International Financial Reporting Standards - World...

International Financial Reporting Standards

The views expressed in this presentation are those of the presenter,

not necessarily those of the IASB or IFRS Foundation.

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

IFRSs an executive briefing



not necessarily those of the IASB or IFRS Foundation

The Conceptual Framework

© 2011 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

3 3 3 3 Conceptual Framework

• The Conceptual Framework sets out the agreed

concepts that underlie IFRS financial reporting

– the objective of general purpose financial

reporting

– qualitative characteristics

– elements of financial statements

– recognition

– measurement

– presentation and disclosure

Other concepts and IFRS requirements flow from

the objective

Objective of IFRS financial statements

• Provide financial information about the reporting

entity that is useful to existing and potential

investors, lenders and other creditors in making

decisions about providing resources to the entity.

• Those decisions involve buying, selling or

holding equity and debt instruments, and

providing or settling loans or other forms of

credit

4 Conceptual Framework

Fundamental

• Relevance

– predictive value

– confirmatory value

– materiality

• Faithful representation

– completeness

– neutrality

– free from error


Enhancing

• Comparability

• Verifiability

• Timeliness

• Understandability

IASB maximises QCs

subject to cost

constraint

Qualitative characteristics



Asset

• resource controlled by the

entity

• result of past event

• expected inflow of economic

benefits

Liability

• present obligation

• arising from past event

• expected outflow of

economic benefits

Equity = assets less liabilities

Income

• recognised increase in asset/decrease in liability in current reporting period

• that result in increased equity except…

Expense

• recognised decrease in asset/increase in liability in current reporting period

• that result in decreased equity except…

6

Elements

IFRS hierarchy

• If no specific IFRS requirement use judgement to

develop a policy that results in relevant information

that faithfully represents using the IFRS hierarchy:

– 1st IFRS dealing with similar and related issue

– 2nd Framework definitions, recognition crit, etc.

–Can also in parallel refer to requirements of

GAAPs with a similar Framework





IFRS 1 First-time Adoption of IFRSs

IFRS 1 First-time adoption of IFRSs

Objective

• Ensure that an entity’s first IFRS financial

statements (and interim reports) provides useful

information to existing and potential investors,

lenders and other creditors:

• transparent and comparable over time

• a suitable starting point for IFRS accounting

• can be generated at a cost that does not exceed

the benefits.

9


Recognition and measurement principle

• Prepare opening IFRS statement of financial

position and first IFRS financial statements as if the

entity had always applied IFRS effective at the end

of its first IFRS reporting period.

Exceptions to the measurement principle (to meet

the objective)

• Specified mandatory exceptions

• Specified optional exemptions

10


Disclosure principles

• Explain how the transition from Previous GAAP to

IFRSs affected its financial position, financial

performance and cash flows.

• No exemptions from the disclosure requirements of

other IFRSs.

11


Practical considerations

• Plan the transition to IFRSs:

• information system changes and training

• effects on contracts and agreements

• communicate changes to analysts (the market)

Judgements and estimates

• Applying IFRSs involves accounting policy choices

and the use of judgement and estimates

12




IFRS 2 Share-based Payment


Introduction

• Relevant and faithfully represented financial

information about an entity’s share-based payment

transactions is useful to existing and potential

investors, lenders and other creditors in making

decisions about providing resources to the entity.

14


Scope

• IFRS 2 applies to transactions in which:

• shares or other equity instruments are issued in

return for goods or services (eg employee share

options)

• the payment amount is based on the price of the

entity’s shares (eg share appreciation rights).

• The scope is broader than employee share options

• Scope exceptions include: IFRS 3 applies to shares

or other equity instruments issued as consideration

in a business combination).

15


Recognition

• The transaction is recognised when the entity obtains

the goods or services.

• Goods or services received are recognised as assets

or expenses as appropriate.

• The transaction is recognised as equity (if equity-

settled) or as a liability (if cash-settled).

16


Measurement

• Equity-settled share-based payment transactions

are measured at the fair value of the goods or

services received. If the fair value of the goods or

services cannot be estimated reliably, the fair value

of the equity instruments at grant date is used.

• Cash-settled share-based payment transactions

are measured at the fair value of the liability at the

end of each reporting period.

17


Disclosures

• Information that enables users to understand the

nature and extent of share-based payment

arrangements.

• Information that enables users to understand how

fair value of the goods or services received was

determined.

• Information that enables users to understand the

effect of share-based payment transactions on profit

or loss and financial position.

18



• Identifying share-based payment transactions may

not always be straightforward.

• Distinguishing equity-settled and cash-settled plans.

• Understanding of plan terms.

• Estimating the fair value of an options and use of

valuation models (Black-Scholes, binomial, Monte

Carlo).

• Estimating vesting periods and vesting conditions.

19




IFRS 3 Business Combinations


Introduction

• A business combination is a transaction or other

event in which a reporting entity (the acquirer)

obtains control of one or more businesses (the

acquiree).

• All business combinations are purchases

• (Common-control combinations are outside the

scope of this standard)

21


Objective

• Improve the relevance, faithful representation and

comparability of the financial information that an entity

reports about a business combination and its effects.

• information about the assets acquired (brought

under the control of the entity) and the claims

against those assets assumed in the business

combination (and the purchase consideration given)

assists users to better assess the prospects for

future net cash inflows to the entity which is useful in

making decisions about providing resources to the

entity.

22

Principles

• The acquirer of a business recognises the identifiable

assets acquired and liabilities assumed measured

initially at their acquisition-date fair values and

discloses information that enables users to evaluate

the nature and financial effects of the acquisition.

Exceptions

• Particular requirements apply to contingent liabilities,

income taxes, employee benefits, indemnification

assets, reacquired rights, share-based payment

awards and assets held for sale.

23


Goodwill

• Goodwill (an asset) is measured initially indirectly

as the difference between the consideration

transferred in exchange for the acquiree and the

acquiree’s identifiable assets and liabilities.

• If that difference is negative because the value of

the acquired identifiable assets and liabilities

exceeds the consideration transferred, the acquirer

immediately recognises a gain from a bargain

purchase.

• Goodwill is not amortised, but is subject to an

impairment test.

24


Non-controlling interest

• If the acquirer acquires less than 100 per cent of the

equity interests of another entity in a business

combination it recognises non-controlling interest.

• The acquirer may choose in each business

combination to measure non-controlling interest in

the acquiree either at fair value or at the non-

controlling interest’s proportionate share of the

acquiree’s identifiable net assets.

25



• Determining whether a particular set of assets and

activities is a business requires assessing their

capabilities of being conducted and managed for

the purpose of providing economic benefits.

• Identifying the acquirer in some business

combinations that combine two or more entities can

require judgement.

26


Judgements and estimates continued

• Accounting for business combinations requires

broad use of fair value estimates.

• The acquiree’s identifiable intangible assets at the

acquisition date are recognised separately and

might include assets that have not been recognised

by the acquiree.

27





IFRS 4 Insurance Contracts


Introduction

• IFRS 4 applies to insurance contracts issued by any

entity, including entities that are not regulated as

insurers.

• It does not address other aspects of accounting by

insurers, such as accounting for financial assets.

29


Definition

• Under an insurance contract, one party (the

insurer) accepts significant insurance risk from

another party (the policyholder) by agreeing to

compensate the policyholder if a specified uncertain

future event (the insured event) adversely affects

the policyholder.

• Some contracts having the legal form of insurance

may not meet that definition.

• Insurance contracts transfer insurance risks (rather

than only financial risks)

30

Continuation of previous accounting

• IFRS 4 permits insurers to retain most aspects of

their previous accounting for insurance contracts.

This avoids disruption while the IASB works on a

comprehensive review of accounting for insurance

contracts.

• The nature and extent of judgements and estimates

will, therefore, depend largely on that previous

accounting. Typically this will involve estimates of

uncertain cash flows.

31





IFRS 5 Non-current Assets Held for Sale

and Discontinued Operations

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

Introduction

• Information about an entity’s non-current assets held for

sale and its discontinuing operations assists users

assess the amount, timing and uncertainty of (the

prospects for) future net cash inflows to the entity which

is useful to them in making decisions about providing

resources to the entity.

• Non-current assets held for sale are to be recovered

through proceeds from sale (not use)

• no future cash flows from discontinued operations

33

Non-current assets held for sale

• A non-current assets is regarded as ‘held for sale’ if

its carrying amount will be recovered principally

through a sale transaction, rather than through

continuing use.

• Non-current assets held for sale are:

• measured at the lower of fair value less costs to sell

and carrying amount (they are not depreciated).

• presented separately as current assets on the

statement of financial position.

34


Discontinued operations

• A ‘discontinued operation’ is a component of an

entity that either has been disposed of or is

classified as held for sale.

• The component must be a major line of business, a

geographical area of operations, or a subsidiary

that was acquired exclusively for resale.

• Discontinued operations are presented separately

within profit or loss in the statement of

comprehensive income and the statement of cash

flows.

35



• The classification of an asset as ‘held for sale’ is

based on actions taken by management before the

end of the reporting period and management’s

expectation that a sale will be achieved.

• The asset must be available for immediate sale in its

present condition (subject only to terms that are

usual and customary for sales of such assets).

• The sale must be highly probable (appropriate

management commitment, actively seeking a buyer,

reasonable price, 12 month limit).

36



• Measuring the fair value less costs to sell of assets

held for sale (absent an active market).

