Acca Ias & Ifrs List 2014

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Danny Beusch Kaplan Publishing & Kaplan Financial

July 2014

Summary of key provisions of IAS & IFRS which may be relevant to ACCA

financial reporting and audit papers for December 2014 and June 2015

examinations

2010 Conceptual Framework for Financial Reporting

Relevant for both F7 Financial Reporting and P2 Corporate Reporting

Objectives:

Meets the needs of a range of users

Financial performance as per PorL

Financial position as per SOFP

reporting entity:

Separate legal entity

Commercial substance of corporate group

qualitative characteristics:

fundamental characteristics of relevance and faithful representation

enhancing characteristics of comparability, verifiability, timeliness and understandability

elements of financial statements:

Assets rights to future economic benefits as a result of a past transaction or event

Liabilities future obligations to transfer economic benefits as a result of a past

transaction or event

Equity residual interest in an entitys assets after deduction of all liabilities

Income the increase in economic benefits during an accounting period

Expanses decreases in economic benefits during an accounting period

recognition in financial statements:

Recognise if it meets the definition of an element of the financial statements, it is

probable that there will be an inflow or outflow of economic benefits and it can be

reliably measured.

measurement in financial statements

Usually historical cost or fair value, but could be present value or amortised cost

presentation of financial information useful to users of FS

Primary statements plus disclosure notes

accounting for interests in other entities

Single company, associate and joint venture, subsidiary and group

Note you may want to refer to your ACCA Paper F7 Financial Reporting and P2

Corporate Reporting study materials for further detailed information.

Note you should not rely upon this document for knowledge and understanding of

all aspects of these reporting standards and other examinable documents; rather

they should be used as an aid or as a prompt to your studies.

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July 2014

IAS 1 Presentation of financial statements

Provides formats for classification and presentation of financial information

Identifies components of financial statements

Items of OCI must be classified as either items that may be reclassified to profit or loss in

future periods, or those items which will not be reclassified in future periods

IAS 2 - Inventories

Valued at lower of cost and estimated selling price less selling costs (i.e. NRV) for each

separate item or product

Include all costs of getting item or product to current location and condition

IAS 7 Statement of cash flows

Standard format choice between direct or indirect method indirect normally used

Three standard headings = operating, investing and financing within standard heading,

items can be in any order

Normally begin operating activities with profit before tax and adjust for non-cash items

IAS 8 Accounting policies, changes in accounting estimates and errors

Accounting policies should be appropriate and relevant, be consistently applied and be

disclosed

Changes in estimates are taken to statement of profit or loss e.g. change in depreciation

method or revised estimate of NRV

Changes in accounting policy and fundamental errors should be accounted for as a Prior

Period Adjustment to re-state the opening position and comparative information

IAS 10 Events after the reporting period

Definition those events between SOFP date and date of approval of financial statements

Adjusting events those which provide additional evidence of the situation existing at the

SOFP date e.g. insolvency of major debtor notified shortly after the reporting date

Non-adjusting events those which do not provide evidence of the situation at the SOFP

date e.g. share issue after the reporting date. Disclose only, but may become adjusting

event if going concern basis threatened.

IAS 11 - Construction contracts

This is not relevant for paper P2

Long-term defined as contract straddling two or more accounting periods

Recognise foreseeable losses prudent

Recognise element of attributable profit matching

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July 2014

IAS 12 Income Taxes

Tax on company income charge in profit or loss and recognise as a liability

Deferred tax based upon full provision at reporting date:

Permanent differences ignored

Temporary differences in accounting and tax treatment accounted for, e.g.

Depreciation charge and tax allowances on PPE

Share options annual expense and allowed for tax when exercised

Defined benefit pension plans annual charge and contributions allowed for tax

Need to consider recoverability of deferred tax assets asset ceiling limit

IAS 16 Property, plant & equipment

Initial measurement cost directly attributable to bringing the asset into working condition;

now compulsory to capitalise finance costs.

Capitalise subsequent expenditure which enhances economic benefits of the asset.

May be revalued take revaluation to other comprehensive income; continue to depreciate

asset over remaining expected useful life. Disclose name, date and qualifications of valuer.

Commence depreciation when asset available for use and charge to reflect economic

benefits consumed during the period

May be possible not to charge depreciation if it is immaterial due to very long expected

useful life of asset and/or high residual values. If this is the case, asset to be maintained to a

high standard and is unlikely to suffer from economic or technical obsolescence.

Refer also to IAS 36 impairment of assets.

