Ifrs Overview 2019 | Course Paper

IFRS overview 2019

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Introduction 4

Accounting rules and principles 5

Accounting principles and applicability of IFRS 6

First-time adoption of IFRS – IFRS 1 7

Presentation of financial statements – IAS 1 8

Accounting policies, accounting estimates and errors – IAS 8 10

Fair value – IFRS 13 11

Financial instruments 12

Foreign currencies – IAS 21, IAS 29 16

Insurance contracts – IFRS 4, IFRS 17 18

Revenue and construction contracts –IFRS 15 and IAS 20 19

Segment reporting – IFRS 8 23

Employee benefits – IAS 19 24

Share-based payment – IFRS 2 26

Taxation – IAS 12, IFRIC 23 27

Earnings per share – IAS 33 28

Balance sheet and related notes 29

Intangible assets – IAS 38 30

Property, plant and equipment – IAS 16 31

Investment property – IAS 40 32

Impairment of assets – IAS 36 33

Lease accounting – IAS 17, IFRS 16 34

Inventories – IAS 2 35

Provisions and contingencies – IAS 37 36

Events after the reporting period and financial commitments – IAS 10 38

Share capital and reserves 39

Consolidated and separate financial statements 40

Consolidated financial statements – IFRS 10 41

Separate financial statements – IAS 27 42

Business combinations – IFRS 3 43

Disposal of subsidiaries, businesses and non-current assets – IFRS 5 44

Equity accounting – IAS 28 45

Joint arrangements – IFRS 11 46

Other subjects 47

Related-party disclosures – IAS 24 48

Contents

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Cash flow statements – IAS 7 49

Interim financial reporting – IAS 34 50

Service concession arrangements – SIC 29 and IFRIC 12 51

Industry-specific topics 52

Agriculture – IAS 41 53

Extractive industries – IFRS 6 and IFRIC 20 54

Index by standard and interpretation 55

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Introduction

This ‘IFRS overview’ provides a summary of the recognition and measurement requirements of

International Financial Reporting Standards (IFRSs) issued by the International Accounting

Standards Board (IASB) up to October 2018.

The information in this guide is arranged in six sections:

 Accounting principles;

 Income statement and related notes;

 Balance sheet and related notes;

 Consolidated and separate financial statements;

 Other subjects; and

 Industry-specific topics.

More detailed guidance and information on these topics can be found on inform.pwc.com in the

‘Accounting topic home pages’ and in the ‘IFRS Manual of accounting’. Click on each heading to

visit its topic home page on Inform.

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Accounting rules and

principles

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Accounting principles and

applicability of IFRS

The IASB has the authority to set IFRS and to approve interpretations of those standards.

IFRS is intended to be applied by profit-orientated entities. These entities’ financial statements give information

about performance, position and cash flow that is useful to a range of users in making financial decisions. These

users include primary users: existing and potential investors, lenders, and other creditors, and other users:

employees, suppliers, customers, governments and their agencies, regulators and the public, might find general

purpose financial reports useful.

The concepts underlying accounting practices under IFRS are set out in the IASB‘s ‘Conceptual Framework for

Financial Reporting’ issued in March 2018 (the Framework). The main sections of the Framework are:

 Status and purpose of the Conceptual Framework;

 The objective of general purpose financial reporting;

 Qualitative characteristics of useful financial information;

 Financial statements and the reporting entity;

 The elements of financial statements;

 Recognition and derecognition;

 Measurement;

 Presentation and disclosure;

 Concepts of capital and capital maintenance; and

 Appendix – Defined terms.

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First-time adoption of IFRS –

IFRS 1

An entity moving from national GAAP to IFRS should apply the requirements of IFRS 1. It applies to an entity’s first

IFRS financial statements and the interim reports presented under IAS 34, ‘Interim financial reporting’, that are part

of that period. It also applies to entities under ‘repeated first–time application’. The basic requirement is for full

retrospective application of all IFRSs effective at the reporting date. However, there are a number of optional

exemptions and mandatory exceptions to the requirement for retrospective application.