37





IFRS 6 Exploration for and Evaluation of

Mineral Resources

Introduction

• IFRS 6 specifies the financial reporting for

expenditures incurred in the exploration for and

evaluation of mineral resources

• which include minerals, oil, and natural gas

• IFRS 6 does not apply to expenditures incurred:

• before the entity has obtained the legal rights to

explore a specific area

• after the technical feasibility and commercial viability

of extracting the mineral resources is demonstrable

39

IFRS 6: Exploration for and Evaluation of Mineral Resources

Continuation of previous accounting

• IFRS 6 permits entities to retain many aspects of their

previous accounting for the costs related to the

exploration for and evaluation of mineral resources

(subject to IAS 8.10)

• this avoids making major changes that might be

reversed when the IASB undertakes a

comprehensive review of accounting for extractive

activities

40


Continuation of previous accounting continued

• IFRS 6 requires exploration and evaluation assets to be

• measured at cost at initial recognition

• classified as tangible or intangible assets according

to their nature

• The nature and extent of judgements and estimates

will, therefore, depend largely on that previous

accounting. Typically this will involve estimates of

uncertain cash flows.

41


Impairment testing

• IFRS 6 requires exploration and evaluation assets

to be tested for impairment when facts and

circumstances suggest the asset may be impaired

• Impairment is assessed at the level of a CGU or

group of CGUs

• an entity chooses an accounting policy for allocating

exploration and evaluation assets to a CGU or

group of CGUs (but no larger than an operating

segment)

42





IFRS 7 Financial Instruments: Disclosures

Introduction

• IFRS 7 specifies financial instruments disclosures.

• The presentation and recognition and measurement

of financial instruments are the subjects of

• IAS 32 Financial Instruments: Presentation

• IAS 39 Financial Instruments: Recognition and

Measurement respectively.

• IFRS 9 Financial Instruments (being developed

in phases) is intended to ultimately replace IAS

39.

44


Disclosure principles

• Information that enables users to evaluate the

significance of financial instruments for the entity’s

financial position and financial performance.

• Information (qualitative and quantitative) that

enables users to evaluate the nature and extent of

risks arising from financial instruments to which the

entity is exposed at the end of the reporting period.

• including information about how the entity manages

its exposure to those financial risks.

45


Disclosure requirement

• Qualitative information about exposure to risks

arising from financial instruments. The disclosures

describe management’s objectives, policies and

processes for managing those risks

46


Disclosure requirement continued

• Quantitative information about exposure to risks

arising from financial instruments, including

specified minimum disclosures about credit risk,

liquidity risk and market risk.

– These disclosures provide information about the

extent to which the entity is exposed to risk,

based on information provided internally to the

entity’s key management personnel.

47



• Qualitative and quantitative information to evaluate

the nature and extent of the entity’s exposure to and

management of risks arising from financial

instruments, including:

• amounts that best represent maximum exposure

to credit risk.

• sensitivity analysis for each type of market risk

showing how profit and loss and equity would

have been affected by changes in relevant

variables that are reasonably possible.

48



• Fair value information is required to be provided for

all financial assets and liabilities (with limited

exceptions) irrespective of whether they are carried

at FV.

49





IFRS 8 Operating Segments

Introduction

• Many entities are diversified or multinational

operations or both. Their products and services, or

the geographical areas in which they operate, may

differ in profitability, future prospects and risks.

• Consequently, segment information might be more

relevant than consolidated or aggregated data for

users in assessing risks and returns.

51


Introduction continued

• IFRS 8 requires disclosure of information about an

entity’s operating segments, its products and

services, the geographical areas in which it

operates, and its major customers.

• This information assists users to evaluate the

entity’s business activities and the environment in

which it operates. That assists users to better

assess the prospects for future net cash inflows to

the entity which is useful in making decisions about

providing resources to the entity.

52


Identifying operating segments

• Operating segments are components of an entity about

which separate financial information is available and

which the chief operating decision maker regularly

evaluates in deciding how to allocate resources and in

assessing performance.

• The financial information reported is the same as the

chief operating decision maker uses. Providing

information ‘through the eyes of management’

enhances a user's ability to predict actions or reactions

of management that can significantly affect the entity’s

prospects for future cash flows.

53


Disclosure

• An entity must give descriptive information about:

– the way the operating segments were determined

– the products and services provided by the

segments

– differences between the measurements used in

reporting segment information and those used in

the entity’s financial statements

– changes in the measurement of segment amounts

from period to period.

54


Disclosure continued

• An entity must report a measure of operating

segment profit or loss and of segment assets. It

must also report a measure of segment liabilities

and particular income and expense items.

• An entity must report information about the

revenues derived from its products or services,

about the countries in which it earns revenues and

holds assets, and about major customers.

55



• Identifying the entity’s chief operating decision

maker (as a function, not a specific title).

• matrix form of organisations require management

judgement to segmentation that satisfy IFRS 8’s

objective.

• Identifying which operating segments can be

aggregated

• Identifying reportable segments that do not meet

the quantitative threasholds for reportable

segments.

56





IFRS 9 Financial Instruments

Introduction

• IFRS 9 prescribes the classification and

measurement of financial assets and completes the

first phase of the project to replace IAS 39 Financial

Instruments: Recognition and Measurement.

• Most of the requirements for financial liabilities were

carried forward unchanged from IAS 39.

• Effective for annual periods beginning on or after 1

January 2015. Early application permitted.

58


Financial assets: classification and measurement

• A financial asset is measured at amortised cost if

• 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 principle and interest on the

principal amount outstanding.

• All other financial assets are measured at fair value.

59


2011 October | Sao Paulo IFRS Conference

60

Fair Value

(No impairment)

Amortised cost

(one impairment

method) Contractual cash flow

characteristics

Business model test FVO for

accounting

mismatch

(option)

All other instruments:

• Equities

• Derivatives

• Some hybrid contracts

• …

Equities:

OCI presentation

available

(alternative)

Reclassification required when business model changes

Classification model: financial assets


Financial liabilities

• Generally, financial liabilities are measured at

amortised cost except for: – particular liabilities (eg derivatives) that must be

measured at fair value

– liabilities irrevocably designated as measured at fair

value through profit and loss at initial recognition.

• Financial liabilities at fair value, the amount of

change in fair value attributable to own credit risk

must be recognised in other comprehensive income

(OCI).

61


2011 October | Sao Paulo IFRS Conference

All financial liabilities Amortised

cost

FVO for

mismatch,

managed on

FV basis and

hybrids Except:

Held for trading

Fair value

through

P&L

Own

credit in

OCI

• Hybrid financial liabilities are bifurcated

• No reclassification permitted

62

Classification model: financial liabilities


Embedded derivatives

• A hybrid contract (a non-derivative host contract

with an embedded derivative) with a host that is a

financial asset is not separated.

• Such contracts are classified in accordance with the

classification criteria in their entirety.

• Other hybrid contracts (eg host contract is a

financial liability or a non-financial item) are

separated if particular conditions apply unless the

entity designates the entire contract as at fair value

through profit or loss.

63



• Classification of financial assets into IFRS 9 categories drives the subsequent measurement and requires careful consideration of all available evidence.

• Embedded derivatives may reside in contracts other than financial instruments (ie leases, sale or purchase contracts).

64



• Fair value measurement requires maximum possible use of observable market data and the minimum use of entity-specific factors.

• In the absence of a quoted active market, it will be necessary to use valuation techniques.

65





IFRS 10 Consolidated Financial Statements


Introduction

• IFRS 10 establishes principles for the presentation

and preparation of consolidated financial

statements when an entity controls one or more

other entities.

• It supersedes IAS 27 Consolidated and Separate

Financial Statements and SIC-12 Consolidation—

Special Purpose Entities.

• Effective date: 1 January 2013

• Earlier application is permitted

67


Objective

• Information about the resources under the control of the group (assets) and the claims against those resources assists users to better assess the prospects for future net cash inflows to the group which is useful in making decisions about providing resources to the group.

• The global financial crisis highlighted the importance

of enhancing disclosure requirements, in particular

for special purpose or structured entities.

68


Control

• IFRS 10 defines the principle of control and

establishes control as the basis for consolidation.

• Principle of control sets out the following three

elements of control: – power over the investee

– exposure, or rights, to variable returns from

involvement with the investee

– the ability to use power over the investee to affect

the amount of the investor’s returns.

69


Application of the control principle

• IFRS 10 sets out requirements on how to apply the

control principle:

– an investor can control an investee with less than

50 per cent of the voting rights of the investee.

– Potential voting rights need to be considered in

assessing control, but only if they are substantive

– IFRS 10 contains specific application guidance for

agency relationships

70

Who presents consolidated financial statements?

• An entity that has one or more subsidiaries (a

parent) must present consolidated financial

statements.

• One exception—a parent if: – its owners have been informed and do not object,

– its securities are not publicly traded or in the

process of becoming publicly traded, and

– its parent publishes IFRS-compliant financial

statements that are available to the public.

71


Principle for consolidated financial statements

• Consolidated financial statements include the

parent and all its subsidiaries presented as financial

statements of a single economic entity.

• uniform accounting policies

• same reporting periods

• eliminate intragroup transactions and balances

• non-controlling interest (the equity in a subsidiary

that is not attributable, directly or indirectly, to the

parent) is presented within equity, separately from

the parent shareholders’ equity.

72



• Determining whether an investor controls an

investee involves assessing whether the investor:

• has power over the investee

• exposure, or rights, to variable returns from its

involvement with the investee

• the ability to use its power over the investee to

affect the amount of the investor’s returns.

