The IFRS for SMEs

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Topic 1.5 Sections 3±8, 10, 30, 32 and 33 Financial Statement Presentation

© 2011 IFRS Foundation

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This PowerPoint presentation was prepared by IFRS Foundation education staff as a convenience for others. It has not been approved by the IASB. The IFRS Foundation allows individuals and organisations to use this presentation to conduct training on the IFRS for SMEs. However, if you make any changes to the PowerPoint presentation, your changes should be clearly identifiable as not part of the presentation prepared by the IFRS Foundation education staff and the copyright notice must be removed from every amended page . This presentation may be modified from time to time. The latest version may be downloaded from: http://www.ifrs.org/IFRS+for+SMEs/SME+Workshops.htm The accounting requirements applicable to small and medium-sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July 2009. The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.
© 2011 IFRS Foundation

Overview of financial statement presentation

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‡ Section 3 specifies general requirements for financial statement presentation ‡ Sections 4±8 cover the presentation of each component of financial statements ‡ Section 10 covers accounting policies, estimates and errors ‡ Section 30 covers foreign currency translation

© 2011 IFRS Foundation

Overview of financial statement presentation 4 ‡ Section 32 covers events after the end of the reporting period ‡ Section 33 covers related party disclosures the main principles in these sections are generally the same as full IFRSs © 2011 IFRS Foundation .

wine and fruit producer. Romanian. wholesale and retail group ± see http://www. French. Portuguese (Brazil). Czech.htm available in Armenian.com/gx/en/ifrs-reporting/ifrs-illustrative-financialstatements-smes-pwc-publications. Chinese.Illustrative financial statements 5 ‡ Accompanies the IFRS for SMEs issued by IASB ± a fictional candle manufacturer group ± see http://www.jhtml © 2011 IFRS Foundation . English.pwc. and Spanish ‡ Issued by PwC (not reviewed by IASB/IFRS Foundation) ± a fictional first-time adopter²fruit grower. Italian.org/IFRS+for+SMEs/IFRS+for+SMEs+and+related+material.ifrs.

Disclosure checklist 6 ‡ Accompanies the IFRS for SMEs issued by IASB ± see http://www. English.htm ± available in Armenian.ifrs. Italian. French. Romanian. Czech.org/IFRS+for+SMEs/IFRS+for+SMEs+ and+related+material. Portuguese (Brazil). and Spanish © 2011 IFRS Foundation . Chinese.

The IFRS for SMEs 7 Section 3 Financial Statement Presentation © 2011 IFRS Foundation .

Section 3 ± scope 8 ‡ Section 3 explains ± fair presentation of financial statements ± what compliance with the IFRS for SMEs requires ± what is a complete set of financial statements © 2011 IFRS Foundation .

income and expenses ‡ The application of the IFRS for SMEs (with additional disclosure when necessary) is presumed to result in a fair presentation of the financial position. liabilities. other events and conditions in accordance with the definitions and recognition criteria for assets.Section 3 ± fair presentation 9 ‡ Fair presentation is the faithful representation of the effects of transactions. financial performance & cash flows of an entity that is not publicly accountable © 2011 IFRS Foundation .

Section 3 ± compliance ‡ An entity whose financial statements comply with the IFRS for SMEs must make an explicit and unreserved statement of such compliance in the notes 10 ‡ Financial statements shall not be described as complying with the IFRS for SMEs unless they comply with all the requirements of the IFRS for SMEs © 2011 IFRS Foundation .

* see example 1 in Module 3 of the IFRS Foundation training material © 2011 IFRS Foundation . Note 2 Basis of preparation and accounting policies These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standard (IFRS®) for Small and Medium-sized Entities issued by the International Accounting Standards Board.Section 3 ± compliance statement 11 ‡ Ex 1*: An entity prepares its consolidated financial statements for the year ended 31 December 20X2 in accordance with the IFRS for SMEs.

It uses local GAAP.Section 3 ± compliance statement? 12 Can either of the following entities assert compliance with the IFRS for SMEs? ‡ Ex 5*: A has public accountability. It uses the IFRS for SMEs. * see example with the same number in Module 3 of the IFRS Foundation training material © 2011 IFRS Foundation . The local GAAP is based mainly on the IFRS for SMEs but has some material differences. ‡ Ex 6*: B does not have public accountability.

the management of an entity must make an assessment of the entity¶s ability to continue as a going concern © 2011 IFRS Foundation .Section 3 ± going concern 13 ‡ An entity is a going concern unless management either intends to liquidate the entity or to cease operations. or has no realistic alternative but to do so ‡ When preparing financial statements.

Section 3 ± going concern disclosures 14 ‡ Disclose material uncertainties related to events or conditions that cast significant doubt upon the entity¶s ability to continue as a going concern ‡ If financial statements are not prepared on a going concern basis disclose: ± that fact ± the basis of preparation ± the reason why the entity is not regarded as a going concern © 2011 IFRS Foundation .

restate comparatives and disclose (nature. ‡ If change. amount and reason) © 2011 IFRS Foundation .Section 3 ± consistency of presentation 15 ‡ Same presentation and classification each year unless: ± significant change in the nature of the entity¶s operations or review of presentation and find another presentation or classification more appropriate (ie reliable and more relevant). or ± the IFRS for SMEs requires a change in presentation.