IAS 17 - Leases

Operating lease any lease not a finance lease hire charges to IS on straight-line basis

Finance lease:

substantially all of economic useful life of asset and transfer of risks and rewards to less

capitalise asset and liability at FV

depreciation charge and finance cost charged to profit or loss

Sale and leaseback transactions:

Operating leaseback derecognise asset and recognise gain or loss on disposal

Finance leaseback:

defer gain or loss on disposal and amortise over lease term

recognise finance lease asset and finance lease obligation

account for annual depreciation charge and finance costs in IS

IAS 18 Revenue

Revenue should be recognised in the period to which it relates

When has revenue been earned?

o When risks and rewards have been transferred

o When work or service has been substantially delivered or performed

o Upon identification of a critical point in a commercial relationship

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July 2014

IAS 19 (revised) Employee benefits

Not in F7 Financial Reporting syllabus

Defined contribution scheme recognises annual cost of pension contribution

Defined benefit scheme:

Net interest component charged to profit or loss in the year

apply discount rate to net obligation at start of year

includes increase in plan assets due to passage of time

service cost component charged to profit or loss in the year

current year service cost

past service costs recognised in full when announced

gains and losses on curtailments and settlements part of service cost

remeasurement component taken to other comprehensive income in the year

actuarial gains and losses on plan assets and plan obligation

income and gains/losses on plan assets, other than included as part of net interest

component

Short-term employee benefits wages and salaries, benefits-in-kind etc on accruals basis

Termination benefits recognise when there is a commitment to make such payments

Other long-term employee benefits account for in similar way to defined benefit plans

IAS 20 Accounting for government grants

Match revenue grants against expense to which they relate

Match capital grants with assets to which they relate two possibilities

account for gross cost of asset and deferred income on SOFP

preferred treatment as it provides more information

account only for net cost of asset on SOFP

IAS 21 The effects of changes in foreign exchange rates

Not in F7 Financial Reporting syllabus.

Use exchange rate ruling at date of transaction to record in FS

Non-monetary items (e.g. NCA, inventory) are not restated

Monetary items are re-translated at SOFP rate with gain or loss to PorL

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July 2014

Group FS:

Calculate goodwill in functional currency with annual retranslation at closing rate

Translate SOFP at closing rate

Translate incomes, expenses and OCI at average rate

Exchange gains and losses on retranslation of a foreign operation:

Net assets (opening net assets plus profit for year)

Goodwill

Total exchange gain/loss on retranslation taken to OCI for the year

Group share of exchange gain/loss on retranslation included in equity on SOFP

IAS 23 Borrowing costs

Compulsory to capitalise directly attributable borrowing cost during construction of a

qualifying non-current asset

IAS 24 Related party disclosures


Definition of a related party

Entities under common control or influence

directors

key staff able to control or influence transactions and/or their terms

employee defined benefits scheme

persons connected with any of the above

Must disclose existence of related parties, plus transactions and terms

IAS 27 (revised) Separate financial statements

Applies if consolidated financial statement not prepared disclose why

Disclose basis upon which subsidiaries, associates and joint arrangements have been

accounted for in these financial statements

IAS 28 (revised) Investment in associates and joint ventures

Associate - able to exert significant influence, but not control, another entity

Joint venture unanimous decision-making and entitled to share of net assets from JV

entity

Indicated by 20%-50% of equity shares in another entity

Consider if another entity owned (say) 70% - they would have outright control

IFRS 10 recognises that may still have influence, even if another has control

Equity accounting in group FS:

share of profit after tax for the year in PorL

cost plus share of profits/losses since gaining influence

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July 2014

IAS 32 - Financial Instruments Presentation

IAS 39 - Financial Instruments Recognition and Measurement

IFRS 7 Financial Instruments Disclosures

IFRS 9 - Financial Instruments

Use definitions of asset and liability per Framework to classify financial instruments

according to commercial substance

Returns on financial instruments in PorL to be classified on consistent basis as financial

instrument on SOFP

Split compound or hybrid instruments into liability and equity elements at inception.

Classification of financial assets per IFRS 9:

Fair value through PorL (FVTPorL) is normal default classification for all financial assets

Includes derivatives for speculation and financial assets held for trading

Fair value through other comprehensive income (FVTOCI)

can only apply to equity instruments only upon initial recognition

any impairment losses part of OCI movement in year

no recycling of impairment losses or of gains/loss on subsequent disposal

Financial assets measured at amortised cost must pass two tests:

business model test asset held to collect contractual cash flows

contractual cash flows characteristics test cash flows consist solely of payment of

interest and capital.

if either test failed, must be measured as FVTPorL

if at amortised cost, subject to annual impairment review

Financial liabilities classification of financial liabilities per IFRS 9 as either:

FVTPorL (like financial assets), includes derivatives for speculation and financial liabilities

held for trading

Other financial liabilities at amortised cost (if not at FVTPorL)

Note can still opt to measure liabilities at FVTPorL to eliminate or reduce financial

mismatch

Hedging currently still dealt with by IAS 39:

Must be formally documented at inception

Must be regularly reviewed to ensure still effective

FV hedge take changes in FV of hedged item and hedge instrument (i.e. derivative) to

PorL

Cashflow hedge take changes in FV of hedge instrument (i.e. derivative) to OCI.