73



• Factors to consider when assessing whether control

exists include, for example:

• assessing the purpose and design of the

investee (eg are voting rights or contractual

arrangements the dominant factor?)

• identifying relevant activities and how decisions

about those activities are made

• assessing current ability to direct (practical

ability to direct the relevant activities

unilaterally?)

74





IFRS 11 Joint Arrangements


Introduction

• IFRS 11 Joint Arrangements establishes principles

for financial reporting by parties to a joint

arrangement.

• It supersedes IAS 31 Interests in Joint Ventures and

SIC-13 Jointly Controlled Entities—Non-Monetary

Contributions by Venturers.



76

Principle

• A party to a joint arrangement recognises its rights

and obligations arising from the arrangement.

• The accounting for joint arrangements reflects the rights and obligations that the parties have as a result of their interests in the joint arrangement, regardless of its structure or legal form.

• Information about those rights and obligations assists users to better assess the prospects for future net cash inflows to the entity which is useful in making decisions about providing resources to the entity.

77


Application of the principle

• Parties that have rights to the assets and

obligations for the liabilities relating to the

arrangement are parties to a joint operation.

• A joint operator accounts for assets, liabilities and

corresponding revenues and expenses arising from

the arrangement.

• Parties that have rights to the net assets of the

arrangement are parties to a joint venture.

• A joint venturer accounts for an investment in the

arrangement using the equity method.

78



• Assessing whether the parties, or a group of

parties, have joint control of an arrangement (see

IFRS 10 for judgements about control).

• Determining whether the joint arrangement is a joint

operation or a joint venture requires consideration

of the structure and legal form of the arrangement,

the terms agreed and when relevant other facts and

circumstances.

79





IFRS 12 Disclosure of Interests in

Other Entities

IFRS 12 Disclosure of Interests in Other Entities

Introduction

• IFRS 12 applies to entities that have an interest in a

subsidiary, a joint arrangement, an associate or an

unconsolidated structured entity.



81

Reasons for issuing the IFRS

• Users have consistently requested improvements to the disclosure of a reporting entity’s interests in other entities.

• The global financial crisis also highlighted a lack of transparency about the risks to which a reporting entity was exposed from its involvement with structured entities.

• In response to input received from users and others, the IASB decided to address in IFRS 12 the need for improved disclosure of a reporting entity’s interests in other entities.

82


Objective

• The IFRS requires an entity to disclose information

that enables users of financial statements to

evaluate:

– the nature of, and risks associated with, its

interests in other entities; and

– the effects of those interests on its financial

position, financial performance and cash flows.

• That evaluation assists users in making decisions

about providing resources to the entity.

83


General requirement

• An entity discloses information that enables users of

its consolidated financial statements

(a) to understand:

(i) the composition of the group; and

(ii) the interest that non-controlling interests have in

the group’s activities and cash flows; and

(iii) the nature and extent of its interest in

unconsolidated structured entities

84


General requirement continued

(b) to evaluate:

(i) the nature and extent of significant

restrictions on its ability to access or use

assets, and settle liabilities, of the group;

(ii) the nature and extent of significant

restrictions on the ability of joint ventures or

associates to transfer funds to the investor;

(iii) the nature, extent and financial effects of its

interest in joint arrangements and associates;

85


General requirement continued

(iv) the nature of, and changes in, the risks

associated with its interests in consolidated

structured entities, joint ventures, associates

and unconsolidated structured entities;

(v) the consequences of changes in its

ownership interest in a subsidiary that do not

result in a loss of control; and

(vi) the consequences of losing control of a

subsidiary during the reporting period.

86



• An entity must disclose information about significant

judgements and assumptions it has made in

determining:

• control of another entity (see IFRS 10)

• Joint control (see IFRS 11) of an arrangement or

significant influence (see IAS 28) over an entity

• type of joint arrangement when the arrangement

has been structured through a separate vehicle

87



• For unconsolidated structured entities, a summary

of the amount that best represents the entity’s

maximum exposure to loss for its interest must be

provided.

88





IFRS 13 Fair Value Measurement

Introduction

• Sets out in a single IFRS a framework for

measuring fair value and requires disclosures about

fair value measurements.

• It does not introduce any new requirements to

measure an asset or a liability at fair value, change

what is measured at fair value in IFRSs or address

how to present changes in fair value.

• IFRS 13 is effective from 1 January 2013. Early

application is permitted.

90


Definition

• Fair value is the price that would be received to sell

an asset or paid to transfer a liability (exit price) in

an orderly transaction (not a forced sale) between

market participants (market-based view) at the

measurement date (current price).

• Fair value is a market-based measurement (it is not

an entity-specific measurement)

• Consequently, the entity’s intention to hold an asset

or to settle or otherwise fulfil a liability is not relevant

when measuring fair value.

91


Application guidance

• When measuring fair value use assumptions that

market participants would use when pricing the asset or

liability under current market conditions, including

assumptions about risk.

• Characteristics of a particular asset or liability that a

market participant would take into account when

pricing the item at the measurment date, include:

– age, condition and location of the asset

– restrictions on the sale or use.

92


Transaction and price

• Measured using the price in the principal market for

the asset or liability (ie the market with the greatest

volume and level of activity for the asset or liability)

or, in the absence of a principal market, the most

advantageous market for the asset or liability.

93


Application to non-financial assets

• Must reflect the use of a non-financial asset by

market participants that maximises the value of the

asset

– physically possible

– legally permissible

– financially feasible

• Highest and best use is usually (but not always) the

current use.

94



IFRS 13: Fair Value Measurement Fair value hierarchy

Is there a quoted price for an

identical asset or liability?

(Level 1 input)

Are there any observable

inputs* other than quoted

prices for an identical asset

or liability?

Use the Level 1 input =

Level 1 measurement

Use of Level 2 inputs with no

significant unobservable inputs‡ =

Level 2 measurement

Significant use of

unobservable inputs =

Level 3 measurement

No Yes

Yes No

Must use without

adjustment

95

* Observable inputs include market data (prices and other information) that is publicly available ‡ Unobservable inputs include the entity’s own data (eg budgets, forecasts)

Disclosure

• Information about an entity’s valuation processes is

required for fair value measurements categorised

within Level 3 of the fair value hierarchy.

• A narrative discussion is required about the

sensitivity of a fair value measurement categorised

within Level 3.

• Quantitative sensitivity analysis is required for

financial instruments measured at fair value.

96



• An entity must take all information that is reasonably available to search for a principal market in determining fair value.

• Assumptions that a market participant would use (including assumptions about risk).

• Inputs to valuation techniques, particularly on the income approach, require a wide range of estimates as:

• discount rates

• future cash flows

• risks and uncertainty

97





IAS 1 Presentation of Financial Statements

Introduction

• IAS 1 sets out overall requirements for presenting

financial statements, guidelines for their structure

and minimum requirements for content.

• the nature and amount of economic resources (and

claims) is useful because different types of

resources affect a user’s assessment of the entity’s

prospects for future cash flows differently.

• information about the variability and components of

the return produced is useful in assessing the

uncertainty of future cash flows.

99


Financial statements

• A complete set of financial statements comprises a

statement of financial position, statement of profit or

loss and comprehensive income, statement of

changes in equity, statement of cash flows & notes.

• Financial statements must present fairly the

financial position, financial performance and cash

flows of an entity.

• complying with IFRSs (with additional disclosures) is

presumed to result in a fair presentation.

100


Materiality

• Each material class of similar items is presented

separately.

• Dissimilar items are presented separately, unless

they are immaterial.

• Materiality is determined by the potential of the

information, or its omission, to influence economic

decisions made by users of the financial

statements.

• Materiality is entity specific.

101


Judgement and Estimates

• Preparing financial statements requires judgement and

the use of estimates (eg materiality judgements and

going concern assessments—when it is doubtful

whether the entity has no realistic alternative but to

liquidate).

• IAS 1 requires disclosure of:

• judgements that management has made in the

process of applying the entity’s accounting policies

that have the most significant effect

• Information about major sources of estimation

uncertainty.

102





IAS 2 Inventories

Introduction

• IAS 2 defines inventories and specifies

requirements for the recognition of inventory as an

asset and an expense, the measurement of

inventories, and disclosures about inventories.

104

IAS 2 Inventories

Measurement

• Inventories are initially measured at cost.

• The cost of inventory includes costs of purchase

and production or conversion.

– cost does not include abnormal wastage,

administrative overheads that are not production

costs and selling costs.

• Cost is assigned to each item of unique inventory

using specific identification. FIFO or weighted

average cost are used for ordinarily interchangeable

inventory items. LIFO is prohibited.

105

IAS 2 Inventories

Net realisable value (NRV)

• Inventories are reduced to NRV when this is lower

than cost.

– NRV is estimated selling price less estimated

costs to complete and sell (entity specific value).

• The write-down is made item by item. Groups of

items can be used only when those items have

similar uses, are produced or marketed in the same

area and cannot be practicably evaluated

separately from other items in that product line.

• Write-downs can be reversed.

106

IAS 2 Inventories


• Cost of a manufacturer’s inventory

• normal wastage

• allocating overheads (including plant

depreciation)

• allocating joint costs to joint products.

• Impairment

• identifying impaired inventories

• estimating net realisable value.

107

IAS 2 Inventories




IAS 7 Statement of Cash Flows

Introduction

• IAS 7 requires disclosures about the historical

changes in cash and cash equivalents of an entity

• That information helps users to:

• assess the entity’s ability to generate future net cash

inflows. It indicates how the reporting entity obtains

and spends cash.

