ifrs summary 2010

IFRS Summary 2010

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IFRS 2010

Introduction

Since the International Accounting Standards Board (IASB) was created in 2001, the growth in the use of their standards has been phenomenal. At the time of preparing these summaries, compliance with International Financial Reporting Standards (IFRS) in the preparation of company financial statements is now permitted or required in over 100 countries. Many more countries are committed to harmonising their own accounting standards with IFRS or to permitting or requiring compliance with IFRS in the coming years. The last few years have seen the publication of 9 new IFRS, 19 interpretations by the International Financial Reporting Interpretations Committee (IFRIC) and numerous revisions to the pre-existing International Accounting Standards (IAS). To keep pace with the growth in the use and development of IFRS puts severe strain on the resources of preparers, auditors and users of financial statements. The IASB’s 2010 bound volumes of International Financial Reporting Standards are over 3,000 pages long in total. These summaries are intended to provide a quick reference to the key requirements of published IFRS and IAS and extant interpretations of IFRIC and its predecessor, the Standing Interpretations Committee (SIC). Whilst they can never replace reference to the full pronouncements of the IASB, they do provide a starting point in understanding their requirements. With the exception of IAS 26 Accounting and reporting by retirement benefit plans which only applies to the financial statements of pension schemes, this guide reflects all IFRS, IAS and interpretations of IFRIC and SIC that are relevant to entities with 31 December 2010 year ends. This includes references to new, revised, and amended standards and interpretations issued but not yet effective and those not yet endorsed by the European Union. At the back of this guide are tables showing all extant standards and interpretations at the time of publication.

Important The summaries in this guide are intended as general information only and they should not be

relied upon as a substitution for reading the full standards. No responsibility for loss occasioned by any person acting or not acting as a result of this material can be accepted by PKF

International Limited, or any of the member firms of PKF International.

- 1 - © PKF International Limited

IFRS 2010 SUMMARY

IAS 1 Presentation of Financial Statements

Overview IAS 1 (revised) sets out the content, structure and key presentational considerations for general purpose financial statements. The structure and content requirements of IAS 1 (revised) do not apply to interim financial statements prepared in accordance with IAS 34 Interim Financial Reporting. Components of general purpose financial statements • A complete set of financial statements comprises:

- a statement of financial position;

- an statement of comprehensive income;

- a statement of changes in equity;

- a statement of cash flows;

- notes, being a summary of significant accounting policies and other explanatory notes; and

- a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

Overall considerations • Financial statements must present fairly the financial position, financial performance and

cash flows of an entity. This is presumed to occur with the application of IFRS. (For the purposes of IAS 1 (revised), IFRS are defined as comprising International Financial Reporting Standards, International Accounting Standards and interpretations of the International Financial Reporting Interpretations Committee and the Standing Interpretations Committee.)

• An entity may only depart from the requirements of an IFRS in the “extremely rare

circumstances” where compliance would otherwise conflict with the underlying objective of providing information useful to users in making economic decisions. Additional disclosures are required when an entity departs from a requirement of an IFRS.

• If, and only if, an entity complies with all the requirements of IFRS it should make an

“explicit and unreserved statement of compliance with IFRS” in the notes to the financial statements.

• The following principles should be applied in the preparation of financial statements:

- the going concern basis, except where management intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so;

- the accrual basis of accounting (except in the presentation of cash flow information);

- consistency of presentation and classification from one period to the next;

- separate presentation of each material class of similar items. (NB. An item might not be sufficiently material to warrant separate presentation on the face of the financial statements but still be sufficiently material for it to be presented separately in the notes.);

- no offset of assets and liabilities, or income and expenses, unless specifically required or permitted by a standard or an interpretation; and

- the presentation of comparative information for all amounts reported in the financial statements, unless an IFRS requires or permits otherwise.


IFRS 2010 SUMMARY


IAS 1 Presentation of Financial Statements

Structure of financial statements • Financial statements should be presented at least annually. Additional disclosures are

required when an entity changes its reporting date or the time period covered by the financial statements.

• Current and non-current assets and current and non-current liabilities are presented as

separate classifications on the face of the statement of financial position. • If any entity breaches an undertaking given under a long-term loan agreement on or before

the reporting date resulting in the loan becoming payable on demand, the liability must be shown within current liabilities as the entity does not have an unconditional right to defer settlement. This requirement applies even if the lender agrees before the issuing of the financial statements but after the reporting date not to demand payment as a result of the breach.

• IAS 1 (revised) specifies the minimum information to be presented on the face of, and in the

notes to, the statement of financial position, the statement of comprehensive income, and the statement of changes in equity.

• IAS 1 (revised) requires an entity to present, in a statement of changes in equity, all the

owner changes in equity. All non-owner changes in equity (comprehensive income) are required to be presented in either one statement of comprehensive income or in two statements (an income statement and a separate statement of comprehensive income).

Disclosures • IAS 1 (revised) specifies that the following disclosures be made in the notes to the

accounts:

- accounting policies applied, including measurement bases used;

- judgements made in the process of applying the accounting policies;

- key assumptions about the future, and other key sources of estimation uncertainty;

- information that enables users of its financial statements to evaluate its objectives, policies and processes for managing capital;

- dividends proposed or declared before the issue of the financial statements which have not been recognised in the financial statements; and

- if not disclosed elsewhere within the information published with the financial statements, the entity’s legal form, domicile, country of incorporation, address of its registered office, the nature of its operations and principal activities and the names of its parent and ultimate parent (if different).

IFRIC 17 Distributions of non-cash assets to owners applies where an entity distributes non-cash assets to its owners, in such a way that all owners of the same equity instruments are treated equally, except where the assets are ultimately controlled by the same party before and after the distribution. The interpretation requires that the distribution be measured at the fair value of the non-cash assets and any difference between this and the carrying value in he distributing company be recognised in profit or loss. It also sets out certain presentation and disclosure requirements.

IFRS 2010 SUMMARY

IAS 2 Inventories

Overview IAS 2 sets out the accounting treatment for inventories, including the determination of cost, the subsequent recognition of an expense and any write-downs to net realisable value. Scope • Applies to all inventories except:

- work in progress on construction and service contracts (IAS 11);

- financial instruments (IAS 32, IAS 39 and IFRS 7); and

- biological assets arising from agricultural activity (IAS 41). Definitions • Inventories – assets that are:

- held for sale in the ordinary course of business;

- in the process of production for such sale; or

- in the form of materials or supplies to be consumed in the production process or in the rendering of services.

• Net realisable value (NRV) - the estimated selling price less the estimated costs of

completion and the estimated costs necessary to make the sale. • Cost of inventories – all costs incurred in bringing the inventories to their present location

and condition, including the costs of purchase and conversion.

- Costs of purchase of inventories comprise the purchase price (less trade discounts, rebates and similar items), irrecoverable taxes, and transport, handling and other costs directly attributable to their acquisition.

- Costs of conversion include costs directly related to the units of production, such as direct labour and systematically allocated fixed and variable production overheads incurred in producing finished goods

Measurement • Inventories should be stated at the lower of cost and net realisable value. • To the extent that service providers have inventories, they measure them at the costs of

their production. These costs are primarily the costs of labour directly engaged in providing the service, including supervisory personnel, and attributable overheads.

• The cost of inventories of items that are ordinarily interchangeable and have not been

produced and segregated for specific projects is determined by using the first-in, first-out (FIFO) or weighted average cost formula. The same cost formula should be adopted for all inventories having a similar nature and use to the entity.

• Inventories should usually be written down to NRV on an item by item basis, unless it is

more appropriate to group similar or related items. Recognition as an expense • When inventories are sold, the carrying amount of those inventories should be recognised

as an expense in the period in which the related revenue is recognised. • Any losses of inventories and the amount of any write-down to net realisable value should

be recognised as expense in the period in which the loss or write-down occurs.


IFRS 2010 SUMMARY IAS 7 Statement of Cash Flows

Overview IAS 1 (revised) requires that general purpose financial statements contain a statement of cash flows. IAS 7 sets out the required presentation, structure and accompanying disclosures of such a statement. Definitions • Cash flows – inflows and outflows of cash and cash equivalents. • Cash – cash on hand and demand deposits. • Cash equivalents – short-term, highly liquid investments which are readily convertible to

known amounts of cash and subject to an insignificant risk of changes in value. • IAS 7 identifies three categories of activities:

Operating activities Investing activities Financing activities The principal revenue-producing activities of the entity and any other activities that are not investing or financing activities.

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Activities that result in changes in the size and composition of the contributed equity and/or borrowings of the entity.

Presentation • IAS 7 requires that all cash flows be presented within one of the above categories. • Cash flows from operating activities may be reported using either:

- the direct method (disclosing major classes of gross cash receipts and payments); or

- the indirect method (disclosing a reconciliation of profit or loss for the period to cash flow from operating activities).

• IAS 7 encourages, but does not require, the use of the direct method. • Cash flows are usually reported gross, with certain limited specific exceptions. • Cash flows from interest and dividends are disclosed separately and can be allocated to

operating, investing or financing activities. • Cash flows from taxes on income are also disclosed separately, usually within operating

activities. • Cash flows from the acquisition or disposal of subsidiaries and other business units are

presented within investing activities, with specific disclosures (IAS 7, paragraphs 39, 40). Disclosures • The following disclosures are also required:

- non-cash investing and financing transactions; and

- the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group, together with a commentary by management.


IFRS 2010 SUMMARY IAS 8 Accounting Policies, Changes in Accounting Estimates and ErrorsOverview To maintain the reliability, relevance and comparability of financial statements, IAS 8 sets out criteria for selecting accounting policies. Where more reliable or relevant information would be given by changing accounting policies, IAS 8 sets out the accounting treatment and disclosure of such changes, as well as changes in accounting estimates and corrections of prior period errors. Choosing accounting policies • Directly relevant IASB Standards, Interpretations and related Implementation Guidance

should be followed in determining appropriate accounting policies for particular transactions and circumstances.

• If no directly relevant standards or interpretations exist, an accounting policy should be

applied that provides information which is relevant for users’ economic decision-making, and reliable in that it:

- represents faithfully the entities financial position, performance and cash flows;

- reflects the economic substance of transactions, other events and conditions;

- is neutral, ie free from bias;

- is prudent; and

- is complete in all material respects.

• IAS 8 sets out a hierarchy of sources which should be referred to when developing an accounting policies:

1. IASB Standards and Interpretations dealing with similar and related issues; then 2. the IASB Framework for the Preparation and Presentation of Financial Statements; then

3. the most recent pronouncements of other standard-setting bodies (such as the ASB or

FASB) using a similar conceptual framework, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources above.

Applying and changing accounting policies • Accounting policies must be applied consistently to similar items, and should only be

changed from one period to the next if the change:

- is required by a Standard or an Interpretation (or will be required in the case of early adoption of a Standard or Interpretation before its effective date); or

- is voluntary and will result in financial statements providing information that is reliable and more relevant.

• A change in accounting policy should be applied retrospectively unless:

- it arises from applying a Standard or Interpretation containing specific transitional provisions; or

- it is impracticable to determine either the period-specific effects or the cumulative effect of the change. In such cases, the entity should apply the new policy from the earliest date practicable. (NB In this context impracticable means that the policy cannot be applied after making every reasonable effort to do so.)

• If it is difficult to distinguish a change in an accounting policy from a change in an

accounting estimate, the change is treated as a change in an accounting estimate (see below). For the avoidance of doubt, IAS 8 clarifies that a change in accounting bases (e.g. from historic cost to current revaluation) constitutes a change in accounting policy.


IFRS 2010 SUMMARY


IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors • Retrospective application requires that the financial statements be prepared and all

balances (including opening balances and comparative amounts) be adjusted as if the new accounting policy had always been applied.

Applying and changing accounting estimates • Many items in the financial statements cannot, by their nature, be precisely measured so

must be estimated. All estimates used in the preparation of financial statements must be based on the latest available, reliable information and be informed by further experience. Therefore, estimates should be revised whenever there is a change in circumstances or new knowledge arises.

• As revisions in estimates reflect new information gained, they do not relate to prior periods

or constitute corrections of errors. Therefore they are recognised prospectively; included in profit or loss in the period of the change and, if the effect will be on-going, in future periods.

Errors • Financial statements containing material errors, or immaterial errors if made intentionally,

do not comply with IFRSs. • When material errors in financial statements from prior periods are discovered, they should,

unless it is impracticable (see above), be retrospectively corrected by:

- restating the comparative amounts for the prior period(s) presented in which the error occurred; or

- if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

Disclosures • IAS 8 sets out detailed disclosures that are required when:

- an entity first applies after the effective date, or early adopts before the effective date, a Standard or Interpretation affecting past, current or future periods (paragraph 28);

- an entity voluntarily changes an accounting policy (paragraph 29);

- an entity does not apply a Standard or Interpretation that has been issued but is not yet effective (paragraph 30); or

- an entity corrects a material prior period error.

IFRS 2010 SUMMARY

IAS 10 Events after the Reporting Period

Overview IAS 10 sets out the impact on the financial statements and/or disclosures of events occurring between the end of the reporting period and the date the financial statements are authorised for issue. Definitions • Adjusting events after the end of the reporting period – those events occurring between the

end of the reporting period and the date when the financial statements are authorised for issue that provide evidence of conditions that existed at the end of the reporting period.

• Non-adjusting events after the end of the reporting period – those events occurring between

the end of the reporting period and the date when the financial statements are authorised for issue that do not provide evidence of conditions that existed at the end of the reporting period.

Adjusting events • By definition, adjusting events provide additional information about the financial position of

the entity at the end of the reporting period and/or the financial performance of the entity up to that date. Therefore, an entity should adjust the amounts recognised in its financial statements and/or relevant disclosures to reflect such events.

• Examples of adjusting events include:

- the elimination of uncertainty that had existed at the end of the reporting period, such as the settlement of a previously contingent liability or the settlement of a provision (e.g. the outcome of a court case or the calculation of bonuses for which an obligation existed at the end of the reporting period);

- the receipt of information indicating that there had been an impairment of an asset at the end of the reporting period, such as the bankruptcy of a debtor or the sale of goods where NRV proved to be less than the carrying value; or

- the intention of management to liquidate the entity or cease trading or their determination that they have no realistic alternative but to do so. The going concern basis is not to be used.

Non-adjusting events • By definition, non-adjusting events do not provide any additional information about the

financial position of the entity at the end of the reporting period and/or the financial performance of the entity up to that date. Therefore, an entity should not adjust the amounts recognised in its financial statements to reflect such events

• Examples of non-adjusting events include:

- the declaration of dividends after the end of the reporting period as no obligation existed at that date; or

- the reduction in the NRV of stock arising from subsequent events such as a fire in a warehouse.

• However, if a non-adjusting event is material, disclosures of the nature of the event and its

estimated financial effect are required to ensure the economic decisions of users are not unfairly influenced.


IFRS 2010 SUMMARY


IAS 10 Events after the Reporting Period

Other disclosures • The date authority was given for issuing the financial statements and the person giving

such authority should be disclosed.

IFRS 2010 SUMMARY

IAS 11 Construction Contracts Overview IAS 11 sets out the requirements for the measurement and recognition of revenue and costs associated with contracts for the construction of assets or combinations of interrelated assets. Definitions • A construction contract – a contract for the construction of an asset or a combination of

assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

Combining and segmenting construction contracts • Although IAS 1 is usually applied separately to each construction contract in its entirety, it is

necessary to:

- separate the contract into identifiable components, where each asset has been subject to a separate proposal and negotiation and its cost and revenues are identifiable; or

- group together separate contracts and treat as a single construction contract, where the group of contracts have been negotiated as a single package, are performed together or in a continuous sequence and are so closely interrelated to be, in effect, a single project with an overall profit margin.

Contract revenue and costs • Contract revenue comprises the amounts initially agreed in the contract plus/minus

adjustments due to contract variations, claims and incentive payments, to the extent that it is probable that such adjustments will result in revenue and they are capable of being reliably measured.

• Contract costs comprise costs relating directly to the specific contract, are chargeable

under the contract terms or are attributable to the entities general contract activity and be allocated to the contract.

Recognition of contract revenue and expenses • The recognition of construction contract revenue and expenses depends on whether the

outcome of the contract can be estimated reliably, and whether a profit or loss is expected. Can the contract outcome be estimated reliably?

Is a loss expected? Recognition rules

No Unknown as outcome cannot be reliably estimated

Recognise costs as incurred Recognise revenue to the extent costs incurred will probably be recovered

Yes No Recognise revenue, expenses and profit attributable to the proportion of the contract work completed.

Yes Yes Recognise revenue and costs attributable to the proportion of the contract work completed, plus the entire estimated loss as an expense.

Interpretation IFRIC 15 Agreements for the construction of real estate, provides guidance on how to determine whether an agreement for the construction of real estate is within the scope of IAS 11 or IAS 18 and when revenue from an incomplete construction should be recognised. An agreement for the construction of real estate is a construction contract within the scope of IAS 11 only when the buyer is able to specify the major structural elements of the design of the real estate before construction begins and/or specify the major structural changes once construction has begun. If the buyer does not have that ability the IAS 18 applies.


IFRS 2010 SUMMARY

IAS 12 Income Taxes

Overview IAS 12 sets out the accounting treatment for income taxes. It incorporates the requirements for accounting for tax on transactions in the current period (current tax) and for the future tax consequences of assets and liabilities recognised on the statement of financial position (deferred tax). IAS 12 applies a statement of financial position approach in identifying and measuring deferred tax. Definitions • Current tax - the amount of income tax payable or recoverable in respect of the current year

results. • Deferred tax liabilities – the amounts of income taxes payable in the future in respect of

taxable temporary differences. • Deferred tax assets – the amounts of incomes taxes that will be recoverable in the future in

respect of deductible temporary differences and the carry-forward of unused tax losses or tax credits.