The optional exemptions cover standards for which the IASB considers that retrospective application could prove

too difficult or could result in a cost likely to exceed any benefits to users. Any, all or none of the optional

exemptions could be applied.

The optional exemptions relate to:

 Business combinations;

 Deemed cost;

 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;

 Fair value measurement of financial assets or financial liabilities at initial recognition;

 Decommissioning liabilities included in the cost of property, plant and equipment;

 Leases;

 Financial assets or intangible assets accounted for in accordance with IFRIC 12;

 Borrowing costs;

 Investments in subsidiaries, joint ventures and associates;

 Designation of contracts to buy or sell a non-financial item;

 Customer contracts;

 Extinguishing financial liabilities with equity instruments;

 Regulatory deferral accounts (IFRS 14);

 Severe hyperinflation;

 Joint arrangements; and

 Stripping costs in the production phase of a surface.

The mandatory exceptions cover areas in which retrospective application of the IFRS requirements is considered

inappropriate. The following exceptions are mandatory, not optional:

 Estimates;

 Hedge accounting;

 Derecognition of financial assets and liabilities;

 Non-controlling interests;

 Classification and measurement of financial assets (IFRS 9);

 Embedded derivatives (IFRS 9/IAS 39);

 Impairment of financial assets; and

 Government loans.

Certain reconciliations from previous GAAP to IFRS are also required.

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Presentation of financial

statements – IAS 1

The objective of financial statements is to provide information that is useful in making economic decisions. IAS 1’s

objective is to ensure comparability of presentation of that information with the entity’s financial statements of

previous periods and with the financial statements of other entities.

Financial statements are prepared on a going concern basis, unless management intends either to liquidate the

entity or to cease trading, or has no realistic alternative but to do so. Management prepares its financial statements,

except for cash flow information, under the accrual basis of accounting.

There is no prescribed format for the financial statements, but there are minimum presentation and disclosure

requirements. The implementation guidance to IAS 1 contains illustrative examples of acceptable formats.

Financial statements disclose corresponding information for the preceding period (comparatives), unless a

standard or interpretation permits or requires otherwise.

Statement of financial position (balance sheet)

The statement of financial position presents an entity’s financial position at a specific point in time. Subject to

meeting certain minimum presentation and disclosure requirements, management uses its judgement regarding the

form of presentation, which sub-classifications to present and which information to disclose on the face of the

statement or in the notes.

The following items, as a minimum, are presented on the face of the balance sheet:

 Assets – Property, plant and equipment; investment property; intangible assets; financial assets; investments

accounted for using the equity method; biological assets; deferred tax assets; current tax assets; inventories;

trade and other receivables; and cash and cash equivalents.

 Equity – Issued capital and reserves attributable to the parent’s owners; and non–controlling interest.

 Liabilities – Deferred tax liabilities; current tax liabilities; financial liabilities; provisions; and trade and other

payables.

 Assets and liabilities held for sale – The total of assets classified as held for sale and assets included in

disposal groups classified as held for sale; and liabilities included in disposal groups classified as held for sale

in accordance with IFRS 5.

Current and non-current assets, and current and non-current liabilities, are presented as separate classifications in

the statement, unless presentation based on liquidity provides information that is reliable and more relevant.

Statement of comprehensive income

The statement of comprehensive income presents an entity’s performance over a specific period. An entity

presents profit or loss, total other comprehensive income and comprehensive income for the period. [IAS

1 para 81A].

Entities have a choice of presenting the statement of comprehensive income in a single statement or as two

statements. The statement of comprehensive income under the single-statement approach includes all items of

income and expense, and it includes each component of other comprehensive income classified by nature. Under

the two-statement approach, all components of profit or loss are presented in an income statement. The income

statement is followed immediately by a statement of comprehensive income, which begins with the total profit or

loss for the period and displays all components of other comprehensive income.

Items to be presented in statement of comprehensive income

The following items of profit or loss are, as a minimum, presented in the statement of comprehensive income:

 Revenue, presenting separately interest revenue calculated using the effective interest method.