• understand a reporting entity’s operations, evaluate

its financing and investing activities, assess its

liquidity or solvency and interpret other information

about financial performance.

109


Activities

• Cash flows are classified by activities: operating;

investing; and financing.

• Operating activities are the revenue-producing

activities of the entity, and all activities that are not

investing or financing.

• Investing activities are the acquisition and disposal

of long-term assets and investments that are not

cash equivalents.

• Financing activities are changes in the equity capital

and borrowings of the entity.

110


Direct method or indirect method

• There is a choice of ways of presenting cash flows

from operating activities:

– the direct method—gross cash receipts and

gross cash payments are shown

– the indirect method—profit or loss is adjusted to

determine operating cash flow.

111



• The appropriate classification of cash flows into

each one of the activities reflects management’s

judgement.

• The information conveyed by a statement of cash

flows depends on the items treated as ‘cash and

cash equivalents’. Cash equivalents have a short

maturity (three months at most) and exclude equity

investments.

112





IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Introduction

• IAS 8 sets out the criteria for selecting and

changing accounting policies and specifies the

accounting when an accounting policy is changed.

• focus is on providing relevant and comparable

information in a cost-beneficial manner.

• It also specifies disclosures about changes in

accounting policies, changes in accounting

estimates and corrections of prior period errors.

114

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors

Accounting policy when no specific requirement

• When no IFRS requirement specifically applies to a

transaction or event, management uses judgement

to develop and apply an accounting policy that

results in relevant and reliable information. In

making that judgement management considers:

• first, IFRSs that deal with similar issues

• then the definitions, recognition criteria and

measurement concepts in the Framework

• optional—current standards based on a similar

conceptual framework.

115


Changes in an accounting policies

• A new or amended standard or interpretation may

require a change in an accounting policy and may

include specific transitional provisions.

• In other cases, changes in accounting policies are

applied retrospectively (ie prior period amounts are

adjusted as if the new policy had always been

applied).

• Disclosure is made about the change and its effect

on the financial statements.

116


Accounting estimates

• Many items in financial statements cannot be

measured with precision and can only be estimated.

• Accounting estimates are based on the latest

available information. – estimates are revised as a result of new information

or changed circumstances.

• Consequently, a change in estimate is recognised

in the current period and future periods affected. – prior period amounts are not adjusted.

117


Errors

• Errors can arise from mistakes and oversights or

misinterpretations of available information.

• Errors are corrected in the first set of financial

statements issued after their discovery.

• Prior period amounts are restated as if the error had

never occurred.

• The error and the effect of its correction on the

financial statements are disclosed.

118



• An entity can only voluntarily change an accounting

policy if the change results in more useful

information.

• Developing an accounting policy in the absence of a

specific IFRS requirement.

• Reviewed accounting estimates when

circumstances change.

• Disclose known or reasonably estimable effects of

the application of a new, but not yet effective, IFRS

will have on the entity.

119





IAS 10 Events after the Reporting Period

Introduction

• Specifies accounting and reporting for events

(favourable and unfavourable) that occur between

the end of the reporting period and the date when

the financial statements are authorised for issue.

• Those events could affect a user’s resource

allocation decision even if they are indicative of

conditions that arose after the end of the reporting

period.

• How to report the event depends on whether the

event is indicative of a condition that existed at the

end of the reporting period?

121


Principle for adjusting events

• Adjust financial statements for those events after

the reporting period that provide evidence of

conditions that existed at the end of the reporting

period.

• For example—settling a court case after the end

of the reporting period confirms the existence of

the present obligation at the end of the reporting

period and removes uncertainties about the

amount of the obligation.

122


Principle for non-adjusting events

• Do not adjust recognised amounts for conditions

that are indicative of conditions that arose after the

end of the reporting period

• Dividends declared after the reporting period are not

a liability at the end of the reporting period because,

at that time, there is no obligation.

• However, disclose the nature and estimated

financial effect of non-adjusting events

• eg, changes in the market value of investments or

effects of changes in currency exchange rates after

the reporting period.

123



• Judging the materiality threshold for the disclosure

of non-adjusting events—such as a major business

combination or disposal, a plan to discontinue an

operation, fire affecting a major production plant,

changes in tax rates or tax laws enacted or

announced after the reporting period.

124





IAS 11 Construction Contracts

Introduction

• IAS 11 sets out the accounting treatment of revenue

and costs associated with construction contracts.

126


Recognition of revenue and expenses

• When the outcome of a construction contract can

be estimated reliably, contract revenue and contract

costs are recognised as the work is performed

using the percentage of completion method.

• The work performed determines the recognition of

contract revenue, expense and thus profit.

– progress payments and advances received from

customers often do not reflect the work

performed.

127


Recognition of revenue and expenses continued

• When the outcome of a construction contract

cannot be estimated reliably, all contract costs are

recognised as expenses when incurred.

• Contract revenue is recognised to the extent that

costs incurred are recoverable.

• Any expected loss is recognised as an expense

immediately.

128


Practical considerations

• Determining whether an agreement for the

construction of real estate is within the scope of IAS

11 or IAS 18 Revenue depends on the terms of the

agreement and all the surrounding facts and

circumstances.

• It is within the scope of IAS 11 when the buyer is

able to specify the major structural elements of the

design of the real estate before construction begins

and/or specify major structural changes once

construction is in progress (whether or not it

exercises that ability).

129



• Determining whether a contract is accounted for in

accordance with IAS 11

• Judging when the outcome of the contract cannot

be estimated with sufficient reliability

• Judging the expected losses threshold that triggers

immediate expected loss recognition.

• Determining the stage of completion of a contract

requires judgement, eg estimating total expected

costs to complete a contract, uncertainties from

variations, claims, cost escalation clauses, penalties,

and incentive payments

130





IAS 12 Income Taxes

Introduction

• IAS 12 specifies the accounting treatment for

income taxes, including how to account for the

current and future tax consequences.

• An entity expects to recover the carrying amount of

its assets and to settle its liabilities. If it is probable

that recovery or settlement of that carrying amount

affects the amount of future tax payments a deferred

tax liability (or deferred tax asset) is recognised, with

certain limited exceptions.

132

IAS 12 Income Taxes

Recognition

• Deferred tax assets are recognised only if it is

probable that future taxable profit will be available to

absorb the losses or credits or deductible

differences.

• The existence of unused tax losses may indicate

that future taxable profit is not probable.

• The tax consequences of transactions and events

are recognised in the same financial statement as

the transaction or event.

133

IAS 12 Income Taxes

Measurement

• Deferred tax is measured at tax rates expected to

apply when the deferred tax asset (liability) is

realised (settled) and reflect the tax consequences

that would follow from the manner in which the

entity expects, at the end of the reporting period, to

recover (settle) the carrying amount of its assets

(liabilities).

• Exceptions when revaluation model used for non-

depreciable asset and fair value model used for

investment property.

134

IAS 12 Income Taxes

Measurement continued

• The tax rate expected to apply in future is generally

indicated by the tax rate that is in force at end of the

reporting period.

• Deferred tax assets or liabilities are adjusted when

a new tax rate is substantively enacted. – the adjustment is accounted for as a revision to an

accounting estimate, ie it affects that period’s profit.

• Deferred tax assets and liabilities are not

discounted.

135

IAS 12 Income Taxes


• Determining whether or not a tax is an income tax.

• hybrid taxes (eg those comprising both production

and profit-based components) must be

decomposed and only the profit-based component is

subject to IAS 12.

• Estimating the tax rates that are expected to apply

when temporary differences reverse (eg when tax

rates are graduated and taxable profit is volatile).

• Forecasting probable future taxable income for

measuring deferred tax assets.

136

IAS 12 Income Taxes




IAS 16 Property, Plant and Equipment

Introduction

• IAS 16 defines property, plant and equipment

(PPE), sets out criteria for its recognition and

measurement and specifies disclosures about PPE.

• A machine intensive manufacturer generates cash

flows from using several resources (eg PPE and

intangible assets) in combination to produce and

market goods. Although cash inflows from sales of

its goods cannot be identified with individual items of

PPE, users need to know the nature and amount of

PPE and other resources available for use in a

reporting entity’s operations.

138


Definition

• Property, plant and equipment (PPE) are tangible

items that are held for use in the production or

supply of goods or services, for rental to others, or

for administration purposes and are expected to be

used during more than one period.

• specified exclusions include: investment

property, PPE classified as held for sale and

biological assets related to agricultural activity.

139


Recognition

• Cost of an item of PPE is recognised as an asset if:

– it is probable that there will be future economic

benefits from the asset; and

– the cost of the asset can be reliably measured.

• PPE is measured initially at its cost.

140


Measurement

• After initial recognition entity chooses to measure

PPE either at cost less accumulated depreciation

and accumulated impairment (cost model) or at fair

value less subsequent accumulated depreciation

and accumulated impairment (revaluation model).

• PPE with a finite useful life is depreciated.

• land usually has an indefinite useful life and

consequently land is not usually depreciated.

• For impairment testing see IAS 36

141



• Cost of some items includes significant estimates

• costs of dismantling, removal, restoration

• costs of self constructed PPE

• Depreciation requires:

• identifying significant components to be depreciated

separately

• estimating useful life and residual value

• identifying the depreciation method that reflects

most closely the consumption of the service

potential of the item of PPE

142



• Revaluation model requires measuring fair value

(see IFRS 3 for estimates and judgements)

• Impairment testing requires many estimates (see

IAS 36).

