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Ifrs Course 2008 Ifrs Course 2008 Presentation Transcript

  • International Financial Reporting Standards Summary of the Current Position
    • Aidan Clifford FCCA, FCA
    • Advisory Services Manager Ireland
    • Association of Chartered Certified Accountants
    • [email_address]
    • Phone + 353 1 4988 907
    • Professional Accountants in Ireland
    • Members Students
    • ACCA 8,400 10,200
    • ICAI 10,000 4,000
    • CPA 2,500 2,500
    • CIMA 3,000 3,000
    • IIPA 500 nil
    • Others 200 nil
    • Total 23,500 19,200
    • Young, educated and English Speaking
    • In the EU
    • Stable Government
    • Proactive Government agencies
    • Tax certainty and low rates
    • Intellectual and real property rights certainty
    • International Financial Services Centre
    • Tax free zones
    • National wage agreements
    • The Big 4
  • The Rewards in Ireland
  • Public Practice
  • Corporate Sector
  • Financial Services
  • The Legal Structure
  • Regulatory Structure ROI Government Irish Auditing and Accounting Supervisory Authority (IAASA) Prescribed bodies Recognised professional bodies (auditors) ACCA ICAI ICPAI CIMA IIPA CIPFA AIA ACCA ICAI ICPAI IIPA
  • Ian Drennan FCCA Chief Executive IAASA Functions: Regulate the profession Transparency directive Advise the Government Develop guidance
  • Listed companies Large private companies SME Micro Companies Current UK Proposal ROI Proposal IFRS UK GAAP FRSSE IFRS IFRS for SME FRSSE IFRS IFRS for SME
  • International Accounting Standards
  • - International Accounting Standards Different countries have different standards US Since 1933 SEC and FASB FASB independent and full time employees 140 rule based standards UK/ROI/NZ/ Australia Profession draft own rules Principal based Germany and France Legislation driven for tax Not true and fair necessarily IFRS needed Companies quoted on several exchanges comparison etc...
    • -International Accounting Standards
    • Why have IFRS/IAS
    • In the EU there are currently 26 different ways of calculating profit
    • It is not about accounting it is about trade
    • Good standards reduce the cost of capital
    • 108 countries now signed on
    • 2011 expected 150 countries
    • Principal based system
      • 85% covered in 30-60 pages
      • 95% covered in 300 pages
      • 99% covered in 20,000 pages
    • International Accounting Standards
    • IASC set up in 1973 with 9 countries
    • Now 140 bodies in over 100 countries
    • Original standards contained too may options
    • IOSCO to support if options removed and standards “improved”
    • G4+1 (=6) standards setters set up in 1990’s
    • Disbanded and supported IFRS’s
    • Approved by EU in 2000
    • IASB in 2001 (after death of G4 +1)
    • ASB now just helps IFRS’s being developed
    • IASB has published “framework”
    • Framework almost equals SOP & US framework
  • IFRS – importance for ACCA
    • Global standards and a global accountancy body
    • Qualifications
      • Professional exam stream
      • DipIFR
    • Key development for our members
      • Most sectors - Commerce, audit, education etc.
      • Most countries affected
      • Changes will continue
  • International convergence
    • Already using IAS/IFRS
      • Switzerland, South Africa, Botswana
    • Big bang conversions
      • European Union (25 member states)
      • Australia and NZ
      • Russia
    • More gradual convergence
      • Singapore, Hong Kong
      • Malaysia, India, China
      • UK/Ireland
  • International convergence
    • Listed unlisted
    • IFRS not permitted 32 34
    • IFRS permitted 25 34
    • IFRS required 82 49
  • IFRS adoption Difficulties
    • Equivalent not identical
    • Carve outs
    • EU endorsement process
    • Rules V’s principals
    • Not for profit
  • Impact UK and Ireland
    • FTSEurofirst 300
    • Earnings up 14% €14.2bln
    • Equity down 1.3% €8bln
    • Goodwill
    • Share based payment
    • Deferred taxation
  • Impact Nordic Countries
    • Earnings up 7.5%
    • Equity up 6%
    • Goodwill
    • Biological assets
    • Financial Instruments
  • Impact Middle Europe
    • Earnings down 5.5%
    • Equity up 4.1%
    • Revenue recognition
    • Financial instruments
    • Property plant and Equipment
  • Impact Mediterranean Countries
    • Earnings up 12.2%
    • Equity down 4.3%
    • Goodwill
    • Revenue recognition
    • Financial instruments
  • The Standards
  • The Framework
    • Conception framework for standards
    • Objectives
    • Qualitative characteristics
    • Definition and recognition and measurement
    • Capital and capital maintenance
  • Underlying assumptions
    • Accruals
    • Going concern
    • Qualitative characteristics
    • Understandable
    • Relevant
    • Reliable
    • Comparable
  • Reliable
    • Faithful representation
    • Substance over form
    • Neutrality
    • Prudent
    • Completeness
  • Definitions
    • Asset
      • An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity
    • Liability
      • A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow of economic benefits.
  • Definitions
    • Equity
      • Equity is the residual interest in the assets of the entity after deducting all its liabilities.
  • IAS 1 Presentation of Financial statements
  • IAS 1 Presentation of Financial statements
    • Financial statements comprise:
    • A balance sheet
    • An income statement
    • A statement of changes in equity
    • all changes, or
    • all changes other than transactions with shareholders
    • A cash flow statement
    • Notes significant accounting policies and explanatory notes
  • IAS 1 Presentation of Financial statements
    • Present “fairly” the financial position
    • Explicit and unreserved statement of compliance with all IFRS
    • Inappropriate accounting policies not rectified by disclosure
    • Extremely rare – depart if misleading
      • Disclose details
  • IAS 1 Presentation of Financial statements
    • Prepare on a going concern basis
    • Disclose going concern uncertainties
    • If not going concern prepare on alternative basis and disclose
  • IAS 1 Presentation of Financial statements
    • Accruals
      • All except the cash flow
    • Be consistent
      • unless standard requires a change
      • or more appropriate to change
  • IAS 1 Presentation of Financial statements
    • Separately disclose all material items
    • Don’t offset assets and liabilities or income and expenses
    • Disclose 1 years comparatives
    • Amend comparatives when current year changed
  • IAS 1 Presentation of Financial statements
    • Label all financial statements
      • Name of entity
      • Individual or group accounts
      • Period covered
      • Presentation currency
      • Level of rounding
    • Ideally use 12 month reporting period
  • IAS 1 Presentation of Financial statements
    • Balance sheet
    • Separate
      • Current assets
      • Non current assets
      • Current liabilities
      • Non current liabilities
  • IAS 1 Presentation of Financial statements
    • Current assets
    • Expect to realise in normal operating cycle or
    • Is traded or
    • Realisable within 12 months or
    • Is cash
    • All others non current
  • IAS 1 Presentation of Financial statements
    • Current liabilities
    • Expect to be settled in normal operating cycle or
    • Is traded or
    • settled within 12 months or
    • Unconditional right to defer payment for 12 months
    • All others non current
  • IAS 1 Presentation of Financial statements
    • Information to disclose – balance sheet
    • Additional heading may be used where necessary
    • Sub-classifications on the face of the balance sheet or in notes
    • Full details of share capital and reserves
  • IAS 1 Presentation of Financial statements
    • Additional items for income statement
    • Additional items were relevant
    • No extraordinary items
    • Material income or expenses separately
    • Expenses by:
    • Nature (e.g. employee costs)
    • Function (e.g. marketing)
    • Disclose dividends
  • IAS 1 Presentation of Financial statements
    • Statement of changes in equity
    • Profit or loss
    • Any item recognised directly in equity
    • Total
  • IAS 1 Presentation of Financial statements
    • Additional notes
    • All transactions with equity holders
    • dividends
    • opening and closing P/L
    • reconciliation of each class of equity
    • Cash flow statement per IAS 7
  • IAS 1 Presentation of Financial statements
    • Notes to the accounts
    • Basis of preparation
    • Any additional information required by an IFRS
    • Any additional information necessary to understand the financial statements
    • Presented in a systematic manner
  • IAS 1 Presentation of Financial statements
    • Accounting Policies
    • All significant policies
    • Measurement basis
    • All other policies necessary to understanding the FS
    • Significant judgements made
  • IAS 1 Presentation of Financial statements
    • Key sources of Uncertainty
    • Disclose key assumptions
  • IAS 1 Presentation of Financial statements
    • Other disclosures
    • Dividends full details
    • Domicile and legal form
    • Nature of the business
    • Name of parent and ultimate parent
  • IAS 1 Revised
  • IAS 1 Revised
    • Beginning on or after 1 January 2009
    • Early adoption permitted
  • IAS 1 Revised
    • Comprehensive Income Statement
    • Single Statement
    • Two statements
    • Income statement
    • Statement of Comprehensive Income
  •  
  •  
  •  
  •  
  • IAS 1 Revised
    • Balance sheet
    Statement of Financial Position Income statement Statement of Comprehensive Income Cash Flow Statement Statement of cash Flows