Section 3 ± comparative information 16 ‡ Disclose ± 1 year¶s comparative amounts ± comparative information for narrative and descriptive information when relevant to understanding current period¶s financial statements © 2011 IFRS Foundation .

influence economic decisions of users ± depends on size and nature of the omission or misstatement ± judged in the surrounding circumstances ‡ Present separately ± each material class of similar items ± items of a dissimilar nature or function unless they are immaterial Materiality threshold is lower for notes © 2011 IFRS Foundation . individually or collectively.Section 3 ± materiality and aggregation 17 ‡ Material if could.

ie understated by CU150). Ignored the error (reported profit for 20X8 at CU600. * see example with the same number in Module 3 of the IFRS Foundation training material © 2011 IFRS Foundation . ‡ Ex 15*: Same as Ex 13. except had the error been corrected the entity would have breached a borrowing covenant on a significant long-term liability.000.Section 3 ± materiality decisions 18 Is the error material? ‡ Ex 13*: Before its 20X8 FS approved for issue discovered depreciation expense for 20X8 overstated by CU150.

Section 3 ± financial statements 19 ‡ Complete set of financial statements ± Statement of financial position (Section 4) ± Either single statement of comprehensive income or two statements²an income statement and a statement of comprehensive income (Section 5) ± Statement of changes in equity (Section6) ± Statement of cash flows (Section 7) ± Notes (Section 8) Present each with equal prominence © 2011 IFRS Foundation .

± correction of prior period errors.Section 3 ± optional alternative formats 20 ‡ Statement of income and retained earnings (instead of statement of comprehensive income (SOCI) and statement of changes in equity) if only changes in equity arise from: ± profit or loss. ± payment of dividends. and ± changes in accounting policies ‡ Income statement (instead of SOCI) if no items of other comprehensive income © 2011 IFRS Foundation .

Section 3 ± other comprehensive income 21 ‡ The only other comprehensive income (OCI) items are ± some foreign exchange gains and losses (see Section 30) ± some changes in fair values of hedging instruments (see Section 12) ± some actuarial gains and losses (see Section 28) © 2011 IFRS Foundation .

Section 3 ± identification 22 ‡ Clearly identify each of the financial statements and notes and distinguish them from other information in the same document ‡ Display prominently (and repeat when necessary) ± name ± individual or group financial statements ± presentation currency and level of rounding ± reporting date © 2011 IFRS Foundation .

The IFRS for SMEs 23 Section 4 Statement of Financial Position © 2011 IFRS Foundation .

Section 4 ± scope 24 The statement of financial position (SOFP) (sometimes called the balance sheet) presents an entity¶s assets. ‡ Section 4: ± sets out the information to be presented in a statement of financial position and how to present it © 2011 IFRS Foundation . liabilities and equity as of a specific date²the end of the reporting period.

14) © 2011 IFRS Foundation . and titles are not mandated Some items may be presented in the SOFP or in the notes (see ¶ 4.2) Requires additional line items headings and subtotals when relevant to an understanding of the entity s financial position. Sequencing.‡ ‡ ‡ ‡ 25 Section 4 ± line items Specifies minimum line items² sufficiently different in nature or function for separate presentation (see 4. format.11±4.

nature and liquidity of assets ± the function of assets within the entity ± the amounts.Section 4 ± line items continued 26 ‡ Provide information that is relevant to an understanding of the entity¶s financial position ‡ In making aggregation/disaggregation judgements consider ± the amounts. nature and timing of liabilities © 2011 IFRS Foundation .

Section 4 ± current/non-current distinction27 ‡ Make current/non-current distinction unless liquidity presentation is reliable and more relevant ‡ In liquidity presentation present assets and liabilities in order of liquidity ‡ Current assets and current liabilities are defined ‡ All other assets and liabilities are noncurrent ‡ Deferred tax balances are non-current © 2011 IFRS Foundation .

sell or consume in entity¶s normal operating cycle ± held for trading ± expects to realise in next 12 months ± cash or equivalent.Section 4 ± current assets ‡ Current asset if ± expect to realise. unless restricted for +12 months 28 © 2011 IFRS Foundation .

Section 4 ± examples current assets 29 ‡ Ex 3*: A produces whiskey from barley. partly distilled whiskey and distilled whiskey. water and yeast in a 24-month distillation process. Inventories include barley and yeast raw materials. * see example 3 in Module 4 of the IFRS Foundation training material © 2011 IFRS Foundation . Current assets²expected to be realised (ie turned into cash) in the entity¶s normal operating cycle.

Section 4 ± examples continued 30 ‡ Ex 7*: On 1/1/20X7 B invested CU900. * see example 7 in Module 4 of the IFRS Foundation training material © 2011 IFRS Foundation .000 each starting 31/12/20X8. Fixed interest of 5% per year is payable on 1 January each year. Capital is repayable in 3 annual instalments of CU300.000 in corporate bonds.

Section 4 ± examples ‡ Ex 7 continued: continued 31 At 31/12/20X7 A presents ± current assets²CU45.000 in +12 months © 2011 IFRS Foundation .000 accrued interest & CU300.000 capital repayable on 31/12/20X8²expected to be realised within 12 months ± non-current asset²CU600.

Section 4 ± current liabilities 32 ‡ Current liability if ± expect to settle in entity¶s normal operating cycle ± held for trading ± due to be settled in next 12 months ± entity does not have an unconditional right to defer settlement for at least 12 months after reporting date © 2011 IFRS Foundation .

Current liability²expected to settle (ie pay) the supplier in the entity¶s normal operating cycle.Section 4 ± examples current liabilities 33 ‡ Ex 9*: An obligation to suppliers for the purchase of raw materials. * see example 9 in Module 4 of the IFRS Foundation training material © 2011 IFRS Foundation .

Section 4 ± examples continued 34 ‡ Ex 10*: At 31/12/20X7 A was in breach of a covenant in a loan that is otherwise repayable 3 years later. * see example 10 in Module 4 of the IFRS Foundation training material © 2011 IFRS Foundation . At 31/12/20X7 the loan is a current liability²at 31/12/20X7 A does not have an unconditional right to defer settlement for at least 12 months. The breach entitles (but does not oblige) the bank to require immediate repayment.

the bank formally agreed not to demand early repayment of the loan.Section 4 ± examples continued 35 ‡ Ex 11*: Same as in Ex 10 except after the end of the reporting period (31/12/20X7) and before the financial statements were approved for issue. * see example 11 in Module 4 of the IFRS Foundation training material © 2011 IFRS Foundation . At 31/12/20X7 the loan is a current liability²at 31/12/20X7 A does not have an unconditional right to defer settlement for at least 12 months.