• Temporary differences – differences between the carrying values of assets and liabilities

and their tax base. • The tax base of an asset or liability – the amount attributed to it for tax purposes. For

assets that will be involved in generating taxable earnings, the tax base is usually the future tax deductions associated with the asset. For most liabilities, the tax base is the carrying value less any amounts that will be tax deductible in the future

Current tax • Current tax income or expense should be included in the profit or loss for the period unless

it relates to a transaction or event recognised directly in equity, when it should also be recognised in equity.

• Unpaid current tax should be recognised as a liability. Where tax losses can be carried

back to recover prior period current tax, the benefit should be recognised as an asset. • Current tax assets and liabilities should be measured using the rates/laws that have been

enacted, or substantively enacted, by the end of the reporting period. Deferred tax - recognition • Deferred tax assets and liabilities should be recognised on all temporary differences, with

limited exceptions. The exceptions are temporary differences arising:

- on initial recognition of goodwill, because goodwill is a residual amount and recognising another liability would increase the goodwill further;

- from a transaction that does not immediately affect reported profit or loss and is not a business combination. An example would be the acquisition of a property for which no future tax deductions would be available; and

- from investments in subsidiaries, associates and joint venturers, but only in certain circumstances (see IAS 12 paragraphs 39 and 44).

• It should be noted that the upward revaluation of a property would create an additional

deferred tax liability (or reduce an existing deferred tax asset). This arises irrespective of whether a deferred tax asset or liability arose on initial recognition of the property.


IFRS 2010 SUMMARY


IAS 12 Income Taxes

• Deferred tax income or expense should be included in the profit or loss for the period unless it relates to a transaction or event recognised directly in equity (when it should also be recognised in equity) or to a business combination treated as an acquisition.

• Deferred tax assets and liabilities acquired in a business combination and meeting the

criteria for recognition are included in the calculation of goodwill on acquisition. • If the acquired business had deferred tax assets which did not meet the criteria for

recognition at the time of acquisition but are subsequently utilised, goodwill must be written down with the reduction recognised as an expense in the statement of comprehensive income. The amount written down should equal the value of the deferred tax asset if it had been recognised at the time of acquisition.

Deferred tax - measurement • Deferred tax assets and liabilities should be measured using tax rates/laws that have been

enacted or substantively enacted by the end of the reporting period and are expected to apply when the asset is realised or liability settled.

• Care must be taken in measuring deferred tax assets and liabilities. The measurement of

the tax base should reflect the entity's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled. For example, in many jurisdictions the tax deductions available through use of a property are very different to those available on the sale of a property.

• Deferred tax assets and liabilities should not be discounted. • The carrying amount of deferred tax assets should be reviewed at end of each reporting

period. Presentation and disclosures • Current tax assets and liabilities should be offset if, and only if, the entity has the legal right

and the intention to settle on a net basis or realise the asset and settle the liability at the same time.

• Deferred tax assets and deferred tax liabilities should be offset on the statement of financial

position only if there is a legal right to settle current tax assets and liabilities on a net basis and they are levied by the same taxing authority on the same entity or different entities that intend to realise the asset and settle the liability at the same time.

• IAS 12 requires a number of detailed disclosures (paragraph 81) including a reconciliation

of tax expense to accounting profit, details of where a deferred tax asset has not been recognised and the evidence supporting the recognition of some deferred tax assets.

Interpretations SIC 21 Recovery of revalued non-depreciable assets clarifies that the deferred tax liability or asset that arises from the revaluation of a non-depreciable asset is measured on the basis of the tax consequences from the sale of the asset rather than through use. SIC 25 Changes in the tax status of an enterprise or its shareholders clarifies that any tax consequences of a change in tax status should normally be included in profit or loss for the period unless those consequences relate to transactions or events that were recognised directly in equity.

IFRS 2010 SUMMARY

IAS 16 Property, Plant and Equipment

Overview IAS 16 sets out the required accounting treatment for property, plant and equipment, unless another standard requires or permits a different accounting treatment. For example, IFRS 5 Non-current assets Held for Sale and Discontinued Operations applies to property, plant and equipment classified as held for sale. Definitions • Property, plant and equipment – tangible items that are held for use in the production or

supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period.

• Recoverable amount – the higher of an asset’s selling price and its value in use. • Impairment loss – the amount by which an asset’s carrying value exceeds its recoverable

amount. • Fair value – the amount at which an asset could be exchanged between knowledgeable

willing parties in an arm’s length transaction. • Residual value – the net amount that could currently be realised by selling an asset if it

were of the age and in the condition expected at the end of its useful life. Initial recognition • An item of property, plant and equipment should initially be recognised at cost, when it is

probable that future economic benefits will flow to the enterprise and the cost of the asset can be measured reliably.

Subsequent measurement • An entity may choose, separately for each class of property, plant and equipment, to apply

either the cost model or the revaluation model. • Where the cost model is applied, assets are carried at cost less accumulated depreciation

and any accumulated impairment losses. • Where the revaluation model is applied, assets are carried at the fair value at its latest

revaluation less any subsequent accumulated depreciation and accumulated impairment losses.

• Any revaluation increase is credited directly to the revaluation surplus in equity, unless it

reverses a revaluation decrease previously recognised in profit or loss. Any revaluation decrease is recognised in profit or loss, unless it reverses a surplus previously recognised in equity.

Depreciation • Depreciation is applied on a component basis. That is to say each part of an item of

property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

• The depreciable amount (cost, or other amount substituted for cost, less residual value) of

an asset shall be allocated on a systematic basis over its useful life, by recognising a depreciation charge for each period in profit or loss unless it is included in the carrying amount of another asset (e.g. the absorption of depreciation into the cost of manufacturing inventories).


IFRS 2010 SUMMARY


IAS 16 Property, Plant and Equipment

• Management should review, at least at the end of each reporting period, an asset’s expected residual value and useful life, and the depreciation method applied to it. Any variations would constitute changes in accounting estimates, and should be applied prospectively (IAS 8).

• Depreciation is recognised even if the fair value of the asset exceeds its carrying amount;

as long as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it.

• Impairment is measured in accordance with IAS 36. Derecognition • When an asset is disposed of or no future economic benefit is expected (either through use

or by disposal), the carrying amount of the asset should be derecognised with any resulting gain or loss included in profit or loss.

• The gain or loss on disposal is the difference between the net proceeds received and the

carrying amount at the time of disposal. • However, where an entity routinely sells items of property, plant and equipment that it has

held for rental to others, the assets should be transferred to inventories when they cease to be rented and become held for sale. Sales of such items will then be recognised as revenue in accordance with IAS 18.

• Where an entity is compensated for the impairment, loss or giving up of an asset the

compensations is included in profit or loss, and disclosed on the face of the statement of comprehensive income or in the notes, when it becomes receivable.

Disclosures • IAS 16 requires a number of disclosures (paragraphs 73 to 79), including:

- the measurement bases (cost or revaluation), depreciation methods and useful lives or rates used;

- a reconciliation of the asset carrying amounts at the beginning and end of the period;

- the effective date of any revaluations and whether an independent valuer was used;

- the methods and significant assumptions applied by the valuer, and the extent to which observable market prices, recent transactions or other valuation techniques were used;

- for each class of revalued asset, the total carrying amount if the cost model had been applied;

- the revaluation surplus, movements in the surplus during the period and any restrictions on distributing it to shareholders; and

- details of any restrictions of title, securities pledged, and contractual commitments for further expenditure that have been given.

Interpretation IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities clarifies the impact of changes in estimates of future decommission and similar costs on the carrying values of provisions and related property, plant and equipment.

IFRS 2010 SUMMARY


IAS 17 Leases

Overview IAS 17 sets out the required accounting treatments and disclosures for finance and operating leases by both lessors and lessees, except where IAS 40 is applied to investment property held by a lessee. Definitions • A finance lease – a lease that transfers substantially all the risks and reward of ownership. • An operating lease – any lease that is not a finance lease. • The lease term – the minimum period for which the lessee has contracted to lease the

asset, plus any further period over which the lessee has the option to extend the contract and, at inception of the lease, it is reasonably certain it will do so.

• The minimum lease payments – the payments the lessee is contracted to pay (excluding

contingent rents, service costs and taxes) plus:

- for a lessee, any amounts guaranteed by the lessee or its related parties and the exercise price of any option where exercise is reasonably certain at inception; and,

- for a lessor, any guaranteed residual value. • The gross investment in the lease – the minimum lease payments plus any unguaranteed

residual vale. • The net investment in the lease – the present value of the gross investment in the lease

when discounted at the interest rate implicit in the lease. Substance of lease • Whether a lease is a finance lease or an operating lease depends on the substance of the

transaction rather than the form of the contract. Examples of situations that may indicate that a lease should be classified as a finance lease include:

- ownership of the asset transfer to the lessee at the end of the lease term;

- the lease term covers substantially all of the asset’s economic life;

- the lessee will have the option to purchase the asset outright at below expected fair value or extend the lease term at below market rent; and

- the present value of the minimum lease payments amounts to substantially all of the fair value of the asset.

• When a lease includes both land and buildings elements, each element should be

assessed and classified separately as a finance or an operating lease. In making this assessment an important consideration is that land normally has an indefinite economic life. (NB Prior to years commencing on or after 1 January 2010 there was a presumption that leases of land is such situations would normally be operating leases.)

Finance leases in the financial statements of lessees • At inception, finance leases should be recognised as assets and liabilities at the lower of

the fair value of the leased property and the present value of the minimum lease payments, as determined at that date.

• Any initial direct costs of the lessee are added to the amount recognised as an asset. • Minimum lease payments must be apportioned between the finance charge and the

reduction of the outstanding liability. The finance charge each period is calculated using a constant interest rate (usually the interest rate implicit in the lease), applied to the outstanding balance. Any contingent rents are charged to profit or loss as incurred.

IFRS 2010 SUMMARY


IAS 17 Leases

Operating leases in the financial statements of lessees • Operating lease payments must be recognised as expenses on a straight-line basis over

the lease term, unless another systematic basis better represents the timing of benefits. Finance leases in the financial statements of lessors • Lessors should recognise assets held under a finance lease, presented as a receivable at

an amount equal to the net investment in the lease. • The recognition of finance income should be based on a pattern reflecting a constant

periodic rate of return on the lessor’s net investment in the finance lease. • Manufacturer or dealer lessors should recognise selling profit or loss in the period, in

accordance with the policy followed by the entity for outright sales. If artificially low rates of interest are quoted, selling profit shall be restricted to that which would apply if a market rate of interest were charged.

Operating leases in the financial statements of lessors • Lessors should present assets subject to operating leases in their statement of financial

position according to the nature of the asset. Lease income from operating leases shall be recognised in income on a straight-line basis over the lease term, unless another systematic basis better represents the time pattern in which the economic benefits in the leased asset diminish.

Sale and leaseback transactions • The sale of an asset and its subsequent leasing by the former owner should be accounted

for in a manner reflecting the substance of the transactions when seen as a package. The actual accounting treatment will depend upon the type of lease involved.

• If a sale and leaseback transaction results in:

- a finance lease, any excess of sales proceeds over the carrying amount should be deferred and amortised over the lease term.

- an operating lease and is established at fair value, any profit or loss should be recognised immediately.

Interpretations SIC 15 Operating leases – incentives clarifies that incentives such as rent free periods should be recognised as a reduction of rental income and expense by the lessor and the lessee over the lease term. SIC 27 Evaluating the substance of transactions involving the legal form of a lease clarifies that a series of transactions that involve the legal form of a lease should be accounted for as a single transaction if the overall economic effect can only be understood with reference to the series as a whole. IFRIC 4 Determining whether an arrangement contains a lease clarifies that arrangements that depend on the use of a specific asset or convey the right to control a specific asset are generally leases under IAS 17. IFRIC 12 Service concession arrangements sets out accounting principles to be applied by operators in public-to-private service concession arrangements covering, inter alia, the recognition of the infrastructure assets to which the service concession arrangement relates. SIC 29 sets out additional disclosure requirements in respect of such arrangements.

IFRS 2010 SUMMARY

IAS 18 Revenue

Overview IAS 18 sets out the required accounting treatment for revenue arising from the sale of goods, the rendering of services, and the use by others of assets yielding interest, royalties and dividends. It does not cover revenue arising from leases, dividends from associates, insurance contracts, and changes in fair values or construction contracts within the scope of IAS 11. Definitions • Revenue – the gross inflow of economic benefits arising from the ordinary activities of an

entity that result in increases in equity, other than contributions from equity holders. • Fair value – the amount for which an asset could be exchanged, or a liability settled,

between knowledgeable, willing parties in an arm's length transaction. Measurement • Revenue is measured as the fair value of the consideration received or receivable, taking

into account any trade discounts or volume rebates allowed. • If the inflow of cash or cash equivalents is deferred and the arrangement effectively

constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount is recognised as interest revenue in accordance with IAS 39.

• Amounts received on behalf of other parties (e.g. sales and valued added taxes, amounts

collected on behalf of the principal in agency arrangements) are not economic benefits flowing to the entity and do not result in increases in equity. Therefore, they do constitute revenue.

Sale of goods • Revenue from the sale of goods is recognised when all the following conditions have been

satisfied:

- the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;

- the entity retains neither continuing managerial involvement nor effective control over the goods sold;

- the amount of revenue can be measured reliably;

- it is probable that the economic benefits associated with the transaction will flow to the entity; and

- the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Rendering of services • Revenue for the rendering of services is recognised by reference to the stage of completion

of the transaction at the end of the reporting period, if the outcome of the transaction can be reliably estimated. This is the case when all the following conditions are satisfied:

- the amount of revenue can be measured reliably;

- it is probable that the economic benefits associated with the transaction will flow to the entity;

- the stage of completion of the transaction at the end of the reporting period can be measured reliably; and


IFRS 2010 SUMMARY


IAS 18 Revenue

- the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

• If the outcome of such a transaction cannot be estimated reliably, revenue is recognised

only to the extent that expenses recognised are recoverable. Interest, royalties and dividends • When the receipt of economic benefits is probable and the amount of revenue can be

measured reliably, revenue should be recognised as follows:

- interest should be recognised using the effective interest method per IAS 39, paragraph 9;

- royalties should be recognised on an accrual basis in accordance with the substance of the relevant agreement; and

- dividends should be recognised when the shareholder's right to receive payment is established.

Appendix A to IAS 18 provides detailed guidance dealing with many specific situations, including guidance on agency/principal. This is a valuable source of reference. Interpretations SIC 31 Revenue – Barter transactions involving advertising services applies when an entity enters into a barter transaction to provide advertising services in exchange for receiving advertising services from its customer. SIC-31 clarifies that advertising revenue in a barter transaction can be measured reliably only if substantial advertising revenue is received from non-barter transactions. IFRIC 12 Service concession arrangements sets out accounting principles to be applied by operators in public-to-private service concession arrangements covering, inter alia, the measurement and recognition of revenue. SIC 29 sets out additional disclosure requirements in respect of such arrangements. IFRIC 13 Customer loyalty programmes sets out the required treatment in recognising revenue and/or liabilities in relation to awards under customer loyalty programmes. IFRIC 18 Transfers of assets from customers clarifies that when an item of property, plant and equipment is transferred from a customer, and it meets the definition of an asset from the perspective of the recipient, the recipient must recognise the asset in its financial statements. If the customer continues to control the transferred item, the asset definition would not be met even if the ownership of the asset is transferred.

IFRS 2010 SUMMARY

IAS 19 Employee Benefits Overview IAS 19 sets out the required accounting treatment for employee benefits, excluding those for which IFRS 2 applies, and related disclosures. In particular, it covers short-term benefits, post-employment benefits, other long-term benefits and termination benefits. Definitions

• Short-term employee benefits – payable wholly within 12 months of the end of the period in which the employees rendered the related services (e.g. wages, salaries, social security contributions, paid leave, bonuses and other benefits for current employees);

• Post-employment benefits – employee benefits such as pensions, other retirement

benefits, life insurance and post-employment medical care;

• Other long-term employee benefits – not payable wholly within 12 months of the end of the period in which the employees rendered the related services (e.g. long-service leave or other long-service benefits, long-term disability benefits, profit-shares, bonuses and other deferred compensation); and

• Termination benefits – amounts payable as a result of the employer’s decision to

terminate employment (before normal retirement date) or an employee’s decision to accept voluntary redundancy.

Short-term employee benefits • Short-term employee benefits must be recognised in the period in which the benefit is

earned by the employee. Post-employment benefits • Post-employment benefit plans are classified as either defined contribution plans or defined

benefit plans, with specific guidance given on multi-employer plans, state plans and plans with insured benefits.

Defined contribution plans • Amounts payable by the employer are recognised when an employee has rendered

services in exchange for those contributions. Defined benefit plans • IAS 19 requires that an amount representing the net liability or asset in a defined benefit

scheme is recognised on the statement of financial position. This is based on the difference between the present value (PV) of the defined benefit obligations (i.e. the future payments expected as the result of employee services to date) and the fair value (FV) of any assets held by the plan to fund those obligations, adjusted for unrecognised actuarial gains and losses and unrecognised past service costs.

• The plan assets and obligations should be valued with sufficient regularity to ensure the

amounts shown in the statement of financial position are not materially different from the actual values at that date. The obligations must be valued using the projected unit cost method, using assumptions which are unbiased and mutually compatible. The discount rate used must reflect market yields on high quality bonds.