  • IAS 1 Revised
    • Statement of Comprehensive Income
    • Revaluations
    • Actuarial gains and losses
    • FX on foreign subsidiaries
    • Available for sale gains and losses
    • Cash flow hedges
  • IAS 1 Revised
    • Disclosure
    • Accounting policies
    • Estimation uncertainties
  • IAS 2 Inventories
  • IAS 2 Inventories
    • Excludes
    • construction contracts
    • Financial Instruments
    • Biological Assets
    • Producers of agricultural products
    • Commodity brokers
  • IAS 2 Inventories
    • Inventories are:
    • Held for sale in the ordinary course of business
    • In the process of production for sale
    • Raw materials
    • Value at the lower of cost and NRV
  • IAS 2 Inventories
    • Net realisable value
    • Estimated selling price less cost of completion and selling costs
    • Fair value
    • Exchanged between knowledgeable and willing persons
  • IAS 2 Inventories
    • Cost:
    • Cost of purchase
    • Cost of conversion
      • direct labour
      • overheads (for normal production)
    • Other costs – to present location and condition
    • Can include borrowing costs (IAS 23)
  • IAS 2 Inventories
    • Value each unit individually if possible
    • Use FIFO if not individually identifiable (or Weighted average)
  • IAS 2 Inventories
    • When inventories are sold – recognise an expense for the carrying amount
    • When writing down inventories to NRV recognise as an expense
  • IAS 2 Inventories
    • Disclosure
    • Accounting policy
    • Carrying amount of each category
    • Carrying amount at NRV
    • Total expense
    • Any write downs
    • Reason for write downs
    • Any security on inventories
  • IAS 7 Cash Flow Statements
  • IAS 7 Cash Flow Statements
    • No exemption for small entities
    • Cash and cash equivalents
    • cash on hand
    • demand deposits,
    • short-term, highly liquid investments
    • overdrafts
  • operating activities investing activities acquisition and disposal of long-term assets and other investments financing activities alter the equity capital and borrowing structure interest and dividends received and paid may be classified as operating, investing, or financing cash flows, cash flows arising from taxes on income are normally classified as operating, the direct method of presentation is encouraged, but the indirect method is acceptable IAS 7 Cash Flow Statements
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
    • Accounting policies : specific principals, basis, conventions and rules used
    • Accounting estimate : adjustment to carrying value
    • Materiality : omission by size or nature , individually or collectively, influence a decision of a user of financial statements
    • Prior Period Errors : mistakes, errors, misinterpretation and fraud
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
    • Use accounting policies proscribed by IFRS
    • If no standard use judgement, consider:
    • IFRS standards for similar items
    • The framework principals
    • Recent pronouncements of other standard setting bodies
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
    • Apply policies consistently
    • Change allowed if:
    • It is required by a IFRS
    • Financial statements more reliable or relevant
    • Apply change retrospectively
    • Detailed disclosure required
    • Disclose effect of new (but not yet effective) standards
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
    • Change in estimates
    • Recognise prospectively
    • Disclose the effect
    • Errors
    • Correct all material errors retrospectively
    • Disclose full details of the changes
  • IAS 8 Accounting Policies, changes in Accounting Estimates and errors
    • Estimates:
    • Bad debts
    • Inventory obsolescence
    • FV of financial instruments
    • Useful lives of machinery
    • Warranty obligations
  • IAS 10 Events after the Balance sheet Date
  • IAS 10 Events after the Balance sheet Date
    • Events between the B/S date and the date the accounts are authorised for issue
    • Adjusting – further evidence of conditions at the B/S date
    • Non adjusting – condition arose after the B/S date
    • Post year end dividends are not accrued or adjusted
  • IAS 10 Events after the Balance sheet Date
    • Going concern
    • If not a GC do not use this basis of preparation
    • Disclosure
    • Non adjusting events – disclose if material
    • Date f/s are authorised for issue
  • IAS 10 Events after the Balance sheet Date
    • Examples of non adjusting
    • Business combination post year end
    • Plan to discontinue an operation
    • Asset disposal or purchase
    • Destruction of plant by fire
    • FX rate changes
    • Commencing litigation
  • IAS 11 construction Contracts
  • IAS 11 construction Contracts
    • Construction of an asset or group of assets
    • Contract revenue: initial agreed amount plus extras, incentives
    • Contract cost: directly attributable to the contract
  • IAS 11 construction Contracts
    • Cost not to include:
    • general administration costs
    • Selling costs
    • research and development costs
    • depreciation of idle plant and equipment that is not used on a particular contract.
  • IAS 11 construction Contracts
    • If the outcome of a construction contract can be estimated reliably, revenue and costs should be recognised in proportion to the stage of completion of contract activity.
    • If the outcome cannot be estimated reliably, no profit should be recognised.
  • IAS 11 construction Contracts
    • Stage of completion:
    • % of cost incurred to date
    • Surveys of work performed
    • Completion of a physical portion
    • Recognise a loss when probable
  • IAS 11 construction Contracts
    • Disclose
    • Amount of revenue recognised
    • Method used to calculate revenue
    • Method to determine stage of completion
    • WIP at the year end:
    • aggregate cost and profit
    • Amount of advances
    • Amount of retentions
  • IAS 11 construction Contracts
  •  
  • IAS 12 Income Taxes
  • IAS 12 Income Taxes
    • Temporary difference : A difference between the carrying amount of an asset or liability and its tax base.
    • Taxable temporary difference : A temporary difference that will result in taxable amounts in the future when the carrying amount of the asset is recovered or the liability is settled.
    • Deductible temporary difference : A temporary difference that will result in amounts that are tax deductible in the future when the carrying amount of the asset is recovered or the liability is settled.
  • IAS 12 Income Taxes
    • Current tax
    • Recognise as a liability (or asset)
    • Deferred tax
    • Recognise for all taxable temporary differences (with exceptions)
  • What is deferred tax Years € Capital Allowances Depreciation Deferred tax balance Current taxation Total Taxation
  • 2006 Sales COS Profit Profit Add back Deduct Adjusted profit X tax % Tax payable Tax charge Profit after tax Profit after tax 2007 2008
  • 2006 Sales COS Profit Profit Add back Deduct Adjusted profit X tax % Tax payable Tax charge DT tax charge Profit after tax Profit after tax 2007 2008
  • 2006 Sales COS Profit Profit Add back Deduct Adjusted profit X tax % Tax payable Tax charge Profit after tax Profit after tax 2007 2008
  • IAS 12 Income Taxes
    • Deferred tax – don’t provide
    • Goodwill
    • Accounting or tax profit not effected
    • Undistributed profit on an investment where you control the timing and do not intend on selling
  • IAS 12 Income Taxes
    • Deferred tax assets
    • Unused tax losses or credits to the extent that they are recoverable.
    • Except
    • Negative goodwill
  • IAS 12 Income Taxes
    • Temporary DR differences from investment in subsidiaries only recognised if recoverable
    • Review the carrying amount of DT assets annually
    • Only provide for DT asset from losses when there will be future profits to offset
  • Allowances for fixed asset expenditure
    • Tax Written Down Value XXX
    • Net book value XXX
    • Difference XXX
    • @12.5% XXX
    • Deferred taxation XXX
  • Year 2006 2007 Tax Written Down Value XXX XXXX Net book value XXX XXXX Difference XXX XXXX @12.5% XXX XXXX Deferred taxation in balance sheet At the year end XXX XXXX The difference between 2006 and 2007 = P/L charge or credit
  • Finance Leases and deferred taxation Net book value of leased asset X Remaining lease interest to be charge X Accounting value X Remaining lease payments (X) Timing difference X Tax rate 12.5% Deferred taxation X Accounting value > remaining lease payment = liability Accounting value < remaining lease payment = asset
  • Example A Company buys a factory for €1m. It is eligible for tax allowances of 4% The factory is depreciated over 40 years Tax rate is 30% 4 years later: Cumulative tax allowances (4 X 40K)160 Cumulative depreciation (4 X 25K) (100) Difference 60 Deferred tax liability @30% in B/S 18
  • Example At the end of year 5 the property market collapses and the company writes down the factory to €600,000. Cumulative allowances (5 X 40K) 200 Cumulative depreciation 1m-600K (400) Difference (200) Deferred tax asset @30% in B/S ( 60)
  • Example The company continue to depreciate the building over its remaining useful life of 35 years (charge €17,143 pa). At the end of 10 years the property is NBV €514,285. It is now re-valued to €1,200,000 € 235,715 to P/L (reverse previous charge) € 450,000 to equity (revaluation)
  • 750 € 1.2m 600 875 1m 514 Years 0 5 10 40
  • Example Cumulative allowances (10 X 40K) 400 Cumulative depreciation ** (250) Difference (150) Deferred tax liability @30% ( 45) Capital gain 200X 20% (40) Total (85) ** based on historical cost not revaluation.