IAS 33 Earnings per share

EPS = Profit after tax, NCI and pref dividends

Weighted average no. of equity shares

Consider:

o Market issue at full price calculate weighted ave no of equity shares in issue

o Bonus issue free shares treat as if had always been in issue and restate

comparative

o Rights issue treat partly as bonus issue and partly as issue at full market price

o Diluted EPS convertible debt and share option schemes

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July 2014

IAS 34 Interim financial reporting

Not in F7 Financial Reporting syllabus.

May be required by local law or listing regulations

Include condensed SOFP with comparative dated at end of previous financial year-end.

Include condensed PorL, plus cumulative for year to date, plus comparatives

Include condensed SOCIE plus statement of cash flows, plus comparatives for each

statement

Include selected explanatory notes including any change in accounting policy or significant

adjustments from interim to annual financial statements

IAS 36 Impairment of assets

Definition reduction in recoverable amount below carrying value in the FS

Normally charge to PorL. If asset previously revalued, first set impairment against

revaluation reserve for that asset, with any residual amount taken to PorL.

May apply to individual asset, collection of assets or income(cash) generating unit

If IGU includes goodwill, then gross up net or proportionate goodwill to get total CV of IGU,

then apply impairment test any impairment is then first allocated against goodwill.

If there are several IGUs within a business (e.g. subsidiary), then two-stage impairment test

required:

First on each individual IGU

Then on business as a whole

Cannot write down an individual asset to an amount lower than its recoverable amount.

Normally only expected to perform impairment review if there is indication that asset(s)

may be impaired

Compulsory impairment review required annually:

IFRS 3 goodwill on acquisition

Financial assets

IAS 37 Provisions, contingent liabilities and contingent assets

Provision is a liability which has uncertainty regarding the exact amount to be paid and/or

the timing of such payments

It is the minimum unavoidable obligation and may be discounted to PV for long-term

provisions

May be the result of a legal or constructive obligation

It will exclude:

Future operating losses

Relocation and retraining of existing employees

Periodic repairs

Statements of future intention

Contingent liability a possible obligation arising from a past event which will only

be confirmed by the outcome of one or more future uncertain events

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July 2014

IAS 38 Intangible assets

Assets without physical substance which entity has the right to control and from which it

derives economic benefits

Apply either cost model or valuation model

Valuation model:

Any increase in valuation taken to OCI and equity on SOFP

requires that there is an active market for that asset rarely the case

Cost model normally adopted

If finite useful life, then amortise commence when asset is available for use.

If infinite life, or cannot reliably estimate finite life, then recognise at cost or valuation with

annual impairment review.

Research and development costs dealt with by IAS 38

Compulsory capitalisation if definition of development costs met

Otherwise immediate write-off to PorL

IAS 40 Investment property

Definition development completed, held for investment potential and may be rented

on arms length basis to non-group member.

Use cost model if so account for as IAS 16 and depreciate over expected useful life

Use valuation model:

no depreciation charged and keep valuation up to date

increase or decrease in valuation taken to PorL

IAS 41 Agriculture

Biological assets are living plants and animals

Initially valued at fair value less costs to sell

Revalued to fair value less costs to sell at the reporting date with the gain or loss in

profit or loss.

Agricultural produce is the harvested product on a biological asset

Initially measured at fair value less costs to sell.

Subsequently accounted for under IAS 2 Inventories.

IFRS 1 First-time adoption of International Financial Reporting Standards


Recognise assets and liabilities per Framework document and applicable IAS/IFRS

Measure assets and liabilities per applicable IAS/IFRS

Derecognise assets and liabilities that do not comply with IAS/IFRS

Re-state comparative year(s)

Provide reconciliation between old SOFP and opening IAS/IFRS SOFP

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July 2014

IFRS 2 Share-based payment


Equity settled recognise equity reserve and PorL charge each year, pro-rated over vesting

period. Use FV of option at grant date and estimate at each reporting date the expected

number of options likely to vest.

Cash settled recognise liability and PorL charge each year, pro-rated over the vesting

period. Use FV of SAR at each reporting date and estimate at each reporting date the

number of SARs likely to vest.

IFRS 3 Revised Business combinations

Part of convergence between IFRS and US GAAP

Costs incurred as part of acquisition are charged to PorL.