• Actuarial gains and losses may be:

- recognised immediately in the statement of recognised income and expense; or

- partly deferred, and partly recognised in the statement of comprehensive income – the minimum amount to be recognised is determined using a 10% corridor approach. If the total unrecognised actuarial gains and losses at the start of the period exceed 10% of the higher of the opening obligation and the opening plan assets, the minimum amount recognised is the excess as calculated spread over the average remaining working life of employees.


IFRS 2010 SUMMARY


IAS 19 Employee Benefits • Past service costs are recognised only to the extent the benefits have vested. • Changes in the net liability can be reconciled as follows:

Reconciling item Statement Definition Opening net liability (X)

Current service costs (X)

Statement of comprehensive income - staff costs

Increase in PV of obligation due to employee services in the period

Recognised past service costs (X)

Statement of comprehensive income - staff costs

Increase in PV of obligation arising in the period relating to employee services in past periods

Interest costs (X)

Statement of comprehensive income – finance costs

Increase in PV of obligation due to payments being one period closer to settlement

Recognised actuarial gains and losses X/(X)

Statement of comprehensive income

Changes in PV of obligation due to changes in assumptions or experience adjustments (differences between previous assumptions and actual events)

Contributions (X) Statement of financial position movement only

Increase in plan assets due to contributions in the period

Closing net liability (X) Other long term employee benefits • Expected payments are accounted for in the same way as defined benefit plans, except all

actuarial gains and losses and past service costs are recognised immediately in the statement of comprehensive income.

Termination benefits

An obligation is recognised when, and only when the entity is demonstrably committed, with a formal plan and no realistic possibility of withdrawal, to either terminating the employment of an employee or group of employees before the normal retirement date providing termination benefits as a result of an offer made in order to encourage voluntary redundancy.

Disclosures • The key disclosures in IAS 19 relate to defined benefit plans, and include:

- reconciliations of opening and closing values for both the defined benefit obligation and the plan assets, and a reconciliation of the closing values thereof to the amounts recognised in the statement of financial position;

- an analysis of the amounts recognised in profit or loss for the period, and in the SORIE;

- analyses of the plan assets and returns on assets;

- the principal actuarial assumptions applied; and

- five year summaries of the values of the obligations, plan assets and experience adjustments.

Interpretations

IFRIC 14 IAS 19 The limit of a defined benefit asset, minimum funding requirements and their interaction promotes consistency in relation to the measurement of defined benefit assets where limits on their future utilisation may exist.

IFRS 2010 SUMMARY


IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

Overview IAS 20 sets out the required accounting treatment for government grants and the disclosure of other forms of government assistance, except where covered by IAS 41 Agriculture. Recognition and measurement • A government grant should be recognised only when there is reasonable assurance that:

- the enterprise will comply with any conditions attached to the grant; and

- the grant will be received. • A grant should be recognised as income, on a systematic basis over the periods necessary

to match it with the costs it was intended to compensate. It should not to be credited directly to equity.

• A grant receivable as compensation for costs already incurred or for immediate financial

support, with no future related costs, should be recognised as income in the period in which it is receivable.

• Non-monetary grants, such as land or other resources, are usually accounted for at fair

value, although recording both the asset and the grant at a nominal amount is also permitted.

• Government grants do not include government assistance whose value cannot be

reasonably measured, such as technical or marketing advice, though such benefits may require disclosure to ensure that the financial statements are not misleading.

Presentation • A grant relating to assets may be presented in one of two ways:

- as deferred income, or

- by deducting the grant from the asset's carrying amount. • A grant relating to income may be reported separately as 'other income' or deducted from

the related expense. • If a grant becomes repayable, it should be treated as a change in estimate in accordance

with IAS 8, in light of specific guidance in IAS 20. Disclosures • Accounting policy applied, including the method of presentation chosen. • Nature and extent of government grants recognised and an indication of other forms of

government assistance received. • Any unfulfilled conditions and other contingencies attached to recognised government

grants and assistance. Interpretation SIC 10 Government assistance - no specific relation to operating activities clarifies that government assistance to entities aimed at encouragement or long term support of business activities in certain regions or industry sectors should be treated as government grants.

IFRS 2010 SUMMARY

IAS 21 The Effects of Changes in Foreign Exchange Rates

Overview IAS 21 sets out the required accounting treatment for foreign currency transactions and foreign operations, and how to translate financial statements into a different presentation currency. It does not apply to foreign currency derivatives and hedge accounting of foreign currency items covered by IAS 39 Financial Instruments: Recognition and Measurement. Definitions • Functional currency – the currency of the entity’s primary economic environment, which is

usually the one in which it primarily generates and expends cash. • Foreign currency – any currency other than the functional currency. • Presentation currency – the currency in which the financial statements are presented. • Exchange differences – the differences resulting from changing a given number of units of

one currency into another at different exchange rates. • Monetary items – currency held, or receivables or payables which will be settled with a fixed

or determinable number of units of currency. • Net investment in a foreign operation – the total interest in the net assets of the operation.

This can include monetary items, if the settlement of the amounts receivable or payable is neither planned nor expected for the foreseeable future.

Initial recognition of a foreign currency transaction • A foreign currency transaction is recorded initially in the functional currency, by applying the

spot exchange rate between the functional currency and the foreign currency at the date of the transaction. For practical reasons, a rate that approximates to the actual rate at the date of the transaction is often used (e.g. an average weekly or monthly rate), although this is only permissible when exchange rates are not changing significantly.

Subsequent recognition • At each financial reporting date:

- foreign currency monetary items are translated using the closing rate;

- non-monetary items measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and

- non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

• Exchange differences arising on the settlement of monetary items or on re-translating

monetary items at closing rates are recognised in profit or loss, except where the monetary item forms part of the net investment in a foreign operation. (See below).

• If a gain or loss on a non-monetary item is recognised directly in equity (such as the

revaluation of property, plant and equipment), then so is any exchange component thereof. Similarly, if a gain or loss on a non-monetary item is recognised in profit or loss for the period, then so is any associated exchange component.

Foreign operations • Where exchange differences arise on the translation of a monetary item forming part of an

reporting entity’s net investment in a foreign operation, these should be recognised:


IFRS 2010 SUMMARY


- in profit or loss in the separate financial statements of the parent or the foreign operation, as appropriate, depending on which entity is exposed to the exchange differences; and

- in a separate component of equity in the consolidated accounts of the group. • When translating the results and financial position of a foreign operation for inclusion in the

reporting entity’s financial statements (whether by consolidation, proportionate consolidation or the equity method):

- assets and liabilities are translated at the closing rate;

- income and expenses are translated at rates at the dates of the transactions: and

- all resulting exchange differences are recognised as a separate component of equity. • Goodwill and fair value adjustments arising on the acquisition of a foreign operation should

be treated as assets and liabilities of the foreign operation, and hence should be translated in the same manner as other assets and liabilities of a foreign operation.

• On disposal of the foreign operation, the cumulative exchange differences directly in equity

are recognised in profit or loss. IAS 21 specifies disclosures about the functional currency of an entity, and exchange differences arising during the period.

Presentational currency • An entity may choose to present its financial statements in any currency. • Where the functional currency is not that of a hyper-inflationary economy, the results and

financial position of the entity should be translated in the same manner as those of a foreign operation, i.e.:

- assets and liabilities are translated at the closing rate;

- income and expenses are translated at rates at the dates of the transactions; and

- all resulting exchange differences are recognised as a separate component of equity. Disclosures • The amount of exchange differences recognised in profit or loss, other than on financial

instruments at fair value through profit or loss. • The amount of exchange differences recognised in a separate component of equity, with a

reconciliation of the balances at the beginning and end of the period. • The functional currency, if different from the presentation currency, and the reason for using

a different presentation currency. • If there is a change in functional currency of the reporting entity or a significant foreign

operation, the fact and the reason for the change. • Further disclosures are required where supplementary information in a currency other than

the functional or presentation currencies is given.


IFRS 2010 SUMMARY



Interpretation • IFRIC 16 (Hedges of a net investment in a foreign operation), clarifies that:

- presentation currency does not create an exposure to which an entity may apply hedge accounting only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation may be designated as a hedged risk;

- the hedging instrument(s) may be held by any entity or entities within the group. - while IAS 39 Financial Instruments: Recognition and Measurement must be applied to

determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, IAS 21 The Effects of Changes in Foreign Exchange Rates must be applied in respect of the hedged item.

IFRS 2010 SUMMARY IAS 23 Borrowing Costs

Overview IAS 23 sets out the required accounting treatment for borrowing costs. Definitions • Borrowing costs – costs incurred in connection with the borrowing of funds, including

interest, amortisation of discounts or premiums on borrowings and the amortisation of ancillary costs incurred in the arrangement of borrowings, finance charges in respect of finance leases and exchange differences arising from foreign currency borrowings where regarded as an adjustment to interest costs.

• Qualifying asset – an asset that necessarily takes a substantial period of time to get ready

for its intended use or sale. Recognition

• An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. An entity shall recognise other borrowing costs as an expense in the period in which they were incurred.

• In this case, "directly attributable" means those borrowing costs that would have been avoided had the asset in question not been acquired, constructed or produced.

• Where amounts are specifically borrowed for obtaining a qualifying asset, the amount

eligible for capitalisation is net of any investment income from temporarily investing the borrowings.

• If funds are borrowed generally and used to obtain a qualifying asset the entity should apply

a capitalisation rate to the expenditure on the asset. The capitalisation rate is the weighted average rate applicable to all borrowings of the entity during the period other than those specifically for the purpose of obtaining a qualifying asset. Borrowing costs capitalised cannot exceed actual borrowing cost in the period.

• Capitalisation of borrowing costs should commence when expenditures for the asset are

being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress.

• Capitalisation should be suspended during extended periods in which development of the

asset is interrupted, and ceased when substantially all activities for its intended use or sale are complete.

Disclosure • An entity shall disclose the amount of borrowing costs capitalised during the period and the

capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation..


IFRS 2010 SUMMARY

IAS 24 Related Party Disclosures

Overview IAS 24 sets out the requirements for identifying related parties and the disclosure of such parties and transactions with them. Definition • Related party – A party is related to an entity if it:

(a) directly or indirectly, controls, is controlled by, or is under common control with, the entity;

(b) has an interest in the entity giving it significant influence over the entity;

(c) has joint control over the entity;

(d) is a member of the key management personnel of the entity or its parent;

(e) is a close member of the family of any individual referred to above;

(f) is an associate of the entity;

(g) is a joint venture in which the entity is a venturer;

(h) is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, any of the key management personnel or their close family members; or

(i) is a post-employment benefit plan for the benefit of employees of the entity, or of any of its related parties.

• Definitions of control, joint control and significant influence can be found in IAS 27, 28 and

31, which contain further disclosures required in respect of subsidiaries, associates and joint ventures.

A related party transaction • A related party transaction is one where there is a transfer of resources, services or

obligations between related parties, regardless of whether or not a price is charged. Disclosures • The name of the entity’s parent and, if different, the ultimate controlling party; • If neither the parent nor the ultimate controlling party produce financial statements for public

use, the name of the next most senior parent producing such financial statements. • Analysis of the compensation of key management personnel. • Where there have been transactions with related parties, sufficient information should be

provided for an understanding of the potential effect on the financial statements. This information is shown separately for each of the following categories: the parent; entities with joint control or significant influence over the entity; subsidiaries; associates; joint ventures in which the entity is a venturer; key management personnel; and other related parties. The disclosures should include, as a minimum:

- the nature of the related party relationship;

- the amount of the transactions;

- the amount of outstanding balances, along with their terms and conditions, whether they are secured, how they will be settled and details of any guarantees given or received;

- provisions for doubtful debts in regard of the outstanding balances and any charges in the period in respect of bad and doubtful debts.


IFRS 2010 SUMMARY

IAS 27 Consolidated and Separate Financial Statements

Overview IAS 27 sets out the requirements for the preparation and presentation of consolidated financial statements, and for the accounting for investments in subsidiaries, jointly controlled entities and associates where separate financial statements of the parent company are prepared. Definitions • A group – a parent (being an entity with one or more subsidiaries) and all its subsidiaries. • A subsidiary – an entity that is controlled by another entity (known as the parent). • Control – the power to govern the financial and operating policies of an entity so as to

obtain benefits from its activities. Presentation of consolidated financial statements • A parent must prepare consolidated financial statements in which it consolidates all of its

investments in subsidiaries, unless:

- the parent is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners do not object to it not presenting consolidated financial statements;

- the parent’s debt or equity instruments are not traded in a public market;

- the parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and

- the ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply with International Financial Reporting Standards.

Existence of control • Control is presumed to exist when the parent owns, directly or indirectly through

subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control.

• Control also exists when the parent owns half or less of the voting power of an entity when

there is:

- power over more than half of the voting rights by virtue of an agreement with other investors;

- power to govern the financial and operating policies of the entity under a statute or an agreement;

- power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or

- power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

Consolidation procedures • Consolidated financial statements must be prepared using uniform accounting policies for

similar transactions and other events in similar circumstances. • Ideally, all companies in the group should prepare financial statements as of the same

reporting date.


IFRS 2010 SUMMARY


IAS 27 Consolidated and Separate Financial Statements

• When the reporting dates of the parent and a subsidiary are different, the subsidiary should

prepare, for consolidation purposes, additional financial statements as of the same date as the financial statements of the parent unless it is impracticable. The subsidiary financial statements used must have a reporting date within three months of that of the parent and be adjusted for significant transactions and events in the intervening period.

• Intra-group balances, transactions, income and expenses are eliminated in full. • When an entity ceases to have control over an investment, provided it does not become an

associate or jointly controlled entity, it should be accounted for in accordance with IAS 39 with the carrying amount at that date being regarded as its cost on initial measurement.

• Any changes in ownership interest that do not result in a loss of control should be

recognised directly in equity, as transactions with equity holders. • Profit or loss and each component of other comprehensive income are attributed to the

owners of the parent and non-controlling interests even if this results in the non-controlling interests having a deficit (or debit) balance.

Separate financial statements • Unless IFRS 5 applies, investments in subsidiaries, jointly controlled entities and associates

are accounted for in any separate financial statements of the parent either:

- at cost, or

- in accordance with IAS 39.

• The same accounting policy must be applied for each category of investments. • Where investments in subsidiaries, jointly controlled entities, and associates are classified

as held for sale, or included in a disposal group classified as such, IFRS 5 must be applied.

• All dividends, whether funded from pre- or post-acquisition profits, should be recognised as income in the parent’s own financial statements. IAS 36 identifies certain specific situations where the payment of dividends by a subsidiary may trigger an impairment review of the investment in the subsidiary.

Disclosures • IAS 27 requires detailed disclosures when:

- a parent-subsidiary relationship exists without the parent owning more than half the voting power in the subsidiary or when ownership of more than half the voting powers of another entity does not constitute a parent-subsidiary relationship;

- the reporting date of a subsidiary’s financial statements differs from those of the parent;

- there are significant restrictions on a subsidiary’s ability to transfer funds to the parent;

- a parent elects not to prepare consolidated financial statements; and

- a parent also prepares separate financial statements.

Interpretation SIC 12 Consolidation - special purpose entities clarifies that a special purpose entity (SPE) should be consolidated when, in substance, the SPE is controlled by the entity.

IFRS 2010 SUMMARY

IAS 28 Investment in Associates Overview IAS 28 sets out the required accounting treatment for investments in associates over which the investor has significant influence (but not control or joint control). It does not apply to investments held by a venture capital organisation, mutual fund, unit trust, and similar entity that are at fair value through profit or loss in accordance with IAS 39. Definitions • Associate – an entity over which the investor has significant influence and that is neither a

subsidiary nor an interest in a joint venture. • Significant influence – the power to participate in the financial and operating policy

decisions of another entity other than through control (see IAS 27 summary) or joint control (see IAS 31 summary).

• Equity method – a method of accounting whereby the investment is initially recorded at cost

and subsequently adjusted to reflect changes in the investor’s interest in the net assets of the associate. The investor’s profit or loss includes its share of the profit or loss of the associate.

Identifying significant influence • A holding of 20% or more (directly or through subsidiaries) of the voting power of an entity

is presumed to indicate that the investor has significant influence, unless it can be clearly demonstrated otherwise.

• Conversely, a holding of less than 20% of the voting power is presumed to indicate the

investor does not have significant influence, unless such influence can be clearly demonstrated.

• The existence of significant influence by an investor is usually evidenced by:

- representation on the board of directors or equivalent governing body of the investee;

- participation in the policy-making process;

- material transactions between the investor and the investee;

- interchange of managerial personnel; or

- provision of essential technical information. Accounting policy • An associate must be accounted for as using the equity method except:

- where the investor is a parent taking the exemption from producing consolidated accounts in accordance with paragraph 10 of IAS 27;

- where the financial statements constitute separate financial statements per IAS 27;

- where the investment is classified as held for sale in accordance with IFRS 5; or

- where the investor takes the exemption from equity accounting, which is available when all the criteria in paragraph 13 (c) of IAS 28 are met.

• A company that is not a parent company must equity account for any interests in associates

unless the exemption under paragraph 13(c) is taken. Equity method • On acquisition, the principles of IFRS 3 should be applied, i.e. the fair value of the

associate’s assets (including intangibles), liabilities and contingent liabilities should be


IFRS 2010 SUMMARY


IAS 28 Investment in Associates compared to the fair value of the consideration given, and any resulting positive goodwill recognised on the investor’s statement of financial position. Where the investor’s share of the fair value of the associate’s net assets is greater than the consideration given, the excess should be included in the investor’s share of the associate’s results for the period.