The IFRS for SMEs 36 Section 5 Statement of Comprehensive Income and Income Statement © 2011 IFRS Foundation .

‡ Section 5 ± requires financial performance be presented in a single statement or two statements (an accounting policy choice) ± sets out the information to be presented in those statements © 2011 IFRS Foundation .Section 5 ± scope 37 The statement of comprehensive income presents an entity¶s financial performance (ie its income and expenses) for the period.

headings and subtotals when relevant to an understanding of the entity¶s financial performance ± an analysis of expenses based on either ±the nature of expenses or ±the function of expenses 38 ± segregation of discontinued operations ‡ Prohibits use of the descriptor µextraordinary items © 2011 IFRS Foundation .Section 5 ± line items ‡ Specifies minimum line items (see 5.5) ‡ Requires ± additional line items.

Section 5 ± disclose allocations 39 ‡ Profit or loss and total comprehensive income are before allocating those amounts to non-controlling interests and owners of the parent ‡ Disclose the allocations of those amounts to ± the non-controlling interests ± the owners of the parent © 2011 IFRS Foundation .

Section 5 ± presentation alternatives 40 ‡ Accounting policy choice²1 performance statement or 2 ‡ Single statement of comprehensive income ± includes all income and expenses ± separate line items include (among others) ±profit or loss (unless no items of OCI) ±each item of other comprehensive income displayed below profit or loss ±total comprehensive income © 2011 IFRS Foundation .

Section 5 ± two statements 41 ‡ Two statements ± income statement ± statement of comprehensive income ‡ Income statement ± ends with profit or loss ‡ Statement of comprehensive income ± starts with profit or loss ± present each item of other comprehensive income separately ± ends with total comprehensive income © 2011 IFRS Foundation .

The IFRS for SMEs 42 Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings © 2011 IFRS Foundation .

in a statement of income and retained earnings © 2011 IFRS Foundation . if specified conditions are met and an entity chooses.Section 6 ± scope 43 The statement of changes in equity presents all changes in equity in the reporting period. either in a statement of changes in equity or. detailing those arising from transactions with owners in their capacity as owners. ‡ Section 6 ± sets out requirements for presenting the changes in an entity¶s equity for a period.

each item of OCI. & changes in ownership interests in subsidiaries that do not result in loss of control. © 2011 IFRS Foundation .Section 6 ± statement of changes in equity ‡ Shows all changes to equity including ± total comprehensive income (and the allocation to owners of the parent and NCI) ± for each component of equity 44 ±the effects of retrospective application and retrospective restatement (see Section 10) ±reconciliation between the carrying amount at the start & end of the period showing profit or loss. transactions with owners as owners.

© 2011 IFRS Foundation . ± correction of prior period errors. and ± changes in accounting policies. ± payment of dividends.Section 6 ± statement of income and retained earnings 45 ‡ A statement of income and retained earnings can be presented (optional) instead of statement of comprehensive income and statement of changes in equity) if only changes in equity arise from: ± profit or loss.

Section 6 ± statement of income and retained earnings 46 ‡ Shows ± all the information required by Section 5 (comprehensive income) ± retained earnings at the beginning and at the end of the period ± dividends recognised in the period ± restatements of retained earnings for correction of prior period errors and changes in accounting policies © 2011 IFRS Foundation .

The IFRS for SMEs 47 Section 7 Statement of Cash Flows © 2011 IFRS Foundation .

showing separately changes from operating activities. investing activities and financing activities.Section 7 ± scope The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period. Section 7 ± sets out the information that is to be presented in a statement of cash flows and how to present it © 2011 IFRS Foundation 48 .

highly liquid investments held to meet shortterm cash commitments rather than for investment or other purposes ‡ Cash equivalents include ± investments with a short maturity (say 3 months or less from the date of acquisition) ± bank overdrafts only if they are repayable on demand and form an integral part of an entity¶s cash management.Section 7 ± cash equivalents 49 Cash equivalents are short-term. bank overdrafts © 2011 IFRS Foundation .

Section 7 ± cash equivalents 50 ‡ Present ± the components of cash and cash equivalents ± reconciliation to the amounts in the statement of financial position (unless identical and similarly described) ‡ Disclose commentary by management the amount of ± significant cash and cash equivalents that are not available for use by the entity ± examples: foreign exchange controls or legal restrictions © 2011 IFRS Foundation .

investing and financing activities ± ie in the reconciliation of cash and cash equivalents © 2011 IFRS Foundation . unrealised exchange rate gain/loss on foreign currency cash and cash equivalents are shown in CFS ± separate from operating.Section 7 ± unrealised gains and losses 51 ‡ Unrealised gain and losses are not cash flows ‡ However.

loans and other contracts held for dealing or trading purposes © 2011 IFRS Foundation . unless specifically identified with financing and investing activities ± cash flows from investments.Section 7 ± operating activities 52 Operating activities are the principal revenue-producing activities of the entity ‡ Operating activity cash flows include ± cash receipts from customers ± cash payments to suppliers & employees ± cash flows of income tax.

any deferrals or accruals of past or future operating cash receipts or payments. and items of income or expense associated with investing or financing cash flows ± direct method ±major classes of gross cash receipts & gross cash payments are presented © 2011 IFRS Foundation .Section 7 ± direct or indirect method ‡ Accounting policy choice to present operating cash flows 53 ± indirect method ±profit or loss is adjusted for the effects of non-cash transactions.