  • IAS 12 Income Taxes
    • Measurement
    • Tax rates expected to apply when difference reverses
    • Don’t discount
  • IAS 12 Income Taxes
    • Recognition
    • In income statement unless
    • difference arose from an item posted to equity (post DT to equity)
    • Arose from an acquisition (adjust goodwill)
  • IAS 12 Income Taxes
    • Dividends
    • Don’t anticipate future dividends when calculating DT
  • IAS 12 Income Taxes
    • Presentation
    • Offset DR and CR if there is a legal right of offset and intends on settling net
  • IAS 12 Income Taxes
    • Disclosure
    • Current tax assets and liabilities
    • DT asset and liability
    • Tax expense
    • Major components of tax expense
    • Current and DT in equity
    • Tax on extraordinary items
    • Tax reconciliation
  • IAS 12 Income Taxes
    • Disclosure (con’t)
    • Deductible temporary differences unused
    • DT assets details
    • Tax on discontinued activities
  • IAS 14 Segmental Reporting
  • IAS 14 Segmental Reporting
    • principles for reporting financial information by line of business and by geographical area
    • Applies to quoted companies only
    • Replaced by IFRS 8
  • IAS 16 Property Plant and Equipment
  • IAS 16 Property Plant and Equipment
    • Issues
    • Timing of recognition
    • Determining the carrying amount
    • Depreciation charge
    • Excluded
    • Biological assets
    • Mineral rights and reserves
  • IAS 16 Property Plant and Equipment
    • Recognition of an asset:
    • Future economic benefit
    • Cost can be measured
    • Cost
    • Cost to acquire or construct
    • Costs to add to,
    • service (major inspection)
    • replace a part of
    • Each component to be recognised and depreciated separately
  • IAS 16 Property Plant and Equipment
    • Initial measurement
    • Cost
    • Working condition for intended use
    • Site preparation
    • Other direct costs
    • Decommissioning costs
    • Deferred payment – exclude interest
  • IAS 16 Property Plant and Equipment
    • Not included in cost
    • Opening costs for a new facility
    • Advertising and promotion
    • General and admin. Overheads
    • Initial operating losses
    • relocation costs
  • IAS 16 Property Plant and Equipment
    • Revaluation
    • Allowed but not required
    • Only if fair value can be reliable measured
    • Revalue regularly (not annually)
    • Entire class – no cherry picking
    • Still depreciate
  • IAS 16 Property Plant and Equipment
    • Revaluation – old depreciation
    • set to zero on revaluation or
    • Restate proportionally
  • IAS 16 Property Plant and Equipment
    • Revaluation – continued
    • Increase to equity revaluation reserve
    • Decrease to expense
    • Reversal of previous increase
      • Equity
    • Reversal of previous decrease
      • Income statement
  • IAS 16 Property Plant and Equipment Increase to equity Decrease to equity Balance to income
  • IAS 16 Property Plant and Equipment Revaluation down to income statement Revalue up to income statement Balance to equity
  • IAS 16 Property Plant and Equipment
    • On disposal of re-valued asset
    • Revaluation reserve to retained earnings
    • Not through income statement
  • IAS 16 Property Plant and Equipment
    • Depreciation
    • Depreciate over useful life to residual value
    • on a systematic basis
    • Review residual value and useful life at each year end
    • Reflect pattern of consumption of benefit of fixed asset
    • Charge to income statement
    • Commence when asset available for use
    • Depreciate even if asset idle
  • IAS 16 Property Plant and Equipment
    • Depreciation
    • Charged when carrying amount is less than fair value – if residual value is less than carrying amount
    • Repairs do not negate need to depreciate
    Fair value Carrying value
  • IAS 16 Property Plant and Equipment
    • De-recognition
    • On disposal
    • No future economic benefits
    • Profit on disposal in income statement
      • But not in revenue
    • Gain on disposal is difference between:
      • Proceeds
      • Carrying value
  • IAS 16 Property Plant and Equipment
    • Disclosure
    • Full details
    • Revaluation
      • Valuer – independent or not
      • Date of valuation
      • Methods and assumptions
      • What value would be under cost model
  • IAS 16 Property Plant and Equipment
    • The practice
    • Only property re-valued
    • Generally only UK re-value
    • Prior to IFRS some states banned re-valuation
    • 4% of companies re-value
    • On transfer to IAS 16 – most ceasing to re-value
    • Few disclosing fair value when using cost model
  • IAS 16 Property Plant and Equipment
    • The practice
    • Insurance, property and banking tend to re-value
    • One bank re-values but does not depreciate (BOI)
    • LVMH and Christian Dior vineyards at market value
  • IAS 17 Leases
  • IAS 17 Leases
    • Lessees and lessors covered
    • Finance and operating leases
    • Not applicable to:
    • Investment property accounted for using fair value
    • Investment property accounted for as an operating lease
    • Biological assets
  • IAS 17 Leases
    • Finance lease
    • Transfers substantially all of the risks and rewards incident to ownership
    • Operating leases
    • All other leases
  • IAS 17 Leases
    • Finance leases normally when
    • Ownership to lessee at end of the term
    • Option to purchase at the end
    • Lease for major part of life of asset
    • Payments are substantially all of fair value
    • Assets are specialised, only leasee can use them
  • IAS 17 Leases
    • Finance leases normally when
    • Cancellation losses paid by lessee
    • Gains or losses from fluctuations in fair value of residual paid fall to lessee
    • Secondary period available at less than market value
  • IAS 17 Leases
    • Land and building leases
    • Separate land and building element
    • Land is operating unless title passes at the end
    • Building = finance or operating
    • Don’t separate if lessee accounts as an investment property
  • IAS 17 Leases
    • Accounting – lessee finance lease
    • Record as an asset and liability
    • Lower of
      • Fair value of asset
      • Minimum lease payments
    • Apportion payments between interest and capital
    • Depreciate consistent with owned assets
    • Operating leases: payments= expense
  • IAS 17 Leases
    • Accounting – lessee finance lease
    • Incentives for new or renewal of a lease – spread out over term
  • IAS 17 Leases
    • Accounting – Lessors
    • Finance lease
    • Recognise amount receivable
    • net investment in the lease
    • Recognise finance income over life of lease using constant IRR
    • Operating lease
    • No asset on balance sheet
    • Use straight line allocation of rentals
  • IAS 17 Leases
    • Manufacturers or dealers
    • Include profit on sale as if sold unless
    • Interest is artificially low
    • Cost incurred in negotiating the lease
    • spread over life of the lease
  • IAS 17 Leases
    • Sale and lease back
    • S&LB resulting in a finance lease
    • profit on sale spread over lease period
    • S&LB resulting in an operating lease
    • If sold at fair value – take P/L immediately
    • if below fair value – P/L immediately
    • If above fair value – defer profit
  • IAS 17 Leases
    • Disclosure – finance leases
    • Carrying amount of asset
    • payments due in 1, 2-5 and 5+ years
    • description of significant terms
    • Disclosure – operating leases
    • payments due in 1, 2-5 and 5+ years
    • description of significant terms
    • Additional disclosure for lessors
  • IAS 17 Leases
    • Survey of 311 of S&P 350
    • Non cancellable
    • operating leases €356bln
    • Finance leases €83bln
    • Expect discussion paper in 2008
  • IAS 17 Leases
    • Practice
    • Property on sale and (operating) lease back common
  • IAS 18 Revenue
  • IAS 18 Revenue
    • Sales of goods
    • Rendering of a service
    • Use of an entities assets to yield interest and royalties
  • IAS 18 Revenue
    • Sales of goods:
    • Risks and rewards are transferred
    • No managerial control over goods
    • Revenue and cost measured reliably
    • Benefits will flow to the entity
    • No sale where:
    • Obligations for unsatisfactory performance > normal warranty
    • Revenue contingent on buyer selling goods on
    • Significant part of contract incomplete
    • Buyers has a right to rescind
  • IAS 18 Revenue
    • Rendering of service:
    • Measured based on stage of completion if outcome can be estimated reliable
      • Survey of work completed
      • Service as a % of total
      • Proportion of costs to date as a % of total
    • If you can’t estimate outcome restrict revenue to just cover costs incurred
  • IAS 18 Revenue Reliable estimate of outcome Revenue can be measured reliable Economic benefit will flow to entity Stage of completion can be measured reliably Costs of completion can be measured reliably
  • IAS 18 Revenue
    • Interest, royalty and dividend
    • Probable economic benefit
    • Measured reliably
    • Interest – time basis
    • Royalties – accrual in substance with agreement
    • Dividend – when you have a right to receive it
  • IAS 18 Revenue
    • Specific examples
    • Bill and hold – once produced and ready for delivery
    • Shipped subject to conditions - installation
      • If Installation is simple recognise on shipping
      • Complex – when installation accepted
    • Consignment sales – when goods sold by buyer
    • Lay away – when goods delivered (unless substantial deposit and goods segregated)
  • IAS 18 Revenue
    • Specific examples
    • Advance payment – creditors
    • Sales and repurchase – based on substance
    • Sale to intermediaries – when risks and rewards pass
    • Subscriptions – over period
  • IAS 18 Revenue
    • Specific examples - services
    • Installation fee – stage of completion unless incidental
    • Servicing fee – over period
      • When included in total price defer sufficient to cover cost + profit of service.