• The investor’s interest in the net assets of the associate and its share of the associates

profit or loss is based on the amounts recognised in the associate’s financial statements after adjustments to ensure consistent accounting policies are applied. As with the consolidation of a subsidiary (see IAS 27 summary), the financial statements used should share the same reporting date.

• An investor should discontinue the use of the equity method from the date that it ceases to

have significant influence over an associate and should account for the investment in accordance with IAS 39 from that date.

• The impairment indicators in IAS 39 Financial Instruments: Recognition and Measurement

apply to investments in associates. If impairment is indicated, the amount is calculated by reference to IAS 36 Impairment of Assets.

Presentation • The investor’s investment in the associate is shown as a single line within non-current

assets and is calculated as the total of:

- its share of the associates net assets of the associate, after any fair value adjustments on acquisition; plus

- any goodwill which arose on acquisition; less

- any impairment losses. • An investor only recognises its share of losses to the extent they do not exceed its interest

in the associate, unless the investor has incurred legal or constructive obligations. • IAS 1 shows the investor’s share of the associates profit after tax and minority interests as

a single line after finance costs but before tax expense. Any impairments charges and gains or losses on disposals should be shown as separate line items.

• Where an associate recognises a change in equity directly in the statement of changes in

equity (e.g. revaluation of plant, property and equipment), the investor should also show its share of the change in that statement.

Disclosures • IAS 28 sets out a number of detailed disclosures including:

- summarised financial information of associates, including aggregated amounts of assets, liabilities, revenue and profit or loss;

- reasons why the presumptions that significant influence is obtained with, and only with, a holding of 20% share of the voting power have been overcome;

- any unrecognised share of losses of an associate; and

- the investor’s share of the associate’s contingent liabilities separate from those which arise because the investor is jointly and severally liable.

IFRS 2010 SUMMARY


IAS 29 Financial Reporting in Hyperinflationary Economies

Overview IAS 29 sets out the required accounting treatment in the financial statements of an entity where its functional currency is that of a hyperinflationary economy. • In a hyperinflationary economy there is such a rapid loss of purchasing power that

comparisons of amounts relating to transactions occurring at different times, even within the same accounting period, is misleading

Measurement • When an entity’s functional currency is the currency of a hyperinflationary economy, the

financial statements should be stated in terms of the measuring unit current at the end of the reporting period.

• If the entity’s presentation currency is different to its functional currency, then paragraphs

42(b) and 43 of IAS 21 specifically apply. • The gain or loss on translation should be separately disclosed as part of the profit or loss

for the period. • Comparative amounts for prior periods should be restated in the measuring unit current at

the end of the reporting period. The gain or loss on the net monetary position is included in profit or loss.

• When an economy ceases to be hyperinflationary, an entity discontinues the preparation

and presentation of financial statements in accordance with IAS 29. The amounts expressed in the measuring unit current at the end of the previous reporting period are treated as the basis for the carrying amounts in its subsequent financial statements.

Disclosures • The fact that the financial statements and comparative amounts have been restated in

terms of the measuring unit current at the end of the reporting period. • Whether the financial statements are based on a historic cost or a current cost approach. • The identity and level of the price index at the end of the reporting period and the

movement during the current and prior periods. Interpretation IFRIC 7 Applying the restatement approach under IAS 29 Financial Reporting in hyperinflationary economies clarifies the requirements under IAS 29 relating to how comparative amounts in financial statements should be restated when an entity identifies the existence of hyperinflation in the economy of the currency in which its financial statements are measured (its ‘functional currency’) and how deferred tax items in the opening statement of financial position should be restated.

IFRS 2010 SUMMARY


IAS 31 Interests in Joint Ventures Overview IAS 31 sets out the required accounting treatment for interests in joint ventures regardless of the structures or the forms under which the joint venture activities take place. It does not apply to investments held by a venture capital organisation, mutual fund, unit trust, and similar entity that are at fair value through profit or loss in accordance with IAS 39. Definitions • Joint control – the contractually agreed sharing of control over an economic activity which

exists only when strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

• Joint venture – a contractual arrangement whereby two or more parties undertake an

economic activity that is subject to joint control.

• IAS 31 identifies three broad types of joint ventures and sets out different accounting treatments for each type:

- Jointly controlled operations – the provision of the venturers own assets and resources to a joint venture without the creation of a separate entity.

- Jointly controlled assets – the joint control (and often joint ownership) of one or more assets dedicated to the purposes of the joint venture.

- Jointly controlled entities – a joint venture involving the establishment of a separate entity in which each venturer has an interest.

• Proportionate consolidation – a method of accounting whereby a venturer's share of each of

the assets, liabilities, income and expenses of a jointly controlled entity is combined line by line with similar items in the venturer's financial statements or reported as separate line items in the venturer's financial statements.

Jointly controlled operations • A venturer should recognise in both its separate and consolidated financial statements:

- the assets that it controls and the liabilities that it incurs; and

- the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture.

Jointly controlled assets • A venturer should recognise in both its separate and consolidated financial statements:

- its share of the jointly controlled assets, classified according to the nature of the assets;

- any liabilities that it has incurred;

- its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;

- any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and

- any expenses that it has incurred in respect of its interest in the joint venture. Jointly controlled entities • An interest in a jointly controlled entity should be recognised using either proportionate

consolidation or the equity method except:

- where the investor is a parent taking the exemption from producing consolidated accounts in accordance with paragraph 10 of IAS 27;

- where the financial statements constitute separate financial statements per IAS 27;

IFRS 2010 SUMMARY


IAS 31 Interests in Joint Ventures - where the investment is classified as held for sale in accordance with IFRS 5; or

- where the investor takes the exemption from proportionate consolidation and equity accounting, which is available when all the criteria in paragraph 2 (c) of IAS 31 are met.

• A company that is not a parent company must proportionately consolidate or equity account

for any interests in jointly controlled entities unless the exemption under paragraph 2 (c) is taken.

• The equity method is set out and explained in IAS 28 (see IAS 28 summary). • Proportionate consolidation requires the venturer to recognise its share of the jointly

controlled entity’s assets, liabilities, income and expenses on a line by line basis, and present them combined with its own assets, liabilities, income and expenses or as separate line items.

• A venturer shall discontinue the use of proportionate consolidation from the date on which it

ceases to have joint control over a jointly controlled entity. A venturer shall discontinue use of the equity method from the date on which it ceases to have joint control over, or have significant influence in, a jointly controlled entity.

• In the venturer’s separate financial statements, interests in jointly controlled entities should

be accounted for either at cost or as investments under IAS 39. Transactions between venturers and joint ventures • Where a venturer sells to a joint venture, and has transferred the significant risks and

rewards of ownership, it should recognise the proportion of any gain or loss attributable to the other venturers.

• When a venturer purchases from a joint venture, the venturer should only recognise its

share of the joint ventures gain or loss from the transaction when the venturer resells the asset to a third party.


- a listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities;

- where jointly controlled entities are proportionately consolidated or equity accounted, aggregate amounts of current assets, current liabilities, long-term assets, long-term liabilities, income and expenses relating to those entities;

- aggregate amounts of contingent liabilities where the probability of loss is not remote, showing separately those incurred in relation to its interests in joint ventures, its share of those incurred by the joint ventures themselves and those arising because the venturer is contingently liable for liabilities of other venturers; and

- aggregate amounts of capital commitments, showing separately those of the venturer in relation to its interests in joint ventures and its share of those of the joint ventures themselves.

Interpretation SIC 13 Jointly controlled entities – non-monetary contributions by venturers clarifies that recognition of proportionate share of gains or losses on contributions of non-monetary assets is generally appropriate.

I IFRS 2010 SUMMARY


IAS 32 Financial Instruments: Presentation

Overview IAS 32 sets out the principles for presenting financial instruments as liabilities or equity, for classifying interest, dividends, gains and losses and for offsetting financial assets and liabilities. Scope • IAS 32 applies to all types of financial instruments except:

- those interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IAS 27, IAS 28 or IAS 31;

- employers’ rights and obligations under employee benefit plans;

- contracts for contingent consideration in a business combination;

- insurance contracts as defined by IFRS 4 and financial instruments that are within the scope of IFRS 4 because they contain a discretionary participation feature;

- financial instruments arising from share-based payment transactions; and

- financial instruments, contracts and obligations under share-based payment transactions.

Definitions • Financial instrument – any contract that gives rise to a financial asset of one entity and a

financial liability or equity instrument of another entity. • Financial asset – any asset that is:

- cash;

- an equity instrument of another entity;

- a contractual right to receive a financial asset from another entity, or to exchange financial assets or liabilities under potentially favourable conditions;

- a contract that will or may be settled in the entity’s own equity instruments, and is a non-derivative for a variable number of instruments, or a derivative that will or may be settled other than by exchange of a fixed amount of cash or other financial asset for a fixed number of the entity’s own equity instruments.

• Financial liability – any liability that is:

- a contractual obligation to deliver cash or other financial asset to another entity, or to exchange financial assets or liabilities under potentially unfavourable conditions; or

- a contract that will or may be settled in the entity’s own equity instruments, and is a non-derivative for a variable number of instruments, or a derivative that will or may be settled other than by exchange of a fixed amount of cash or other financial asset for a fixed number of the entity’s own equity instruments.

• Equity instrument – any contract that evidences a residual interest in the assets of an entity

after deducting all of its liabilities. Presentation • Financial instruments are classified, from the perspective of the issuer, as financial assets,

financial liabilities and equity instruments in accordance with the substance of the contractual arrangement and the definitions above.

• One of the key indicators for an instrument to be classified as an equity instrument is the

absence of any unavoidable obligation to deliver cash or other financial asset. However, even in the absence of such an obligation, an instrument would be a financial liability if it may be settled by issuing a variable number of the entity’s own equity instruments.

I IFRS 2010 SUMMARY


IAS 32 Financial Instruments: Presentation

• Compound financial instruments may contain both a liability and an equity component. • The classification of a financial instrument is governed by its substance rather than its legal

form. This is determined by considering all the terms and conditions of the contractual arrangement.

• For example, a contractual provision requiring an entity to redeem preference shares for a

determinable amount at a determinable date (or at the holder’s request) means the issuer does not have an unconditional right to avoid delivering cash, and hence the shares are classified as liabilities.

• Even if no obligation to redeem exists, the instrument may still contain a liability component

if the entity is required to pay fixed or determinable dividends. • A financial instrument that both creates a liability of the entity and also grants an option to

the holder to convert it into equity instrument of the entity (e.g. ordinary shares) is a compound financial instrument which must be separated into its component parts.

• Subject to certain strict conditions, some puttable financial instruments and financial

instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation should be classified as equity.

Treasury shares • Where an entity reacquires its own equity instruments (‘treasury shares’) they must not be

shown as an asset but must be deducted from equity. No gain or loss may be recognised in profit or loss on the sale, purchase, issue or cancellation of an entity’s own equity instruments.

Interest, dividends, gain an losses • Interest, dividends, losses and gains relating to financial liabilities are recognised as income

or expense in profit or loss. Distributions to holders of equity instruments are debited directly to equity, net of any related income tax benefit.

Offsetting a financial asset and a financial liability • Financial assets and financial liabilities are offset when and only when:

- there is a legally enforceable right to set off the amounts; and

- the entity intends to settle on a net basis, or release the asset and settle the liability simultaneously.

• Therefore, where an entity has multiple bank accounts, some of which are in an overdraft

position, they may only be shown net where the entity intends to settle on a net basis. Interpretations IFRIC 2 Members’ share in co-operative entities and similar instruments considers the application of the principles of IAS 32 and IAS 39 to members’ shares in co-operative entities, and, in particular, their classification as liabilities or equity. Future changes In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues. For rights issues offered for a fixed amount of foreign currency current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to an entity's all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. This change is effective for periods commencing on or after 1 February 2010.

IFRS 2010 SUMMARY

IAS 33 Earnings per Share

Overview IAS 33 sets out the principles to be applied in the determination and presentation of earnings per share (EPS). Scope • IAS 33 must be applied by publicly traded entities and by entities that file or are in the

process of filing financial statements with a regulatory organisation for the purpose of issuing shares in a public market and any other entities voluntarily presenting EPS.

• Where an entity prepares both consolidated and separate financial statements, IAS 33

need be presented only on the basis of the consolidated information. The EPS information presented in consolidated financial statements must only be based on consolidated information.

Definitions • Dilution – a reduction in earnings per share or an increase in earnings per share resulting

from the assumption that convertible instruments are converted, options are exercised or ordinary shares are issued upon satisfaction of specified conditions.

• Potential ordinary shares – a financial instrument or other contract that may entitle its holder

to ordinary shares. • Contingent share agreement – an agreement to issue shares that is dependent on

satisfaction of specified conditions. Calculation of basic EPS • Basic earnings per share is calculated by dividing profit or loss attributable to ordinary

equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.

• The profit or loss attributable to the parent entity is adjusted for the after-tax amounts of

preference dividends, differences arising on the settlement of preference shares and other similar effects of preference shares, where the preference shares are classified as equity.

• The weighted average number of ordinary shares outstanding during the period is the

number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary bought back or issued during the period multiplied by a time-weighting factor.

Diluted EPS • Diluted earnings per share is calculated by adjusting the profit or loss attributable to

ordinary equity holders of the parent entity, and the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares.

• The profit or loss attributable to ordinary equity holders of the parent entity, as calculated for

basic earnings per share, is adjusted for the after-tax effects of:

- any dividends or other items related to dilutive potential ordinary shares deducted in arriving at profit or loss attributable to ordinary equity holders;

- any interest recognised in the period related to dilutive potential ordinary shares; and

- any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares.


IFRS 2010 SUMMARY


IAS 33 Earnings per Share

• The number of ordinary shares is the weighted average number of ordinary shares

outstanding as calculated for basic earnings per share, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

• Potential ordinary shares are treated as dilutive when their conversion to ordinary shares

would decrease earnings per share or increase loss per share from continuing operations (e.g. options and warrants, convertible instruments, contingently issuable shares).

• The standard provides detailed guidance on the impact of options, warrants, convertible

instruments, contracts with settlement options and written put options. • Retrospective adjustments are required where the number of ordinary or potential ordinary

shares increases as a result of a capitalisation, bonus issue or share split, or reduces as result of a reverse share split, even where the change occurs after the end of the reporting period but before the financial statements are authorised for issue.

Presentation • An entity must present, for each class of ordinary shares, on the face of the statement of

comprehensive income with equal prominence basic and diluted earnings per share amounts for:

- profit or loss attributable to ordinary equity holders; and, if presented,

- profit or loss from continuing operations. • If an entity reports a discontinued operation, it must also disclose basic and diluted earnings

per share for the discontinued operation. This can be disclosed either on the face of the statement of comprehensive income or in the notes.

• If an entity discloses amounts per share other than those defined in the standard, they may

be presented in the notes but not on the face of the statement of comprehensive income. Such amounts should use the same weighted average number of shares as for EPS, with basic and diluted amounts per share given equal prominence. If the numerator is not a line item reported on the face of the statement of comprehensive income, reconciliation to such an item must be given.

Disclosures • The numerators used and a reconciliation of these amounts to profit or loss attributable to

the parent entity for the period. • The weighted average number of shares used as the denominators in calculating basic and

diluted EPS and a reconciliation of the two amounts. • Instruments including contingently issuable shares that could potentially dilute EPS in the

future but were not included in any EPS calculation as they are anti-dilutive for the periods presented.

• A description of ordinary and potential ordinary transactions after the end of the reporting

period that would have changed the calculations had they occurred before the financial year end date.

IFRS 2010 SUMMARY

IAS 34 Interim Financial Reporting

Overview IAS 34 sets out the minimum content of interim financial reports which are required or intended to comply with International Financial Reporting Standards and the principles for recognition and measurement therein. Scope • IAS 34 does not specify which entities must publish interim financial reports, how

frequently, or how soon after the end of an interim period. Those are matters that are usually specified by local regulators and/or legislation. IAS 34 applies if an entity is required or elects to publish an interim financial report in accordance with International Financial Reporting Standards.

Definitions • Interim financial report – either a complete set or a set of condensed financial statements

for an interim period. • Interim period – a reporting period shorter than a full financial year. Contents • The minimum content of an interim financial report is defined as:

- a condensed statement of financial position;

- a condensed statement of comprehensive income;

- a condensed statement showing changes in equity;

- a condensed statement of cash flows; and

- selected explanatory notes.

• Condensed statements should include, at a minimum, each of the headings and subtotals that were included in its most recent annual financial statements and selected explanatory notes.

• Interim reports should include interim financial statements (condensed or complete) for periods as follows:

- a statement of financial position at the end of the current interim period, and a comparative statement of financial position as of the end of the most recent full financial year;

- statement of comprehensive income for the current interim period and cumulatively for the current financial year to date, with comparative statement of comprehensive income for the comparable interim periods of the immediately preceding financial year;

- a statement of changes in equity cumulatively for the current financial year to date, and a comparative statement for the comparable year-to-date period of the prior year; and

- a statement of cash flows cumulatively for the current financial year to date, and a comparative statement for the comparable year-to-date period of the prior financial year.

