Case Study 1 The IAS 8 Hierarchy: International Financial Reporting Standards

International Financial Reporting Standards
Case study 1
the IAS 8 hierarchy
Vienna, 3 June 2013
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

2
The requirements are set out in International Financial

Reporting Standards (IFRSs), as issued by the IASB at
1 January 2013 with an effective date after 1 January
2013 but not the IFRSs they will replace.
Disclaimer: The IFRS Foundation, the authors, the
presenters and the publishers do not accept
responsibility for any loss caused by acting or refraining
from acting in reliance on the material in this
PowerPoint presentation, whether such loss is caused
by negligence or otherwise.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Framework-based approach for
applying IFRS 3
• What are the economics of the phenomenon (eg

transaction or event)?
• What information about the phenomenon is
relevant for informing resource allocation
decisions by existing and potential investors and
lenders who cannot require information directly
and that can be faithfully represented etc?
• Then consider IFRS requirements
• Make judgements to develop accounting policy
• Make judgements and estimates to apply the
requirements with rigour and consistency
Example 1―
gold held as store of wealth 4
Amalgam holds 1,000,000 ounces of gold.

Purchased on 30/6/X2 at $1,000 per ounce.
Fair value at 31/12/X2 = $1,500 per ounce.
What information about the gold held as a store of
wealth is most relevant (capable of making a
difference) to resource allocation decisions by
existing and potential investors, lenders and other
creditors who are not in a position to require
information directly from Amalgam and that can be
faithfully represented etc?
Example 1―
gold held as store of wealth 5
Which IFRS specifies accounting for such gold?

Choose 1 of:
(a) no specific IFRS therefore apply the IAS 8 hierarchy;
(b) IAS 16 PPE; (c) IAS 38 Intangible Assets;
(d) IAS 39 or, if adopted early, IFRS 9 Financial
Instruments;
(e) IFRS 6 Exploration for and Evaluation of Mineral
Resources;
(f) IAS 40 Investment Property; (g) IAS 2 Inventories; or
(h) another IFRS.
Applying the IAS 8 hierarchy 6
• Objective = information relevant to resource

allocation decisions by existing and potential
investors, lenders and other creditors who
cannot require information directly and that can
be faithfully represented etc.
• Process
• 1st try to analogise to requirements in IFRS
dealing with similar and related issues; and
• 2nd definitions, recognition criteria and
measurement ‘concepts’ in Framework
• may also use most recent pronouncements of
others with similar conceptual framework, other
accounting literature and accepted industry
practices, to the extent that these do not conflict
with the sources in 1 and 2 above.
Example 1―
gold held as store of wealth continued 7
When applying the IAS 8 hierarchy to develop and

apply a policy that results in relevant, faithfully
represented etc information about the gold…
Choose 1 of: (a) carry at fair value by analogy to foreign
currency held in IAS 39 or IFRS 9 Financial Instruments;
(b) carry using cost model by analogy to IAS 40
Investment Property; (c) carry at fair value by analogy to
IAS 40; (d) carry at lower of cost or net realisable value
by analogy to IAS 2 Inventories; or
(e) cannot analogise to another IFRS therefore apply
Conceptual Framework.
Example 2―
artwork collection 8
Entity holds 10 artworks purchased on 30/9/X2

for $1 billion. Entity holds private art
collection—does not trade in artwork but might
need to sell some to fund purchase of more
desirable pieces.
What information about the artworks held as a store
of wealth is most relevant (capable of making a
difference) to resource allocation decisions by
existing and potential investors, lenders and other
creditors who are not in a position to require
information directly from Amalgam and that can be
faithfully represented etc?
Example 2―
artwork collection 9
Which IFRS specifies accounting for such artworks?

Choose 1 of:
(a) no specific IFRS therefore apply the IAS 8 hierarchy;
(b) IAS 16 PPE;
(c) IAS 38 Intangible Assets; (d) IAS 39 or, if adopted
early, IFRS 9 Financial Instruments;
(e) IFRS 6 Exploration for and Evaluation of Mineral
Resources;
(f) IAS 40 Investment Property; (g) IAS 2 Inventories; or
(h) another IFRS.
. ©IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 2―
artwork collection continued 10

represented etc information about the artworks…
Choose 1 of: (a) carry at fair value by analogy to foreign
currency held in IAS 39 or IFRS 9 Financial Instruments;
(b) carry using cost model by analogy to IAS 40
Investment Property; (c) carry at fair value by analogy to
IAS 40; (d) carry at lower of cost or net realisable value
by analogy to IAS 2 Inventories; or
Example 3―
conditional grant/gift 11
In 20X2 entity was gifted $2 billion from the

estate of an art philanthropist to expand its
private art collection. Cash not spent on art
before 31/12/X4 reverts to philanthropist’s
estate. $0.5 billion spent on art in 20X2.
What information about the grant is most relevant
(capable of making a difference) to resource
investors, lenders and other creditors who are not in
a position to require information directly from
Amalgam and that can be faithfully represented etc?
Example 3―
conditional grant/gift 12
Which IFRS specifies accounting for such grants?