143





IAS 17 Leases

Introduction

• A lease is an agreement that conveys to the lessee

a right to use an asset for a period of time.

• For accounting purposes, leases are classified as

finance leases or operating leases.

• finance leases are accounted for as in-substance

purchases (ie recognise the asset ‘acquired’ (eg

PPE) and the obligation to make lease payments—a

liability)

• operating leases are accounted for as executory

contacts—generally no asset/liability recognition

145

IAS 17 Leases

Classification of leases

• A finance lease transfers to the lessee substantially

all the risks and rewards incidental to ownership of

the leased asset.

• All other leases are operating leases.

• When a lease includes both land and buildings

elements, the classification of the land and building

elements are considered separately. – in determining whether the land element is an

operating or finance lease, an important

consideration is that land normally has an indefinite

economic life.

146

IAS 17 Leases

Operating leases

• Operating lease payments are usually recognised in

profit or loss on a straight-line basis.

• The leased asset remains in the statement of

financial position of the lessor.

147

IAS 17 Leases

Finance leases

• Finance leases are accounted for by lessees as a

an asset purchased (other IFRSs then apply to the

asset) on credit (a liability).

• lease payments are apportioned between a

reduction in the lease liability and interest expense.

• The lessor recognises a receivable and apportions

receipts between a reduction in the receivable and

interest income.

148

IAS 17 Leases


• Identifying arrangements that contain a lease

• Classifying a lease—finance or operating lease

• Determining the interest rate implicit in a lease

(particularly for a lessee)

• For manufacturer or dealer lessors, bifurcating the

sale and financing transactions.

149

IAS 17 Leases




IAS 18 Revenue

Introduction

• Revenue is income that arises in the course of

ordinary activities of the entity

• IAS 18 prescribes accounting for revenue from sale

of goods, from rendering of services, and from the

use by others of entity assets yielding interest,

royalties and dividends.

• revenue information for the current year can be

used as the basis for predicting revenues in future

years.

151

IAS 18 Revenue

Recognition

• In general, revenue is recognised when it is

probable that economic benefits from the

transaction will flow to the entity and those benefits

can be measured reliably.

• Revenue from the sale of goods is recognised

when: – significant risks and rewards of ownership have

been transferred to the buyer; and

– the entity has neither continuing managerial

involvement in, nor effective control over, the goods.

152

IAS 18 Revenue

Recognition continued

• For the rendering of services, revenue is recognised

as work is performed (percentage of completion

method).

• However, when the outcome of a service contract

cannot be estimated reliably, revenue is recognised

only to the extent of expenses recognised that are

recoverable.

153

IAS 18 Revenue


• Interest is recognised over time, computed on the

effective yield on the asset.

• Royalties are recognised in accordance with the

substance of the agreement.

• Dividends are recognised when the shareholder has

the right to receive payment.

154

IAS 18 Revenue

Measurement

• Revenue is measured at the fair value of the

consideration received or receivable by the entity on

its own account. – revenue does not include amounts collected on

behalf of third parties.

• when receipt of cash is deferred, the nominal

consideration is split between sales revenue and

interest revenue.

155

IAS 18 Revenue


• An exchange for dissimilar items generates revenue

measured at the fair value of the goods or services

received.

• An exchange of goods or services for similar items

does not generate revenue.

156

IAS 18 Revenue


• The primary issue in accounting for revenue is

determining when to recognise revenue.

• whether the risks and rewards have been

transferred to the buyer (sale of goods or financing

arrangement?)

• measuring the fair value of consideration received or

receivable.

• bifurcating multiple element sales.

• services—estimating the stage of completion.

157

IAS 18 Revenue


• Examples of circumstances in which the timing of

recognition of revenue requires careful

consideration include:

–sales with delayed delivery

–sales subject to conditions, eg installation, inspection

and right of return

–sale and repurchase agreements

–consignment sales

–sales to others for resale

–multiple element contracts.

158

IAS 18 Revenue




IAS 19 Employee Benefits

Introduction

• IAS 19 specifies accounting for and disclosure of

employee benefits by employers.

• It is applied by an employer in accounting for all

employee benefits, except those to which IFRS 2

Share-based Payment applies.

• Information about employee benefits expenses and

obligations can help users assess the extent and

uncertainty of an entity’s future employee benefit

cash outflows. Uncertainties can be significant (eg

some pension promises).

160


Employee benefits

• Employee benefits are all forms of consideration paid

for services of employees or for termination of

employment.

• IAS 19 separates employee benefits into 4 categories:

• short-term benefits

• post-employment benefits

• other long-term benefits

• termination benefits

161


Short-term employee benefits

• Short-term employee benefits are expected to be

settled wholly before 12 months after the period in

which the employee rendered the related service.

• recognise as an expense as the employee provides

the related service

• measure obligations at undiscounted amounts

(application of the cost constraint)

• no disclosures specified in IAS 19.

162


Post-employment benefits

• Post-employment benefits are payable after the

completion of employment.

• Two types:

• defined contribution plan, entity pays fixed

contributions to a separate entity (a fund) and has

no legal or constructive obligation to pay further

contributions if the fund cannot pay the employee.

• all other post-employment plans are defined benefit

plans.

163


Post-employment benefits—defined contribution

• Employees (not the employer) are exposed to risks.

• Employer:

• recognises contributions payable as an expense as

the employee provides services in exchange for the

contributions.

• measures obligations for unpaid contributions at

undiscounted amounts (application of the cost

constraint).

• disclose amount recognised as an expense.

164


Post-employment benefits—defined benefit

• Recognise the defined benefit liability as follows:

• use the projected unit credit method based on

actuarial assumptions to measured the obligation at

its present value; less

• the fair value of plan assets (if any).

• Recognise all changes in the defined benefit liability

(asset) when they occur:

• service costs and net interest in profit and loss

• remeasurements in other comprehensive income.

• Extensive disclosures specified.

165


Other long-term benefits

• Other long-term benefits are all employee benefits

other than short-term employee benefits, post-

employment benefits and termination benefits (eg

long-service leave)

• Recognition and measurement is the same as that

for post-employment benefits: defined benefit plans.

• No disclosures specified in IAS 19.

166


Termination benefits

• Termination benefits arise only on termination,

rather than during employment.

• Principle—the event that gives rise to an obligation

is the termination of employment rather than

employee service

• Recognise expense and a liability at the earlier of:

• when the entity can no longer withdraw the offer of

those benefits

• when the entity recognises the related restructuring

provision in accordance with IAS 37.

• No disclosures specified in IAS 19.

167



• To measure the liability for a defined benefit post-

employment plan (eg mortality, employee turnover,

age at and date of retirement, future salary and

benefit levels, future medical costs, the discount

rate and fair value of plan assets).

• Consequently, extensive disclosures required to:

explain characteristics of the plan and associated

risks; identify and explain related amounts in

financial statements; possible affects on the amount,

timing and uncertainty of future cash flows.

168



• Measuring obligations for profit-sharing plans often

require estimates of expected payments to

employees and expected forfeitures if loyalty period

applies.

• Accumulating compensated absence schemes (eg

some sick leave, holiday leave, maternity leave,

military leave and long-service leave schemes)

require estimates of expected employee

compensated absences.

169





IAS 20 Accounting for Government Grants and

Disclosure of Government Assistance

Requirements

• IAS 20 specifies the accounting for government

grants and the disclosure of government assistance

from which the entity has directly benefited.

• Government grants are transfers of resources to an

entity in return for compliance with specified

conditions. – they include reductions in liabilities to the

government and the benefit of a government loan at

below market rate of interest.

• Government assistance is a benefit available to

entities that satisfy qualifying criteria.

171

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance

Recognition

• Government grants are recognised when there is

reasonable assurance that the entity will comply

with any specified conditions and that the grants will

be received.

• Non-monetary grants (eg taxi licence, fishing quota)

are either recognised at fair value or both the asset

and the grant are recognised at a nominal amount.

• Receipt of a grant is not always conclusive

evidence that conditions will be fulfilled.

172



• Government grants are recognised in profit or loss

in the same periods as the costs they are intended

to compensate for, ie they are not recognised

directly in equity.

• If there are no future related costs, a grant is

recognised in profit or loss when receivable.

173



• Government grants that relate to assets are initially

recognised in the statement of financial position as

deferred income or as a deduction from the related

assets.

• The grant is then recognised in profit or loss over

the life of the asset, by reducing deferred income

over that period, or by way of reduced depreciation.

174



• The main area of judgement is whether the entity

will comply with conditions attached to a

government grant.

• Measuring the fair value of some non-monetary

grants received (if accounting policy is to recognise

at fair value not nominal amount).

175





IAS 21 The Effects of Changes in Foreign Exchange Rates

Introduction

• IAS 21 prescribes how to:

• determine an entity’s functional currency

• account for foreign currency transactions

• account for foreign operations

• translate financial statements into a presentation

currency.

177

IAS 21: The Effects of Changes in Foreign Exchange Rates

Functional currency versus presentation currency

• An entity must determine its functional currency—

the currency of the primary economic environment

in which the entity operates. All other currencies are

foreign currencies.

• An entity can choose to present its financial

statements in any currency (presentation currency).

• However, the entity must first measure all items in

its financial statements in its functional currency

before translation to the presentation currency.

178


Reporting foreign currency transactions

• Initially recognise in the functional currency using the

spot exchange rate at the date of the transaction.

• At the end of each reporting period:

• translate monetary items at the closing spot rate.