‡ Investing activity cash flows include ± cash payments to acquire (cash receipts from sale of) long-term assets (eg PP&E) ± cash payments to acquire (cash receipts from the sale) equity or debt instruments of other entities and interests in joint ventures (other than payments/receipts for those instruments classified as cash equivalents or held for dealing/trading) © 2011 IFRS Foundation .54 Section 7 ± investing activities Investing activities are the acquisition & disposal of long-term assets & other investments not included in cash equivalents.

55 Section 7 ± financing activities Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of an entity ‡ Financing activity cash flows include ± cash proceeds from issuing shares or other equity instruments and cash payments to owners to acquire or redeem the entity¶s shares ± cash proceeds from borrowings and cash repayments of amounts borrowed ± cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease © 2011 IFRS Foundation .

© 2011 IFRS Foundation . ‡ The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities.Section 7 ± investing and financing 56 ‡ Present separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities.

Section 7 ± example 57 ‡ Ex 1: In 20X7 A acquires 50% of the equity of B for CU110 when B¶s cash and cash equivalents = CU10. From 1/1/20X7 A controls B (ie B is a subsidiary of A) ‡ Scenarios (i) A settles the purchase price in cash (ii) A buys on credit (will settle next year) (iii) A settles by issuing its own equity to the seller (iv) A borrows CU110 from the bank and uses cash borrowed to settle © 2011 IFRS Foundation .

Section 7 ± example 1 continued

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‡ The group (A & B consolidated) would present a cash flow in the investing activities section for the purchase of a subsidiary of: ±scenario (i) CU100 outflow (ie CU110 less CU10) ±scenario (ii) CU10 inflow ±scenario (iii) CU10 inflow ±scenario (iv) CU100 outflow (in investing activities) & CU110 inflow in financing activities
© 2011 IFRS Foundation

Section 7 ± example ‡ Ex 2: Same as Ex 1 except A has significant influence over B (ie B is an associate of A) ‡ A would present: ±scenario (i) CU110 outflow in investing activities ±scenario (ii) no cash flows ±scenario (iii) no cash flows ±scenario (iv) CU110 outflow in investing activities & CU110 inflow in financing activities
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Section 7 ± interest and dividends

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‡ Interest and dividends CFs: ± show separately and classify consistently ± interest & dividends received = operating or investing activity ± interest paid = operating or financing activity ± dividends paid usually = financing activity

© 2011 IFRS Foundation

Section 7 ± foreign currency and hedging 61 ‡ Foreign currency: record CFs at the exchange rate on the date of the cash flow ‡ Hedge accounting: CFs of the hedging instrument are classified same way as CFs of hedged item © 2011 IFRS Foundation .

Section 7 ± non-cash transactions ‡ Exclude from statement of cash flows ± however. disclose elsewhere in the financial statements (eg notes) ‡ Examples ± finance lease (initial recognition) ± issue own equity to acquire business ± convert debt into equity 62 © 2011 IFRS Foundation .

The IFRS for SMEs 63 Section 8 Notes to the Financial Statements © 2011 IFRS Foundation .

‡ Section 8 sets out the principles for presenting note disclosures ‡ Other sections require note disclosures © 2011 IFRS Foundation .Section 8 ± scope 64 Notes provide additional information narrative descriptions or disaggregations of items presented in statements and information about items that do not qualify for recognition.

Section 8 ± overview of notes 65 ‡ Notes are presented systematically and cross-reference to FS ‡ Notes present information about ± basis of presentation ± specific accounting policies used ± information about judgements and key sources of estimation uncertainty ‡ Notes disclose ± the information required by the IFRS for SMEs that is not presented elsewhere ± other information that is relevant to an understanding of the FS © 2011 IFRS Foundation .

Section 8 ± order of presentation ‡ 1st: statement of compliance (IFRS for SMEs) ‡ 2nd: summary of significant accounting policies applied ‡ 3rd: supporting information for items presented in FS. follow sequence in FS ‡ 4th: other disclosures © 2011 IFRS Foundation 66 .

Section 8 ± accounting policies 67 ‡ Disclose: ± measurement bases used ± other relevant accounting policies used ± information about judgements made in applying accounting policies that have the most significant effect on the FS ± information about key sources of estimation uncertainty that have a significant risk of causing a material adjustment within 1 year (including their nature and carrying amount) © 2011 IFRS Foundation .

Section 8 ± examples of judgements in applying accounting policies 68 ± Whether outflow is more likely than not re a present obligation = recognise a liability? ± Whether a lease transfers substantially all risks and rewards of ownership = finance or operating lease? ± When risks and rewards transfer for goods sold = when to recognise revenue? ± Whether arrangement = sales of goods or financing? ± Whether controls exists = whether to consolidate? © 2011 IFRS Foundation .

The entity¶s commitment to make future non-cancellable lease payments for the use of the jet is set out in note 40. Had the lease been judged to be a finance lease. the entity would have recognised the leased asset and a corresponding lease liability and it would have apportioned lease payments between finance costs and the repayment of the liability. * see example 3 in Module 8 of the IFRS Foundation training material © 2011 IFRS Foundation . However. It is not clear whether the lease transfers substantially all the risks and rewards incidental to ownership. management judge the lease to be an operating lease and therefore the lease is accounted for as an executory contract. It would also have depreciated the leased asset over its useful life.Section 8 ± judgement in applying AP 69 ‡ Ex 3* lease classification In 20X3 A entered into an agreement (as lessee) for the use of an executive jet.