 Gains and losses arising from the de-recognition of financial assets measured at amortised cost.

 Finance costs.

 Impairment losses (including reversals of impairment losses or impairment gains) determined in accordance

with Section 5.5 of IFRS 9.

 Share of the profit and loss of associates and joint ventures accounted for using the equity method.

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 If a financial asset is reclassified out of the amortised cost measurement category so that it is measured at fair

value through profit or loss, any gain arising from a difference between the previous amortised cost of the

financial asset and its fair value at the reclassification date (as defined in IFRS 9).

 If a financial asset is reclassified out of the fair value through other comprehensive income measurement

category so that it is measured at fair value through profit or loss, any cumulative gain or loss previously

recognised in other comprehensive income that is reclassified to profit or loss.

 Tax expense

 A single amount for the total of discontinued operations. This comprises the total of:

 The post-tax profit or loss of discontinued operations; and

 The post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal

of the assets or disposal group(s) constituting the discontinued operation.

Additional line items or sub-headings are presented in this statement where such presentation is relevant to an

understanding of the entity’s financial performance.

Material items

The nature and amount of items of income and expense are disclosed separately, where they are material.

Disclosure could be in the statement or in the notes. Such income and expenses might include: restructuring costs;

write-downs of inventories or property, plant and equipment; litigation settlements; and gains or losses on disposals

of non-current assets.

Other comprehensive income

An entity presents items of other comprehensive income grouped into those that will be reclassified subsequently

to profit or loss, and those that will not be reclassified. An entity discloses reclassification adjustments relating to

components of other comprehensive income. The IAS 1 amendments clarify that the entity’s share of items of

comprehensive income of associates and joint ventures is presented separately, analysed into those items that

will not be reclassified subsequently to profit or loss and those that will be so reclassified when specific conditions

are met.

An entity presents each component of other comprehensive income in the statement either (i) net of its related tax

effects, or (ii) before its related tax effects, with the aggregate tax effect of these components shown separately.

Statement of changes in equity

The following items are presented in the statement of changes in equity:

 Total comprehensive income for the period, showing separately the total amounts attributable to the parent’s

owners and to non-controlling interest.

 For each component of equity, the effects of retrospective application or retrospective restatement recognised

in accordance with IAS 8.

 For each component of equity, a reconciliation between the carrying amount at the beginning and the end of

the period, separately disclosing changes resulting from:

 Profit or loss;

 Other comprehensive income; and

 Transactions with owners in their capacity as owners, showing separately contributions by and distributions

to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

The amounts of dividends recognised as distributions to owners during the period, and the related amount of

dividends per share, should be disclosed.

Statement of cash flows

Cash flow statements are addressed in a separate summary dealing with the requirements of IAS 7.

Notes to the financial statements

The notes are an integral part of the financial statements. Notes provide information additional to the amounts

disclosed in the ‘primary’ statements. They also include significant accounting policies, critical accounting estimates

and judgements, and disclosures on capital and puttable financial instruments classified as equity.

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Accounting policies,

accounting estimates and

errors – IAS 8

An entity follows the accounting policies required by IFRS that are relevant to the transactions, other events and

conditions of the entity. Sometimes standards offer a policy choice; there are other situations where no guidance is

given by IFRSs. In these situations, management should develop and apply appropriate accounting policies.

Management uses judgement in developing and applying an accounting policy that results in information that is

relevant and reliable. Reliable information demonstrates the following qualities: faithful representation, substance

over form, neutrality, prudence and completeness. If there is no IFRS standard or interpretation that is specifically

applicable, management considers the applicability of the requirements in IFRS on similar and related issues, and

then the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in

the Framework. Management can also consider the most recent pronouncements of other standard-setting bodies,

other accounting literature and accepted industry practices, where these do not conflict with IFRS.

Accounting policies are applied consistently to similar items, transactions and events (unless a standard permits or

requires otherwise).