• translate non-monetary items at the rate at the date

their amount (cost or fair value) was determined.

• exchange differences are recognised as income or

expense for the period in which they arise.

179


If the presentation currency is different from the

functional currency…

• …translate assets and liabilities using the closing

rate and income and expenses using the

transaction date rates.

• an appropriately weighted average rate for a period

can be used if it is a reasonable approximation of

the transaction rates.

• All resulting exchange differences are recognised in

other comprehensive income.

180


Presentation currency of a group

• A group chooses a currency in which to present its

consolidated financial statements.

• A group does not have a functional currency.

• The functional currency of individual entities in a

multinational diversified group may differ. In such

cases, the financial statements of individual entities

will be translated into a common presentation

currency for the purpose of presenting the group’s

consolidated financial statements.

181



• In some cases judgement is required to determine

the functional currency of an entity.

• A foreign operation regardless of its legal form may

be carried out as an extension of the reporting entity

and the assessment of its functional currency

depends on factors as degree of autonomy,

significance of transactions with reporting entity and

the level of financial dependence.

182





IAS 23 Borrowing Costs

Introduction

• IAS 23 prescribes the accounting treatment for

borrowing costs.

• Borrowing costs are interest and other costs

incurred in connection with borrowing.

184


Recognition

• An entity shall capitalise borrowing costs that are

directly attributable to the acquisition, construction

or production of an asset that takes a substantial

time to get ready for its intended use or sale (a

qualifying asset).

• Other borrowing costs are recognised as an

expense in the period in which they are incurred.

185



• Borrowing costs directly attributable to the

acquisition, construction or production of a

qualifying asset are those that would have been

avoided if the expenditure on the asset had not

been made.

• They may be borrowing costs incurred on funds

borrowed specifically for obtaining a qualifying asset

or a calculated amount based on a weighted

average borrowing rate applied to expenditure on

the asset.

186



• Capitalisation of borrowing costs takes place during

the development of the asset, and ends when the

asset is ready for its intended use or sale.

• When the asset is completed in parts, capitalisation

of borrowing costs ceases when each part is ready

for intended use or sale.

187



• Determining the amount of borrowing costs that are

directly attributable to the acquisition of a qualifying

assets requires judgement. For example:

• it might be difficult to identify a direct relationship

between particular borrowings and a qualifying

asset and to determine the borrowings that could

otherwise have been avoided, particularly when

financing is co-ordinated centrally.

188





IAS 24 Related Party Disclosures

Introduction

• Related party disclosures highlight the possibility

that the entity’s financial position and profit or loss

might have been affected by the existence of

related parties and by transactions and outstanding

balances with such parties.

• Related party disclosures could affect a user’s

resource allocation decision based on the entity’s

financial statements.

190


Related party

• A person or a close member of that person’s

family is related to the reporting entity if that

person:

– has control, joint control or significant influence over

the reporting entity

– is a member of the key management personnel of

the reporting entity (or its parent)

191


Related party continued

• An entity is related to a reporting entity when:

– they are both members of the same group (which

means that each parent, subsidiary and fellow

subsidiary is related to the others)

– one entity is an associate or joint venture of the

other entity

– both entities are joint ventures of the same third

party

– one entity is a joint venture of a third party and the

other is an associate of the third party

– …

192


193

Entity X

Entity A

Entity B

From A’s perspective is B a related

party (and vice versa)?

IAS 24 Related Party Disclosures 193

194

X’s influence over B

Control Joint

control

Significant

influence

X’s

influence

over A

Control Yes, related

party

Yes, related

party

Yes, related

party

Joint

control Yes, related

party

Yes, related

party

Yes, related

party

Significant

influence Yes, related

party

Yes, related

party

Not necessarily

related


195

Family X

Entity A

Entity B

From A’s perspective is B a related

party (and vice versa)?


196

Family X’s influence over Entity B

Control JC KMP SI

Family

X’s

influence

over

Entity A

Control Yes,

related

party

Yes,

related

party

Yes,

related

party

Yes,

related

party

JC Yes,

related

party

Yes,

related

party

Yes,

related

party

Yes,

related

party

KMP Yes,

related

party

Yes,

related

party

Not necessarily

related

Not necessarily

related

SI Yes,

related

party

Yes,

related

party

Not necessarily

related

Not necessarily

related


Disclosures

• the name of the reporting entity’s parent and, if

different, its ultimate controlling entity, irrespective

of whether there have been transactions between

them.

• details of key management personnel

compensation in total and by category of benefit.

• the nature of the related party relationship

197


Disclosures continued

• details by category of related party of the

transactions and outstanding balances, including

commitments, to enable users to understand the

potential effect of the relationship on the financial

statements.

198


Government related entities

• This Standard provides a partial exemption from the

disclosure requirements for government related

entities in relation to related party transactions with:

– a government that has control, joint control or

significant influence over the reporting entity; and

– another entity that is a related party because the

same government has control, joint control or

significant influence over both the reporting entity

and the other entity.

199



• Identifying related parties—focus on substance of a

relationship rather than merely its legal form.

• identifying key management personnel depends on

the level of authority and responsibility and may

include seconded staff and people engaged under

outsourcing contracts.

• identifying close members of the family of a key

management personnel involves judging whether

that person is expected to influence (or be

influenced by) by that person in their dealing with

the entity.

200





IAS 27 Separate Financial Statements

Introduction

• IAS 27 addresses accounting for investments in

subsidiaries, joint ventures and associates, when

the investor presents separate financial statements.

• IAS 27 does not mandate which entities present

separate financial statements. However, in some

jurisdictions the investor must present separate

financial statements in addition to the consolidated


• Separate financial statements must identify the

primary financial statements to which they relate.

202


Measurement principle

• For separate financial statements, the focus is upon

the performance of the assets as investments.

• Consequently, investments in subsidiaries, joint

ventures and associates are accounted for either at

cost or in accordance with IAS 39 or IFRS 9.

203


Exceptions to the measurement principle

• If cost used, then apply IFRS 5 when classified

‘held for sale’.

• If in its primary financial statements (eg

consolidated) a venture capital organisation or

similar entity elects to measure its investments in

associates or joint ventures at fair value through

profit or loss in accordance with IFRS 9, it also

account for those investments at fair value in its

separate financial statements.

204



• Accounting choice: cost less impairment or fair

value.

• fair value method provide a measure of the

economic value of the investments.

• the cost method can result in relevant information,

depending on the purpose of preparing the separate

financial statements (eg, they may be needed only

by particular parties to determine the dividend

income from subsidiaries).

205





IAS 28 Investments in Associates

and Joint Ventures

Introduction

• An associate is any entity over which the investor

has significant influence.

• Significant influence is the power to participate in

the financial and operating policy decisions of the

investee.

– significant influence is not control (which

indicates a subsidiary)

– significant influence is not joint control (which

indicates an interest in a joint arrangement).

207

IAS 28: Investments in Associates and Joint Ventures

Significant influence

• Significant influence is usually evidenced in one or

more of the following ways:

– representation on the board of directors;

– participation in policy making, including

decisions about dividends;

– a close relationship involving transactions

between investor and investee;

– interchange of managerial personnel; or

– provision of essential technical information.

208


Measurement rule

• Associates are accounted for using the equity

method.

Exception

• A venture capital organisation or similar entity can

elect to measure its investments in associates or

joint ventures at fair value through profit or loss in

accordance with IFRS 9.

209


Equity method

• Recognise the investment initially at cost, then

adjusting for the post-acquisition change in the

investor’s share of net assets of the associate.

• Presentation:

• a one-line entry in the statement of comprehensive

income ‘investor’s share of the associate’s profit or

loss’ and a separate line item for other

comprehensive income.

• a one-line item in the statement of financial position.

210


Equity method continued

• Equity accounting for an associate’s losses

continues until the investment is reduced to zero.

• The ‘investment’ includes not only shares in the

associate, but also some non-equity interests such

as some long-term receivables.

211



• Investors must exercise judgement in the context of

all available information to determine whether they

have significant influence over an investee.

• There is no exemption from equity accounting when

severe long-term restrictions impair the associate’s

ability to transfer funds to the investor.

• However, the investor should consider whether

such restrictions, taken with other factors,

indicate that the investor does not have

significant influence.

212





IAS 29 Financial Reporting in Hyperinflationary

Economies

Introduction

• IAS 29 addresses the issues associated with

financial reporting when the functional currency of

an entity is under recurring and significant

purchasing power loss (hyperinflation).

• In a hyperinflationary economy, reporting of operating

results and financial position in the local currency

without restatement is not useful. Money loses

purchasing power at such a rate that comparison of

amounts from transactions and other events that have

occurred at different times, even within the same

accounting period, is misleading.

214

IAS 29: Financial Reporting in Hyperinflationary Economies

Definition of hyperinflation

• Characteristics of hyperinflationary economy

include:

• general population prefers to keep wealth in non-

monetary assets or stable currencies

• monetary amounts are often regarded in terms of a

stable currency reference

• credit sales prices have significant adjustments

according to their credit periods (even if short)

• prices and contracts are linked to a price index

• cumulative inflation over three years > 100%

215


Restatement of financial statements

• Financial statements must be expressed in units of

the functional currency current as at the end of the

reporting period.

• Restate all non-monetary items (assets and

liabilities) by applying the change in a general price

index.

• No need to restate monetary items and non-

monetary items carried at amount current at the end

of the reporting period (eg items measured at fair

value).

continued…

216


Restatement of financial statements continued

…continued

• all equity and comprehensive income items need to

be restated by adjusting from initial recognition up to

the reporting date.

