has significant influence, but which is neither a subsidiary nor a joint venture of the investor. Identifies and explains the amounts in its financial statements arising from insurance contracts; and. 1156 0 obj <>stream All resulting exchange differences are recognised in other comprehensive income. The subsequent accounting of the financial asset should consider the guidance in IFRS 9 ‘Financial Instruments’. Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only on the occurrence or non-occurrence of uncertain future events outside the entity’s control, or present obligations that arise from past events but are not recognised because: (a) it is not probable that an outflow of economic benefits will be required to settle the obligation; or (b) the amount cannot be measured reliably. Click on each heading to visit its topic home page on Inform. An entity uses the same cost formula for all inventories that have a similar nature and use to the entity. Where an arrangement involves two or more unrelated parties that contribute to providing a specified good or service to a customer, management will need to determine whether the entity has promised to provide the specified good or service itself (as a principal) or to arrange for those specified goods or services to be provided by another party (as an agent). There is specific guidance for contractually linked instruments that leverage credit risk, which is often the case with investment tranches in a securitisation. The receivable is measured at the ‘net investment’ in the lease – that is, the minimum lease payments receivable, discounted at the internal rate of return of the lease, plus the unguaranteed residual that accrues to the lessor. Represents a separate major line of business or geographical area of operation; Is part of a single co-ordinated plan to dispose of a separate major line of business or major geographical area of operation; or. All components are then translated to the presentation currency at the closing rate at the end of the reporting period. Intangible assets arising from the development phase are recognised when the entity can demonstrate: Any expenditure written off during the research or development phase cannot subsequently be capitalised if the project meets the criteria for recognition at a later date. Identify the separate performance obligations in the contract. IAS 28, ‘Investments in associates and joint ventures’, requires that interests in such entities are accounted for using the equity method of accounting. The tax consequences that accompany, for example, a change in tax rates or tax laws, a reassessment of the recoverability of deferred tax assets or a change in the expected manner of recovery of an asset are recognised in profit or loss, except to the extent that they relate to items previously charged or credited outside profit or loss. This is an accounting policy choice. 26 - Consolidated financial statements (IFRS 10) PwC's Manual of accounting is the comprehensive guide to IFRS. The identifiable criterion is met when the intangible asset is separable (that is, when it can be sold, transferred or licensed), or where it arises from contractual or other legal rights. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. IFRS 15 includes specific implementation guidance on accounting for licences of IP. 1079 0 obj <>/Encrypt 1063 0 R/Filter/FlateDecode/ID[<569BBD2760418C468F353ABD576DA9BC>]/Index[1062 95]/Info 1061 0 R/Length 97/Prev 176041/Root 1064 0 R/Size 1157/Type/XRef/W[1 2 1]>>stream Control can transfer at a point in time or continuously over time. prepared in accordance with International Financial Reporting Standards (IFRS), for a fictional manufacturing, wholesale and retail group (IFRS GAAP plc). A business combination is a transaction or event in which an entity (‘acquirer’) obtains control of one or more businesses (‘acquirees’). IFRS is intended to be applied by profit-orientated entities. However, there are exceptions where the entity is required to, or chooses to, measure certain assets or liabilities at fair value. For each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with. In rare situations (for example, a bargain purchase as a result of a distressed sale), it is possible that no goodwill will result from the transaction. IFRS 16 adds significant new, enhanced disclosure requirements for both lessors and lessees. That is the case if, and only if, all the assets, liabilities and equity No intangible assets arising from the research phase can be recognised. If control is transferred continuously over time, an entity could use output methods (for example, units delivered) or input methods (for example, costs incurred or passage of time) to measure the amount of revenue to be recognised. (IFRS 10.3) PwC observation: The exemptions from consolidation and the ‘how-to’ of consolidation have not changed from IAS 27. This produces a meaningful result, provided that there are no dramatic changes in the purchasing power of money. On transition to IFRS 9 entities may also continue to apply IAS 39 hedge accounting. Where the parties’ exposure to the arrangement only extends to the net assets of the arrangement, the arrangement is a joint venture. The following indicators might suggest that the entity’s experience is not predictive of the outcome of a contract: (1) the amount of consideration is highly susceptible to factors outside the influence of the entity; (2) the uncertainty about the amount of consideration is not expected to be resolved for a long period of time; (3) the entity’s experience with similar types of contract is limited; and (4) the contract has a large number and broad range of possible consideration amounts. If the stand-alone selling price is highly variable or uncertain, entities could use a residual approach to aid in estimating the stand-alone selling price (that is, total transaction price less the stand-alone selling prices of other goods or services in the contract). Warning, this action will download the whole document into PDF format. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the entity has transferred substantially all the risks and rewards of ownership. If an intangible asset is acquired in a business combination, both the probability and measurement criterion are always considered to be met. Past-service costs need to be recognised as an expense generally when a plan amendment or curtailment occurs. A financial asset is cash; a contractual right to receive cash or another financial asset; a contractual right to exchange financial assets or liabilities with another entity under conditions that are potentially favourable; or an equity instrument of another entity. A joint arrangement is a contractual arrangement where at least two parties agree to share control over the activities of the arrangement. The assessment should be made separately for each specified good or service. Equity – Issued capital and reserves attributable to the parent’s owners; and non-controlling interest. Embedded derivatives that are not 'closely related' to the host contract are separated and accounted for as stand-alone derivatives (that is, measured at fair value, with changes in fair value recognised in profit or loss). Provisions should be re-assessed at the end of each reporting period and adjusted to reflect current best estimates. The statement of cash flows is one of the primary statements in financial reporting (along with the statement of comprehensive income, the balance sheet and the statement of changes in equity). The operator recognises a financial asset to the extent that it has an unconditional contractual right to receive cash irrespective of the usage of the infrastructure. However, the details of these dividends are disclosed in the notes in accordance with IAS 1. Accounting for defined benefit plans is complex, because actuarial assumptions and valuation methods are required to measure the balance sheet obligation and the expense. In addition, as a practical expedient, entities are not required to reassess whether a contract is, or contains, a lease at the date of initial application (that is, such contracts are ‘grandfathered’). IFRIC 12 applies to public-to-private service concession arrangements in which the public sector body (the grantor) controls and/or regulates the services provided with the infrastructure by the private sector entity (the operator). Investment properties in the course of construction or development are measured at fair value if this can be reliably measured, where the fair value option is chosen. In this case, it is recognised by adjusting the carrying amount of the related asset, liability or equity in the period of the change. Any impairment is allocated to the asset or assets of the CGU, with the impairment loss recognised in profit or loss. Performance obligations might be explicitly stated in the contract, but they might also arise in other ways. An entity should formally designate and document the hedging relationship at the inception of the hedge. Employee benefits are all forms of consideration given or promised by an entity in exchange for services rendered by its employees. IAS 39 and IFRS 9 provides guidance to distinguish between the settlement or extinguishment of determine whether debt that is replaced by new debt and the restructuring or modification of existing debt should be accounted for as an extinguishment of the original financial liability. Although balance sheet information is neither restated nor remeasured for discontinued operations, the statement of comprehensive income information does have to be restated for the comparative period. For periods beginning on or after 1 January 2018, IFRS 9 is required to be applied in full. The following items of profit or loss are, as a minimum, presented in the statement of comprehensive income: Additional line items or sub-headings are presented in this statement where such presentation is relevant to an understanding of the entity’s financial performance. 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