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

Report
International Financial Reporting Standards
Overview of
display related
IFRSs
Joint World Bank and IFRS Foundation ‘train
the trainers’ workshop hosted by the ECCB,
30 April to 4 May 2012
K
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation.
not necessarily those of the IASB or IFRS Foundation.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 1
Presentation of Financial
Statements
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
3
• IAS 1 sets out overall requirements for
presenting financial statements, guidelines for
their structure and minimum requirements for
content.
• the nature and amount of economic resources
(and claims) is useful because different types of
resources affect a user’s assessment of the
entity’s prospects for future cash flows
differently.
• information about the variability and
components of the return produced is useful in
assessing the uncertainty of future cash flows.
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Financial Statements
4
• A complete set of financial statements comprises a
statement of financial position, statement of profit or
loss and comprehensive income, statement of
changes in equity, statement of cash flows & notes
(paragraph 10).
• Refer to the Implementation Guidance to IAS 1 in
Part B.
• Financial statements must present fairly the
financial position, financial performance and cash
flows of an entity (paragraph 15).
• complying with IFRSs (with additional disclosures)
is presumed to result in a fair presentation.
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General features
(paragraphs 25–46)
5
• Going concern
• financial statements may only be prepared on this basis if
management assess that this is appropriate
• Accrual basis of accounting
• Materiality
• Each material class of similar items is presented separately
• Dissimilar items are presented separately, unless they are
immaterial
• Materiality is determined by the potential of the information, or its
omission, to influence economic decisions made by users of the
financial statements
• Materiality is entity specific
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Examples—materiality decisions
6
Is the error material?
• Ex 1: Before its 20X8 FS approved for
issue discovered depreciation expense for
20X8 overstated by CU150. Ignored the
error (reported profit for 20X8 at
CU600,000, ie understated by CU150).
• Ex 2: Same as Ex 1, except had the error
been corrected the entity would have
breached a borrowing covenant on a
significant long-term liability.
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General features continued
7
• Offsetting
– not applicable unless required or permitted by IFRS
• Frequency of reporting
– at least annually
• Comparative information
– required unless IFRS specifies not
– consider comparatives when changing the presentation
or classifications of items
• Consistency of presentation
– retain the presentation and classification of items unless
IFRS requires a change or due to changes in an entity’s
operations another alternative would be more
appropriate.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Current/non-current distinction
8
• Presentation of current and non current assets
and liabilities as separate classifications on the
Statement of Financial Position
• The distinction is based on:
– timing of realisation or settlement of the asset or
liability
– primary purpose for holding the asset or liability
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Current/non-current distinction continued
9
• 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
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Current asset
10
• Current asset if
– expect to realise, sell or consume in
entity’s normal operating cycle
– held for trading
– expects to realise in next 12 months
– cash or equivalent, unless restricted for
+12 months
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 1—current assets
11
• Entity A produces whisky from barley,
water and yeast in a 24-month distillation
process. Inventories include barley and
yeast raw materials, partly distilled
whisky and distilled whisky.
Current assets—expected to be realised
(ie turned into cash) in the entity’s normal
operating cycle.
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Example 2—current assets
12
• On 1/1/20X7 B invested CU900,000 in
corporate bonds.
Fixed interest of 5% per year is payable
on 1 January each year.
Capital is repayable in 3 annual
instalments of CU300,000 each starting
31/12/20X8.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 2
continued
13
• At 31/12/20X7 A presents
– current assets—CU45,000 accrued
interest & CU300,000 capital
repayable on 31/12/20X8—expected
to be realised within 12 months
– non-current asset—CU600,000 in +12
months
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Current liability
• 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
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
14
Example 1—current liabilities
• An obligation to suppliers for the
purchase of raw materials.
Current liability—expected to settle
(ie pay) the supplier in the entity’s
normal operating cycle.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
15
Example 2—current liabilities
16
• At 31/12/20X7 A was in breach of a
covenant in a loan that is otherwise
repayable 3 years later. The breach
entitles (but does not oblige) the bank to
require immediate repayment.
At 31/12/20X7 the loan is a current
liability—at 31/12/20X7 A does not have
an unconditional right to defer settlement
for at least 12 months.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 3—current liabilities
17
• Same as in Ex 2 except after the end of
the reporting period (31/12/20X7) and
before the financial statements were
approved for issue, the bank formally
agreed not to demand early repayment
of the loan.