    • Loan or HP placement fee - when arranged
    • Initiation fees, membership fees – over period when benefit arises
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Calls - fixed line
    • BT: when call made
    • C&W: not mentioned
    • Vodafone: ‘Per billing cycle’
    • Eircom: when call made
    • Telenor Actual calls
    • Swiscom time of call
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Line rental
    • BT: over rental period
    • C&W: not mentioned
    • Vodafone: ‘Per billing cycle’
    • Eircom: over rental period
    • Telenor Spread
    • Swiscom Spread
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Equipment sales
    • BT: At point of sale
    • C&W: time of delivery and acceptance
    • Vodafone: sales = up to fair value of equipment balance deferred over period when service provided.
    • Eircom: ‘same period as related cost’
    • Telenor ‘when delivered’
    • swiscom at point of sale
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Prepaid call cards
    • BT: When used
    • C&W: not mentioned
    • Vodafone: When used or expired
    • Eircom: not mentioned
    • Telenor When calls made
    • Swiscom when call made
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Maintenance
    • BT: over period
    • C&W: not mentioned
    • Vodafone: not mentioned
    • Eircom: not mentioned
    • Swiscom life of contract
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • Classified directors - BT: date of delivery
    • Network capacity sales - C&W: Per UITF 36
    • Data services – Vodafone: Performed and able to bill
    • Unbundled local loop – Eircom: estimate made
    • Unbilled calls – Eircome - revenue
  • IAS 18 Revenue Revenue Recognition - telecommunications
    • 3rd party services –
    • Vodafone: gross or net depending on service
    • Eircom: gross
    • Telenor: ‘normally’ gross
    • when ‘agent or broker’ net
    • Swiscom principal – gross
            • Agent - net
  • IAS 18 Revenue Discussion paper issued
    • Critical event
    • Continuous event
    • But does not link to a conceptual framework
  • IAS 19 Employee Benefits
  • ‘ er Defined Contribution Pensions ‘ ee Pension Trust Pension Trust ‘ er ‘ ee Pension Pension Defined Benefit Pensions
  • Defined Benefit Pensions why the difficulties The cost to the employer Annuity rates very low Stock market underperforming Contribution rates increasing 15-47% of salary Cost of actuarial input Disclosures required: cost and business implications The standards give the wrong answer Snap shot position of long term arrangement IAS 19 corridor particularly bad Large deficits Large fluctuations in p/l charge Number of assumptions to be made IAS 19
  • DB schemes – overview of the maths Lump sum payable on retirement in 5 years of 1% of salary Salary 10,000, increasing by 7% p/a, discount rate 10% 1 2 3 4 5 Benefits prior years Benefits current year Total Opening obligation Interest Current Service Cost Closing obligations 0 131 131 131 131 262 0 0 89 89 89 9 98 196 262 131 393 393 131 524 524 131 655 196 20 108 324 324 33 119 476 476 48 131 655
  • IAS 19 IAS 19 Employee Benefits
    • Introduction – 4 categories of benefits
    • Short term benefits (wages, company car, paid sick leave etc..)
    • Post employee benefits (pension, health cover in retirement etc..)
    • Other long term benefits (long service leave)
    • Termination benefits
  • IAS 19 IAS 19 Employee Benefits
    • Short term benefits
    • Recognise when employee has rendered service
    • Post employee benefits
    • Defined contribution
    • Defined benefit
        • 8 different options
    • Other long term benefits
    • Less options than Defined benefit
    • Termination benefits
    • Recognise when committed to pay
  • IAS 19 IAS 19 Employee Benefits Objective Recognise a liability when an employee has earned benefits that will be paid in the future Recognise an expense when service of employee paid for with employee benefits
  • IAS 19 Short term employee benefits
    • Wages and salary, annual leave, profit sharing, bonuses
    • Treat amount due as an expense
    • Unpaid amounts are a liability
    • May be capitalised if another standard allows it
    • Accumulating compensated absences / benefits included
    • Profit sharing and bonuses
      • When constructive or legal obligation
      • Reliable estimate can be made
  • IAS 19 Post Employment Benefits
    • Split into DB and DC
    • Defined contribution
    • Case by case based on principal terms
    • Legal obligation limited to contribution
    • Actuarial risk, investment risk all with employee
    • Defined benefit
    • Actuarial risk, investment risk all with employer
  • IAS 19 Post Employment Benefits
    • Multi employer plans
    • Can be defined contribution or defined benefit
    • Defined benefit
      • Account for proportionate share in normal way
      • Make the normal DB disclosures
      • Insufficient information
        • Account as a DC scheme
        • Disclose overall position of scheme
      • Not IAS 19 valuation
        • Recognise committeemen's to eliminate a deficit
  • IAS 19 Post Employment Benefits
    • Group administered plans
    • Are not multi employer schemes
    • Subsidiaries are not exempt but
      • May be agreement for holding company to meet deficit
      • Separate financial statements DC
      • Consolidation will account as normal under IAS 19
  • IAS 19 Post Employment Benefits
    • State plans
    • Normally treated as DC schemes
    • No requirement to meet a deficit
    • Construction Industry scheme is an example
  • IAS 19 Post Employment Benefits
    • Insured plans
    • Normally treated as DC schemes
    • Can be DB if
      • Employer pays the benefits directly
      • Pay further amounts if insurer does not
  • IAS 19 Post Employment Benefits
    • Accounting for defined contribution schemes
    • Payment = expense
    • No balance sheet effect except unpaid contributions
  • IAS 19 Post Employment Benefits
    • Accounting for defined benefit schemes
    • Corridor + spread over life
    • Corridor + accelerate spread
    • Corridor + recognise in income immediately
    • Corridor + recognise in equity immediately
    • No corridor + recognise in income immediately
    • No corridor + recognise in equity immediately
    • No corridor + spread over life
    • No corridor + accelerate spread
  • IAS 19 Post Employment Benefits- balance sheet
    • PV of pension obligations
    • less value of plan assets
    • Gross surplus / deficit
    • less unrecognised portion because of 10% corridor (if any)
    • Less past service cost not yet recognised (i.e. spread forward)
    • Net deficit / surplus
    • Surplus to not exceed DCF of benefits (refunds and holidays)
  • IAS 19 Post Employment Benefits- income statement Current Service cost Interest cost Expected return on plan assets Actuarial gains and losses where required Past service cost Curtailment and settlement cost Unrecognised actuarial gains and losses spread forward to the current year
  • IAS 19 Post Employment Benefits- assumptions
    • Entities best estimate of the variables that will determine cost of pension
    • Mortality
    • Employee turnover, disability and early retirement
    • Number of dependants of pensioners
    • Discount rate (high quality corporate bond yield)
    • Future salary and benefit rates
    • Expected return on plan assets
    • Should be unbiased and compatible
  • IAS 19 Post Employment Benefits – the accounting 1 The Corridor – option 1 spread out over the average remaining working lives 10% of the (previous years) plan assets or plan liabilities are ignored and the balance above 10% is spread out over the average remaining working lives Deficit 100 Plan assets 300 Plan liabilities 400 10% is 30 10% is 40 Higher is 40 100 less 40 is 60. 60 divided by average remaining life (say 10 years) is 6. Deficit on the balance sheet is 6 ! See INM
  • IAS 19 Post Employment Benefits- the accounting 2 The Corridor – option 2 spread out over the average remaining working lives any systematic method that results in a faster recognition. Same basis applied to both gains and losses and it is applied consistently. When a deficit Dr to income statement for bit spread out Credit balance sheet Per last example Dr wages 6, Cr pension liability 6
  • IAS 19 Post Employment Benefits- the accounting 3 & 4 The Corridor – option 3 recognise - excess over 10% immediately Same basis applied to both gains and losses and it is applied consistently. Option 3 Dr wages (excess over 10%) Cr Balance sheet Option 4 Dr equity (excess over 10%) Cr Balance sheet
  • IAS 19 Post Employment Benefits- the accounting 5 & 6 Ignoring the corridor. (i.e. recognise 100% of the deficit) Same basis applied to both gains and losses and it is applied consistently. Option 5 is to Dr wages, Cr balance sheet Option 6 is to Dr equity , Cr balance sheet
  • IAS 19 Post Employment Benefits- the accounting 7 & 8 7. Ignoring the corridor but spreading the deficit over average working life 8. Ignoring the corridor but spreading the deficit over a shorter period than average working life.