Section 8 ± key measurement assumptions 70 ‡ Ex 4* Fair value of financial instruments Financial assets and financial liabilities that are not basic financial instruments (see note 12) are carried at their fair value. When no active market exists. or when quoted prices are not otherwise available. and models where some of the input parameters are unobservable. with changes in fair value recorded in profit or loss. fair value is determined using a variety of valuation techniques including present value methods. * see example 4 in Module 8 of the IFRS Foundation training material © 2011 IFRS Foundation . models based on observable input parameters. In these circumstances. judgement is required in determining fair value.

and with actual values when realised. in order to further validate and calibrate our models. and periodically reviewed thereafter. © 2011 IFRS Foundation .Section 8 ± key measurement assumptions 71 ‡ Ex 4 continued: Valuation models are used primarily to value derivatives transacted in the over-the-counter market. valuations derived from models are compared with quoted prices of similar financial instruments. including credit derivatives and unlisted securities with embedded derivatives. All valuation models are validated before they are used. by independent qualified financial instrument valuation experts. Wherever possible.

Management therefore establishes valuation adjustments to cover the risks associated with the estimation of unobservable input parameters and the assumptions within the models themselves. volatility. When such factors are not market observable. time value.Section 8 ± key measurement assumptions 72 ‡ Ex 4 continued: Our models incorporate information about the actual or estimated market prices and rates. we use market observable prices and rates derived from market verifiable data. When available. changes in assumptions could affect the reported fair value of financial instruments. market depth and liquidity among others. However. estimating fair value inherently involves a significant degree of judgement. © 2011 IFRS Foundation . The models are applied from one period to the next.

based on the controls and procedural safeguards employed. required in establishing fair values. deteriorating creditworthiness (including country-specific risks). Although a significant degree of judgement is. management believes the fair values recorded in the statement of financial position and the changes in fair values recorded in the statement of comprehensive income are reflective of the underlying economics. in some cases. concentrations in specific types of instruments and market risk factors (interest rates. and market depth and liquidity.Section 8 ± key measurement assumptions 73 ‡ Ex 4 continued: Valuation adjustments are also made to reflect such elements as aged positions. currencies etc). © 2011 IFRS Foundation .

Section 8 ± key measurement assumptions ‡ Ex 4 continued: 74 Nevertheless. we estimate that fair value could lie in a range from CU500.000 lower to CU500. For all financial instruments carried at fair value which rely on assumptions for their valuation.000 higher than the fair values of CU2.000. management have estimated the effect that a change in assumptions to reasonably possible alternatives could have on fair values where model inputs are not market observable.000 (see note 12) recognised in the financial statements. © 2011 IFRS Foundation .

The IFRS for SMEs 75 Section 10 Accounting Policies. Estimates and Errors © 2011 IFRS Foundation .

Section 10 ± scope Section 10 ‡ Provides guidance for selecting and applying the accounting policies ‡ Specifies accounting for ± changes in accounting estimates ± corrections of errors in prior period financial statements 76 © 2011 IFRS Foundation .

Section 10 ± accounting policies hierarchy77 ‡ If IFRS for SMEs addresses an issue, must follow IFRS for SMEs ‡ If not ± choose policy that results in most relevant and reliable information by ±1st try to analogise from requirements in other sections ±2nd use concepts/pervasive principles in Section 2 ±may also (not required) look to full IFRSs
© 2011 IFRS Foundation

Section 10 ± accounting policies hierarchy78 ‡ Ex 5*: A received a grant of CU50,000 from a non-government development agency to set up farming operations in a specified rural area.
IFRS for SMEs does not specify how to account for a grant from a non-government agency. However, it specifies how to account for government grants (Section 24 Government Grants). By analogy, A should account for the grant received in accordance with Section 24.
* see example 5 in Module 10 of the IFRS Foundation training material
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Section 10 ± consistency of acc. policies

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‡ Select and apply its accounting policies consistently for similar transactions, other events and conditions ‡ Change accounting policy only if ± is required by change to IFRS for SMEs (compulsory) ± results in reliable and more relevant information (voluntary)

© 2011 IFRS Foundation

equity method.10). Sect 14 requires A choose cost. * see example 7 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . or fair value. Because it cannot determine the fair value of its investment in associate B. it measures it using the cost model.80 Section 10 ± accounting policies ‡ Ex 7*: A measures invest¶s in associates at fair value. If choose fair value still use cost for investments if impracticable to measure fair value reliably without undue cost or effort (see paragraph 14. A¶s accounting policy is acceptable.

None of A¶s investments are traded in a public securities market. policy = account for investments in associates at fair value and jointly controlled entities at cost. Its policy for associates need not be the same as its policy for jointly controlled entities. * see example 9 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . A¶s accounting policies are acceptable.Section 10 ± accounting policies 81 ‡ Ex 9*: A¶s acc.

Section 10 ± change in accounting policy82 ‡ Change accounting policy if ± if mandated. retrospective application ±impracticability exemption ‡ Disclosures © 2011 IFRS Foundation . follow the transition guidance as mandated ± if voluntary.

000 each * see example 20 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation .000 less profit for each of the past four years).Section 10 ± retrospective application 83 ‡ Ex 20*: In 20X7 A voluntarily changed an accounting policy. Presented as a restatement of: ±retained earnings at 1/1/20X5²reduce by CU50.000 ±profit 20X5 & 20X6²reduce by CU25. The entity presents two years of comparative information.000 in retained earnings at 1/1/20X7 (ie CU25. The cumulative effect of the change is a decrease of CU100.

Section 10 ± impracticability exemption 84 ‡ Ex 21*: Facts same as Ex 20. Except.000 (no adjustment to 20X5 & 20X6) ±additional disclosures * see example 21 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . it is impracticable to determine the individual period effects of the change of policy. Presented as a restatement of: ±retained earnings at 1/1/20X7²reduce by CU100.

are not corrections of errors. accordingly.Section 10 ± accounting estimate 85 The use of reasonable estimates is an essential part of accounting. Changes in accounting estimates result from new information or new developments and. © 2011 IFRS Foundation .

