‘Scanned with CamScanner‘Scanned with CamScanner244 Specific S¢counting issues Digital assets » Music, film and documents, i Grew" 98 eryptocurrency, and othe oryptoassets such as tokens’, rence igital currency, also ‘Tokens’, issued in Initial Coin Cruptocurrencies Background Cruptocurrencies have had a sry Controlled by a central bank in the sa led to dramatic fluctuations in the va ‘round the world, tive effect on traditional banking aystems ag they are not i Ie oF conventional currencies. Ths lack of contr hos ue of cryptocurrencies as they are traded ena exchanged iecepting this form of paym, Cruptocurrencies make use of blockchain technology, 'ent. Transactions made using made between participants are verified and recorae, which helps to ensure that all transactions Accounting for eryptocurrencies There are no accounting standards that specifically deal with Cruptocurrencies. When there are. roca ounting standards dealing with an issue, accountants should develop an ‘accounting policy relating to the matter that can be applied and disclosed. In developing the policy, IAS 8 Accounting Policies, the directors consider the following hierarchy: (©) IFRS Standards dealing with similar issues (b) The Conceptual Framework (©) The most recent pronouncements of other national GAAPs based on a similar ‘conceptual framework and accepted industry practice Accounting Estimates and Errors requires that i u 501 20: The impact of changes and potential changes in accounting regulation‘Scanned with CamScannerse eee Qy | Exam focus Sp nae ACCA has produced 'at the ICO remy can be used to support the ICO - « een also detail the type and numberof erypte eo ete OF fi the ICO, and the rights and rest investors, is used when referrin, Rew concept or system. Supporters o i eee Porters of an ICO ore offered a potential reward as motivation to give ‘The cryptoassets issued to supporters of the | * Anew cruptocurrency. In this case, the entity undertaking the ICO has no further 5 ity undertaking the ICO usually has no fur obligations to the supporter. The supporter is speculating that the new cruptocurrency wil ul ICO are usually either: A "token' with a promise attached tot. A promise could be, for example: ~ Ashare of the profits of the entity ~ Access to free or discounted products or services of the entity ~ Access to an exchange in which the supporter can transact with other members of the exchange to buy goods or services. Accounting for ICOs The entity undertaking on ICO will receive cash or eryptocurreney from the ICO supporters. This would be recorded as an asset in the entity's accounting records - the debit side of the ‘ecounting entry. The credit side of the aecounting entry is not os straightforward and depends ‘on the rights attached to the cryptoassets issued to the supporters. The rights granted to the ‘supporters give rise to an obligation on the entity undertaking the ICO that issues the cryptoassets. The issuing entity should therefore assess the obligations arising and apply IFRS. Standards to determine how to account for that particular ICO. ‘The IFRS Interpretations Committee produced a document in December 2018 which summarised the potential accounting treatments as follows (VASB, 2018): + An entity has issued an equity instrument if the holder of the cryptoasset (the supporter) is. entitled to distributions paid by the entity from its distributable reserves. The entity should ‘apply the requirements of IAS 32 to determine whether it has issued an equity instrument. + An entity has issued a financial liability fit is obligated to deliver cash or another financial asset to the holder of the cryptoasset in specific circumstances. The entity should again apply the criteria in IAS 32 to determine if the cryptoasset is a financial liability. + tmay be thatthe entity has Issued a non-financial abity- eg the entity may ae a obligation arising from issuing the cryptoassets, for example to construct an exc! freon schich holders ofthe eryptoaseet can transact with other members ofthe exchange to 20: The impact of changes and potential changes in accounting regulation¢ pigs ‘Scanned with CamScannerPensation will be rex + confirmation after ~ Best practice ~ de not ~ Government grants " nts need tobe considered, ors folowing trl cae corse! thee tang Gea te Onerous contracts unde is eco Under AS 37: natural disaster m However, leases and Supply contracts often ae aerate et unforeseeable crcurc into effect followings . fg citelosure may be needed. Al ofthe areas listed above involve significant the impact of the woe consider whether disclosure is required to enable a coer sa nce in the impact of the natural disaster event. hd any ee a eee The risk and the potential effects of « natural disaster event occuring could be considered i entity’s integrated report. vo een Global event Exam focus point Here we consider some of the specific financial reporting implications ofa global event, such os © Pandemic. You will not be asked specifically about the coronavirus/Covid-19 pandemic in your exam, but you