  • IAS 19 Post Employment Benefits- Past Service Cost Past service cost Enhancing benefits for both past and future service Already vested – recognise immediately To vest in the future - Recognise on a straight line basis over the average period to vesting
  • IAS 19 Post Employment Benefits- Past Service Cost Past service cost – exclude Differences between assumed and actual salary increases discretionary increases Reductions in benefits – negative past service cost – amortise over period to vesting
  • IAS 19 Plan assets - measurement Measure at fair value Where there is no market value use DCF Reimbursement When virtually certain that third party will discharge obligations Recognise asset as a separate asset In income statement net off expense and reimbursement
  • IAS 19 Settlements and curtailments Recognise gains or losses when they arise Including actuarial gains and losses and past service cost not recognised Presentation Offset of assets on one plan against a liability on another when Legal right of set off Will realist surplus and use to settle deficit simultaneously
  • IAS 19 Disclosure Accounting policy General description Each individual element of the cost separately and reconciled Actuarial assumptions Fund reconciliation Amount recognised in equity each element separately Amount recognised in profit and loss each element separately Sensitivity analysis of assumptions Other disclosures for termination benefits and other long term benefits Examples in your notes.
  • IAS 19 Transition
    • Determine your liability
    • PV of liabilities
    • less fair value of assets
    • less past service cost to be recognised in future periods
    • If IAS 19 liability is more than previous liability under FRS 17:
    • recognise increase immediately
    • Recognise as an expense over 5 years
        • Additional disclosures required if you choose 2
    • If IAS 19 liability is less than FRS 17 then recognise immediately
  • IAS 19 Transition
    • Determine your liability
    • PV of liabilities
    • less fair value of assets
    • less past service cost to be recognised in future periods
    • If IAS 19 liability is more than previous liability under FRS 17:
    • recognise increase immediately
    • Recognise as an expense over 5 years
        • Additional disclosures required if you choose 2
    • If IAS 19 liability is less than FRS 17 then recognise immediately
  • IAS 19 Post Employment Benefits
    • Accounting for defined benefit schemes
    • Corridor + spread over life
    • Corridor + accelerate spread
    • Corridor + recognise in income immediately
    • Corridor + recognise in equity immediately
    • No corridor + recognise in income immediately
    • No corridor + recognise in equity immediately
    • No corridor + spread over life
    • No corridor + accelerate spread
  • FRS 17 Opening balance of fund assets Contributions made Expected return Closing Assets Actual return less expected return Opening liabilities to pay pensions Current service cost Finance cost Closing liability Actuarial adjustments Past Service Cost Settlement and curtailment Benefits paid out Benefits paid out The pension trust balance sheet (Liabilities not recognised)
  • A simple example opening closing liability 1500 2000 Assets 1970 2950 470 950 Current service cost 70 Past service cost 25 Paid into the fund 60 Assets Liabilities Opening balance 1970 1500 Current Service Cost 70 Past Service Cost 25 Cash contributions 60 Interest unwinding 230 Return on assets expected 295 Actuarial gain / loss Actual less expected return Closing balance 2950 2000 Expected return on assets 295 Interest on liabilities 230 625 175
  • A simple example opening closing Assets Liabilities Opening balance 1970 1500 Current Service Cost 70 Past Service Cost 25 Cash contributions 60 Interest unwinding 230 Return on assets expected 295 Actuarial gain / loss 175 Actual less expected return 625 Closing balance 2950 2000 Dr Wages (70 + 25) 95 Dr interest expense 230 Cr interest income 295 Cr Bank 60 Dr Equity 175 Cr Equity 625 DR Pension in balance sheet 480
  • IAS 19 Irish Companies – Eircom Retrospective application of Corridor
  • IAS 19 Irish Companies – Eircom Mortality assumptions and sensitive assumptions
  • IAS 19 Irish Companies – INM Corridor and post retirement benefits
  • IAS 19 Irish Companies – CRH Different assumptions for different countries
  • Irish Assumptions Company Discount rate 2005/6 Eircom 4.75 Ind. News and Media 4.3 Bank of Ireland 4.85 CRH 4.25 DCC 4.35 Abbey 4.6 AIB 4.3 Anglo 4.3 Elan 4 FBD 4.25 ILP 4.25 Kerry 4.9 Greencore 4.2
  • FRS 17 The Discount Rate 4% discount rate Fund required Working life Age 65 Age 20 3% discount rate
  • Irish Assumptions Company Discount rate 2007/8 Eircom 4.75 Ind. News and Media 4.7 Bank of Ireland 4.95 CRH 5.5 DCC 4.7-4.8 AIB 5.5 Anglo 5.5 (end 2008 = 6%) Elan 5.4 FBD 5.5 ILP 5.5 Kerry 45.5-6.5 Greencore 5.4 United Drug 6.1 (end 2008)
  • Irish Deficits Company Deficit €M 2006 Eircom 773 Ind. News and Media 165.6 Bank of Ireland 896 CRH 324 DCC 19 Abbey 0.1 AIB 1227 Anglo Surplus 7.6m Elan 8.5 FBD 2 ILP 130 Kerry 170 Greencore 48
  • Irish Deficits 2008: 9m surplus Company Deficit €M 2007/8 Eircom 773 Ind. News and Media 126 Bank of Ireland 587 CRH 62 DCC 16 AIB 253 Anglo Surplus 29m Elan Surplus 12.4 FBD 6.2 ILP 76 Kerry 105K Greencore 14
  • Anglo Irish Bank 2008
  • Life expectations Company male Female Bank of Ireland (60) 24.5 (84.5) 27.5 (87.5) DCC (65) 20.9 (85.9) 23.9 (88.9) AIB (63) 21.7 (84.7) 24.6 (87.6) AIB UK (63) 23.1 (86.1) 26.0 (89) Anglo (60) 24.9 (84.9) 27.9 (87.9) FBD (65) 21.4 (86.4) 26.4 (91.4) ILP (65) 22.1 (87.1) 25.0 (90) Kerry (65) 17-19 (82) 20-22 (85) Greencore (65) 19-21 (84) 22-24 (87)
  • Irish Assumptions Company Salary Eircom 3.5 Ind. News and Media 3.6 Bank of Ireland 3.09 CRH 4 DCC 3.75 Abbey 2 AIB 4 Anglo 4 Elan 3.3 FBD 4 ILP 3.75 Kerry 3.25 Greencore 3.75
  • Irish Assumptions Company Equities Eircom 7.5 Ind. News and Media n/a Bank of Ireland 7.8 CRH 7.5 DCC 7.4 Abbey 7.2 AIB 7.3 Anglo 6.6 Elan 7 FBD 7 ILP n/a Kerry n/a Greencore 7.8
  • IAS 19 Issues
    • Discussion paper issued
    • Future salary increases
    • Account based on funding requirement for plan
    • Discount rate for liabilities
    • The corridor
    • Expected V’s Actual returns
  • IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
    • Recognise when
    • enterprise will comply with any conditions attached to the grant and
    • the grant will be received
    • Income statement
    • Match to associated cost
    • Don’t post directly to equity
    IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
  • IAS 20 Accounting for Government Grants and Disclosure of Government Assistance Grant of a non monitory asset (e.g. land) Asset at FV and grant also recorded Or Asset at net of grant amount
  • IAS 20 Accounting for Government Grants and Disclosure of Government Assistance Revenue grants Write off as expense incurred In “other income” or net to expense Capital grants Capitalise and amortise or Record asset at net amount
  • IAS 20 Accounting for Government Grants and Disclosure of Government Assistance Disclosure Accounting policy adopted for grants, including method of balance sheet presentation Nature and extent of grants recognised in the financial statements Unfulfilled conditions and contingencies attaching to recognised grants Government grants do not include government assistance whose value cannot be reasonably measured, such as marketing advice. Disclosure of the benefits is required
  • IAS 21 Foreign Exchange
  • Applies to: Individual transactions Consolidations Translations to a presentation currency Definitions: Functional currency Presentation currency IAS 21 Foreign Exchange
    • Summary of the approach
    • Identify the functional currency of the entity
    • Translate foreign currency transactions into the functional currency
    • Translate foreign operations into the functional currency
    • Translate the entities results into any “presentation currency” if required
    IAS 21 Foreign Exchange
    • Individual transactions
    • Monitory
    • At date of the transaction
    • Retranslate at balance sheet date
    • FX gain or loss to P/L
    • Non monitory
    • At date of the transaction
    • Don’t restate
    IAS 21 Foreign Exchange
    • Changes in functional currency
    • Change everything at the date of the change (monitory and non monitory)