Need to estimate FV of any contingent and deferred consideration at acquisition date

Choice of goodwill accounting:

o Proportionate or net basis group share of goodwill only

o Gross or full goodwill method goodwill for business as a whole

o Choice made an acquisitionby-acquisition basis

Goodwill is a permanent intangible non-current asset subject to annual impairment review

Account for subsidiary recognition and derecognition only when control is acquired or lost

Account for any residual holdings at FV at date of transaction

Any disposal where control retained is a transaction between equity holders

IFRS 5 Non-current assets held-for-sale and discontinued activities

Comply with all following conditions to be classified as held for sale:

o Must be a commitment to sell

o Must be immediately available

o Must be in current condition

o Must be at realistic price

o Must be actively marketed

o Thus expect to be disposed of within 12 months

Perform impairment review and reclassify out of non-current assets

Cannot be held for sale in group FS if sale is to another group member

Separate disclosure of discontinued operation in statement of profit or loss defined as a

component of a business which has either been disposed of or is classified as held for sale

and:

o represents a separate major line of business or geographical area of business

o is part of a single co-ordinated plan to dispose, or

o is a subsidiary acquired exclusively with a view to sale.

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July 2014

IFRS 8 Operating segments


Identify segment if it accounts for 10% or more of any one of:

o Total profits earned by segments

o Total losses incurred by segments

o Assets

o Gross (Internal plus external) revenues generated

Minimum disclosure to account for 75% of external revenues, or need to disclose additional

segments

Segments based upon internal reporting and decision-making lines within the entity

IFRS 10 Consolidated financial statements

Elements of control:

o Power over the investee

o Exposure, or rights to, variable returns

o Ability to use that power

Subject to periodic review to determine whether control acquired/lost or continues

Definition recognises that it may be possible for one entity to have control, whilst another

has significant influence, in a third entity.

Potential voting rights (e.g. share options and convertible loans) must be capable of being

exercised.

Protective rights (e.g. able to approve issue of new debt or equity capital) normally only

apply in specified circumstances and are limited in application not usually indicative of

control.

Silos able to exercise control over a defined and ring-fenced portion of another entitys

assets and liabilities.

IFRS 11 Joint arrangements


Definition two or more parties having joint control which requires unanimous consent

Joint venture where parties have joint control and have rights to net assets of a separate

entity formed for the joint venture use equity accounting per IAS 28.

Joint operation parties have joint control and have rights to the assets and obligations for

the liabilities of the joint operation normally will not be a separate entity and parties agree

rights and responsibilities or particular activities within the joint operation. Each joint

operation party accounts for their own transactions and has amounts due to and from other

joint operation partners.

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July 2014

IFRS 12 Disclosure of interests in other entities


Single source of disclosure requirements in FS applicable to interests in subsidiaries,

associates and joint arrangements

Disclose assumptions and judgements made in determining status of investment(s)

Disclose restrictions on ability to exercise control or influence

IFRS 13 Fair value measurement

Does not apply to transactions covered by IAS 17 and IFRS 2

Provides single and standardised definition and source of guidance for fair value

measurements.

Definition the amount received to sell an asset or transfer a liability in an orderly (i.e. not

distress) transaction between willing parties in an arms length transaction at the

measurement date.

Presumed to take place in an active market principal or most advantageous market

Excludes transactions costs they are not a feature of the asset or liability to be valued

Introduces 3-tier hierarchy of inputs used for valuation:

o Level 1 identical assets or liabilities traded in an active market observable

o Level 2 similar assets or liabilities traded in an active market observable

o Level 3 other data used to determine fair value unobservable

IFRS for SME

Published July 2009 and normally requires approval within a country to be effective.

SME defined as unlisted entity and each county able to add additional or excluding

criteria such as banking financial services activities, charities, size criteria etc.

One focus point for framework and accounting treatment and disclosures for SME.

Expected to be updated approximately every three years.

Some topics excluded completely from IFRS for SME:

o Earnings per share

o Interim financial statements

o Segmental reporting

o Assets held for sale

Some topics simplified for IFRS for SME:

o Research and development always expensed

o Goodwill amortised over ten years

o No revaluation of PPE

o Finance costs never capitalised

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July 2014

The Integrated Reporting Framework

An integrated report (IR) is 'a concise communication about how an organisations strategy,

governance, performance and prospects, in the context of its external environment, lead to

the creation of value in the short, medium and long term.'

The IR Framework establishes 'guiding principles' and 'content elements' that govern the

overall content of an integrated report. This will help organisations to report their value

creation in ways that are understandable and useful to the users.

Acca Ias & Ifrs List 2014

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