may be asked to diseuss the potential financial reporting implications resulting from a global event, which could be a pandemic. ‘Many of the financial reporting implications of a global pandemic arise due to the effect on economic activity of actions taken by national governments to curb that pandemic. Aetions taken to curb « pandemic may include restricting human interaction and movement between and within Countries. For example, a government may require the temporary closure of non-essential shops ‘ond industry, and may restrict travel into and out of the country, These actions affect economic activity, and therefore the following are some of the financial reporting issues that should be considered (PwC, 2020): + The ability of the business to continue as a going concern. All businesses should consider the effects of reduced economic activity on going concern, even ifthe business was not directly affected by specific restrictions. + Impairment of non-financial assets. Decrease in demand for products/service, inability to secure supplies and other changes such as moving to wholly-online sales could be indicators of impairment. Businesses should also consider whether these issues also affect the measurement of both fair value and value in use (due to decreased future cash flows). Inventories may also need to be written down. + Lessors/lessees may have negotiated rent concessions or renegotiated the terms of a lease as a result of the economic situation and should consider the resulting financial reporting implications. In 2020, this issue was widespread and so in May 2020, the IASB ities Ge ‘amendment to IFRS 16 Leases. The amendment permitted an optional election for lessees to not account for certain rent concessions related to Covid-19 as lease modifications. er 20: The impact of changes and potential changes in accounting regulation $65instruments, The classification ea oot ets anc whettien eoncecaiay cing nore Oh ant has interest. It me duced economic as. res oe to the classification of financial asse' lepends on the entity's business model for man Cash flows are solely payments of principal and ‘amended its business model for managing these asset oxtivity, * Impairment of financial assets. Consideration should P2 given to ‘economic activity on expected credit losses. ro struggling FR racres may provid extra support to businessed $10 saa economies activity, Businesses should ascess whether hit consti the impact of reduced due to reduced ernment grant under IAS 20. f variable 5 its estimates of varia Revenue recognition, Businesses should consider whethel 4 jaad to increase jecreas ncessions etc. IFRS 15 consideration are affected, for example if a o expected product returns, reduced volume discounts, additional price 62" rassines variable consideration to be recogrised only WPS itis highly Pre Fecognised will nat be reversed when the uncertaint is resolved: he + Among other considerations relating to employee enafite, a business should consicer Wi ether it has a legal or constructive obligation to its. employees, such 08 for sick pay OF tinplegess are unable to work due to government restrictions: bable that amounts ers and global events dies (eg the Australian accounting (such as EY, PwC and Deloitte) for | disaster. isast Exercise: Accounting for the effects of natural at the responses of professional bs ia) and big accountaney firms the issues which arise after a natural Go online and take look standards setter: CPA Austral their take on accounting for tl Y has published o document called ‘Accounting for the fin Anhi¢h ig-a good place to start. Its available online from the www.ey.com. PwC has recently pt coronavirus’ discussing the the coronavirus pandemic. ral disasters" .anclal impact of natu! of the EY website: publications section the effects of spth: Accounting implications of t the wake of wublished a document called ‘In dey current accounting issues faced by many organisations in itis available online from PwC's Inform website: inform.pwe.com. Better Communication in Financial Reporting the IASB’s work has been to improve communication in financial to feedback from users of financial statements that financial fed, making it time-consuming and difficult for users to identify ince 2015, a major theme of reporting, This is in response statements can be poorly present useful information. ‘The /ASB has grouped together several projects under the heading ‘Better Communication in Financial Reporting’. Scanned with CamScannerBetter Communication in Financial Reporting Financial Statements Sunitect Financial Statements Primary Financial Disclosure | Management | Statements initiative Commentary Includes: ED | | | cla Several project, Improvements to IFRS 2018/7 General | including some | | Practice Statement 1 | already completed | | £D expected 2021 Disclosures ~ , Pee | 1 Veet eed [eegroerabe some oxanucn || ne ere 3.1 ED 2019/7 General Presentation and Disclosures The proposals in ED 2019/7 were developed in response to feedback from investors about comparability and