    • Presentation currency
    • Assets and liabilities at the closing rate
    • P/L at the average rate
    • Retained earnings = the balance
    IAS 21 Foreign Exchange
  • Foreign operations Goodwill is a FX asset Use FRS 23 prospectively On disposal recycle FX gains and losses On first application set FX to zero IAS 21 Foreign Exchange
  • IAS 23 Borrowing Costs As amended March 2007 and applicable for accounting periods ended on or after 1 January 2009
  • Borrowing costs: Interest, amortisation of discount or premium Arrangement costs Not imputed equity costs No preference dividend unless debt per IAS 32 IAS 23 Borrowing Costs
  • Qualifying asset Takes a substantial amount of time to bring into use Property, plant and equipment Investment property under construction “ made to order” inventories IAS 23 Borrowing Costs
  • Benchmark treatment Expense in period when incurred Allowable alternative Capitalise with qualifying asset Apply consistently Separate borrowings – actual interest incurred Pooled debt – weighted average Suspend capitalisation during a delay IAS 23 Borrowing Costs
  • Exclusions Assets valued at fair value Inventories – option to capitalise Apply prospectively No retrospective re-statement IAS 23 Borrowing Costs As amended
  • IAS 24 Related Party Disclosure
  • IAS 24 Related Party Disclosure Draw attention to possible P/L or balance sheet affect of related party transactions Related party Control Exercise significant control Exercise joint control
  • IAS 24 Related Party Disclosure Related party directly or indirectly controls under common control significant influence Joint control Associated or joint ventures' key management (including parent) close family member of above Pension plan of entity
  • IAS 24 Related Party Disclosure Fellow profit orientated state controlled entities must also disclose Exclusions simply because of common key management or directors two venturers with joint control of a JV Providers of finance, trade unions, Government single customer with significant transactions and economic dependence.
  • IAS 24 Related Party Disclosure Related party Transactions Transfer of resources No price need be charged to be related (e.g. free rent from a director)
  • IAS 24 Related Party Disclosure Disclosure Name of parent organisation Ultimate controlling party Key Management compensation Total Short term employee benefits post retirement benefits Other benefits
  • IAS 24 Related Party Disclosure Key Management Persons responsible for planning, controlling and directing the entity Includes all directors Other related party transactions Nature of the relationship outstanding balances Amount of the transaction etc… … in total for each category of related party
  • IAS 24 Related Party Disclosure
    • Pre 2003 state controlled entities exempt
    • Now – profit orientates state controlled entities not exempt
    • Proposal
    • State controlled not exempt if:
      • influence a transaction either direction
      • Influenced in the entity
      • Not at arms length
  • IAS 26 Accounting and Reporting by Retirement Benefit Plans
  • IAS 26 applies to the financial statements of retirement benefit plans. The financial statements of a defined benefit plan contain either: a statement that shows: the net assets available for benefits; the actuarial present value of promised retirement benefits, distinguishing between vested and non-vested benefits; and the resulting excess or deficit; or IAS 26 Accounting and Reporting by Retirement Benefit Plans
  • IAS 26 applies to the financial statements of retirement benefit plans. a statement of net assets available for benefits including either: a note disclosing the actuarial present value of promised retirement benefits, distinguishing between vested and non-vested benefits; or a reference to this information in an accompanying actuarial report. Retirement benefit plan investments are carried at fair value IAS 26 Accounting and Reporting by Retirement Benefit Plans
  • IAS 27 Consolidated and Separate Financial Statements
  • preparation and presentation of consolidated Group Accounts and to accounting for investments in subsidiaries, jointly controlled entities, and associates. IAS 27 Consolidated and Separate Financial Statements
  • Requires consolidated accounts where parent controls subsidiary. Some exemptions Parent is wholly owned sub or partially owned and minority agree parent debt or equity not traded Not planning to list ultimate or intermediary parent produces consolidated accounts for “Public use” IAS 27 Consolidated and Separate Financial Statements
  • Consolidation Similar to UK GAAP except Separately value intangible assets Do not amortise goodwill Impair test goodwill annually Do amortise intangible assets IAS 27 Consolidated and Separate Financial Statements
  • IFRS differences Ryanair Acquires Aer Lingus UK IFRS Paid 1000 1000 Got Net assets at fair value (500) (500) Landing slots (300) Brand (100) Customer list (100) Residual goodwill 500 Nil
  • Separate financial statements Investment in JV’s and subsidiaries Use IAS 39, or Value at cost IAS 27 Consolidated and Separate Financial Statements
  • IAS 28 Investment in Associates
  • Associate Significant influence but not control 20%+ Significant influence assumed Representation on board Accounting - separate financial statements Cost or IAS 39 (fair value) IAS 28 Investment in Associates
  • Accounting - group financial statements Cost + group share of post acquisition profit (Some exceptions) IAS 28 Investment in Associates
  • IAS 29 Financial Reporting in Hyper Inflation Economies
  • IAS 29 Financial Reporting in Hyper Inflation Economies
    • Hyperinflation:
    • Population hold non monitory assets
    • Monitory amounts are considered in terms of a stable foreign currency
    • Wages and interest rates are inflation linked
    • Inflation >100% over 3 years
    • Restatement
    • Restate the financial statements using an inflation index
    • Restate the comparatives for inflation as well using an index up to balance sheet date
    • See a worked example at
    • http://www.iasb.org/uploaded_files/documents/8_39_ifric-d05.pdf
    IAS 29 Financial Reporting in Hyper Inflation Economies
  • IAS 30 Disclosures in Financial Statements of Banks and Similar Financial Institutions
  • IAS 30 Disclosures in Financial Statements of Banks and Similar Financial Institutions
    • Replaced by IFRS 7 in December 2006
  • IAS 31 Interests in Joint Ventures
  • IAS 31 Interests in Joint Ventures
    • A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control:
    • Jointly controlled operations
    • Jointly controlled assets
    • Jointly controlled entities.
  • IAS 31 Interests in Joint Ventures
    • Jointly controlled operations
    • No corporate entity
    • Recognise
    • assets that it controls and liabilities incurred
    • Expenses and share of income
    • Manufacture of an Aircraft
  • IAS 31 Interests in Joint Ventures
    • Jointly controlled assets
    • No corporate entity
    • Recognise
    • Its share of assets and liabilities Expenses and share of income
    • Oil pipeline
  • IAS 31 Interests in Joint Ventures
    • Jointly controlled entities
    • Proportional consolidation, or
    • as per an associate – equity method
  • ED 9 Interests in Joint Ventures
    • No more proportional consolidation
    • Jointly controlled assets: A/c like JV
  • IAS 32 and 39 Financial Instruments: Disclosure and Presentation and Measurement
  • IAS 32 and 39 Financial Instruments: Disclosure and Presentation and Measurement 32 & 39 FV and “de-recognition” Hedges EU standard FRS 25/26 Hedges Applying IFRS and you have a choice of either of these Applying UK you must use this EU now adopted this
  • Financial Instruments Financial instrument: A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
  • Financial Instruments Examples of Financial Instruments Cash Demand and time deposits Commercial paper Accounts, notes, and loans receivable and payable Debt and equity securities. These are financial instruments from the perspectives of both the holder and the issuer, includes investments in subsidiaries, associates, and joint ventures Asset backed securities such as collateralised mortgage obligations, repurchase agreements, and securitised packages of receivables Derivatives, including options, rights, warrants, futures contracts, forward contracts, and swaps.