© 2011 IFRS Foundation . reliable information that: ± was available when financial statements for those periods were authorised for issue. and ± could reasonably be expected to have been obtained and taken into account in the preparation & presentation of those financial statements. and misstatements in. or misuse of. financial statements for prior periods arising from a failure to use.Section 10 ± errors 86 Prior period errors are omissions from.

Section 10 ± change in estimate 87 ‡ Account for changes in accounting estimates prospectively ‡ Disclose ± nature of change and the effect of the change on assets. estimates of the effect of the change in one or more future periods © 2011 IFRS Foundation . income and expense for the current period ± if practicable. liabilities.

Section 10 ± correcting errors 88 ‡ Correct prior period errors retrospectively (ie restate comparative figures) ‡ Disclose ± nature of the error ± financial effects (each line-item) ± an explanation if it is not practicable to determine the financial effects © 2011 IFRS Foundation .

and straight-line depreciation as most appropriate method. Residual value = CU100. * see example 28 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . fair value at CU800. Useful life = 30 years. Straight-line method of depreciation. At 31/12/20X9.000. residual value at nil.000.000. A reassessed the yacht as follows: useful life at 20 years from 1/1/20X1.000. as a result of research in 20X9.Section 10 ± change in estimate 89 ‡ Ex 28*: On 1/1/20X1 A buys yacht for CU1.

Section 10 ± change in estimate 90 ‡ Ex 28 continued: The reassessment of the yacht¶s useful life and its residual value are changes in accounting estimates.* * for accounting entries see example 32 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . The revised assessments are appropriately made on the basis of new information that arose from research performed in the current reporting period²20X9.

* see example 29 in Module 10 of the IFRS Foundation training material © 2011 IFRS Foundation . A believed the research to be valid but chose to ignore it until 20X9. The comparative figures in its 20X9 financial statements must be restated to correct the effects of the prior period errors [if material].Section 10 ± prior period error 91 ‡ Ex 29*: Same as Ex 28. the research was publicly available in late 20X5. ‡ A¶s 20X5±20X8 financial statements include errors. except.

The IFRS for SMEs 92 Section 30 Foreign Currency Translation © 2011 IFRS Foundation .

It may also present its FS in a foreign currency.93 Section 30 ± background An entity can have transactions in foreign currencies and it can have foreign operations. © 2011 IFRS Foundation . Accounting for financial instruments denominated in a foreign currency and hedge accounting of foreign currency items are dealt with in Sections 11 and 12 (session on PM day-2 of this workshop).

It also specifies disclosures. © 2011 IFRS Foundation .Section 30 ± scope 94 Section 30 prescribes how to: ±determine an entity¶s functional currency ±measure foreign currency transactions ±include foreign operations in FS (see session on PM day-3 of this workshop) ±translate FS into a presentation currency (see session on PM day-3 of this workshop).

Section 30 ± functional currency 95 ‡ Each entity identifies its functional currency the currency of the primary economic environment in which the entity operates (ie normally the one in which it primarily generates and expends cash) ‡ A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency (ie a currency other than the entity¶s functional currency) © 2011 IFRS Foundation .

© 2011 IFRS Foundation .Section 30 ± determine functional currency96 ‡ Most important factors to consider when determining an entity¶s functional currency: ± the currency: ±that mainly influences sales prices (often the currency in which its sales are denominated and settled). and ±of the country whose competitive forces and regulations mainly determine its sales prices. material & other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled). ± the currency that mainly influences labour.

Section 30 ± disclose functional 97 currency ‡ Disclose currency in which financial statements are presented ‡ If presentation currency is not functional currency disclose: ± that fact ± the functional currency ± reason for using a different presentation currency ‡ When functional currency of entity or a significant operation changes disclose: ± that fact ± reason for the change © 2011 IFRS Foundation .

events and conditions ± eg a change in the currency that mainly influences the sales prices of goods and services ‡ Accounted for change prospectively ± translate all items using the exchange rate at the date of the change ± resulting translated amounts for nonmonetary items are treated as their historical cost © 2011 IFRS Foundation .Section 30 ± change functional currency 98 ‡ Change functional currency only if change to underlying transactions.

Section 30 ± foreign currency transaction 99 ‡ Initial recognition ± measure a foreign currency transaction in the functional currency using the spot exchange rate on the date when the transaction first qualifies for recognition © 2011 IFRS Foundation .

On 1/12/20X1 A recognises inventories and trade payables of CU200. On 1/12/20X1 A buys goods on credit for FCU100.000. © 2011 IFRS Foundation .Section 30 ± examples initial recognition 100 ‡ Ex 1: A¶s functional currency is CU.000 (FCU denominated) when spot currency exchange rate = FCU1:CU2.

000. © 2011 IFRS Foundation . On 1/12/20X1 A buys an investment property for FCU100.Section 30 ± examples initial recognition 101 ‡ Ex 2: A¶s functional currency is CU.000 when the spot currency exchange rate = FCU1:CU2 (ie A pays CU200.000). A accounts for the investment property at its fair value. On 1/12/20X1 A recognises its investment property at CU200.

and ± translate non-monetary items that are measured at fair value in a foreign currency using the exchange rates at the date when the fair value was determined. ± translate non-monetary items that are measured in terms of historical cost in a foreign currency using the exchange rate at the date of the transaction.Section 30 ± subsequent measurement 102 ‡ At the end of each reporting period ± translate foreign currency monetary items using the closing rate. © 2011 IFRS Foundation .

13). in profit or loss when the exchange differences arise (ie on settlement or on retranslating (exception see paragraph 30. ‡ Non-monetary items ± recognise exchange differences (in profit or loss or OCI) follows classification of the underlying item. ‡ Disclose ± amount of exchange differences recognised in profit or loss (excluding those on items carried using the fair value model) © 2011 IFRS Foundation .Section 30 ± translation gains and losses 103 ‡ Monetary items ± recognise.