transparency of performance reporting in the statement of profit or loss. The proposals therefore focus mainly on the statement of profit or loss, with limited amendments to the statement of financial position and the statement of cashflows. ED 2019/7 proposes a new standard to replace IAS 1 Presentation of Financial Statements (which will contain the new requirements relating to general presentation and disclosure, as well as requirements brought forward from IAS 1) as well as amendments to other standards, including IAS 7 Statement of Cash Flows. ‘The key features of the proposalls are to require companies to: + present defined sub-totals in the statement of profit or loss + disaggregate information in a more useful way + disclose information about alternative performance measures (performance measures defined by management) presented in their financial reports. Exercise: General presentation and disclosures Go online and take o look at the IASB’s summary of the proposals and the reasoning behind them in the document ‘Snapshot: General Presentation and Disclosures". The Snapshot was published in December 2019 and is available on the IASB's website: www.ifrs.org. 3.1.1 Sub-totals in the statement of profit or loss Issue IAS 1 requires revenue and profit or loss for the year to be presented in the statement of profit or loss, but does not specify the sub-totals to be presented in between these amounts. This has led to companies presenting statements of profit or loss that vary greatly in their structure and content. This makes comparisons between companies difficult. For example, lots of companies present operating profit, but as operating profit is not defined in IFRS Standards, companies caloulate it in different ways, which reduces comparability between financial statements. ED 2019/7 proposals To help resolve this issue, ED 2019/7 proposes that the statement of profit or loss shoul + be divided into four categories: operating, integral associates and joint ventures, investing, ‘and financing + include three subtotals between these categories a‘Scanned with CamScannergad 343 344 34.5 Disaggregation Users of financial statements have reported to the IASB that the way companies disaggregate information is not always helpful for their analysis of financial statements (IFRS Foundation, p.9): + some companies do not disaggregate enough, eg large balances are classified as ‘other expenses! + some companies present too much detail, which obscures material information ED 2019/7 includes several proposals to address these concerns. Disaggregation - analysis of operating expenses Issue IAS 1 requires operating expenses to be analysed either by nature (eg depreciation, employee benefits) or by function (eg cost of sales, administrative expenses). However, investors have reported that information presented is not always useful: companies may not choose the method most appropriate to their circumstances and often present a mixture of both methods. Some: investors have reported that it would be helpful for all companies to provide expenses analysed by nature os itis easier to forecast expenses by nature than expenses by function (IFRS Foundation, 2) ED 2019/7 proposals ED 2019/7 proposes that the new IFRS Standard to replace IAS 1 will require companies: + Inthe statement of profit or loss, to analyse operating expenses by nature or by function. The method chosen should present the most useful information and a list of indicators will help Companies chose the most appropriate method. Companies should not mix the two methods. + In the notes, disclose an analysis of operating expenses by nature where expenses are ‘analysed by function in the statement or profit or loss. Disaggregation - unusual income and expenses Issue Information about income or expenditure which is ‘unusual’, e not expected to recur in the near future, can be useful to users in making predictions about future cash flows. Many companies provide information about expenditure which is unusual. However, the usefulness of this Information is reduced because it is not always clear what criteria a company has used to classify expenses a8 unusual and because companies present this information in very different ways. ED 2019/7 proposals ED 2019/7 proposes that the new IFRS Standard to replace IAS 1 will: | » Define unusual Income and expenses: ‘Unusual income end expenses are income and ! ‘expenses with limited predictive value. Income ond expenses have limited predictive value when itis reasonable to expect that income or expenses that are similar in type and amount will not ‘rise for several future annual reporting periods’ (ED 2019/7: para. 100). Note this is a forward- ooking definition, although income or expenses that have arisen in the past can meet the definition of an unusual item. + Require companies to present a single note which discloses for each unusual item the amount recognised and in which line iter in the statement of profit or loss itis included as well as a description of the item and why it meets the definition of unusual. If