• The notes to the interim financial statements should disclose any events or transactions

that are material to understanding the current interim period, and should include as a minimum:

- a statement that accounting policies are consistent with most recent annual statements, or descriptions of the nature and effect of any changes;

- explanations of any seasonality or cyclicality;


IFRS 2010 SUMMARY


IAS 34 Interim Financial Reporting

- nature and amount of items unusual because of their nature, size or incidence;

- nature and amount of changes in estimates;

- raising or repayment of finance, both debt and equity;

- dividends paid;

- segmental disclosures including revenue from external customers, intersegment revenues, a measure of segment profit or loss, total assets, any material changes since the last annual statements and a reconciliation of the segmental disclosures to the year end primary financial figures disclosed;

- material events occurring after the interim financial reporting date;

- changes in the composition of the entity and/or group; and

- changes in contingent liabilities or contingent assets. Basis of preparation • Materiality in interim reports is assessed in relation to the interim period financial data. • An entity should apply the same accounting policies in its interim financial statements as in

its latest annual financial statements. • Measurements for interim reporting purposes should be made on a year-to-date basis. • Although IAS 34 is primarily concerned with the disclosures required in interim financial

statements, it also requires disclosure in the annual accounts of estimates that have changed significantly during the final interim period of a financial year.

• The interim financial report should include a statement of compliance with IAS 34. Interpretation IFRIC 10 Interim financial reporting and impairment clarifies that an impairment of goodwill recognised in interim financial statements cannot be subsequently reversed.

IFRS 2010 SUMMARY

IAS 36 Impairment of Assets

Overview IAS 34 sets out the procedures that an entity should apply to ensure that its assets are carried at no more than their recoverable amount. Scope • IAS 36 applies to property, plant and equipment, intangible assets and financial assets

classified as subsidiaries, associates and joint ventures. Definitions • Impairment loss – the amount by which the carrying amount of an asset or a cash-

generating unit exceeds its recoverable amount. • Recoverable amount – the higher of an asset’s fair value less costs to sell and its value in

use. • Value in use – the present value of estimated future cash flows from an asset or CGU.

expected to arise from the use of the asset and from its disposal at the end of its useful life. • Cash-generating unit – the smallest group of assets that generates largely independent

cash flows. Cash flows from a group of assets may be interdependent due to operational or contractual factors.

Timing of impairment reviews • At each financial reporting date, the entity should review assets for any indications of

impairment. If an impairment is indicated, the recoverable amount should be calculated and compared to the carrying amount.

• Additionally, the recoverable amount of the following assets should be compared at least

annually to their carrying amounts:

- goodwill;

- indefinite life intangible assets; and

- intangible assets not yet available for use. • The recoverable amount should be estimated for individual assets where possible. If it is

not possible to estimate the recoverable amount of an individual asset, the entity should determine the recoverable amount of the CGU to which the asset belongs.

Indicators of impairment • IAS 36 identifies the following non-exhaustive list of indicators of impairment:

- a decline in asset market value;

- significant changes in the environment (technological, market, economic or legal);

- increases in market interest rates or other market rates of return;

- the entity’s net assets exceed its market capitalisation;

- evidence of obsolescence or damage to the asset;

- significant adverse changes in the extent or manner of use of the asset;

- worsening economic performance of the asset; or

- dividends from subsidiaries, associates or joint ventures.


IFRS 2010 SUMMARY


IAS 36 Impairment of Assets

Identifying carrying value of CGUs • Goodwill should be allocated to CGUs or a group of CGUs on the date of acquisition at the

lowest level it is monitored for internal management purposes. Goodwill should be allocated to CGUs owned before the acquisition, if such CGUs will benefit from the synergies of the business combination.

• Corporate assets (e.g. head office) should be allocated to all CGUs that benefit from such

assets on a reasonable and consistent basis. Calculation of value in use • The discount rate used should be a pre-tax rate that reflects the current market

assessments of the time value of money and the risks specific to the asset. It should be independent of the entity’s particular capital structure.

• The cash flows used should include cash inflows from continuing use of the asset, any cash

outflows necessary to generate them and any flows associated with its ultimate disposal. They should be based on the most recent management approved forecasts and exclude those flows associated with asset enhancement, but may include expected maintenance to maintain current level of performance. Future tax and financing flows should be ignored.

Recognition of impairments and reversals • Impairment losses should be immediately recognised in full in profit or loss, except to the

extent they represent the reversal of a previous upward revaluation when they should be recognised where the revaluation gain was first recognised.

• A reversal of a previous impairment loss of an asset other than goodwill should be

recognised in profit or loss, but only to the extent that the asset is restated to the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised. Impairment losses recognised on goodwill should never be reversed in subsequent periods.

• An impairment loss on a CGU is allocated to the assets of the unit in the following order:

- first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit;

- then, to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the unit.

• When allocating an impairment loss on a CGU the entity should not reduce the carrying

amount of an asset below its recoverable value


- the amount of impairment losses and reversals by class of asset;

- the amount of impairment losses and by segment where IAS 14 or IFRS 8 are applied;

- details of the nature of, and reasons for, any material impairment losses recognised or reversed in the period;

- detailed explanations of the methods and estimates used in calculating any impairment losses or reversals; and

- estimates used to measure recoverable amounts of CGUs containing goodwill or intangible assets with indefinite useful lives.

Interpretation IFRIC 10 Interim financial reporting and impairment clarifies that an impairment of goodwill recognised in interim financial statements cannot be subsequently reversed.

IFRS 2010 SUMMARY IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Overview IAS 37 sets out the required accounting treatment and disclosures for provisions, contingent liabilities and contingent assets. Scope • IAS 37 applies to all provisions, contingent liabilities and contingent assets except those

resulting from executory contracts that are not onerous and those covered by other standards such as IAS 39, IFRS 3 and IAS 19.

Definitions • A liability – a present obligation of the entity arising from past events which is expected to

be settled by the outflow of economic benefits. • A provision – a liability of uncertain timing or amount. • A contingent liability – a possible obligation arising from past events whose existence will

be confirmed only by the occurrence or non-occurrence of some uncertain future event not wholly within the entity’s control, or a present obligation where payment is not probable or the amount cannot be measured reliably.

• A contingent asset – a possible asset that arises from past events, and whose existence

will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

• A constructive obligation – an obligation that derives from an entity’s actions where:

- the entity has indicated to other parties (by a pattern of past practice, published policies or a current statement) that it will accept certain responsibilities; and

- as a result, the entity has created in the other parties a valid expectation it will discharge those responsibilities.

Recognition • An entity must recognise a provision if, and only if:

- a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event);

- an outflow of economic benefit to settle the obligation is probable (“more likely than not”); and

- the amount of the obligation can be estimated reliably. • A contingent liability, being a possible obligation, is not recognised but is disclosed unless

the possibility of an outflow of economic benefits is remote. • A contingent asset should not be recognised but should be disclosed where an inflow of

economic benefits is probable. Measurement • The amount recognised as a provision should be the best estimate of the expenditure

required to settle the present obligation at the financial reporting date, that is, the amount that an entity would rationally pay to settle the obligation at the end of the financial reporting period or to transfer it to a third party.


IFRS 2010 SUMMARY


IAS 37 Provisions, Contingent Liabilities and Contingent Assets• The estimate is made by the management of the entity but in light of all available evidence,

including that received after the end of the financial reporting date, and may be supplemented by the evidence of independent experts.

• Uncertainties surrounding the amount should be dealt with according to the circumstances.

For example, where there are discrete possible outcomes to which probabilities can be assigned an expected value method of weighting outcomes by their respective probabilities is appropriate.

• Where the effect of the time value of money is material, the provisions should be

discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability.

• When reimbursement of the amounts provided for is virtually certain (e.g. under an

insurance contract), a separate asset should be recognised. In the statement of comprehensive income the expense relating to the provision and the amount recognised as a reimbursement may be shown net.

• Provisions must be reviewed at each financial reporting date and the amount adjusted to

reflect the current best estimate.

Specific applications • No provision should be made for future operating losses, including those relating to a

restructuring, as they do not meet the definition of a liability at the end of the financial reporting period.

• Provisions should be made for onerous contracts, being contracts where the unavoidable

future costs under the contract exceed the expected future economic benefits (e.g. a leased property sub-let at a lower rent).

• A restructuring is a sale or termination of a line of business, closure of business locations,

changes in management structure or a fundamental reorganisation of the company.

• A provision for restructuring costs is recognised only when the general recognition criteria are met. More specifically, a constructive obligation only arises when a detailed formal plan is in place and it has begun or been announced to those affected by it. A board decision is not enough. Restructuring provisions should include only direct expenditures caused by the restructuring, not costs that associated with the ongoing activities of the entity.

• No obligation arises for the sale of an operation until there is a binding sale agreement. Disclosures • IAS 37 sets out detailed disclosures regarding the nature, amount and related uncertainties

of provisions and any disclosed contingent liabilities and contingent assets. Interpretations IFRIC 1 Changes in existing decommissioning, restoration and similar liabilities clarifies the impact on the impact of changes in estimates of future decommission and similar costs on the carrying values of provisions and related property, plant and equipment. IFRIC 5 Rights to Interests arising from decommissioning, restoration and environmental rehabilitation funds clarifies that IAS 37 should be applied in accounting for a contributors interests in such funds, unless the fund represents a subsidiary, associate or joint venture. IFRIC 6 Liabilities arising from participating in a specific market – waste electrical and electronic equipment provides specific guidance on liabilities arising as a result of the European Union’s Directive on Waste Electrical and Electronic Equipment.

IFRS 2010 SUMMARY

IAS 38 Intangible Assets

Overview IAS 38 sets out the required accounting treatment for intangible assets. Scope • IAS 38 applies to intangible assets other than financial assets, the recognition and

measurement of exploration and evaluation assets (IFRS 6), expenditure on the development and extraction of non-regenerative resources, and those to which other specific standard apply, e.g. IFRS 3 applies to goodwill arising on a business combination.

Definitions • An intangible asset – an identifiable non-monetary item without physical substance, which

is within the control of the entity and is capable of generating future economic benefits for the entity.

• An active market – a market in which the items traded are homogenous, willing buyers and

sellers can be found at any time and prices are available to the public. • Research – original planned investigation undertaken with the prospect of gaining new

scientific or technical knowledge and understanding. • Development – the application of research findings or other knowledge to a plan or design

for the production of new or substantially improved materials, devices, products, processes or services before the start of commercial production.

Recognition criteria • An intangible asset is recognised if, and only if, all of the following criteria are met:

- the asset meets the definition of an intangible asset;

- it is probable that future economic benefits that are attributable to the asset will flow to the entity; and

- the cost of the asset can be measured reliably.

• An intangible asset is identifiable if:

- it is separable, i.e. it could be separated from the entity and sold, transferred licensed rented or exchanged, whether individually or together with a related contract, asset or liability; or

- it arises from contractual or legal rights.

• If an intangible item does not meet the criteria for recognition as an asset, the expenditure is recognised as an expense when incurred. Such expenditure cannot be subsequently included in the cost of an intangible asset at a later date.

• In accordance with IFRS 3, it is always deemed probable that economic benefits

attributable to an intangible asset that was acquired as part of a business combination will flow to the entity Furthermore, the cost of the asset is always considered capable of reliable measurement.

• Internally generated goodwill, brands, mastheads, publishing titles, customer lists and

similar items and amounts incurred on research or during the research phase of an internal project are not recognised as assets.

• An intangible asset arising from development is recognised if, and only if, each of the

following can be demonstrated:

- the technical feasibility of completing the asset;


IFRS 2010 SUMMARY


IAS 38 Intangible Assets

- its intention to complete and use or sell the asset;

- its ability to use or sell the asset;

- how the asset will generate future economic benefit;

- the availability of sufficient resources to complete the development ant us or sell the asset;

- the ability to measure reliably the expenditure incurred on the asset during its development.

Measurement • An intangible asset should be initially recognised at cost and subsequently carried at:

- cost, less any accumulated amortisation and impairment losses; or

- revalued amount, less any subsequent accumulated amortisation and impairment losses.

• An intangible asset can only be revalued if there is an active market for the asset. The

revalued amount is the intangible asset’s fair value at the date of revaluation and must be determined by reference to an active market.

Amortisation and impairment • An entity should assess whether the useful life of an intangible asset is finite or indefinite;

the useful life is indefinite if there is no foreseeable limit to the period over which the asset is expected to generate net cash flows.

• An intangible asset with an indefinite useful life is not amortised, but is tested for

impairment at least annually. • The depreciable amount of an intangible asset with a finite life is amortised on a systematic

basis over its useful life. • Impairments of intangible assets are recognised in accordance with IAS 36 Impairment of

Assets. Disclosures • IAS 38 sets out a number of detailed disclosures including:

- amortisation methods, estimates, amounts and accumulated balance at beginning at end of period;

- a reconciliation of carrying amounts at the beginning at end of the period;

- information on any revalued intangible assets; and

- the aggregate amount of research and development expensed in the period. Interpretations SIC 32 Intangible assets - web site costs clarifies that an entity’s own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of IAS 38.

IFRS 2010 SUMMARY

IAS 39 Financial Instruments: Recognition and Measurement

Overview IAS 39 sets out the required accounting treatment for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Scope • IAS 39 applies when recognising and measuring all types of financial instruments except

where other standards specifically apply. For example IAS 39 does not apply to:

- interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IAS 27, IAS 28 or IAS 31;

- rights and obligations under leases accounted for under IAS 17 (with some exceptions);

- equity instruments issued by the entity (including options and warrants);

- insurance contracts as defined by IFRS 4 Insurance Contracts; and

- financial instruments, contracts and obligations under share-based payment transactions (see IFRS 2).

Definitions • The definitions of financial instruments, assets and liabilities are given in the IAS 32

summary. The classifications of financial assets and liabilities used in IAS 39 are defined when introduced below.

• Amortised cost – the amount measured at initial recognition minus principal repayments,

plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, minus any reduction for impairment or uncollectibility.

• The effective interest rate – the rate that exactly discounts estimated cash flows associated

with the instrument to the carrying value of the financial instrument. • Fair value – the amount for which an asset could be exchanged, or a liability settled,

between knowledgeable, willing parties in an arm’s length transaction. The standard provides guidance on how this is determined in certain situations.

• Derivative – a financial instrument or other contract with the following characteristics:

- its value changes in response to some other variable, provided in the case of a non-financial variable it is not specific to one of the contracting parties;

- it requires no or little initial net investment; and

- it is settled at a future date. • Embedded derivative – a component of a hybrid or combined contract that also includes a

non-derivative host contract with the effect that some of the cash flows of the combined contract vary in a way similar to a stand-alone derivative.

Reclassifications • Non-derivative financial assets (other than those designated at fair value through profit or

loss) may be reclassified out of the fair value through profit or loss category, but only in certain limited circumstances. Similarly, a financial asset may be reclassified from the available-for-sale category to the loans and receivables category, if the financial asset would have met the loans and receivables definition had it not been designated as available for sale, and there is an intention and ability to hold said asset for the foreseeable future.


IFRS 2010 SUMMARY


Recognition and de-recognition • A financial asset or liability is recognised when the entity becomes a party to the instrument

contract. • A financial liability is derecognised when the liability is extinguished. • A financial asset is derecognised when, and only when:

- the contractual rights to the cash flows from the asset expire; or

- the entity transfers substantially all the risks and rewards of ownership of the asset; or

- the entity transfers the asset, while retaining some of the risks and rewards of ownership, but no longer has control of the asset (ie the transferee has the ability to sell the asset). The risks and rewards retained are recognised as an asset.

• IAS 39 sets out detailed accounting requirements where an entity makes a transfer of a

financial instrument that does not qualify for de-recognition. These requirements are summarised in the flowchart extracted from the application guidance in IAS 39 and attached at the end of this summary.

Categorisation • Financial instruments are categorised as:

- assets and liabilities at fair value through profit and loss account which includes all financial assets and liabilities held for trading, all derivatives unless forming part of a designated hedge and other assets and liabilities which, subject to strict criteria set out in the standard, have been so designated;

- held to maturity financial assets, which are non-derivative financial assets with fixed or determinable payments and maturity that the entity has the positive intention and ability to hold to maturity. If any assets in this class are, in fact, not held to maturity the entity must reclassify all assets in the class and is forbidden from using the classification again for two years;

- loans and receivables, which are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market;

- available for sale financial assets which includes those designated as such and all non-derivative financial assets, not otherwise classified; and

- other financial liabilities (ie liabilities not held for trading or otherwise designated as at fair value through profit and loss account).

Measurement • Financial assets and liabilities are initially recognised at fair value. Subsequent

measurement depends on how the financial instrument is categorised:

- At amortised cost using the effective interest method for those categorised as

- held-to-maturity investments;

- loans and receivables; and

- other financial liabilities.

- At fair value for those categorised as:

- assets and liabilities classified as being at fair value through profit or loss (with fair value changes recognised in profit or loss for the period); and


IFRS 2010 SUMMARY


- available-for-sale financial assets (with fair value changes, other than impairment losses and foreign exchange gains and losses, recognised directly in equity until disposal).

• If there is objective evidence that a financial asset is impaired, the carrying amount of the

asset is reduced and an impairment loss is recognised. Hedge accounting • Strict conditions must be met before hedge accounting is applied:

- formal designation and documentation of a hedge at inception;

- the hedge is expected to be highly;

- any forecast transaction being hedged is highly probable;

- hedge effectiveness can be measured reliably; and

- the hedge must be assessed on an ongoing basis and be highly effective.

• For a fair value hedge, the fair value movements on both the hedging instrument and the hedged item are recognised in profit or loss.

• For a cash flow hedge, fair value movements on the part of the hedging instrument that is

effective are recognised in equity until such time as the hedged item affects profit or loss. Any ineffective portion of the fair value movement is recognised in profit or loss.

• A hedge of a net investment in a foreign operation is accounted for in the same way as a

cash flow hedge. Embedded derivatives • Embedded derivatives should be separately accounted for if the combined instrument is not

measured at fair value through profit or loss and has different economic characteristics to the embedded derivative it contains.