Section 30 ± subsequent measurement 104 ‡ Ex 1 continued: On 31/12/20X1 (A¶s year-end) the spot currency exchange rate = FCU1:CU2.000 and recognises loss of CU10.000 to settle the FCU100.000 payable and recognises gain of CU5.000 in profit or loss. On 1/2/20X2 when the spot rate = FCU1:CU2.1.000 liability. At 31/12/20X1 A reports the trade payable at CU210. On 1/2/20X2 A derecognises the FCU100.05 A pays CU205. © 2011 IFRS Foundation .000.

Section 30 ± subsequent measurement 105 ‡ Ex 2 continued: On 31/12/20X1 (A¶s financial year-end) the fair value of the investment property = FCU100. © 2011 IFRS Foundation .000 and records a gain of CU10.000 as a change in fair value (rather than exchange difference) in profit or loss.000 (ie coincidentally no change) and the spot currency exchange rate = FCU1:CU2.1. At 31/12/20X1 A remeasures the investment property at CU210.

Section 30 ± subsequent measurement 106 ‡ Ex 3: Same as Ex 2 except: ± A accounts for its investment property using the cost model (because its fair value cannot be measured reliably on an ongoing basis). © 2011 IFRS Foundation .000 (ie no remeasurement because it is a nonmonetary asset carried at historical cost). At 31/12/20X1 A records the investment property at CU200.

Section 30 ± presentation & disclosure ‡ The amount of exchange differences recognised in profit or loss (other than those arising from fair value changes) 107 ‡ Non-monetary items ± recognise exchange differences (in profit or loss or OCI) follows classification of the underlying item. © 2011 IFRS Foundation .

The IFRS for SMEs 108 Section 32 Events after the End of the Reporting Period © 2011 IFRS Foundation .

favourable and unfavourable. © 2011 IFRS Foundation .Section 32 ± scope 109 Events after the end of the reporting period are those events. that occur between the end of the reporting period and the date when the financial statements are authorised for issue.

Section 32 ± types of events 110 Two types of events after the end of the reporting period ± adjusting events those that provide evidence of conditions that existed at the end of the reporting period ± non-adjusting events those that are indicative of conditions that arose after the end of the reporting period © 2011 IFRS Foundation .

or a statement that estimate cannot be made © 2011 IFRS Foundation . disclose: ±the nature of the event. and ±an estimate of its financial effect. However.Section 32 ± accounting and reporting 111 ‡ Adjusting events²adjust the amounts recognised (and update disclosures made) in its financial statements ‡ Non-adjusting events²do not adjust the amounts recognised in its financial statements.

000.000. Before its 20X5 financial statements were authorised for issue. A discovered a latent defect in one of its lines of products. Measure warranty provision at CU150.112 Section 32 ± example adjusting event ‡ Ex 7*: On 31/12/20X5 A assessed its warranty obligation as CU100. It reassessed its warranty obligation at 31/12/20X5 at CU150. Adjusting event latent defect existed at 31/12/20X5. * see example 7 in Module 32 of the IFRS Foundation training material © 2011 IFRS Foundation .000 at 31/12/20X5.

000. * see example 12 in Module 32 of the IFRS Foundation training material © 2011 IFRS Foundation . At 31/12/20X0 the fair value of A¶s investment in B¶s publicly traded shares = CU20. On 28/2/20X1 fair value of shares = CU25.000.Section 32 ± example non-adjusting event113 ‡ Ex 12*: On 28/2/20X1 A¶s 31/12/20X0 FS authorised for issue.

it must give additional disclosure see paragraph 32.10. © 2011 IFRS Foundation .Section 32 ± example non-adjusting event114 Ex 12 continued: Non-adjusting event the change in the fair value results from conditions that arose after 20X0. A does not adjust the amounts recognised in its financial statements. However.

* see example 15 in Module 32 of the IFRS Foundation training material © 2011 IFRS Foundation .000.000 unhedged non-current liability at CU4.000. 115 At 31/12/20X0 spot ex rate = CU2:FCU1.000 in SOFP.Section 32 ± disclosure non-adjusting ‡ Ex 15*: 1/3/20X1 A¶s 31/12/20X0 FS authorised for issue when spot ex rate = CU2.5:FCU1. A measured its FCU2.

000. © 2011 IFRS Foundation .5:FCU1.Section 32 ± disclosure non-adjusting ‡ Ex 15 continued: 116 Note 20 Events after the end of the reporting period The financial statements were authorised for issue on 1 March 20X1 when the exchange rate was CU2. The deterioration of the exchange rate from CU2:FCU1 at 31 December 20X1 has increased the expected settlement amount of the FCU-denominated liability by CU1.000.

The IFRS for SMEs 117 Section 33 Related Party Disclosures © 2011 IFRS Foundation .

© 2011 IFRS Foundation .Section 33 ± scope 118 FS include disclosures necessary to draw attention to the possibility that an entity¶s financial position and performance have been affected by the existence of related parties and by transactions and outstanding balances with such parties. Assess the substance of the relationship and not merely its legal form.

± (ii) has control over the reporting entity. © 2011 IFRS Foundation .Section 33 ± related parties defined 119 ‡ (a) A person or a close member of that person¶s family that ± (i) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. or ± (iii) has joint control or significant influence over the reporting entity or has significant voting power in it.

Section 33 ± related parties defined continued120 J is owned and managed by the X family²Mr and Mrs X and their 2 children (Ms Y and Ms Z). X family Mrs X Operations Director Mr X Administration Director Ms Y Financial Director Ms Z Sales Director 25% 25% 25% 25% Entity J © 2011 IFRS Foundation .

Y & Z are related parties to J (33. Y & Z are related to J (33. Y would be in control of J (33.2(a)(i)) © 2011 IFRS Foundation .2(a)(iii)) ‡ X. Y & Z are related parties to J (33. X.Section 33 ± related parties defined continued121 Related parties ‡ X. X.2(a)(iii)) ‡ If Y (the dominant party) acts for the family. X. X.2(a)(ii)) ‡ If X. X. Y & Z contractually agree sharing control over J.