At 31/12/20X7 the loan is a current
liability—at 31/12/20X7 A does not have
an unconditional right to defer settlement
for at least 12 months.
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Comparison to the IFRS for SMEs
18
• Section 3 Financial Statement Presentation,
Section 4 Statement of Financial Position,
Section 5 Statement of Comprehensive Income and
Income Statement, Section 6 Statement of
Changes in Equity and Statement of Income and
Retained Earnings and Section 8 Notes to the
Financial Statements provide information similar to
that contained in IAS 1.
• The IFRS for SMEs simplifies presentation and
does not require the following:
– presentation of operating segments information
– presentation of EPS
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
19
• Retrospective restatement in full IFRSs requires
presentation of three statements of financial position.
The IFRS for SMEs requires only two.
• The IFRS for SMEs permits an entity to present a
statement of income and retained earnings in place of
the statement of comprehensive income and statement
of changes in equity if the only changes to its equity
during the periods for which financial statements are
presented arise from profit or loss, payment of
dividends, corrections of prior period errors, and
changes in accounting policy (see paragraph 3.18).
This option does not exist in full IFRSs.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
20
• The IFRS for SMEs has only three items of other
comprehensive income (OCI)—translating the financial
statements of a foreign operation, some changes in fair
values of hedging instruments and actuarial gains and
losses of defined benefit plans. Full IFRSs have more
items of comprehensive income (eg gains on the
revaluation of property, plant and equipment and
intangible assets).
• If the entity that applies full IFRSs classifies its
expenses by function, it is also required to disclose
information on the nature of expenses. The IFRS for
SMEs does not explicitly require these additional
disclosures of expenses by nature.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgement and Estimates
21
• Preparing financial statements requires judgement
and the use of estimates (eg materiality judgements
and going concern assessments—when it is
doubtful whether the entity has no realistic
alternative but to liquidate).
• IAS 1 requires disclosure of:
• judgements that management has made in the
process of applying the entity’s accounting
policies that have the most significant effect
• Information about major sources of estimation
uncertainty.
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Judgement and Estimates continued
22
• Preparing financial statements requires judgement
regarding the best way in which to present financial
information
• Financial statements are, generally, prepared on
the going concern basis—judgement may be
required when determining whether this basis is
appropriate.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 7
Statement of Cash Flows
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
24
• IAS 7 requires disclosures about the historical
changes in cash and cash equivalents of an entity
(refer to the Illustrative Examples to IAS 7 in Part B
for illustrative disclosure).
• That information helps users to:
• assess the entity’s ability to generate future net
cash inflows. It indicates how the reporting entity
obtains and spends cash.
• understand a reporting entity’s operations, evaluate
its financing and investing activities, assess its
liquidity or solvency and interpret other information
about financial performance.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Classification of activities
25
• Cash flows are classified by activities:
operating; investing; and financing.
• Investing activities are the acquisition and
disposal of long-term assets and investments
that are not cash equivalents (paragraph 16).
• Financing activities are changes in the equity
capital and borrowings of the entity (paragraph
17).
• Operating activities are the revenue-producing
activities of the entity, and all activities that are
not investing or financing.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 1
•
26
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
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Example 1 continued
•
27
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
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Direct method or indirect method
28
• There is a choice of ways of presenting cash
flows from operating activities (paragraph18):
– the direct method—gross cash receipts and
gross cash payments are shown
(paragraph 19). This method is encouraged.
– the indirect method—profit or loss is
adjusted to determine operating cash flow
(paragraph 20).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Other considerations
29
• Reporting on a net basis
– paragraph 22 illustrates cash flows that may be
reported on a net basis (ie cash receipts from items
with a quick turnover)
• Foreign currency cash flows (paragraphs 25 – 28)
– recorded in an entity’s functional currency.
– translation may give rise to exchange differences.
• Interest and dividends
– disclosed separately and presentation must be
consistent from period to period (ie which activity)
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Other considerations continued
30
• Income taxes
– Separate disclosure as an operating activity unless
specifically identified as another
• Investments in group entities
– Equity method: limited to cash flows between itself
and the investee
• Changes in ownership interest in subsidiaries
– Gross cash flows from gaining or losing control is
an investing activity
– Specific disclosure requirements (paragraph 40 and
Note A in the Illustrative Example to IAS 7 in Part B)
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Comparison to the IFRS for SMEs
31
• IFRS for SMEs does not explicitly:
– encourage entities to report cash flows from
operating activities using the direct method (see
paragraph 19 of IAS 7 Statement of Cash Flows,).