Changes in accounting policies

Changes in accounting policies made on adoption of a new standard or interpretation are accounted for in

accordance with the transitional provisions (if any) within that standard or interpretation. If a change in policy upon

initial application of a new standard does not include specific transitional provisions, or it is a voluntary change in

policy, it should be accounted for retrospectively (that is, by restating all comparative figures presented) unless this

is impracticable. There is also a specific exception for the initial adoption of a policy to measure property, plant and

equipment or intangible assets by applying the revaluation model, which would be accounted for in the year the

change is being made.

Issue of new/revised standards not yet effective

Standards are normally published in advance of the required implementation date. In the intervening period, where

a new/revised standard that is relevant to an entity has been issued but is not yet effective, management discloses

this fact. It also provides the known or reasonably estimable information relevant to assessing the impact that the

application of the standard might have on the entity’s financial statements in the period of initial recognition.

Changes in accounting estimates

An entity recognises changes in accounting estimates prospectively, by including the effects in profit or loss in the

period that is affected (the period of the change and future periods, if applicable), except where the change in

estimate gives rise to changes in assets, liabilities or equity. In this case, it is recognised by adjusting the carrying

amount of the related asset, liability or equity in the period of the change.

Errors

Errors might arise from mistakes (mathematical or application of accounting policies), oversights or

misinterpretation of facts, and fraud.

Errors that are discovered in a subsequent period are prior-period errors. Material prior-period errors are adjusted

retrospectively (that is, by restating comparative figures) unless this is impracticable (that is, it cannot be done, after

‘making every reasonable effort to do so’).

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Fair value – IFRS 13

IFRS 13, ‘Fair value management’, provides a common framework for measuring fair value where required or

permitted by another IFRS.

IFRS 13 defines fair value as ‘The price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date’. The key principle is that fair value is the

exit price, from the perspective of market participants who hold the asset or owe the liability, at the measurement

date. It is based on the perspective of market participants rather than the entity itself, so fair value is not affected by

an entity’s intentions towards the asset, liability or equity item that is being fair valued.

A fair value measurement requires management to determine four things: the particular asset or liability that is the

subject of the measurement (consistent with its unit of account); the highest and best use for a

non-financial asset; the principal (or, in its absence, the most advantageous) market; and the valuation technique.

IFRS 13 addresses how to measure fair value, but it does not stipulate when fair value can or should be used.

Financial instruments

Introduction to financial instruments – Objectives, definitions and scope –

IAS 32, IAS 39, IFRS 9 and IFRS 7

For periods beginning on or after 1 January 2018, IFRS 9 is required to be applied in full. But, when an entity first

applies IFRS 9, as an accounting policy choice, it can apply the hedge accounting requirements of IAS 39 instead

of the hedge accounting requirements included in IFRS 9.

The objective of the four financial instruments standards (IAS 32, IAS 39, IFRS 9 and IFRS 7) is to establish

requirements for all aspects of accounting for financial instruments, including distinguishing debt from equity,

balance sheet offsetting, recognition, derecognition, measurement, hedge accounting and disclosure.

The standards’ scope is broad. The standards cover all types of financial instruments, including receivables,

payables, investments in bonds and shares, borrowings and derivatives. They also apply to certain contracts to buy

or sell non-financial assets (such as commodities) that can be net-settled in cash or another financial instrument.

Financial instruments are recognised and measured according to IAS 39/IFRS 9’s requirements and are disclosed

in accordance with IFRS 7.

For annual reporting periods beginning on or after 1 January 2018 IFRS 9 replaces IAS 39. However for some

preparers IAS 39 will remain relevant (for example insurers that apply the IFRS 4 deferral of IFRS 9). On transition

to IFRS 9 entities may also continue to apply IAS 39 hedge accounting.

In addition, requirements for fair value measurement and disclosures are covered by IFRS 13.

IAS 32 establishes principles for presenting financial instruments as financial liabilities or equity, and for offsetting

financial assets and financial liabilities.

Financial instruments represent contractual rights or obligations to receive or pay cash or other financial assets.

A financial asset is cash; a contractual right to receive cash or another financial asset; a contractual right to

exchange financial assets or liabilities with another entity under conditions that are potentially favourable; or an

equity instrument of another entity.