Section 33 ± related parties defined continued122 ‡ (b)An entity if any of the following conditions applies: ± (i) the entity & the reporting entity are members of the same group (parent. ± (ii) either entity is an associate or joint venture of the other entity (or of a member of a group of which the other entity is a member). subsidiary & fellow subsidiary are related to the others). © 2011 IFRS Foundation . ± (iii) both entities are joint ventures of a third entity.

Section 33 ± related parties defined continued123 ‡ (b)An entity if any of the following conditions applies continued: ± (iv) either entity is a joint venture of a third entity and the other entity is an associate of the third entity. ± (v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the plan.
© 2011 IFRS Foundation

Section 33 ± related parties defined continued124 Entity X

Entity A

Entity B

Are A and B related parties?
© 2011 IFRS Foundation

Section 33 ± related parties defined continued125
X¶s influence over B
Control Control
Yes ± 33.2(b)(i) Yes ± 33.2(b)(ii) Yes ± 33.2(b)(ii)

Joint control
Yes ± 33.2(b)(ii) Yes ± 33.2(b)(iii) Yes ± 33.2(b)(iv)

Significant influence
Yes ± 33.2(b)(ii) Yes ± 33.2(b)(iv)

X¶s influence over A

Joint control
Significant influence

Not related

© 2011 IFRS Foundation

± (viii) a person identified in (a)(ii) has significant influence over the entity or significant voting power in it. ± (vii) a person identified in (a)(i) has significant voting power in the entity.Section 33 ± related parties defined continued126 ‡ (b)An entity if any of the following conditions applies continued: ± (vi) the entity is controlled or jointly controlled by a person identified in (a). © 2011 IFRS Foundation .

has control or joint control over the reporting entity or has significant voting power in it. or a close member of that member¶s family. © 2011 IFRS Foundation .Section 33 ± related parties defined continued127 ‡ (b)An entity if any of the following conditions applies continued: ± (ix) a person or a close member of that person¶s family has both significant influence over the entity or significant voting power in it and joint control over the reporting entity. ± (x) a member of the key management personnel of the entity or of a parent of the entity.

Section 33 ± related parties defined continued128 Family X Entity A Entity B Are A and B related parties? © 2011 IFRS Foundation .

2(b)(ix) Family X¶s influence over Entity A SVP KMP SI Not related Yes ± 33.2(b)(viii) JC Yes ± 33.2(b)(x) Yes ± 33.2(b)(vii and x) SI Yes ± 33.2(b)(ix) Yes ± 33.2(b)(viii) Yes ± 33.Section 33 ± related parties defined continued129 Family X¶s influence over Entity B Control Control JC Yes ± 33.2(b)(vi) Yes ± 33.2(b)(viii) Yes ± 33.2(b)(viii) Yes ± 33.2(b)(ix) KMP Yes ± 33.2(b)(vii and x) Not related Not related Not related Not related Not related Not related .2(b)(vi) Yes ± 33.2(b)(x) Yes ± 33.2(b)(vi) Yes ± 33.2(b)(x) Yes ± 33.2(b)(ix) SVP Yes ± 33.2(b)(vi) Yes ± 33.2(b)(x) Yes ± 33.

© 2011 IFRS Foundation . and government departments and agencies. distributor or general agent with whom an entity transacts a significant volume of business. public utilities.Section 33 ± not necessarily related party 130 ‡ 2 entities simply because of common director ‡ 2 venturers simply because they share joint control ‡ Simply by virtue of their normal dealings with an entity: providers of finance. ‡ A customer. supplier. trade unions. merely by virtue of the resulting economic dependence. franchisor.

131 Section 33 ± relationship disclosures ‡ Disclose related party relationship only if an entity has related party transactions ‡ Exception²disclose parent-subsidiary relationship irrespective of whether there are related party transactions ± including name of its parent and ultimate controlling party ± if neither parent nor ultimate controlling party produces FS available for public use then also disclose name of the next most senior parent that does do so © 2011 IFRS Foundation .

Section 33 ± relationship disclosures 132 ‡ Disclose key management personnel compensation in total ± this disclosure is in addition to disclosures about related party transactions (see following slides) © 2011 IFRS Foundation .

outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements. ‡ If an entity has a RPT it discloses information about the transactions. regardless of whether a price is charged. © 2011 IFRS Foundation . ‡ Do not state RPT made on terms equivalent to arm¶s length transactions unless can be substantiated. services or obligations between a reporting entity and a related party.Section 33 ± related party transactions 133 A RPT is a transfer of resources.

± expense recognised for RP bad/doubtful debts. and the nature of the consideration to be provided in settlement.134 Section 33 ± RPT disclosures ‡ RPT disclosures include (at minimum): ± the amount of the transactions ± the amount of outstanding balances and: ±their terms and conditions. © 2011 IFRS Foundation . and ±details of any guarantees given or received. ± provisions for uncollectible RP receivables. including whether they are secured.

joint control or significant influence ± key management personnel of the entity or its parent (in the aggregate) ± other related parties © 2011 IFRS Foundation .135 Section 33 ± aggregation ‡ Disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of RPTs on the financial statements ‡ Disclose separately for each of ± entities with control. joint control or significant influence over the entity ± entities over which the entity has control.

© 2011 IFRS Foundation . and ± another entity that is a related party because the same state has control. regional or local government) that has control. joint control or significant influence over the reporting entity. 136 ‡ Exemption applies to transaction disclosures only (ie the nature of the relationship must be disclosed).Section 33 ± exemption from RPT discl. ± a state (a national. joint control or significant influence over both the reporting entity and the other entity.

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