– require the reporting of particular cash flows on a
net basis (see paragraph 22 IAS 7 Statement of
Cash Flows).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
32
• The appropriate classification of cash flows into
each one of the activities reflects
management’s judgement.
• The information conveyed by a statement of
cash flows depends on the items treated as
‘cash and cash equivalents’. Cash equivalents
have a short maturity (three months at most)
and exclude equity investments.
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International Financial Reporting Standards
IAS 8
Accounting Policies, Changes in
Accounting Estimates and Errors
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The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
34
• IAS 8 sets out the criteria for selecting and
changing accounting policies and specifies the
accounting when an accounting policy is
changed.
• focus is on providing relevant and comparable
information in a cost-beneficial manner.
• It also specifies disclosures about changes in
accounting policies, changes in accounting
estimates and corrections of prior period errors.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Accounting Policies
35
• Disclose relating to accounting policies:
– 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)
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Judgements—
applying accounting policies
• Examples:
36
– 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?
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Accounting policy when no
specific requirement
37
• When no IFRS requirement specifically applies
to a transaction or event, management uses
judgement to develop and apply an accounting
policy that results in relevant and reliable
information (paragraph 10). In making that
judgement management considers (paragraphs
11 and 12):
• first, IFRSs that deal with similar issues
• then the definitions, recognition criteria and
measurement concepts in the Framework
• optional—current standards based on a similar
conceptual framework.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Changes in an accounting policies
38
• May only change policy if required to or resulting
information would be more relevant and reliable.
• A new or amended standard or interpretation may
require a change in an accounting policy and may
include specific transitional provisions (paragraph
19(a)).
• In other cases, changes in accounting policies are
applied retrospectively (ie prior period amounts are
adjusted as if the new policy had always been
applied) (paragraph 19(b)).
• Disclosure is made about the change and its effect
on the financial statements—refer to paragraph 22.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 1—voluntary change of
accounting policy
39
• In 20X7 A voluntarily changed an
accounting policy. The cumulative effect of
the change is a decrease of CU100,000 in
retained earnings at 1/1/20X7 (ie CU25,000
less profit for each of the past four years).
The entity presents two years of
comparative information.
Presented as a restatement of:
– retained earnings at 1/1/20X5—reduce by
CU50,000
– profit 20X5 & 20X6—reduce by CU25,000
each
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 2—voluntary change of
accounting policy
40
• Facts same as Ex 1. Except, it is impracticable
to determine the individual period effects of the
change of policy.
Presented as a restatement of:
– retained earnings at 1/1/20X7—reduce by
CU100,000 (no adjustment to 20X5 and
20X6)
– additional disclosures
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Accounting estimates
• Many items in financial statements cannot be
measured with precision and can only be
estimated.
• Accounting estimates are based on the latest
available information.
– estimates are revised as a result of new
information or changed circumstances.
• Consequently, a change in estimate is
recognised in the current period and future
periods affected (paragraph 36).
– prior period amounts are not adjusted.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
41
Example—change in accounting
estimate
42
• On 1/1/20X1 A buys yacht for CU1,000,000.
Useful life = 30 years. Residual value =
CU100,000. Straight-line method of
depreciation.
At 31/12/20X9, as a result of research in 20X9,
A reassessed the yacht as follows: useful life at
20 years from 1/1/20X1; residual value at nil;
fair value at CU800,000; and straight-line
depreciation as most appropriate method.
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Example—change in accounting
estimate continued
43
• The reassessment of the yacht’s useful life and
its residual value are changes in accounting
estimates. The revised assessments are
appropriately made on the basis of new
information that arose from research performed
in the current reporting period—20X9.*
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Errors
44
• Errors can arise from mistakes and oversights
or misinterpretations of available information.
• Errors are corrected in the first set of financial
statements issued after their discovery.
• Prior period amounts are restated as if the error
had never occurred.
• The error and the effect of its correction on the
financial statements are disclosed.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example—prior period error or change
in estimate, or both?
45
• Same as Ex on slide 42, except, the research
was publicly available in late 20X5. A believed
the research to be valid but chose to ignore it
until 20X9.