  • Financial Instruments Examples of derivatives Forwards Interest Rate Swaps Forward Rate Agreements Futures Options Caps and Floors.
  • Financial asset Financial Liability / Equity Held for trading – FV through I/C Available for Sale – FV + recycle Loans and receivables – Amortised cost Held to maturity – Amortised Cost FV – I/S Amortised cost Derecognise – when transferred when extinguished Hedges Designated and effective Fair value or cash flow hedges Macro hedges
    • Financial Instruments
    • A financial Asset is:
    • cash;
    • an equity instrument of another entity;
    • a contractual right:
      • to receive cash or another financial asset from another entity;
      • to exchange financial assets or financial liabilities with another entity;
    • a contract that will or may be settled in the entity's own equity instruments and is:
      • a non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments;
      • a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments
    • Financial Instruments
    • Financial liability: Any liability that is:
    • a contractual obligation:
      • to deliver cash or another financial asset to another entity; or
      • to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or
    • a contract that will or may be settled in the entity's own equity instruments
    • Financial Instruments - Assets
    • Financial assets at fair value through profit or loss.
      • Designated. The first includes any financial asset that is designated on initial recognition as one to be measured at fair value with fair value changes in profit or loss.
      • Held for trading. The second category includes financial assets that are held for trading. All derivatives (except those designated hedging instruments) and financial assets acquired or held for the purpose of selling in the short term or for which there is a recent pattern of short-term profit taking are held for trading.
    • Available-for-sale financial assets (AFS) are any non-derivative financial assets designated on initial recognition as available for sale. AFS assets are measured at fair value in the balance sheet. Fair value changes on AFS assets are recognised in Equity and recycled when sold
    • Loans and receivables are non-derivative financial assets with fixed or determinable payments, originated or acquired, that are not quoted in an active market, not held for trading, and not designated on initial recognition as assets at fair value through profit or loss or as available-for-sale - Amortised cost
  • Financial Instruments - Assets Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments that an entity intends and is able to hold to maturity and measured at amortised cost (if sold then this category can not be used for 2 years)
  • Financial Instruments - Liabilities 2 Types valued at fair value through the profit and loss Designated. A financial liability that is designated by the entity as a liability at fair value through profit or loss upon initial recognition. Held for trading. A financial liability classified as held for trading, such as an obligation for securities borrowed in a short sale, which have to be returned in the future. Other at amortised cost using the effective interest method
    • Financial Instruments – De-recognition Assets
    • De-recognise when transferred:
    • the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the original asset,
    • the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient), and
    • the entity has an obligation to remit those cash flows without material delay.
  • Financial Instruments – De-recognition Liabilities A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged, cancelled, or expired.
    • Hedge Accounting
    • IAS 39 permits hedge accounting under certain circumstances provided that the hedging relationship is:
    • formally designated and documented, including the entity's risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness; and
    • expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented, and effectiveness can be reliably measured.
  • Hedge Accounting Effectiveness requirement 80% to 125% effective Categories: A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or a previously unrecognised firm commitment to buy or sell an asset at a fixed price or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.
  • Fair Value Accounting - Investments Fair value revalue to market value at year end and difference to I/S Available for sale revalue to market value at year end and difference to equity, recycle gain or loss to I/S when sold Held to Maturity Amortised cost
  • Fair Value Accounting 2001: Cost 100 2001 year end MV 200 2002 year end MV 300 2003 sold 400 Fair value 2001 2002 2003 Balance sheet amt. 200 300 Nil I/S 100 100 100
  • Fair Value Accounting 2001: Cost 100 2001 year end MV 200 2002 year end MV 300 2003 sold 400 Available for sale 2001 2002 2003 Balance sheet amt. 200 300 Nil I/S 300 Equity 100 100 (200)
  • Fair Value V’s Cost Accounting € 1000, 3 year bond paying 15% at the end of 3 years Fair value HTM 2000 2001 2002 Balance sheet amt. 1,050 1,100 1,150 I/S 50 50 50 Cost model 2000 2001 2002 Balance sheet amt. 1,000 1,000 1,150 I/S Nil Nil 150
  • IAS 33 Earnings per share
  • IAS 33 Earnings per share
    • Applies to public traded or entities who choose to disclose EPS
    • The same as UK GAAP FRS 22
    • Requirement
    • Disclose EPS for total and continuing operations on face of P/L
    • Disclose diluted EPS for total and continuing operations on face of P/L
    • Other per share amounts in the notes
  • IAS 33 Earnings per share
    • Simple calculation
    • Earnings
    • Number of shares
    Earnings: Profit after tax and preference dividends Number of shares: the weighted average number of ordinary shares outstanding during the period
  • IAS 33 Earnings per share
    • Diluted Earnings per share
    • adjust profit or loss attributable to ordinary share holders, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares
    • Earnings + savings from conversion of potential shares
    • Number of shares + number of new potential shares
  • IAS 33 Earnings per share
    • Example 1 - Weighted Average Number of Ordinary Shares
    •   Shares Treasury Outstanding
    • Issues Shares
    • 1/1/01 Opening 2000 300 1700
    • 1/5/01 issued 800 2500
    • 1/12/01 purchased 250 2250
    • End of year 2800 550 2250  
    • (1,700 × 5/12) + (2,500 × 6/12) + (2,250 × 1/12) = 2,146 shares or
    • (1,700 × 12/12) + (800 × 7/12) – (250 X 1/12)
  • IAS 33 Earnings per share
    • Example 2 – Bonus Issue
    • Profit 20X0 €180
    • Profit 20X1 €600
    • Ordinary shares outstanding until 30 September 20X1 200
    • Bonus issue 1 October 20X1 2 ordinary shares for each ordinary share outstanding at 30 September 20X1 200 × 2 = 400
    • Basic earnings per share 20X1 €600 = €1:00
    • (200 + 400)
    • Basic earnings per share 20X0 €600 = €0:30
    • (200 + 400)
    • Because the bonus issue was without consideration, it is treated as if it had occurred before the beginning of 20X0, the earliest period presented.
  • IAS 33 Earnings per share
    • Application in Europe – additional disclosures in financial review
    • “ Adjusted”; “Underlying”, “Excluding non recurring items”, “Cash EPS”
    • 50% of Irish and UK companies have additional EPS calc.
    • Exclusions:
      • Currency movements, non core income, property transactions, exceptional items, fair value gains,
    • Examples
      • AIB, Imperial Tobacco, CRH, Kingfisher
  • IAS 34 Interim Reporting
  • IAS 34 Interim Reporting
    • prescribes the minimum content of an interim financial report and the
    • principles for recognition and measurement in any interim financial statements.
  • IAS 34 Interim Reporting
    • Condensed Balance sheet
    • Condensed income statement
    • Condensed statement of changes in equity
    • Condensed cash flow
    • Selected notes
  • IAS 34 Interim Reporting
    • Same accounting policies
    • Don’t anticipate seasonal revenue
    • Don’t spread uneven costs
    • Tax at best estimate
    • Materiality per the interim not full year a/c
  • IAS 36 Impairment of Assets
  • IAS 36 Impairment of Assets
    • Assets to be carried at no more than their recoverable amount
    • Excludes
    • Inventory
    • Construction contracts
    • Deferred tax assets
    • Pension assets
    • Financial assets (IAS 39)
    • Investment property
    • Biological assets
    • held for sale assets
  • IAS 36 Impairment of Assets
    • Indications of impairment
    • market value declines
    • negative changes in technology, markets, economy, or laws
    • increases in market interest rates
    • company stock price is below book value
    • obsolescence or physical damage
    • asset is part of a restructuring or held for disposal
    • worse economic performance than expected
  • IAS 36 Impairment of Assets
    • Measure the recoverable amount when there is an indication of an impairment, or
    • Measure annually when:
      • Intangible asset with indefinite useful life
      • intangible asset not available for use
      • goodwill
    • Recoverable amount is greater of
      • Fair value less sales cost, or
      • Value in use
  • IAS 36 Impairment of Assets
    • Fair Value
      • Arms length transaction
      • Knowledgeable and willing parties
      • Less disposal costs
    • Value in use
      • Present value of future cash flows
      • Use individual assets cash flows if possible
      • Or use income generating unit
  • IAS 36 Impairment of Assets
    • Discount rates
    • market-determined asset-specific
    • the enterprise's own weighted average cost of capital;
    • the enterprise's incremental borrowing rate; or
    • other market borrowing rates.