Interpretations Appended to the standard are detailed application and implementation guidance and illustrative examples. This guidance is very useful when applying the standard. IFRIC 2 Members’ share in co-operative entities and similar instruments considers the application of the principles of IAS 32 and IAS 39 to members’ shares in co-operative entities which have certain characteristics, and the circumstances in which those features affect their classification as liabilities or equity. IFRIC 9 Reassessment of embedded derivatives clarifies that the assessment of whether a contract contains an embedded derivative is made at the time the entity becomes a party to the contract. Subsequent reassessment is prohibited unless there is a significant change to the terms of the contract. Future changes – IAS 39 replacement project The IASB issued a new partial IFRS on the classification and measurement of financial assets, representing the completion of the first of three phases to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard - IFRS 9 Financial Instruments. The partially complete IFRS 9 was available for early adoption for 2009 year end financial statements. Subsequent proposals will address measurement of financial liabilities, the impairment methodology and hedging. When complete, IFRS 9 is expected to be effective for periods commencing on or after 1 January 2013..


IFRS 2010 SUMMARY

- 49 -


Consolidate all subsidiaries (including any SPE) Step 1

a part or all of an asset (or group of similar assets)

Determine whether the flowchart should be applied to Step 2

Have the rights to the cash flows from the asset expired?

No

YesDerecognise the asset. Step 3

Has the entity assumed an obligation to pay the cash flows from the asset that meets

the conditions in paragraph 18?

No

Has the entity transferred substantially all risks and rewards?

No Continue to recognise the asset.

YesDe-recognise the asset.

Has the entity transferred its rights to receive the cash flows from the asset?

Step 5

Yes

No

Yes

Step 4

No

YesHas the entity retained substantially all risks and rewards?

Continue to recognise the asset

Yes

No De-recognise the asset. Has the entity retained control of the asset?

Continue to recognise the asset to the extent of the continuing involvement.

© PKF International Limited

IFRS 2010 SUMMARY IAS 40 Investment Property Overview IAS 40 sets out the required accounting treatment for investment properties and related disclosure requirements. Scope • IAS 40 applies to all investment property other than biological assets and mineral rights and

mineral reserves. It applies to investment property interests held under leases, but does not cover aspects of lease accounting specifically covered in IAS 17.

• Furthermore, IAS 40 covers investment property held by all entities and is not limited to

entities whose main activities are in this area. • IAS 40 applies to property that is being constructed or developed for future use as

investment property. Definitions • Investment property – land or a building (or part thereof) or both land and buildings held to

earn rentals or for capital appreciation or both, rather than for use in the operations (production, supply or administration). The investment property may be held by the owner or by a lessee under a finance lease.

• Property held under an operating lease may be classified as investment property provided

if, and only if, the property would otherwise meet the definition, the operating lease is accounted for as if it was a finance lease and the lessee uses the fair value model. This optional classification is available on a property by property basis.

Measurement • Investment property is measured initially at cost, including transaction costs. • Where the investment property interest is held under a lease, initial cost is the lower of the

property’s fair value and the present value of the minimum lease payments (see IAS 17 summary).

• An investment property should be subsequently measured at either:

- fair value with changes in fair value recognised in the statement of comprehensive income (fair value model); or

- depreciated cost less any accumulated impairment losses (cost model). • As stated above, the fair value model must be applied any property interest held by a

lessee under an operating lease that has been classified as investment property. • An entity should apply the model chosen to all its investment property, except:

- for all investment property backing liabilities linked to the fair value of, or returns from, a group of specified assets including that investment property. The measurement model (either fair value or cost) for such investment property as a class may be different to that chosen for other investment properties; and

- investment property classified as held for sale and accounted for in accordance with IFRS 5.


IFRS 2010 SUMMARY


IAS 40 Investment Property • A change from one model to the other model should be made only if the change will result

in a more appropriate presentation, which is highly unlikely for a change from the fair value model to the cost model.

• If an entity determines that the fair value of an investment property under construction is not reliably determinable but expects the fair value of the property to be reliably determinable when construction is complete, it shall measure that investment property under construction at cost until either its fair value becomes reliably determinable or construction is completed (whichever is earlier).

Transfers • Transfers to and from investment property shall be made when, and only when, there is

change in use, as evidenced by:

- the commencement or end of owner-occupation;

- the commencement of development with a view to sale;

- the commencement of an operating lease to another party; or

- the end of construction or development.

Disclosures • A description of the measurement model applied, including material assumptions,

depreciation methods and rates, valuation models applied and details on the qualifications and independence of valuer used.

• Amounts recognised in profit or loss, analysed between rental income, operating expenses

(separately for properties that generated income in the period and those that did not) and cumulative fair value change.

• Restrictions on the realisation of investment property or remittance of rentals and disposal

proceeds. • Detailed reconciliations of opening and closing carrying amounts for investment property

accounted for under each model. • An entity that chooses the cost model should disclose the fair value of its investment

property.

IFRS 2010 SUMMARY

IAS 41 Agriculture

Overview IAS 41 sets out the required accounting treatment for agricultural activity. Scope • IAS 41 applies to the following when they relate to agricultural activity:

- biological assets;

- agricultural produce at the point of harvest; and

- government grants. Definitions • Agricultural activity – the management of the biological transformation of living animals or

plants (biological assets) into agricultural produce, or into additional biological assets. • Biological assets – living animals and plants. • Agricultural produce – the harvested product from biological assets. Accounting for agricultural activity • Biological assets are required to be measured on initial recognition and thereafter at fair

value less estimated point-of-sale costs, except when fair value cannot be measured reliably on initial recognition.

• Any gains or losses from recognising changes in fair value less estimated point-of-sale

costs of biological assets should be recognised within profit or loss for the period. • Agricultural produce is measured initially at the point of harvest at fair value less estimated

point-of-sale costs. After that it falls outside the scope of IAS 41 and is treated in accordance with IAS 2 Inventories.

• IAS 41 does not define point-of-sale costs, but states that they include commissions to

brokers and dealers, levies by regulatory agencies and commodity exchanges, and transfer taxes, but exclude transport and other costs necessary to get assets to a market.

• The Standard does not deal with processing of agricultural produce after harvest; for

example, processing grapes into wine and wool into yarn. • IAS 41 includes a rebuttable presumption that fair value of biological assets can be

measured reliably and sets out a hierarchy of methods for determining such fair value:

- If an active market exists for a biological asset or agricultural produce, the quoted price in that market should be used.

- If no active market exists, market pricing information should be used where available.

- If no active market exists and market pricing information is not available, the present value of expected net cash flows from the asset discounted at a current market-determined pre-tax rate should be used.

• The presumption that fair value of a biological asset can be measured reliably can be

rebutted only on initial recognition. In such a case,

- the biological asset is measured at its cost less any accumulated depreciation and any accumulated impairment losses; and

- once the fair value is reliably measurable, an entity should measure it at its fair value less estimated point-of-sale costs.


IFRS 2010 SUMMARY


IAS 41 Agriculture

Government grants • An unconditional government grant related to a biological asset measured at fair value less

estimated point-of-sale costs is recognised as income when, and only when, the grant becomes receivable.

• If a government grant is conditional, including where it requires an entity not to engage in

specified agricultural activity, an entity should recognise the grant as income when, and only when, the conditions attaching to the grant are met.

• If a government grant relates to a biological asset measured at its cost less any

accumulated depreciation and any accumulated impairment losses, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance is applied instead.

Disclosures • IAS 41 sets out numerous detailed disclosures including:

- aggregate gain or loss arising on initial recognition of biological assets and agricultural produce and changes in fair value less estimated point-of-sale costs of biological assets;

- the nature of the entity’s activities and non-financial measures of the amount of biological assets and agricultural produce;

- the methods and significant assumptions applied in determining fair values;

- the fair value less estimated point-of sale costs of agricultural produce harvested during the period;

- reconciliation of changes in the carrying values of biological assets during the period;

- details on biological assets where fair values cannot be measured reliably; and

- details on recognised grants and attached conditions and contingencies.

IFRS 2010 SUMMARY

IFRS 1 First-time Adoption of IFRS

Overview • IFRS 1 sets out the accounting treatments and disclosures specifically required when an

entity first applies IFRS in preparing its financial statements. Scope • IFRS 1 applies whenever an entity prepares its first IFRS financial statements and each

interim financial report, if any, that the entity presents under IAS 34 Interim Financial Reporting for part of the period covered by its first IFRS financial statements.

Definitions • An entity’s first IFRS financial statements – the first annual statements in which the entity

adopts IFRS by an explicit and unreserved statement of compliance with IFRS. • The date of transition – the beginning of the earliest period for which an entity presents full

comparative information under IFRS in its first IFRS financial statements. General requirements • An entity is required to prepare and present an opening IFRS statement of financial

position at the date of transition to IFRS. • Generally, IFRS 1 requires an entity to comply with each IFRS effective at the reporting

date for its opening IFRS statement of financial position and for each period presented in its first IFRS financial statements. This requires the entity to:

- recognise all assets and liabilities whose recognition is required by IFRS;

- not recognise items as assets or liabilities if IFRS do not permit such recognition;

- reclassify items that it recognised under previous GAAP as one type of asset, liability or component of equity, that are a different type of asset, liability or component of equity under IFRS; and

- apply IFRS in measuring all recognised assets and liabilities. • The transition provisions in other IFRS do not apply to a first-time adopter’s transition to

IFRS. Optional exemptions • IFRS 1 grants limited exemptions from the retrospective application of IFRS. These

Exemptions are available in specified areas where the cost of complying would be likely to exceed the benefits to users of financial statements. Exemptions exist in the following areas and should be considered in detail in each case, to determine whether an entity will take advantage of them:

- business combinations;

- fair value or revaluation as deemed cost for certain non-current assets;

- defined benefit employee benefit plans;

- cumulative translation differences;

- compound financial instruments;

- assets and liabilities of subsidiaries, associates and joint ventures;

- designation of previously recognised financial instruments;

- share-based payment transactions;

- insurance contracts;


IFRS 2010 SUMMARY


IFRS 1 First-time Adoption of IFRS

- changes in existing decommissioning, restoration and similar liabilities included in the cost of property pant and equipment;

- leases;

- fair value measurement of financial assets and financial liabilities;

- service concessions; and

- cost of a subsidiary, associate and joint venture in separate financial statements.

Mandatory exceptions • The IFRS prohibits retrospective application of some of the requirements of IFRS in relation

to:

- de-recognition of financial assets and liabilities;

- hedge accounting;

- non-controlling interests; and

- accounting estimates. Disclosure • IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS

affected the entity’s reported financial position, financial performance and cash flows. This involves producing reconciliations of:

- equity at the transition date and the end of the comparative period; and

- profit or loss for the comparative period. • In addition, any interim reports for parts of the period covered by the first IFRS financial

statements should also provide reconciliations of:

- equity at the end of the comparable interim period; and

- profit or loss for the comparable interim period (current and year-to-date where more than one interim report is produced each year).

• Further disclosures are required where any of the optional exemptions from retrospective

application have been taken.

IFRS 2010 SUMMARY

IFRS 2 Share-based Payment Overview IFRS 2 sets out the required accounting treatment for share-based payment transactions. Scope • IFRS 2 applies to all transfers of an entity’s equity instruments in payment for goods and

services, or the incurring of liabilities for amounts that are based on the value of the entity’s equity instruments in return for goods and services, except where goods are received as part of a business combination or the transaction falls within the scope of paragraphs 8-10 of IAS 32 or paragraphs 5-7 of IAS 39. This includes situations where there are no specifically identifiable goods or services, but other circumstances indicate that goods or services have or will be received.

• For the purposes of the standard share-based payment transactions include transfers by a

shareholder and transfers of equity instruments of other entities within the same group. The standard also provides specific guidance on group cash-settled share-based payment transactions.

• IFRS 2 applies to grants of shares, share options or other equity instruments that were

granted after 7 November 2002 and had not yet vested at the effective date of the IFRS. It applies retrospectively to liabilities arising from share-based payment transactions existing at the effective date.

Definitions • Equity-settled share-based payment transaction – a transaction in which the entity receives

goods or services as consideration for equity instruments of the entity (including shares and share options)

• Cash-settled share-based payment transaction – a transaction in which the entity acquires

goods or services by incurring liabilities to the supplier of those goods and services for amounts that are based on the price of the entity’s shares or other equity instruments of the entity.

• Vesting conditions – conditions that must be satisfied before the counterparty becomes

entitled to receive cash, other assets or equity instruments under a share-based arrangement.

• Market conditions – vesting conditions relating to the market price of the entity’s equity

instruments (such as achieving share price or total shareholder return targets). • Non-market conditions – vesting conditions other than market conditions (such as

remaining in employment for a specific period of time or achieving earnings targets). Recognition • All share-based payment transactions must be recognised when the goods or services are

received. The expense or asset, as appropriate, should be measured using fair values. • The corresponding credit entry should be recognised in equity for equity-settled

transactions, or within liabilities for cash-settled transactions. Equity-settled transactions • In principle, the fair value of the goods or services received should be measured directly,

unless that fair value cannot be estimated reliably. If the entity cannot estimate the fair value of the goods and services it should measure their value and the corresponding increase in equity indirectly by reference to the fair value of the equity instruments granted.


IFRS 2010 SUMMARY


IFRS 2 Share-based Payment • There is the rebuttable assumption that for transactions with employees, the fair value of

the goods or services cannot be estimated directly. For equity-settled share-based payment transactions with employees the measurement of the transaction amount is based on the fair value of the equity instruments granted, as measured at the date of grant. IFRS 2 contains guidance on estimating the fair value of shares and share options granted, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees.

• Any modification, cancellation or settlement of a grant of equity instruments to employees is

generally required by the IFRS to recognise the services received measured at grant date fair value of the equity instruments granted.

Vesting conditions • Market conditions are considered as part of the valuation of the equity instruments granted

at the date of grant. Non-market conditions are taken into account by adjusting the number of equity instruments included in the measurement of the transaction so that, ultimately, the transaction amount is based on the number of equity instruments that eventually vest, or would otherwise have vested if all market conditions had been met.

Cash-settled transactions • The goods or services acquired and the liability incurred should be measured at the fair

value of the liability. The liability recognised should be remeasured at each financial year end, with any changes in fair value recognised in profit or loss for the period.

Choice of settling the transaction in cash or equity instruments • If the counterparty can choose whether the transaction is settled with cash or equity

instruments, the entity has granted a compound financial instrument. The equity and debt components should be separately accounted for as equity-settled and cash-settled share-based payments respectively.

• If the entity can choose whether to settle the transaction in cash or by issuing equity

instruments, the entity should account for that transaction as a cash-settled share-based payment if it has, in substance, a present obligation to settle in cash. Otherwise it should account for the transaction as an equity-settled transaction.

Disclosures • Information should be disclosed that allows users to understand:

- the nature and extent of share-based payment arrangements that existed during the period;

- how the fair value of the goods or services received or the fair value of the equity instruments granted during the period was determined; and

- the effect of share-based payment transactions on the entity’s profit or loss for the period and on its financial position.

IFRS 2010 SUMMARY

IFRS 3 (2008) Business Combinations

Overview IFRS 3 (2008) sets out the required accounting treatment for business combinations, with specific exceptions. It is effective for years commencing on or after 1 July 2009 in respect of business combinations arising after the standard is first applied. Scope • IFRS 3 applies to transactions or other events in which an acquirer obtains control of one or

more businesses. It does not apply to the formations of joint ventures, combinations of businesses under common control or to the acquisition of an asset or group of assets that do not constitute a business.

Definitions • A business combination – a transaction or other event in which an acquirer obtains control

of one or more businesses. • Business – an integrated set of activities and assets that is capable of being conducted and

managed so as to provide a return to investors or other owners, members or participants. • Control – the power to govern the financial and operating policies of an entity so as to

obtain benefits from its activities. • Non-controlling interest – the equity in a subsidiary not attributable, directly or indirectly, to

a parent. Method of accounting • All business combinations within the scope of IFRS 3 must be accounted for using the

purchase method from the date the acquirer obtains control (the acquisition date). An acquirer must be identified for all business combinations.

Goodwill • Goodwill is recognised at the acquisition date measured as follows:

Fair value of consideration transferred PLUS

The amount of any non-controlling interest (see below) PLUS

The fair value of the acquirer’s previously held equity interest in the acquiree (if any) LESS

The acquisition date amounts of the identifiable net assets acquired (see below) • If the above calculation results in a negative amount, the gain arising on such a “bargain

purchase” is recognised in the statement of comprehensive income on the acquisition date, subject to the amounts in the calculation first being reviewed to ensure their accuracy.

• It should be noted that, following the 2008 revision to IFRS 3, acquisition costs are

expensed as incurred and are not included in the calculation of goodwill.

Consideration transferred • Assets transferred, liabilities assumed and equity interest issued as consideration are

measured at their fair value at the acquisition date, except for:

- exchanges of share based payment awards that should be measured in accordance with IFRS 2; and

- assets or liabilities that remain within the combined entity after the business combination that should be measured at their carrying amounts immediately before the acquisition date.


IFRS 2010 SUMMARY


IFRS 3 (2008) Business Combinations

• Contingent consideration is measured at its fair value at the acquisition date. Any

subsequent re-measurements, other than those arising as a result of additional information about the facts and circumstances that existed at the acquisition date do not change the measurement of goodwill.