• A’s 20X5–20X8 financial statements include
errors. The comparative figures in its 20X9
financial statements must be restated to
correct the effects of the prior period errors [if
material].
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
46
• IAS 8 and Section 10 Accounting Policies,
Estimates and Errors of the IFRS for SMEs share
the same principles.
– However, the hierarchy applied in the absence of
an explicit requirement is different.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
47
• Developing an accounting policy in the absence
of a specific IFRS requirement requires
judgement.
• As a result of the uncertainties inherent in
business activities, many items in financial
statements are estimated. Estimation involves
judgements based on the latest available,
reliable information.
• Disclosing known or reasonably estimable
effects of the application of a new, but not yet
effective, IFRS will have on the entity.
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Judgements and estimates
48
• An entity may voluntarily change an accounting
policy only if the change will leads to ‘reliable’
and more relevant information—determining
whether this is the case involves judgement
• When correcting prior-period errors judgement
must be applied. For example in determining
• whether the prior period error is material
• whether is it practicable to determine the
period-specific effects of an error on
comparative information
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International Financial Reporting Standards
IAS 10
Events after the Reporting Period
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
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Introduction
50
• Specifies accounting and reporting for events
(favourable and unfavourable) that occur
between the end of the reporting period and the
date when the financial statements are
authorised for issue.
• Those events could affect a user’s resource
allocation decision even if they are indicative of
conditions that arose after the end of the
reporting period.
• How to report the event depends on whether
the event is indicative of a condition that existed
at the end of the reporting period.
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Principle for adjusting events
51
• Adjust financial statements for those events
after the reporting period that provide evidence
of conditions that existed at the end of the
reporting period.
• For example—settling a court case after the
end of the reporting period confirms the
existence of the present obligation at the
end of the reporting period and removes
uncertainties about the amount of the
obligation.
• Further examples are contained in
paragraph 9.
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Principle for non-adjusting events
52
• Do not adjust recognised amounts for
conditions that are indicative of conditions that
arose after the end of the reporting period
• Dividends declared after the reporting period
are not a liability at the end of the reporting
period because, at that time, there is no
obligation.
• However, disclose the nature and estimated
financial effect of non-adjusting events
• For example, changes in the market value of
investments or effects of changes in currency
exchange rates after the reporting period.
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Example—events after the end of the
reporting period
53
• At 31/12/20X7 when performing its year-end
physical ‘stock count’ management
observed the entity’s inventory in its newly
constructed warehouse was undamaged.
• In early January 20X8 much of the entity’s
inventory in its warehouse was damaged by
rain water that poured through a gaping
crack in the warehouse wall. The crack first
became visible in January 20X8.
Discussion question—are the events
described above adjusting or non-adjusting
events after the end of the reporting period?
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Comparison to the IFRS for SMEs
54
• IAS 10 and Section 32 Events after the End
of the Reporting Period of the IFRS for
SMEs share the same principles.
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Judgements and estimates
55
• Judging the materiality threshold for the
disclosure of non-adjusting events—such as a
major business combination or disposal, a plan
to discontinue an operation, fire affecting a
major production plant, changes in tax rates or
tax laws enacted or announced after the
reporting period.
• Events after the reporting period may require an
assessment of the applicability of the going
concern assumption at reporting date.
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International Financial Reporting Standards
IFRS 5
Non-current Assets Held for
Sale and Discontinued
Operations
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
57
• Information about an entity’s non-current assets
held for sale and its discontinuing operations
assists users assess the amount, timing and
uncertainty of (the prospects for) future net cash
inflows to the entity which is useful to them in
making decisions about providing resources to the
entity.
• Non-current assets held for sale are to be
recovered through proceeds from sale (not use)
• no future cash flows from discontinued
operations
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Non-current assets held for sale
58
• The standard comprises classification and presentation
requirements and measurement provisions (note
measurement scope exclusions in paragraph 5).
• A non-current assets is classified as ‘held for sale’ if its
carrying amount will be recovered principally through a
sale transaction, rather than through continuing use
(paragraph 6).
• Non-current assets held for sale are measured at the
lower of fair value less costs to sell and carrying amount—
they are not depreciated (paragraph 15).
• Non-current assets held for sale or disposal groups are
presented separately as current assets on the
statement of financial position. Associated liabilities
presented separately from other liabilities (paragraph
38). Refer to IFRS 5 IG: Example 12 in Part B.