the company presents ‘operating expenses by function, this note should also give an analysis by nature of the unusual items. Disaggregation - other proposals ED 2019/7 proposes that the new IFRS Standard to replace IAS 1 will (FRS Foundation, p.t1): + include o description of the roles of the statements and the notes, in order to help companies. decide where to present or disclose information + include principles for aggregation and disaggregation of information @ tee 20: The impact of changes and potential changes in accounting regulation 5691°, This applies where an enti ated information, not ‘other ° y ed nic avoid obscuring other information. Where a celosure in the notes should be given he financial statements, such as + require meaningful labels for aggreg’ has to aggregate dissimilar immaterial items meaningful label cannot be determined, extra di + require companies to present specific additional line ites in" goodwill in the statement of financial position. 3.1.6 Management performance measures Issue Many componies disclose alternative performance measures (APMs), ED 2019/7 ion to tie os management performance measures. Monogernent performance measures cone sevemely Useful to users as they can provide insight into how management assess the perio of the business. However, the usefulness of such measures is reduced because it is is tint as how the measures are defined, measures are not always consistent yeor on yer WINE TE ‘comparability, and how measures reconcile back to IFRS figures isn’t always apparent ED 2019/7 proposals ED 2019/7 proposes that the new IFRS Standard to replace IAS 1 + Define management performance measures + Require all management performance measures to be disclosed in a single statements, along with specific disclosures to enhance thelr transparency, such os 0 description of how management uses the measure ond how itis caloulated: luntory ESMA guidelines on APMs seen in will (FRS Foundation, p. 13): note to the financial Note that these proposals are very similar to the vol Chapter 18, 3.1.7 Targeted improvements to IAS 7 ED 2019/7 proposes limited torgeted amendments to the statement of ca: criticisms of IAS 7. The proposed amendments are to: + require operating profit as the starting point for reporting cash flows from operating activities when using the indirect method + require cosh flows from investments in associates and joint ventures to be split between Integral and non-integral associates ond joint ventures, to match the proposals for the statement of profit or loss; and remove the choice currently allowed for interest and dividend cash flows, os explained in the table below. ish flows to address some Cee eC eee eed De ca eM eed Interest paid Operating or | Financing Depends on the | financing | | classification in the Interest receved | Ope Investing See eee ot financing | Dividends received | Operating or | financing Dividends paid Operating or can “Financing - financing (ERS Foundation, p18)43,8 Amendments to other IFRS Standards ED 2019/7 proposes the following amendments t ‘amendments to other standards (IFRS Foune 3 + IFRS 12 Disclosure of interests in Other Entities a ‘nor-integral’ associates and joint ventures an + IAS 83 Earnings per Share - to intodc definitions of integral and recite soporte dilosra foreach ~ tors the numerator uted to calolateodjueted earnings Per share to subtotals specified by IFRS Standards oro management performance mearlte attributable to ordinary equity holders of the parent i IAS 34 Interim Financial Reporting - to require disclosure of information about management performance measures in interim financial statements. Some of the other proposals, such as those relating to sub-totals in the statement of profit or loss, would also apply to interim financial statements without needing to amend IAS 34. + IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - to include the current requirements of IAS 1 on general features of financial statements, including the definition of materiality, |FRS 7 Financial Instruments: Disclosures - to include the current disclosure requirements of IAS t 110 puttable instruments classified as equity, 3.2 The Disclosure Initiative The Disclosure Initiative is a group of projects undertaken by the IASB to resolve the so-called ‘disclosure problem in financial statements, Too much irrelevant information. Not enough relevant information Ineffective communication of information The Disclosure Initiative began in 2013 and has resulted in a number of completed and ongoing projects. The Disclosure Initiative projects that are relevant to the SBR syllabus are those related to ‘materiality in the context of financial reporting and are covered in the next section. 3.3 Materiality in the context of financial reporting Materiality, as defined and applied, was identified by the IASB as a contributing factor to the i disclosure problem. In response, the IASB: + Issued IFRS Practice Statement 2: Making Materiality Judgements in 2017 + Revised the definition of material’ in 2018. 