Choose 1 of:
(a) IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance;
(b) IAS 41 Agriculture;
(c) another IFRS; or
(d) no specific IFRS therefore apply the IAS 8 hierarchy.

Example 3―
conditional grant/gift continued 13

represented etc information about the grant…
Choose 1 of: (a) analogise to IAS 20 irrespective of
accounting policy for artwork; (b) analogise to IAS 41
Agriculture irrespective of accounting policy for artwork;
(c) analogise to IAS 41 only if artwork carried at fair
value; (d) analogise to another IFRS; or
Example 3―
conditional grant/gift continued 14
If analogy to IAS 20 what accounting policy would result

in relevant, faithfully represented etc information about
the grant?

Example 4―combination of
businesses under common control 15
Amalgam, Ation and Conglomerate are controlled

by Mrs C. Amalgam acquires Ation from
Conglomerate for $20 billion when:
$’billions A B
Carrying Carrying
amount Fair value amount Fair value
Identifiable
assets 300 600 35 50
Liabilities 200 190 32 30
Contingent
liabilities – 10 – 2
100 400 3 18
Example 4―combination under
common control continued 16
What information about the combination of

businesses under common control is most relevant
(capable of making a difference) to resource
investors, lenders and other creditors who are not in
a position to require information directly from
Amalgam and that can be faithfully represented etc?

Which IFRS specifies accounting for combinations of

businesses under common control?
Choose 1 of:
(a) IFRS 3 Business Combinations;
(b) IAS 16 PPE;
(c) IAS 38 Intangible Assets;
(d) IAS 39 or, if adopted early, IFRS 9 Financial
Instruments; or
(e) no specific IFRS therefore apply the IAS 8 hierarchy.


apply an accounting policy that results in relevant,
faithfully represented etc information about
combinations of businesses under common
control…
Choose 1 of: (a) must use acquisition accounting by
analogy to IFRS 3 Business Combinations;
(b) despite scope exclusion can choose to use
acquisition accounting by analogy to IFRS 3; or
(c) cannot use acquisition accounting because of the
scope exclusion in IFRS 3.
Consistently with the objective of financial reporting,

whose information needs provide focus when
assessing the relevance of financial information?
Choose 1 of: (a) the ultimate parent Mrs C;
(b) the parent Conglomerate; (c) the non-controlling
interest in Amalgam; or (d) lenders and other creditors of
Amalgam that can require Amalgam to provide
information directly to them.

Which method of accounting for such combinations

provides the most relevant information to, for
example, Amalgam’s NCI?
Choose 1 of: (a) acquisition accounting (as set out in
IFRS 3); (b) pooling of interests—on initial recognition
Amalgam uses Ation’s carrying amounts—as required or
permitted by some standards that have a similar
Conceptual Framework; or (c) fresh-start accounting—
the acquisition date fair values of Amalgam and Ation
assets and liabilities are the starting point for new
accounting
Thank You 21

Case Study 1 The IAS 8 Hierarchy: International Financial Reporting Standards

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International Financial Reporting Standards

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

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

The requirements are set out in International Financial

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

• What are the economics of the phenomenon (eg

Amalgam holds 1,000,000 ounces of gold.

Which IFRS specifies accounting for such gold?

• Objective = information relevant to resource

When applying the IAS 8 hierarchy to develop and

Entity holds 10 artworks purchased on 30/9/X2

Which IFRS specifies accounting for such artworks?

When applying the IAS 8 hierarchy to develop and

In 20X2 entity was gifted $2 billion from the

Which IFRS specifies accounting for such grants?

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

When applying the IAS 8 hierarchy to develop and

If analogy to IAS 20 what accounting policy would result

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

Amalgam, Ation and Conglomerate are controlled

What information about the combination of

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

Which IFRS specifies accounting for combinations of

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

When applying the IAS 8 hierarchy to develop and

Consistently with the objective of financial reporting,

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

Which method of accounting for such combinations

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

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