• gains or losses resulting from hyperinflation effects

accounting are recognised in profit and loss.

217



• In some circumstances judgement is needed to:

• determine an entity’s functional currency (see IAS

21)

• determine whether an economy is hyperinflationary

• identify a general price index in a hyperinflationary

economy that reflects changes in general

purchasing power.

218





IAS 32 Financial Instruments: Presentation

Introduction

• IAS 32 specifies presentation for financial

instruments.

– The recognition and measurement and the

disclosure of financial instruments are the subjects

of IAS 39 Financial Instruments: Recognition and

Measurement and IFRS 7 Financial Instruments:

Disclosures respectively.

• It establishes principles for presenting financial

instruments as liabilities or equity and for offsetting

financial assets and liabilities.

220


Liabilities and equity

• Differentiation between a financial liability and

equity depends on whether there is an obligation to

deliver cash (or some other financial asset).

• However, note the exception for certain puttable

instruments.

• When a transaction will be settled in the issuer’s

own shares, classification depends on whether the

number of shares to be issued is fixed or variable.

221


Compound financial instruments

• A compound financial instrument, such as a

convertible note, is split into equity and liability

components.

• When the instrument is issued, the equity

component is measured as the difference between

the fair value of the compound instrument and the

fair value of the liability component.

222


Offsetting

• Financial assets and financial liabilities are offset

only when the entity:

– has a legally enforceable right to set off the

recognised amounts; and

– intends either to settle on a net basis, or to

realise the asset and settle the liability

simultaneously.

223


Treatment of interest, dividends, gains and losses

• Classification of a financial instrument as a financial

liability or equity determines the treatment of the

interest, dividends, losses or gains on the financial

instrument as items of income or expense, or as

changes in equity.

• ‘dividends’ on shares classified as liabilities are

recognised as expenses and affect profit or loss.

224



• Some financial instruments may have the legal form

of equity but their substance is one of a liability.

• Separating the liability and equity components

requires fair value estimates of liability component

based on the contractual stream of future cash

flows discounted at the market rate that would have

been applied without the conversion option.

225





IAS 33 Earnings per Share

Introduction

• IAS 33 deals with the calculation and presentation

of earnings per share (EPS).

• It applies to entities whose ordinary shares or

potential ordinary shares (for example, convertibles,

options and warrants) are publicly traded.

• An entity must present basic EPS and diluted EPS

with equal prominence in the statement of

comprehensive income.

227


Dilution

• Dilution is a notional reduction in EPS or a notional

increase in loss per share resulting from the

assumption that convertible instruments are

converted, options or warrants are exercised, or

ordinary shares are issued upon the satisfaction of

specified conditions.

228


Earnings

• The ‘earnings’ of two entities subject to identical

transactions and events could differ because they

have adopted different accounting policies. These

differences are not adjusted for when calculating

EPS.

• The numerators used in the calculation of basic and

diluted EPS must be reconciled to profit or loss

attributable to the ordinary equity holders of the

parent.

229


Shares

• The denominators used in the calculation of basic

and diluted EPS might be affected by:

– share issues during the year

– shares to be issued upon conversion of a

convertible instrument

– contingently issuable or returnable shares;

– bonus issues

– share splits and share consolidation

– the exercise of options and warrants

– contracts that may be settled in shares

– written put options

230





IAS 34 Interim Financial Reporting

Introduction

• IAS 34 specifies the minimum content of an interim

financial report and prescribes the principles for

recognition and measurement in complete or

condensed financial statements for an interim

period.

• IAS 34 does not specify which entities must publish

an interim financial report. That is generally a

matter for securities regulation. IAS 34 applies if an

entity publishes an interim financial report.

232


Content

• The minimum content is a set of condensed

financial statements,

– ie statement of financial position, statement of

comprehensive income, statement of cash flows,

statement of changes in equity, and selected

explanatory material.

• Generally, information available in the entity’s most

recent annual report is not repeated or updated in

the interim report. The interim report deals with

changes since the end of the last annual reporting

period.

233


Recognition and Measurement

• The same accounting policies are applied in the

interim report as in the most recent annual report.

• Assets and liabilities are recognised and measured

for interim reporting on the basis of information

available on a year-to-date basis.

234



• While measurements in both annual financial

statements and interim financial reports are often

based on reasonable estimates, the preparation of

interim financial reports will generally require a

greater use of estimation methods than annual


235





IAS 36 Impairment of Assets

Introduction

• To be useful to existing and potential investors,

lenders and other creditors for making decisions

about providing resources to the entity, an asset

must not be carried in the financial statements at

more than the highest amount to be recovered

through its use or sale.

• Consequently, at the end of the reporting period an

entity must recognise an impairment loss if an

asset’s carrying amount exceeds its recoverable

amount.

237


Introduction continued

• The amount by which an asset is impaired is a

faithful representation if the reporting entity has, in

accordance with IAS 36, properly applied the

processes for identifying and measuring the

impairment loss, properly described the estimate

and explained any uncertainties that significantly

affect the estimate.

238


Identifying an asset that may be impaired

• The recoverable amount of the following assets

must be assessed each year: – intangible assets with indefinite useful lives

– intangible assets not yet available for use

– goodwill acquired in a business combination.

• The recoverable amount of other assets is

assessed only when at the end of the reporting

period there is an indication that the asset may be

impaired.

239


Recoverable amount

• Recoverable amount is the higher of fair value less

costs to sell and value in use.

– Fair value less costs to sell is the arm’s length

sale price between knowledgeable, willing

parties less the costs of disposal.

– The value in use of an asset is the expected

future cash flows the asset in its current

condition will produce, discounted to present

value using an appropriate pre-tax discount rate.

240



• An impairment loss is recognised immediately in the

statement of comprehensive income.

• When an impairment loss is recognised, the

carrying amount of the asset (or cash-generating

unit) is reduced.

• In a cash-generating unit, goodwill is reduced first,

then other assets are reduced pro rata.

• The depreciation (amortisation) charge is adjusted

in future periods to allocate the asset’s revised

carrying amount over its remaining useful life.

241


Reversing an impairment loss

• Consistent with the ‘principle’ of not recognising an

asset for internally generated goodwill, an

impairment loss for goodwill is never reversed.

• For other assets, when the circumstances that

caused the impairment loss are resolved, the

impairment loss is reversed.

• However, the reversal is limited to the amount that

the asset would have been had there been no

impairment loss in prior years.

242



• Identifying some indicators of impairment requires

judgement (eg decline in an asset’s market value;

adverse changes in the technological, market,

economic or legal environment; increase in market

interest rates, among others).

• Identifying the lowest level of independent cash

inflows for some groups of assets (ie cash-

generating unit) requires judgement.

• Allocating goodwill to cash-generating units requires

judgement.

243



• Measuring the value in use (an entity-specific

measure) of an asset or group of assets involves

• estimating future cash flows that the entity expects

to derive from the assets (its use and subsequent

disposal) taking account of expectations about

possible variations in the amount or timing of those

cash flows

• adjusting for risks specific to the asset that market

participants would reflect in pricing the asset

• identifying appropriate discount rates.

244



• Measuring the fair value less costs to sell of an

asset or group of assets involves judgement

• see IFRS 13 for judgements and estimates in

measuring fair value.

• estimating costs to sell can involve significant

estimates.

245





IAS 37 Provisions, Contingent Liabilities

and Contingent Assets

Introduction

• IAS 37 aims to ensure that appropriate recognition

criteria and measurement bases are applied to

provisions, contingent liabilities and contingent

assets and that appropriate disclosures enable

users to understand their nature, timing and

amount.

247

IAS 37: Provisions, Contingent Liabilities and Contingent Assets

Provisions

• A provision is a liability of uncertain timing or

amount.

• A liability may be a legal obligation or a constructive

obligation.

• A constructive obligation arises from the entity’s

actions, through which it has indicated to others that

it will accept certain responsibilities, and as a result

has created an expectation that it will discharge

those responsibilities.

248


Measurement of provisions

• A provision is measured at the amount that the

entity would rationally pay to settle the obligation at

the end of the reporting period or to transfer it to a

third party at that time.

• risks and uncertainties are taken into account in the

measurement of a provision.

• if measured using risk adjusted cash flow forecasts

a provision is discounted to its present value.

249


Contingent liabilities

• Contingent liabilities are:

• possible obligations whose existence will be

confirmed by uncertain future events that are not

wholly within the control of the entity.

• obligations that are not recognised because their

amount cannot be measured reliably or settlement is

not probable (eg litigation against the entity when

the occurrence of any wrongdoing by the entity is

uncertain and it is more likely than not that the entity

will successfully defend the case).

• Contingent liabilities are not recognised.

250


Contingent assets

• Contingent assets are possible assets the existence

of which will be confirmed by the occurrence or non-

occurrence of uncertain future events that are not

wholly within the control of the entity.

• Contingent assets are not recognised in the

statement of financial position.

• Contingent assets are disclosed when it is more

likely than not that an inflow of benefits will occur.

251


Disclosure

• When disclosure of some or all information normally

required by IAS 37 can be expected to prejudice

seriously the position of the entity in a dispute then

disclose only general nature of the dispute and

reason why alternative disclosures made. Note: no

recognition and measurement alternative.

• However, such situation is expected to be a

extremely rare case.

252



• In some cases judgement is used to determine

whether to recognise a provision (liability) or merely

to disclose a contingent liability.

• For example, when defending a court case in which

it is difficult to predict the outcome.