3.3.1 Definition of material Material: ‘information is material if omitting, misstating or obscuring it could reasonably be ‘expected to influence decisions that the primary users of general purpose financial reports make on the basis of those reports, which provide financial information about a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of an individual entity's financial report.’ (/AS 1: para. 7, emphasis added) The IASB has amended the definition of ‘material’ to make it clear that obscuring information has the same effect as omitting or misstating it. Obscuring information means making the informastion ‘0 difficult to find or so difficult to understand, that it may as well have been omitted. ‘This addresses the Issue that too much information can be just as problematic as the omission or misstatement of information. : The Impact of changes and potential changes in accounting regulation 671 vane: Makin ity Judgements 3.3.2 IFRS Practice Statement 2: Making Materiality Se See ees Practice Statement 2 was developed in response to concerns that how to moke materiality judgements. The effects of this are see! + Companies failing to provide enough relevant information see + Excessive disclosure of immaterial information which ean means that impor ls obscured *+ Use of IFRS Standards disclosure requirements as a ‘checklist! ~ whether they are material or not. making all disclosures listed, is to encourage greater application of idance is not mandatory. The aim of the IASB in issuing Practice Statement judgement in the preparation of financial statements. The gui The key points of the guidance are summarised below. General characteristics of materiality (paras. 5-26) ©) Preparers of financial statements make materiality judgements when appl Standards lying IFRS + The recognition and measurement criteria only need to be applied when the effect of applying them is material. Recognition and | . For example, an entity may choose to capitalise items of property, plant and Measurement | equipment only when the cost of an individual item exceeds, say $1,000, on the basis that capitalising items below this amount will not have a material effect on the financial statements. >) « Disclosure criteria: if the information provided by a certain disclosure requirement is not material, the entity does not need to make that disclosure, even if that disclosure is part of a list of minimum required disclosures in an IFRS Standard. However, the entity should consider whether it also needs to disclose information not specifically required by an IFRS Standard if that information is needed to understand the financial statements. Presentation and disclosure (©) Financial statements provide financial information to primary users that is useful to them when making decisions about providing resources to the entity. ~ Primary users are investors, lenders and other creditors, both existing and potential. ~ General purpose financial statements cannot meet all ofthe information needs of primary Users. Instead the entity should cim to mest the information needs commen to al investors, all lenders and all other creditors. ~ The entity is not required to meet the information needs of other stakeholders, or the individual requirements of particular primary users, . Scanned with CamScannerFour-step process to making materiality judgements (aras. 29-65) (One way of making materiality ity judgements when preparin : the following four-step process: fron Peace tne neta eee eee x a i Step 1: Identify information that is potentially mat Consider requirements ‘on penis ce se eae weeds of primary users | | Could informati bl | rmation reasonably be Consider qualitative expected to influence primary users? | and quantitative factors ‘Apply judgment to determine best way| Eg: emphasise material matters, to communicate clearly and concisely | explain simply, minimise duplication peace ‘Step 4: Review complete set of draft financial statements ‘On the basis of complete set of financial statements: has materiality been considered from a wide perspective and in aggregate? (On the basis of complete set of financial statements: has all material mation been identified? ‘Assessing whether information is material (paras, 44-45) ‘There are common ‘materiality factors’ which can be used to help assess whether information is material. These are: (©) Quantitative factors - Consider the size of the effect of the transaction/event against measures of the entity's financial position, performance and cash flows Consider ony unrecognised Items (eg contingent liabilities) that could affect primary usere’ \ perception (b) Qualitative factors ‘These are characteristics that make information more likely to influence the d primary users, they can be internal or external | Internal include: involvement of related parties, uncommon features, unexpected changes in trends «= External include: geographic location, industry section, state of the economy Both quantitative factors and qualitative factors should be considered, Quantitative factors can be assessed with