Non-controlling interests • For each business combination, non-controlling interests may be measured either at

acquisition date fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets

Business combination achieved in stages • If the acquirer already held some equity interest in the acquiree immediately before the

acquisition date then this must be re-measured at its acquisition date fair value and include in the goodwill calculation as shown above, recognising any gain or loss compared to prior carrying value in the statement of comprehensive income as would be required if the acquirer has disposed directly of the interest.

Measurement of the identifiable assets acquired and liabilities assumed • The identifiable assets acquired and liabilities assumed must be measured at their

acquisition date fair value subject to the following items which are subject to specific measurement and/or recognition rules as detailed in the standard:

- Contingent liabilities

- Income taxes

- Employee benefits

- Indemnification assets

- Reacquired rights

- Share-based payment awards

- Assets held for sale

• If the initial accounting for a business combination is incomplete by the end of the reporting

period in which it occurs (e.g. fair values have not been determined for all acquired assets) provisional amounts should be used. These may be adjusted in the “measurement period”, which ends one year from the acquisition date (or when all information sought about the facts and circumstances that existed at the acquisition date have been received, if earlier).

Determining what is part of the business combination transaction • Care must be taken to ensure that any amounts that are not part of the business

combination transaction are treated separately in accordance with the relevant IFRSs. Such amounts might relate, inter alia, to pre-existing relationships between the transacting parties, remuneration of employees or former owners for post-acquisition services (e.g. payments contingent on future employment) and reimbursement of the former owners for paying the acquirer’s acquisition costs..

Disclosures • The entity should disclose sufficient information to enable users of the financial statements

to evaluate the nature of business combinations in the period and after the financial reporting date but before the financial statements were authorised for issue and the financial effects of gains, losses, error corrections and other adjustments recognised in the period relating to business combinations.

IFRS 2010 SUMMARY

IFRS 4 Insurance Contracts

Overview IFRS 4 sets out the required accounting treatment for insurance contracts by any entity that issues such contracts. IFRS 4 is phase I of the IASB’s project on insurance contracts, and is seen as a “stepping stone” to a final standard to be released following the completion of phase II. An entity is temporarily exempt from some requirements of other IFRS, including the requirement in IAS 8 to consider the Framework in selecting accounting policies for insurance contracts. Scope • IFRS 4 applies to insurance contracts issued, reinsurance contracts held and financial

instruments issued with a discretionary participation feature. It does not apply to:

- product warranties issue directly by a manufacturer, dealer or retailer (see IAS 18 and IAS 37);

- employee benefits under IAS 19 or IFRS 2, or retirement benefit obligations when reported by a retirement benefit plan;

- contractual rights or obligations contingent on the future use of an asset or a lessee’s residual value guarantee under a finance lease (see IAS 17, IAS 18 and IAS 38);

- financial guarantee contracts unless the issuer has previously asserted that it regards such contracts as insurance contracts and has accounted for them accordingly. In such a case issuer may make an irrevocable choice on a contract-by-contract basis, whether to apply IFRS 4, or IAS 32, IAS 39 and IFRS 7;

- contingent consideration relating to a business combination; or

- direct insurance contracts in which the entity is the policyholder. Relaxation of IAS 8 requirements • IFRS 4 exempts an insurer from applying the criteria in paragraphs 10-12 of IAS 8

Accounting policies, changes in accounting estimates and errors, to its accounting policies for insurance contracts it issues and reinsurance contracts that it holds. These paragraphs are concerned with the relevance and reliability of information and the hierarchy of reference sources to be addressed in choosing policies.

• Therefore, subject to their conformity with the additional criteria below, an insurer may

continue with the accounting policies applied prior to the introduction of IFRS 4. Accounting policy • Although the requirements of IAS 8 are relaxed, IFRS 4 does lay down some rules in the

choice of accounting policy. • Provisions for possible future claims under insurance contracts (such as catastrophe

provisions and equalisation provisions) that are not in existence at the reporting date should not be recognised as a liability.

• The adequacy of recognised insurance liabilities should be assessed at each reporting date. • Any impairment of the reinsurance assets of a cedant must be recognised;

• Insurance liabilities must be removed from an insurer’s statement of financial position when,

and only when, they are discharged or cancelled, or expire. • Reinsurance assets must not be offset against related insurance liabilities. Similarly, income

and expenses from reinsurance contracts must not be offset against the expense or income from the related insurance contracts.


IFRS 2010 SUMMARY


IFRS 4 Insurance Contracts

• Furthermore, IFRS 4 clarifies that:

- an entity need not account for an embedded derivative separately at fair value if the embedded derivative meets the definition of an insurance contract;

- an entity is required to unbundle (i.e. account separately for) deposit components of some insurance contracts;

- an entity may apply ‘shadow accounting’ (that is, account for both realised and unrealised gains and losses on assets in the same way relative to measurement of insurance liabilities); and

- discretionary participation features contained in insurance contracts or financial instruments may be recognised separately from the guaranteed element and classified as a liability or as a separate component of equity.

Changing accounting policies • An entity should change its accounting policies for insurance contracts only if, as a result,

its financial statements are more relevant and no less reliable, or more reliable and no less relevant.

• In particular, an entity must not introduce, although it may continue to use accounting

policies that involve, any of the following practices,:

- measuring insurance liabilities on an undiscounted basis;

- measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services;

- using non-uniform accounting policies for the insurance contracts of subsidiaries; and

- measuring insurance liabilities with excessive prudence.

• There is a rebuttable presumption that an insurer’s financial statements will become less relevant and reliable if it introduces an accounting policy that reflects future investment margins in the measurement of insurance contracts.

Disclosures • IFRS 4 requires an insurer to disclose:

- information that identifies and explains the amounts in its financial statements arising from insurance contracts; and

- information that enables users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts.

IFRS 2010 SUMMARY

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Overview IFRS 5 sets out the required accounting treatment for non-current assets held for sale, and the presentation and disclosure of discontinued operations. Definitions • Discontinued operations – a component of an entity that either has been disposed of or is

classified as held for sale, and:

- represents a separate major line of business or geographical area of operations,

- is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations, or

- is a subsidiary acquired exclusively with a view to resale. • Disposal group - a group of assets, possibly with some associated liabilities, which an entity

intends to dispose of in a single transaction Classification as held for sale and presentation • An asset or 'disposal group' must be classified as held for sale if, and only if, the following

conditions are met at the end of the financial period:

- the asset is available for immediate sale;

- the sale is highly probable, in that management are committed to a plan to sell, an active programme to locate a buyer has been initiated and the asset is being actively marketed for sale at a sales price reasonable in relation to its fair value;

- the sale is highly probable within 12 months of classification as held for sale (subject to limited exceptions); and

- actions required to complete the plan indicate that it is unlikely that plan will be significantly changed or withdrawn.

• Operations that are expected to be wound down or abandoned do not meet the definition of

held for sale. However, they may be classified as discontinued once abandoned. • Assets classified as held for sale and the assets included within a disposal group classified

as held for sale must be presented as a line item on the face of the statement of financial position, separate from other current assets but within the total thereof.

• Similarly, liabilities of a disposal group must be presented as a line item on the face of the

statement of financial position, separate from other current liabilities but within the total thereof.

Measurement of assets or disposal groups classified as held for sale • Immediately before the classification of the asset as held for sale, the carrying amount of

the asset should be measured in accordance with applicable IFRS. • After their classification as held for sale non-current assets or disposal groups should be

measured at the lower of carrying amount and fair value less costs to sell. • An impairment loss is recognised in the profit or loss for any initial and subsequent write-

down of the asset or disposal group to fair value less costs to sell. • Where assets previously carried at fair value are classified as held for sale the requirement

to deduct costs to sell from fair value will result in an immediate charge to profit or loss.


IFRS 2010 SUMMARY


IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

• If there is a subsequent increases in fair value less costs to sell of an asset classified as

held for sale, the increase can be recognised in the profit or loss to the extent that it is not in excess of the cumulative impairment loss that has been recognised in accordance with IFRS 5 or previously in accordance with IAS 36.

• Non-current assets or disposal groups that are classified as held for sale should not be depreciated.

Discontinued operations • Assets and liabilities relating to a discontinued operation should be presented on the face of

the statement of financial position in the same way as a disposal group, in that they should be presented as line items, separate from but within the total of current assets and current liabilities respectively.

• The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or

loss recognised on the measurement to fair value less cost to sell or on the disposal of the discontinued operation should be presented as a single amount on the face of the statement of comprehensive income. Prior year comparatives should also be shown for all operations discontinued at the reporting date.

• The net cash flows attributable to the operating, investing, and financing activities of a

discontinued operation shall be separately presented on the face of the statement of cash flows or disclosed in the notes. Prior year comparatives should also be shown for all operations discontinued at the reporting date.

• IFRS 5 prohibits the retroactive classification as a discontinued operation when the

discontinued criteria are met after the financial reporting date. Disclosures • With respect to discontinued operations, the single amount presented on the statement of

comprehensive income should be further analysed into:

- revenue, expenses, pre-tax profit or loss, and related income taxes; and

- gain or loss recognised on the measurement to fair value less cost to sell or on the disposal of the discontinued operation and related income taxes.

• The above disclosures must cover both the current and all prior periods presented in the

financial statements, and may be shown in the notes or on the face of the statement of comprehensive income in a section clearly identified as discontinued operations.

• In the period in which a non-current asset or disposal group has been classified as held for

sale or sold, the entity must disclose:

- a description of the non-current asset or disposal group;

- a description of the facts and circumstances of the sale, or leading to the expected disposal (including the expected manner and timing of the disposal);

- the gain or loss recognised on measurement and remeasurement to fair value less costs to sell; and

- the segment, if any, in which the asset or disposal group is presented.

IFRS 2010 SUMMARY IFRS 6 Exploration for and evaluation of mineral resources

Overview IFRS 6 does not provide comprehensive guidance on the financial reporting for the exploration for and evaluation of mineral resources. Instead, it is designed to improve aspects of comparability in financial reporting across the sector without specifying the precise recognition and measurement practices to be applied. Scope • IFRS 6 applies only to expenditure incurred on exploration and evaluation of mineral

resources, and does not apply to expenditure before such activities or after the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

Definitions • Exploration for and evaluation of mineral resources – the search for minerals, oil, natural gas

and similar non-regenerative resources after an entity has obtained legal rights to explore in a specific area, and the determination of the technical feasibility and commercial viability of extracting the resource.

Relaxation of IAS 8 requirements • An entity may develop an accounting policy for exploration and evaluation assets without

specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Error. These paragraphs set out a hierarchy of sources of guidance that would otherwise be referred to when choosing appropriate accounting policies to transactions, events or conditions.

• Therefore an entity may continue to use the accounting policies applied immediately before

the introduction of IFRS 6, subject to meeting certain limited criteria. This includes the application of the recognition and measurement practices that form part of those accounting policies.

• An entity may change it accounting policy for exploration and evaluation expenditure if the

change would make the information presented more relevant to user’s economic decision-making and no less reliable, or more reliable and no less relevant.

• The criteria in IAS 8 should be used in assessing whether any change in policy increases

the relevance and reliability of the information presented, but full compliance with those criteria is not required.

Presentation • An entity should classify exploration and evaluation assets as tangible or intangible

according to the nature of the assets and apply the classification consistently. Measurement • Exploration and evaluation assets must be initially measured at cost • Exploration and evaluation assets may be subsequently measured using either the cost

model or the revaluation model. Impairments • Exploration and evaluation assets should be assessed for impairment when facts and

circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. Where the carrying amount does exceed the recoverable amount any resulting impairment loss should be measured, presented and disclosed in accordance with IAS 36 Impairment of assets.


IFRS 2010 SUMMARY


IFRS 6 Exploration for and evaluation of mineral resources • To facilitate such assessments, the entity should determine an accounting policy for

allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units. The cash-generating units or groups of cash-generating units for this purpose should not be larger than a segment based on either the entity’s primary or secondary reporting format determined in accordance with IAS 14 Segment reporting.

Disclosures • IFRS 6 requires disclosure of information that identifies and explains the amounts

recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including:

- the accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets; and

- the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.

• Exploration and evaluation assets must be treated as a separate class of assets, with the

relevant disclosures made in accordance with IAS 16 Property, plant and equipment or IAS 38 Intangible assets.

IFRS 2010 SUMMARY

IFRS 7 Financial Instruments: Disclosures

Overview IFRS 7 sets out specific required disclosures in relation to financial instruments to enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance;

and (b) the nature and extent of risks arising from financial instruments to which the entity is

exposed during the period and at the reporting date, and how the entity manages those risks Scope • IFRS 7 applies to all financial instruments except:

- interests in subsidiaries, associates and joint ventures accounted for using IAS 27, IAS 28 and IAS 31;

- pension scheme rights and obligations accounted for under IAS 19;-

- insurance contracts as defined in IFRS 4;

- financial instruments under share-based payment arrangements to which IFRS 2 applies; and

- instruments that are required to be classified as equity instruments under IAS 32 paragraphs 16A – 16D.

• It also applies to contracts to buy or sell non-financial items that are within the scope of IAS

39 and to unrecognised financial instruments, such as loan commitments, that are outside the scope of IAS 39.

• Where IFRS 7 requires disclosure in respect of a class of financial assets or liabilities

sufficient information must be given to enable reconciliation to the line items presented on the statement of financial position.

Disclosures on the significance of financial instruments • The general requirement is that the entity should disclose information that enables users of

the financial statements to evaluate the significance of financial instruments for the financial position and performance of the entity. IFRS 7 then stipulates the specific disclosures necessary to achieve this.

• The carrying amount of financial instruments, analysed by category, should be disclosed on

the statement of financial position or in the notes. • IFRS 7 sets out in detail the disclosures required where:

- a loan or receivable has been designated as at fair value through profit or loss;

- a financial liability has been designated as at fair value through profit or loss;

- a financial asset has been reclassified from at fair value to at cost or amortised cost (or vice versa);

- financial assets have been transferred in such a way that part or all of them do not qualify for derecognition;

- collateral has been pledged or is held;

- impairments due to credit losses are recognised in a separate allowance account; and

- there have been defaults and breaches in regard of loans payable.

• The entity should disclose separately, either on the face of the statement of comprehensive income or in the notes:


IFRS 2010 SUMMARY


IFRS 7 Financial Instruments: Disclosures

- net gains/losses relating to different specified categories of financial instruments;

- total interest income and total income expense for financial assets and liabilities not at fair value through profit and loss;

- any impairment losses for each class of financial asset; and

- fee income and expense (unless included in the determination of effective interest rate). Fair values • The fair value of each class of financial instrument should be disclosed is such a way as to

permit comparison with the carrying amounts in the statement of financial position. • Where financial instruments are measured in the statement of financial position at their fair

value, the measurements should be classified in accordance with a specified three level hierarchy that reflects the significance of the inputs used.

• Detailed disclosures are required in respect of each hierarchical level, with a reconciliation

of opening and closing level 3 balances. Other disclosures • IFRS 7 also requires disclosure regarding:

- accounting policies in relation to financial instruments; and

- the extent and nature of hedging arrangements.

Risk disclosures • The entity should disclose information that enables users of the financial statements to

evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the reporting date, and how such risks are managed. These risks typically include, but are not limited to credit risk, liquidity risk and market risk.

• IFRS 7 requires the following qualitative disclosures for each type of risk:

- details of the exposures to risk and how they arise;

- the objectives, policies and processes for managing the risk, the methods used to measure the risk; and

- any changes to any of these from the previous period. • IFRS 7 also requires quantitative data about its exposure to each type of risk,

concentrations of risk as well as specified disclosures for credit risk, liquidity risk and market risk. These include but are not restricted to: - the amount that best represents the entity’s exposure to credit risk; - an aged analysis of financial assets that are past due; - an analysis of financial assets assessed as impaired; - an analysis of the maturities of financial liabilities, based on contractual undiscounted cash flows; and - sensitivity analysis showing how equity and profit or loss would be affected by changes

in market risk variables.

•

IFRS 2010 SUMMARY

IFRS 8 Operating Segments

Overview IFRS 8 is effective for periods commencing on or after 1 January 2009 and will replace IAS 14 from that date. It sets out the requirements for identifying reportable segments of the entity and the related disclosures. Scope • IFRS 8 applies to an entity or parent:

- whose equity or debt securities are traded in a public market; or

- files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing its instruments in a public market.

• Where a financial report contains both the consolidated and separate financial statements of a parent, the segment information is only required in the consolidated financial statements. If an entity voluntarily provides information about segments but does not comply with IFRS 8, it must not describe the information as segmental information.

Definitions • An operating segment – a component of an entity:

- that engages in business activities from which it may earn revenues and incur expenses (including revenue and expenses arising from transactions with other components);

- whose operating results are regularly reviewed by the entity’s chief operating decision maker when making decisions on resource allocation and performance assessment; and

- for which discrete information is available.

• In the context of IFRS 8 chief operating decision maker (“CODM”) identifies a function (the allocation of resources and assessment of the performance of operating segments) rather than a particular person. In practice the function may be performed by the chief executive officer, the chief operating officer or a group of directors or others.

Core principle • An entity must disclose information to enable users of its financial statements to evaluate

the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Identifying reportable segments • An entity should report separately information for operating segments meeting the above

definition or resulting from the aggregation of two or more such segments (see below for conditions for aggregation) that meet any of the following quantitative thresholds:

- Its reported revenue, both external and internal to the entity or group, is 10% or more of combined revenue of all operating segments.

- Its reported profit or loss is 10% or more of the greater, in absolute amount, of the combined reported profit of all profit-making operating segments or the combined reported losses of all loss making operating segments.