• In other cases judgement is used to determine

whether to disclose a contingent asset.

• For example, a plaintiff in court case in which it is

difficult to predict the outcome.

253



• Measuring a provision requires estimating the

amount that the entity would rationally pay to settle

the obligation at the end of the reporting period or to

transfer it to a third party at that time.

• the risks and uncertainties that inevitably surround

many events and circumstances are taken account

in measuring a provision (eg measure a provision at

its expected value by weighing all possible

outcomes by their associated probabilities).

254





IAS 38 Intangible Assets

Introduction

• IAS 38 sets out criteria for the recognition and

measurement of intangible assets, and requires

disclosures about them.

• Goodwill acquired in a business combination is

accounted for in accordance with IFRS 3 Business

Combinations and is outside the scope of IAS 38.

256


Intangible assets

• An intangible asset is an identifiable non-monetary

asset without physical substance.

• Such an asset is identifiable when it is separable, or

when it arises from contractual or other legal rights.

• Separable assets can be sold, transferred, licensed

etc.

• eg computer software, licences, trademarks,

patents, films, copyrights and import quotas

257


Recognition

• Expenditure for an intangible item is recognised as

an expense, unless the item meets the definition of

an intangible asset, and:

– it is probable that there will be future economic

benefits from the asset; and

– the cost of the asset can be reliably measured.

• Research phase expenditures cannot be capitalised

as assets. Development phase expenditures are

capitalised when the specified criteria for asset

recognition are satisfied.

258


Measurement

• Intangible assets are measured initially at cost.

• Thereafter, intangible assets are usually measured

using the cost model—cost less amortisation

(unless indefinite life) and impairment, if any.

• An entity may choose to revalue (measure the asset

at fair value), only if fair value can be determined by

reference to an active market.

• If an intangible asset is revalued, all assets within

that class of intangible assets must be revalued.

• Valuations must be updated regularly.

259



• An intangible asset with a finite useful life is

amortised.

• An intangible asset with an indefinite useful life is

not amortised, but is tested annually for impairment.

260



• Control of an asset arises when the entity has the

power to obtain future economic benefits from the

underlying resource and to restrict the access of

other to those benefits. Intangible items of value to

an entity may not be controlled by it, eg the

assembled workforce and customer relationships.

• Research phase expenditures cannot be capitalised

as assets. Development phase expenditures are

capitalised when the specified criteria for asset

recognition are satisfied.

261



• Amorisation requires:

• identifying a finite useful life intangible asset

• estimating useful life

• (residual value is usually assumed to be zero unless

there is an active market)

• identifying the amortisation method that reflects

most closely the consumption of the service

potential of the item of the intangible asset.

• Impairment testing requires many estimates (see

IAS 36).

262





IAS 39 Financial Instruments:


Introduction

• IAS 39 establishes requirements for recognising

and measuring financial assets, financial liabilities

and some contracts to buy or sell non-financial

items.

• IAS 39 is being replaced by IFRS 9 Financial

Instruments in phases.

• The presentation and the disclosure of financial

instruments are the subjects of IAS 32 Financial

Instruments: Presentation and IFRS 7 Financial

Instruments: Disclosures respectively.

264

IAS 39: Financial Instruments: Recognition and Measurement

Recognition and derecognition

• A financial instrument is recognised in the financial

statements when the entity becomes a party to the

financial instrument contract.

• An entity removes a financial liability from its

statement of financial position when its obligation is

extinguished.

• IAS 39 provides mandatory application guidance for

the derecognition of financial assets.

265


Measurement

• A financial asset or liability is measured initially at

fair value.

• Subsequent measurement depends on the category

of financial instrument. Some categories are

measured at amortised cost, some at fair value

through profit or loss and another at fair value

through other comprehensive income.

266


Hedge accounting

• Hedge accounting recognises the offsetting effects of changes in the fair values or the cash flows of the hedging instrument and the hedged item. Strict conditions must be met before hedge accounting is possible:

– There must be formal designation and documentation of a hedge, including the risk management strategy for the hedge.

– The hedging instrument must be expected to be highly effective in achieving offsetting changes in fair value or cash flows of the hedged item that are attributable to the hedged risk.

267


Hedge accounting continued

– For cash flow hedges, a forecast transaction being

hedged must be highly probable.

– Hedge effectiveness must be reliably measurable—

ie the fair value or cash flows of the hedged item

and the fair value of the hedging instrument can be

reliably measured.

– The hedge must be assessed on an ongoing basis

and be highly effective.

268



• Classification of financial assets into IAS 39 categories drives the subsequent measurement and requires careful consideration of all available evidence.

• Classification of an investment as hold-to-maturity requires positive intention and ability to hold to maturity.

• Embedded derivatives may reside in contracts other than financial instruments (ie leases, sale or purchase contracts).

269



• Fair value measurement requires maximum possible use of observable market data and the minimum use of entity-specific factors.

• In the absence of a quoted active market, it will be necessary to use valuation techniques.

• Applying hedge accounting provisions requires designation of hedge and hedged items at the inception of hedging relationship. It is only permitted if the hedge relationship is expected to be highly effective.

270





IAS 40 Investment Property

Introduction

• Investment property is land or a building (including

part of a building) or both, held to earn rentals or for

capital appreciation or both.

• It is neither owner-occupied (see IAS 16 Property,

Plant and Equipment) nor held for sale in the ordinary

course of business (see IAS 2 Inventories).

• Cash inflows generated from investment property are

rentals and/or proceeds from disposal. Consequently,

a property’s fair value provides a relevant basis for

users to estimate future cash inflows from investment

property.

272


Initial measurement

• An investment property is measured initially at cost.

• The cost of a property interest held under a lease is

measured in accordance with IAS 17 Leases at the

lower of the fair value of the property interest and

the present value of the minimum lease payments.

273


Subsequent measurement

• For subsequent measurement an entity must adopt

either the fair value model or the cost model for all

investment properties.

• All entities must estimate the fair value of

investment property, either for measurement (if the

entity uses the fair value model) or for disclosure (if

it uses the cost model).

• Measure fair value in accordance with IFRS 13 Fair

Value Measurement.

274


Fair value model

• Investment property is remeasured to its fair value

at the end of each reporting period with changes in

fair value are recognised in profit or loss in the

period they occur.

Cost model

• Investment property is measured at cost less

accumulated depreciation and any accumulated

impairment losses (ie using the cost model in IAS

16 Property, Plant and Equipment).

• .

275



• Sometimes it is difficult to identify investment

property. In such cases an entity develops criteria

so that it can exercise that judgement consistently

• eg, owner of a hotel transfers some responsibilities

to third parties under a management contract (PPE

or investment property?)

• In some cases measuring fair value (see IFRS 13)

• When cost model used measuring depreciation (see

IAS 16 for estimating residual value, depreciation

method and useful life)

276





IAS 41 Agriculture

Introduction

• IAS 41 specifies the accounting for:

• biological assets (living plant or animal) whose

biological transformation (growth, degeneration,

production and procreation) and harvest is managed

by an entity for sale or for conversion into

agricultural produce or into additional biological

assets (ie agricultural activity); and

• the initial measurement of agricultural produce at

the point of harvest.

• It does not address the processing of agricultural

produce after harvest (eg processing grapes into wine,

or wool into yarn).

278

IAS 41 Agriculture

Recognition and measurement

• Biological assets (and agricultural produce at the

point of harvest) are measured at fair value less

costs to sell

• changes in fair value less costs to sell are presented

in in profit or loss.

• Biological assets that are attached to land (eg trees

in a plantation forest) are measured separately from

the land. If owner-occupied the land is property

accounted for in accordance with IAS 16.

279

IAS 41 Agriculture

Why fair value measurement?

• Because of the unique nature and characteristics of

agricultural activity fair value measurement provides

greater relevance, reliability, comparability and

understandability as a measurement of future

economic benefits expected from biological assets

than historical cost.

• Exception—when on initial recognition estimates of

fair value are determined to be clearly unreliable

measure such biological assets using a cost-

depreciation-impairment model.

280

IAS 41 Agriculture

Government grants

• IAS 41 differs from IAS 20 Accounting for

Government Grants and Disclosure of Government

Assistance with regard to the recognition of

government grants.

• Unconditional grants related to biological assets

measured at fair value less costs to sell are

recognised as income when the grant becomes

receivable.

• Conditional grants are recognised as income only

when the conditions attaching to the grant are met.

281

IAS 41 Agriculture


• It can be difficult to determine whether particular

biological assets are engaged in agricultural activity

and therefore in the scope of IAS 41—eg the

breeding stock of an exotic bird breeding zoo.

• In some cases measuring fair value (see IFRS 13), eg a PwC study observed 3 different methods of

valuation of standing timber—discounted cash-flow (of

expected or current log prices), historical cost (of newly

planted trees) and market value (of trees approaching

harvest age at current market prices).

282

IAS 41 Agriculture


• The PwC study observed that in applying DCF-

models management made several important

assumptions including:

• expected income at harvest—variables included

growth rate and price per unit of volume

• expected costs during growth—including silvicultural

costs, eg maintenance and thinning

• expected point-of-sale-cost—including harvesting

and transport to market

• Determining the appropriate discount rate.

283

IAS 41 Agriculture

Questions or comments?

Expressions of individual views

by members of the IASB and

its staff are encouraged.

The views expressed in this

presentation are those of the

presenter. Official positions of

the IASB on accounting matters

are determined only after

extensive due process

and deliberation.

284

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