the help ofa threshold = such o8 6% of profit. Itis usuolly more efficient to assess items from o quantitative perspective rst: ‘fan item exceeds the quantitative threshold, itis material and ne further assessments required. ifan item is considered Immaterial on the bosis of the quantitative threshold, qualitative factors | ‘should then be considered. The presence of a qualitative factor In @ transaction/event, such as the | Involvement of a related party, lowers the quantitative threshold. sions of, OE. so, The rpoctot changes ond petal shngesinaccouringregustion 578ic sessed as material Example - Information about a related party transaction os = (Based on Practice Statement 2, Example 1) the primary users of its financigl at interest to Red has identified measures of profitability as of great inte enone statements. During the year, Red agreed five-year contract in wl perform maintenance services for Red for an annucl fee of $1.5 milion. Red first ossessed whether the information about the transaction was material om a quantitative Perspective. A threshold of $2.5 milion (3% of net profit) was used: From E purely qi ive perspective, Red assessed that the effect of the contract was not material Red then considered the transaction from a qualitative perspective. Hoving considered thet the transaction was with a related party, Red concluded that the impact of the wansaction wos large enough to reasonably be expected to influence primory users’ decisions (eg the presence of a qualitative factor lowered the quantitative threshold). Red assessed information about the transaction with Green as material and disclosed that information in its financial statements, The presence of qualitative factors does not mean that information is clways material. An entity may decide that, despite the presence of qualitative factors, information is not material because its effect on the financial statements is 80 small that it could not reasonably be expected to influence primary users’ decisions (para. 54). Example — Information about a related party transaction assessed as. immaterial (Based on Practice Statement 2, Example J) During the year Red sold an almost fully depreciated machine to Blue (a related party) at an ‘amount consistent with the machine's market value. Red assessed whether the information about the transaction was material. From a purely ‘quantitative perspective, Red initially concluded that the impact of the related party transaction ‘was not material. However, qualitative factor exists: the fact that the machine was sold to a related party makes the information more likely to influence the decisions of primary users. Therefore, Red further assessed the transaction from a quantitative perspective, but concluded that its impact was too small to reasonably be expected to influence primary users’ decisions, even though the ‘transaction was with a related party, Red assessed information about the transaction with Blue to be immaterial and did not disclose it ints financial statements. a Stakeholder perspective The IASB hopes that Practice Statement 2 will change the behaviour of preparers and auditors of pene Statements. Preparers should put the information needs of the primary users of thelr nancial statements at the centr oftheir financial statement preparation process, Privre users 1a0e information that i relevant to thelr decision-making and is not obscured by informelvon thet ‘decisions. The article ‘Bin the Clutter’ available ACCA website provides further discussion on the ©) BTW. Strtepic Business Reporting (SBR) 44 First-time adoption of a body of new accounting standards Q | Exam focus point At the 2019 ACCA Global Learning Providers Conference the SBR Examining Team stated that IFRS 1 would only be examined occasionally and, when examined, would be tested on a principles-basis only, IFRS 1 First-time Adoption of International Financial Reporting Standards was issued to ensure that an entity's first IFRS financial statements contain high quality information that © 1s transparent for users and comparable over all periods presented (©) Provides suitable starting point for accounting under IFRSs; and (©) Can be generated at a cost that does not exceed the benefits to users. 4.1. IFRS 1 First-time Adoption of International Financial Reporting Standards A. General principle: ‘An entity applies IFRS 1 in its first IFRS financial statements. ‘An entity's first IFRS financial statements are the first annual financial statements in which the ‘entity adopts IFRS by an explicit and unreserved statement of compliance with IFRS. 4.1.2 Opening IFRS statement of financial position {An entity prepares and presents an opening IFRS statement of financial position at the date of transition to IFRS as a starting point for IFRS accounting. Generally, this will be the beginning of the earliest comparative period shown (e full retrospective application). Given that the entity is applying a change in accounting policy on adoption of IFRS, IAS 1 Presentation of Financial Statements requires the presentation