- Its assets are 10% or more of the combined assets of all operating segments. • Other segments may be considered reportable if management believes that information

about the segment would be useful to users of the financial statements. • Two or more operating segments may be aggregated into a single operating segment if the

aggregation is consistent with the core principle of IFRS 8, the segments have similar economic characteristics and the segments are similar with respect to:


IFRS 2010 SUMMARY


IFRS 8 Operating Segments

- the nature of their products, services and production processes;

- the type or class of their customers;

- the methods they use to distribute their products or provide their services; and

- if applicable, the nature of the regulatory environments in which they operate. • If total external revenue attributable to reportable segments is less than 75 per cent of the

entity’s revenue, additional operating segments must be identified as reportable segments until at least 75 per cent of revenue is included in reportable segments.

• Segments which are not separately reported (or combined) are combined and disclosed as

in an “all other segments” category separate from any reconciling items. Disclosures • The entity must disclose information on the factor’s used to identify reportable segments,

including the basis of organisation (e.g. by products, by geographical area etc) and the types of products and services of each reportable segment.

• For each reportable segment the entity must disclose:

- a measure of profit or loss and total assets; and

- a measure of liabilities, if such amounts are regularly provide to the CODM. • IFRS 8 lists specific line items that must be disclosed if they are included in the measure of

segment profit or loss or segment assets that is reviewed by the CODM or otherwise reported to the CODM.

Measurement • The amount of each segment item must be the measure reported to the CODM. Where the

CODM makes use of more than one measure of a segment item, the measure most consistent with the amounts in the financial statements must be reported.

• The entity must provide detailed explanations of the measurements of segment profit or

loss, segment assets and segment liabilities. Reconciliations • IFRS 8 requires that detailed reconciliations of the amounts reported by segment and the

amounts reported for the entity be given for revenue, profit or loss, total assets, total liabilities and every other material item of information.

Entity-wide disclosures • All entity’s within the scope of IFRS 8, including those with only one reportable segment

must disclose:

- revenues from external customers as reported in the financial statements, analysed by product or service, or groups of similar products or services;

- revenues and certain non-current assets as reported in the financial statements analysed by geographical area. The analysis should show the amounts attributable to the entity’s country of domicile and the total for all other countries, as well as amounts for individual countries where material; and

- where revenues from a single customer exceed 10% of the entity’s total revenues, a statement of that fact, total revenues from each such customer and the segment or segments reporting that revenue.

IFRS 2010 SUMMARY

IFRS 9 Financial Instruments

Overview IFRS 9 is effective for periods commencing on or after 1 January 2013 and will replace IAS 39 from that date. Entities can early adopt this part of the standard for years commencing on or after 1 January 2009. Phase 1 of the project establishes principles for the classification and measurement of financial assets. Scope • IFRS 9 applies to all assets within the scope of IAS 39 Financial Instruments: Recognition

and Measurement. Initial recognition and measurement • An entity shall recognise a financial asset in its statement of financial position when, and

only when, the entity becomes party to the contractual provisions of the instrument. • At initial recognition, an entity shall measure a financial asset at its fair value plus, in the

case of a financial asset not at fair value through profit or loss transactions costs that are directly attributable to the acquisition of the financial asset.

Classification • An entity shall classify financial assets as subsequently measured at either amortised cost

or fair value on the basis of both:

- the entity’s business model for managing the financial assets; and

- the contractual cash flow characteristics of the financial asset.

• A financial asset shall be measured at amortised cost if both of the following are met:

- the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and

- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

• An entity may, at initial recognition, designate a financial asset as measured at fair value

through profit or loss if doing so significantly reduces a measurement or recognition inconsistency that would otherwise result from recognising assets on other bases.

Investments in equity instruments • IFRS 9 classification principles indicate that all equity instruments should be recognised at

fair value. However, at date of recognition, management has the option of whether to present gains and losses on equity instruments not held for trading in the statement of other comprehensive income

Embedded derivatives • Under IFRS 9, an entity is no longer required to separate embedded derivatives from the

financial asset host. Reclassifications • Reclassifications are prohibited by IFRS 9 except in rare circumstances when the entity

changes its business model. These rare reclassifications are applied prospectively.


IFRS 2010 SUMMARY


IFRS 9 Financial Instruments

Project plan and timeline • Overview

- The financial crisis highlighted difficulties users are having in trying to understand and interpret financial instrument disclosures. As a result IAS 39: Financial instruments - Recognition and measurement is being fundamentally reconsidered and rewritten to make it more principle based and less complex. The replacement will take place in three phases.

• Phase 1: Classification and Measurement (summarised above)

- The exposure draft was published in July 2009 and then on 12 November 2009 the IASB published IFRS 9: Financial Instruments, to complete phase 1 of the project to replace IAS 39.

• Phase 2: Amortised cost and Impairment

- On 5 November 2009 the IASB published for public comment the exposure draft IFRS 9: Financial Instruments: Amortised Cost and Impairment. The ED is open to comment until 30 June 2010. At the time of writing, the final requirements have not been published.

• Phase 3: Hedge accounting

- The IASB is currently conducting outreach with its constituents and intends to issue an exposure draft on hedge accounting in the third quarter of 2010. At the time of writing, this exposure draft has not yet been issued.

IFRS 2010

Standards and interpretations in issue

Standards and interpretations applying for years commencing on or after 1 January 2009

Standard / Interpretation

Title Notes

IAS 1 Presentation of financial statements A revised IAS 1 has been issued which is effective for periods commencing on or after 1 January 2009. Discussion paper issued setting out proposals to introduce cohesiveness and disaggregation as the two main objectives for financial statement presentation. Cohesiveness would ensure that a reader of financial statements can follow the flow of information through the different statements of an entity; disaggregation would ensure that items that respond differently to economic events are shown separately. To achieve these main objectives the boards have developed a principle-based format that is presented in the discussion paper.

IAS 2 Inventories IAS 7 Statement of cash flows IAS 8 Accounting policies, changes in accounting estimates and errors IAS 10 Events after the reporting period IAS 11 Construction contracts IAS 12 Income taxes Exposure draft issued setting out proposals to

replace IAS 12 with a new standard. Although the proposed standard retains the basic IAS 12 approach, the IASB proposes to remove most of the exceptions in IAS 12, to simplify the accounting and strengthen the principle in the standard. In addition, the IASB proposes a changed structure for the standard that will make it easier to use.

IAS 16 Property, plant and equipment


http://www.iasplus.com/standard/ias12.htm

IFRS 2010


IAS 17 Leases Discussion paper issued setting out proposals for a new model for lease accounting. The model is based on the principle that all leases give rise to liabilities for future rental payments and assets (the right to use the leased asset) that should be recognised in an entity's statement of financial position. The discussion paper deals mainly with lessee accounting. However, it also describes some of the issues that will need to be addressed in a future proposed standard on lessor accounting.

IAS 18 Revenue Exposure draft issued setting out proposals for a single, contract-based revenue recognition model. In the proposed model, revenue is recognised when a contract asset increases or a contract liability decreases (or some combination of the two). That occurs when an entity performs by satisfying an obligation in the contract.

IAS 19 Employee benefits Exposure draft issued setting out proposals to amend the accounting for defined benefit plans through which some employers provide long-term employee benefits.. The ED proposes improvements to the recognition, presentation, and disclosure of defined benefit plans. The ED does not address measurement of defined benefit plans or the accounting for contribution-based benefit promises.

IAS 20 Accounting for government grants and disclosure of government assistance IAS 21 The effect of changes in foreign exchange rates IAS 23 Borrowing costs IAS 23 amended for periods commencing on or

after 1 January 2009 removing the option to expense borrowing costs incurred on qualifying assets. Borrowing costs are now required to be capitalised on such assets


IFRS 2010


IAS 24 Related party disclosures IAS 24 amended for periods commencing on or after 1 January 2011. The amended standard provides a partial exemption for government related entities and has simplified and removed inconsistencies in the definition of a related party.

IAS 26 Accounting and reporting by retirement benefit plans IAS 27 Consolidated and separate financial statements IAS 27 has recently under gone two amendments.

For periods commencing on or after 1 January 2009 all dividends should be recognised as income in the parent’s own financial statements, though a subsequent amendment to IAS 36 requires the parent to perform an impairment review of the carrying value of the investment in the subsidiary if certain conditions apply. For periods commencing on or after 1 July 2009 changes in non-controlling interests where there is no effect on control are accounted for as adjustments to equity rather than goodwill. Exposure draft issued setting out proposals to strengthen and improve the requirements for identifying which entities a company controls and, therefore, must include in its consolidated financial statements. The new standard would replace IAS 27 and SIC 12.

IAS 28 Investments in associates IAS 29 Financial reporting in hyper-inflationary economies IAS 31 Joint arrangements Exposure draft issued setting out proposals to

remove the option to proportionately consolidate joint ventures, and enhancing the reporting of information about joint arrangements.


IFRS 2010


IAS 32 Financial instruments: Presentation IAS 32 has recently under gone two amendments. For periods commencing on or after 1 January 2009 certain puttable financial instruments and certain other financial instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation should be classified as equity. For periods commencing on or after 1 February 2010 if rights are issued pro rata to an all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. Discussion paper issued setting out proposals to improve and simplify the distinction between equity financial instruments and other financial instruments (non-equity instruments).

IAS 33 Earnings per share Exposure draft issued setting out proposals to simplify the calculation of EPS and to eliminate differences between the methods required by IFRSs and US accounting standards to calculate EPS.

IAS 34 Interim financial reporting IAS 36 Impairment of assets IAS 36 has recently under gone two amendments.

Dividends from subsidiaries, associates or joint ventures have been added to the list of indicators of impairment in certain specific situations. Estimates used to measure recoverable amounts of CGUs containing goodwill or intangible assets with indefinite useful lives have been added to the disclosure requirements. Both are applicable for periods commencing on or after 1 January 2009.


IFRS 2010


IAS 37 Provisions, contingent liabilities and contingent assets Exposure draft issued setting out proposals for the replacement of IAS 37, including revised measurement requirements. In the light of the comments received, the IASB has issued revised proposals that include more guidance on measurement.

IAS 38 Intangible assets Exposure draft issued setting out proposals to establish whether and how assets and liabilities resulting from rate-regulated activities should be recognised and measured under IFRS.

IAS 39 Financial Instruments: Recognition and Measurement IAS 39 has recently been subject to two amendments. For periods commencing on or after 1 July 2008 entities are permitted under certain circumstances to reclassify financial assets. For periods commencing on or after 1 July 2009 additional guidance was included on eligible hedged items. IAS 39 will be superseded by IFRS 9 which is being developed in 3 phases. IFRS 9 will be effective for periods commencing on or after 1 January 2013. Phase 1 has been issued and early adoption of this phase is permitted for periods commencing on or after 1 January 2009. Exposure draft setting out proposals of Phase 2 has been issued.

IAS 40 Investment Property IAS 40 amended for periods commencing on or after 1 January 2009 to bring property under construction or development for future use as an investment property within its scope.

IAS 41 Agriculture


IFRS 2010


IFRS 1 First-time adoption of IFRS IFRS 1 has recently under gone a number of amendments. For periods commencing on or after 1 January 2009 first-time adopters are permitted to use a deemed cost of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements. For periods commencing on or after 1 July 2009 a restructured version of IFRS 1 becomes effective. The revised version has an improved structure but does not contain any technical changes. For periods commencing on or after 1 January 2010 two additional exemptions have been added to IFRS 1 relating to retrospective application of IFRS to oil and gas assets and to the reassessment of lease contracts in accordance with IFRIC 4. For periods commencing on or after 1 July 2010 first-time adopters are relieved from providing comparative IFRS 7 enhanced financial instrument disclosures.

IFRS 2 Share-based payment IFRS 2 has recently under gone two amendments. For periods commencing on or after 1 January 2009 IFRS 2 was amended to clarify the terms 'vesting conditions' and 'cancellations'. For periods commencing on or after 1 January 2010 IFRS 2 was amended to clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements.


IFRS 2010


IFRS 3(2008) Business combinations Superseded the previous version of IFRS for periods commencing on or after 1 July 2009, in respect of business combinations occurring after the revised standard is first applicable..

IFRS 4 Insurance contracts Discussion paper issued setting out proposals as to how an insurer should measure its insurance liabilities.

IFRS 5 Non-current assets held for sale and discontinued operations Exposure draft issued setting out proposals to revise the definition of discontinued operations and require additional disclosure about components of an entity that have been disposed of or are classified as held for sale.

IFRS 6 Exploration and Evaluation of Mineral Resources Discussion paper issued setting out proposals addressing how to estimate and classify the quantities of minerals or oil and gas discovered; how to account for minerals or oil and gas properties; how minerals or oil and gas properties should be measured; and what information about extractive activities should be disclosed.

IFRS 7 Financial instruments: Disclosure IFRS 7 has recently undergone one key amendment; for periods commencing on or after 1 January 2009 enhanced disclosures about fair value and liquidity risk are required.

IFRS 8 Operating segments Superseded IAS 14 for years commencing on or after 1 January 2009


IFRS 2010


IFRS 9 Financial instruments IFRS 9 will supersede IAS 39 and is being developed in 3 phases. The new standard will be effective for periods commencing on or after 1 January 2013. Phase 1 relating to the classification and measurement of financial assets has been issued and early adoption of this phase is permitted for periods commencing on or after 1 January 2009. Exposure drafts setting out proposals of Phase 2 and how to account for ‘own credit risk’ when fair valuing financial liabilities have been issued.

SIC 7 Introduction of the Euro Provides guidance on IAS 21 SIC 10 Government assistance - no specific relation to operating activities Provides guidance on IAS 20 SIC 12 Consolidation - special purpose entities Provides guidance on IAS 27. Exposure draft

issued setting out proposals to strengthen and improve the requirements for identifying which entities a company controls and, therefore, must include in its consolidated financial statements. The new standard would replace SIC 12.

SIC 13 Jointly controlled entities- non-monetary contributions of venturers Provides guidance on IAS 31 SIC 15 Operating leases - incentives Provides guidance on IAS 17 SIC 21 Income taxes - recovery of revalued non-depreciated assets Provides guidance on IAS 12 SIC 25 Income taxes - changes in the tax status of an enterprise or its shareholders Provides guidance on IAS 12 SIC 27 Evaluating the substance of transactions in the form of a lease Provides guidance on IAS 17 SIC 29 Disclosure - service concession arrangements Provides guidance on IAS 1 and should be read

in conjunction with IFRIC 12 SIC 31 Revenue - barter transactions involving advertising services Provides guidance on IAS 18 SIC 32 Intangible assets - website costs Provides guidance on IAS 38

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities Provides guidance on IAS 37, inter alia IFRIC 2 Members’ Shares in Co-operative Entities and similar instruments Provides guidance on IAS 32 IFRIC 4 Determining whether an Arrangement contains a Lease Provides guidance on IAS 17 IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and

Environmental Rehabilitation Funds. Provides guidance on IAS 37, inter alia


IFRS 2010



IFRIC 6 Liabilities arising from participating in a specific market - waste electrical and electronic equipment

Provides guidance on 37

IFRIC 7 Applying the restatement approach under IAS 29 Financial reporting in hyperinflationary economies

Provides guidance on 29

IFRIC 8 Scope of IFRS 2 Withdrawn and incorporated in to IFRS 2, effective 1 January 2010

IFRIC 9 Reassessment of embedded derivatives Provides guidance on IAS 39 and IFRS 1 and 3 IFRIC 10 Interim financial reporting and impairment Provides guidance on IAS 34, 36 and 39 IFRIC 11 IFRS 2: Group and Treasury Share Transactions Withdrawn and incorporated in to IFRS 2,

effective 1 January 2010 IFRIC 12 Service Concession Arrangements Provides guidance on IAS 17, inter alia IFRIC 13 Customer Loyalty Programmes Provides guidance on IAS 18 IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction Provides guidance on IAS 19

IFRIC 15 Agreements for the Construction of Real Estate Provides guidance on IAS 11 and 18 IFRIC 16 Hedges of a Net Investment in a Foreign Operation Provides guidance on IAS 21 and 39 IFRIC 17 Distributions of Non-cash Assets to Owners Provides guidance on IAS 1 and 32 IFRIC 18 Transfers of Assets from Customers Provides guidance on IAS 18 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments Provides guidance on IAS 32 and 39, inter alia

IFRS 2010

Standards and interpretations in issue but not yet effective

Standard / Interpretation

Title Ref Comment

Effective years commencing on or after 1 February 2010. Earlier application is permitted. IAS 32 amendment Financial instruments: Presentation The amendment clarifies that if rights are issued

pro rata to an all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated.

Effective years commencing on or after 1 July 2010. Earlier application is permitted. IFRS 1 amendment First time adoption of IFRS First-time adopters are relieved from providing

comparative IFRS 7 enhanced financial instrument disclosures.

IFRIC 19 Extinguishing financial liabilities with equity instruments IAS 32, 39, inter alia

Clarifies the accounting treatment when an entity renegotiates the terms of a financial liability with its creditor and the creditor agrees to accept the entity’s shares or other equity instruments to settle the financial liability fully or partially.

Effective years commencing on or after 1 January 2011. Earlier application is permitted. IAS 24 amendment Related party disclosures The amended standard provides a partial

exemption for government related entities and has simplified and removed inconsistencies in the definition of a related party

Effective years commencing on or after 1 January 2013. Earlier application is permitted. IFRS 9 Financial instruments: Recognition and measurement IFRS 9 will supersede IAS 39 and is being

developed in 3 phases. Phase 1 relating to the classification and measurement of financial assets has been issued.


ifrs summary 2010

Documents