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Discontinued operations
59
• A ‘discontinued operation’ is a component of an
entity that either has been disposed of or is
classified as held for sale (paragraph 32).
• The component must be a major line of
business, a geographical area of operations, or
a subsidiary that was acquired exclusively for
resale.
• Discontinued operations are presented
separately within profit or loss in the statement
of comprehensive income and the statement of
cash flows (paragraph 33).
• Refer to IFRS 5 IG: Example 11 in Part B.
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Comparison to the IFRS for SMEs
60
• Section 17 Property, Plant and Equipment
(paragraph 26) and Section 27 Impairment of
Assets (paragraph 9(f)) deal with items of property,
plant and equipment held for sale
• A plan to dispose of such items is an indicator of
impairment which triggers an impairment test.
• Unlike ‘full’ IFRS, the IFRS for SMEs no other
specific classification, presentation or measurement
requirements.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
61
• The classification of an asset as ‘held for sale’
is based on actions taken by management
before the end of the reporting period and
management’s expectation that a sale will be
achieved.
• The asset must be available for immediate sale
in its present condition (subject only to terms
that are usual and customary for sales of such
assets).
• The sale must be highly probable (appropriate
management commitment, actively seeking a
buyer, reasonable price, 12 month limit).
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Judgements and estimates continued
62
• Measuring the fair value less costs to sell of
assets held for sale (absent an active market).
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IFRS 8
Operating Segments
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
64
• Many entities are diversified or multinational
operations or both. Their products and services, or
the geographical areas in which they operate, may
differ in profitability, future prospects and risks.
• Consequently, segment information might be more
relevant than consolidated or aggregated data for
users in assessing risks and returns of an entity.
• Standard applies to entities or groups with
publically traded debt or equity or whose financial
statements are filed with a securities commission or
regulatory organisation (paragraph 2).
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Introduction continued
65
• IFRS 8 requires disclosure of information about
an entity’s operating segments, its products and
services, the geographical areas in which it
operates, and its major customers.
• This information assists users to evaluate the
entity’s business activities and the environment
in which it operates. That assists users to
better assess the prospects for future net cash
inflows to the entity which is useful in making
decisions about providing resources to the
entity.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Identifying operating segments
66
• Operating segments are components of an entity about
which discrete financial information is available and
which the chief operating decision maker regularly
evaluates in deciding how to allocate resources and in
assessing performance (paragraph 5).
• The financial information reported is the same as the
chief operating decision maker (a function, not a title)
uses.
• the measure of each operating segment must be the one used
by the chief operating decision maker (paragraph 25).
• Providing information ‘through the eyes of management’
enhances a user's ability to predict actions or reactions
of management that can significantly affect the entity’s
prospects for future cash flows.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Reportable operating segments
67
• Information must be reported for all operating segments
identified.
• If operating segments exhibit similar long-term financial
performance and have similar economic characteristics
such segments may be aggregated for reporting
purposes (paragraph 12).
• Certain operating segments may not form part of
aggregated information and must be presented
separately. Determination of such segments is based
on quantitative thresholds (paragraph 13).
• Refer to IFRS 8 IG 7 in Part B for a diagram illustrating
the main provisions for identifying reportable operating
segments.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosure
68
IFRS 8.20–24
• An entity must give descriptive information about:
– the way the operating segments were determined
– the products and services provided by the
segments
– differences between the measurements used in
reporting segment information and those used in
the entity’s financial statements
– changes in the measurement of segment
amounts from period to period.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosure continued
69
• An entity must report a measure of operating
segment profit or loss and of segment assets.
It must also report a measure of segment
liabilities and particular income and expense
items.
• An entity must report information about the
revenues derived from its products or services,
about the countries in which it earns revenues
and holds assets, and about major customers.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
• There are no specific requirements relating to
operating segments in the IFRS for SMEs.
• Presentation of operating segment information is
not required.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
70
Judgements and estimates
71
• Identifying the entity’s chief operating decision
maker (as a function, not a specific title).
• matrix form of organisations require
management judgement to segmentation that
satisfy IFRS 8’s objective.
• Identifying which operating segments can be
aggregated
• Identifying reportable segments that do not
meet the quantitative threasholds for reportable
segments.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 24
Related Party Disclosures
K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
73
• The standard is applied to determine related party
relationships, identify outstanding balances
between such parties and the identification of when
and what disclosure is necessary.