of at least three statements of financial position (and two of each of the other statements) (IFRS 1: para. 2). Example ‘Comparative year First year of adoption 1.1.X0 31.12.X0 31.12X1 | | Transition date Preparation of an opening IFRS statement of financial position typically involves adjusting the amounts reported at the same date under previous GAAP. All adjustments are recognised directly in retained earnings (or, if appropriate, another category of equity) not in profit or loss. 44.3. Estimates Estimates in the opening IFRS statement of financial position must be consistent with estimates made at the same date under previous GAAP even if further information is now available (in order to. comply with IAS 10) (IFRS 1: para. IG 3). potential changes in accounting regulation 875 Beene 20: The impact of changes ond ses‘Scanned with CamScanner4A6 4.2 (©) Borrowing costs Borrowing costs need only be capitalised for assets where the commencement date for capitalisation is on or after the date of transition to IFRS. (@) Cumulative translation differences on foreign operations (Translation differences (which must be included in a separate translation reserve under IFRS) may be deemed zero at the date of transition to IFRS. IAS 21 is applied from then (i) Ifa subsidiary (or associate or joint venture) applies the exemption in (@)() below, then the subsidiary can instead choose to measure cumulative translation differences ot the carrying amount that would be included in the parent's consolidated financial stotements at the parent's date of transition, (©) Adoption of IFRS by subsidiaries, associates and joint ventures IF subsidiary, associate or joint venture adopts IFRS later thor assets and liabilities: () Either: At the amount that would be included in the parent's consolidated financial statements, based on the parent's date of transition; Or: At the amount based on the subsidiary (associate or joint venture's) date of transition. (IFRS 1: Appendix B) Disclosure (@) Areconeiliation of previous GAAP equity to IFRS equity is required at the date of transition to IFRSs and for the most recent financial statements presented under previous GAAP. (b) A reconciliation of total comprehensive income under previous GAAP to total comprehensive income using IFRS is required for the most recent financial statements presented under previous GAAP. (IFRS 1: para. 24) parent, it measures its Practical issues ‘The implementation of the change to IFRS is likely to entail careful management in most companies. Here are some of the change management considerations that should be addressed: + Accurate assessment of the task involved + Proper planning + Human resource management + Troining + Monitoring and accountability + Physical resourcing + Process review + Follow up Ethics note Current issues are a key part of the SBR exam and will be tested at every sitting. The ethical dilemma tested will clearly depend on the current issue itself. However, it can safely be assumed that it will frequently concern someone in authority, such as a managing director wishing to present the financial statements in a more favourable light. The IASB often makes changes to IFRS Standards precisely to avoid the ethical dilemmas that result from manipulation of ambiguities. The predecessor of IFRS 15 Revenue from Contracts with ‘Customers was less precise and so the key figure of revenue was subject to manipulation. 20% The impact of changes and potential changes in accounting regulation S77‘Scanned with CamScannerKnowledge diagnostic 1, Current issues The IASB has a number of sr of projects underway. These could f ic The ape eae sould form the basis of a discussion question Current issues could be tested by requiring the application of existing standards to an accounting issue - such os accounting for digital assets (eg cryptocurrency) or for the effects o natural disaster, such as a pandemic. 2, ED 2019/7 General Presentation and Disclosures ED 2019/7 contains proposals to improve performance reporting, focusing on the statement of profit and loss, with limited amendments to the statement of cash flows. The key features of the proposals are to require companies to: + Present defined sub-totals in the statement of profit or loss + Disaggregate information in a more useful way Disclose information about alternative performance measures presented in financial reports 3. Materiality in the context of financial reporting Materiality is a factor in the disclosure problem. Ds ition of materiality amended to make it clear eae sbecuring information has the same effect on the users of financial stateron's om ‘omitting or misstating it. Practice Statement 2 issued to encourage greater application of judgement in the preparation of financial statements, to avoid excessive disclosure and avoid using IFRS Standards as a disclosure checklist. tu First-time adoption of a body of new accounting standards lying IFRS for the first time. The change to IFRS must be IFRS { gives guidance to entities opp! carefully managed.‘Scanned with CamScanner