• Related party disclosures highlight the possibility
that the entity’s financial position and profit or loss
might have been affected by the existence of
related parties and by transactions and outstanding
balances with such parties.
• Related party disclosures could affect a user’s
resource allocation decision based on the entity’s
financial statements.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Related party
74
IAS 24.9
• A person or a close member of that person’s
family is related to the reporting entity if that
person:
– has control, joint control or significant influence
over the reporting entity
– is a member of the key management personnel
of the reporting entity (or its parent)
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Related party continued
75
• An entity is related to a reporting entity when:
– they are both members of the same group
(which means that each parent, subsidiary and
fellow subsidiary is related to the others)
– one entity is an associate or joint venture of the
other entity
– both entities are joint ventures of the same third
party
– one entity is a joint venture of a third party and
the other is an associate of the third party
–…
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 1—
identifying related parties
76
Entity X
Entity A
Entity B
From A’s perspective is B a
related party (and vice versa)?
76
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 1—
identifying related parties continued
77
X’s influence over B
Control
X’s
Joint
influence control
over A
Significant
influence
Control
Joint
control
Significant
influence
Yes, related
party
Yes, related
party
Yes, related
party
Yes, related
party
Yes, related
party
Yes, related
party
Yes, related
party
Yes, related
party
Not
necessarily
related
77
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 2—
identifying related parties
78
Family X
Entity A
Entity B
From A’s perspective is B a
related party (and vice versa)?
78
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example 2—
identifying related parties continued
79
Family X’s influence over Entity B
Control
Family
JC
X’s
influence
over
KMP
Entity A
SI
Control
JC
KMP
SI
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Yes,
related
party
Not
Not
necessarily
necessarily
related
related
Yes,
related
party
Yes,
related
party
Not
Not
necessarily
necessarily
related
related
79
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosures
80
• the name of the reporting entity’s parent and, if
different, its ultimate controlling entity,
irrespective of whether there have been
transactions between them.
• details of key management personnel
compensation in total and by category of benefit
(ie short-term employee benefits, share-based
payment).
• the nature of the related party relationship
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Disclosures continued
• details by category of related party of the
transactions and outstanding balances,
including commitments, to enable users to
understand the potential effect of the
relationship on the financial statements.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
81
Government related entities
•
82
This Standard provides a partial exemption from
the disclosure requirements for government
related entities in relation to related party
transactions with:
•
•
•
a government that has control, joint control or
significant influence over the reporting entity; and
another entity that is a related party because the
same government has control, joint control or
significant influence over both the reporting entity
and the other entity.
Refer to Illustrative Example 1 of the Illustrative
Examples to IAS 24 in Part B.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
83
• Differences between Section 33 Related Party
Disclosures and IAS 24 include:
– the definition of a related party is slightly different
(paragraph 33.2(vii)–(x) differs from IAS 24.9 (vii))
– the concept of ‘significant voting power’ is specific
to Section 33
– disclosure has been simplified in Section 33
– Key management personnel compensation must
only be provided in total
– Fewer disclosures are required when the
government-related entities exemption is used
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
84
• Identifying related parties—focus on substance of a
relationship rather than merely its legal form.
• Identifying the degree of influence exerted by one
party on the other (ie control or significant
influence).
• identifying key management personnel depends on
the level of authority and responsibility and may
include seconded staff and people engaged under
outsourcing contracts.
• identifying close members of the family of a key
management personnel involves judging whether
that person is expected to influence (or be
influenced by) by that person in their dealing with
the entity.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Questions or comments?
Expressions of individual views
by members of the IASB and
its staff are encouraged.
The views expressed in this
presentation are those of the
presenter.
Official positions of the IASB on
accounting matters are
determined only after extensive
due process and deliberation.
© IFRS
2012 IFRS
Foundation
Foundation.
| 30 Cannon
30 Cannon
StreetStreet
| London
| London
EC4M
EC4M
6XH 6XH
| UK.| UK.
www.ifrs.org
www.ifrs.org
85
86
The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at
1 January 2012 with an effective date after 1 January
2012 but not the IFRSs they will replace.
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
| 30 Cannon
| London
6XH | EC4M
UK. www.ifrs.org
©
IFRS Foundation
| 30Street
Cannon
StreetEC4M
| London
6XH | UK | www.ifrs.org

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