  • IAS 36 Impairment of Assets
    • Impairment loss
      • Recognised immediately in P/L
      • For a re-valued asset – reverse revaluation then p/l
    • Impairment loss for a cash generating unit
      • Goodwill written off first
      • Pro rata against other assets
  • IAS 36 Impairment of Assets
    • Impairment loss reversal
      • If a change in estimates reverses impairment
        • Reverse impairment
        • Don’t exceed original amount
      • Impaired goodwill is not reversed
  • IAS 36 Impairment of Assets
    • Application in Europe
    • Vodafone 27% of equity impairment £34.2bln
    • Average impairment is 1.6% of equity
    • Royal bank of Scotland is a good example of disclosures
    • Most companies add impairment to depreciation, some deduct from cost.
    • Unilever 2005 good example of disclosures
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
    • Similar to UK GAAP
    • Present obligation
    • Past event
    • probable outflow of resources
    • reliable estimate can be made
    • Excludes
    • Construction contracts
    • income taxes
    • leases
    • pensions
    • Financial instruments
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
    • Provide
    • The best estimate of the cost of discharging the liability
    • Review the provision annually
    • Use only for the original purpose
    • Don’t provide for future operating losses
    • Provide for onerous contracts
  • IAS 37 Provisions, Contingent Liabilities and Contingent Assets
    • Restructuring provisions
    • Detailed plan
    • Valid expectation
      • Starting
      • Announcing to staff
    • Contingent liability
    • Don’t provide, but do disclose
    • Don’t disclose if “Remote” possibility
    • Contingent asset
    • Disclose if probable
  • IAS 38 Intangible Assets
  • IAS 38 Intangible Assets
    • Recognise at cost if:
    • Identifiable and controlled
    • Future economic benefit will flow
    • Cost can be reliable measured
    • Internally generated not recognised
    • Mastheads, brands, customer lists etc…
    • Expenditure on research is not capitalised
    • Development expenditure may be capitalised if rules met
  • IAS 38 Intangible Assets
    • Examples:
    • computer software
    • patents
    • copyrights
    • motion picture films
    • customer lists
    • mortgage servicing rights
    • licenses
    • import quotas
    • franchises
    • customer and supplier relationships
    • marketing rights
  • IAS 38 Intangible Assets
    • Intangibles can be acquired:
    • by separate purchase
    • as part of a business combination
    • by a government grant
    • by exchange of assets
    • by self-creation (internal generation)
  • IAS 38 Intangible Assets
    • Carry intangible asset at:
    • Cost less accumulated amortisation and impairment losses
    • Re-valued amount
      • Where there is an active market
      • Revaluation increases to equity
      • Revaluation losses to p/l
  • IAS 38 Intangible Assets
    • Amortisation:
    • Indefinite useful life
      • No amortisation
      • Test for impairment annually
    • Finite life
      • Amortise over life
  • IAS 38 Intangible Assets
    • Issues
    • On transmission from UK GAAP removal of choice on capitalising Development
    • 75% of S&P 350 have R&D
    • 7% capitalised under UK
    • 16% capitalised after changing to IFRS
    • 31% capitalise and expense
    • A lot arising from internally generated software
    • Healthcare lowest % of capitalisation
    • Some acquired development
    • € 83bln expensed – €15bln capitalised
    • Daimler – retrospectively capitalised R&D
  • IAS 38 Intangible Assets
    • US harmonisation
    • US GAAP Expense all R&D
    • R&D part of “memorandum of understanding”
    • Expect paper in 2008
    • No indication of possible outcome
  • IAS 40 Investment Property
  • IAS 40 Investment Property
    • Land or buildings
    • held for rental income or
    • investment growth
    • Initial recognition is at cost then option of:
    • Cost
      • Depreciate like a non investment property
    • Fair value
      • Increases or decreases to p/l
  • IAS 40 Investment Property
    • Consistently apply the cost or fair value option
    • Transfer between fixed assets and investment property when there is a change of use
  • IAS 41 Agriculture
  • IAS 41 Agriculture
    • Living animals and plants pre harvest.
    • Excludes
    • Agricultural land
    • Intangible assets related to agriculture
    • Post harvest agricultural product
  • IAS 41 Agriculture
    • Measure biological assets at fair value less point of sale costs
    • Costs include
    • Levies, commissions, duties and taxes
    • Gains or losses from a change in fair value to p/l
    • Unconditional government grant is recognised when receivable
    • Conditional Grant – recognised when conditions met.
  • IFRS 1 – First time adoption of IFRS
  • IFRS 1 – First time adoption of IFRS
    • Identify the first IFRS accounts
    • Prepare an opening balance sheet
    • Make unreserved statement of compliance with IFRS
    • Select accounting policies and apply them retrospectively
    • Consider the exemptions from retro. application
    • Make extensive disclosures
  • IFRS 1 -International Accounting Standards Identify the first IFRS accounts, prepare an opening balance sheet and select and apply accounting policies 2007 2008 2009 Balance sheet Calc. restate IFRS Profit and loss account restate IFRS Old GAAP IFRS 2007 2008 2009 Profit
  • IFRS 1 -International Accounting Standards
    • Apply current standards to comparison figures
    • Recognise
    • De-recognise
    • Re-classify
    • Re-measure
  • IFRS 1 -International Accounting Standards Consider the exemptions from retrospective Application. You may apply all, some or none of the exemptions Business combinations - no need to restate Deemed cost for fixed assets Translation differences set to zero Defined benefit pensions corridor Compound financial instruments need not be split Subsidiary may use IFRS 1 later then parent Designation of financial instruments Share based payment transactions Insurance contracts
  • IFRS 1 -International Accounting Standards
    • Prohibited retrospective application
    • Where judgement about past conditions is necessary where the outcome is known (don’t correct estimates)
    • Reconcile p/l, balance sheet and cash flow.
  • IFRS 1 -International Accounting Standards
    • Errors noted on first time application
    • Bank of Ireland
    • Northgate Information Solutions
    • General improvement in disclosures noted one year on.
  • IFRS 2 Share Based Payment
    • IFRS 2 Share Based Payment
    • (an identical copy of FRS 20)
    • Previous position –no expense if the option is issued at fair value
    • Discussion paper – Fair value at vesting date
    • IFRS 2
    • Cash settled – build up provision for amount expected to be paid
    • Equity – fair value of service received cr other reserves.
  • IFRS 2 Share Based Payment Issues: Share options being used to pay for goods and services Already in diluted earnings per share Complex valuation methods If the options are not taken up the charge does not reverse What do you do with the spare credit “other reserves” The discontinuation of share option schemes Start ups and R&D cost sharing arrangements Easy Jet £4.3m additional expense
  • IFRS 2 Share Based Payment Ryanair €0.5m expense Vodafone £52m expense Boots £1.1m expense Easy Jet £4.3m expense CRH €13.9m Elan €15.1m (17% of wages) Kingspan €1.8m IBM $1,035m (13% of income) 10% profit hit in the US 50% profit hit in US tech. sector 3% profit hit in Europe
  • IFRS 2 Share Based Payment Management issues: Calculate the impact on the income statement Assess the sensitivity of the charge to the key assumptions Identify staff to calculate and prepare disclosures Determine data needed Review funding and hedging of plans Review the future of share plans
  • Example An entity grants 100 options to each of its 500 employees. Each is conditional on the employee working for the entity over the next three years. Assume the fair value is £15. Based on weighted average probability, 20% of employees will leave during the three year period and thus forfeit their rights. The total fair value of options granted = 500 x 100 options x £15 x 80% = £600,000. The entity also estimates that the departures will occur evenly over three years. Application Scenario 1 If everything turns out as expected Cumulative Expense Year 1 50,000 options x 80% x £15 x 1/3r year 200,000 200,000 Year 2 50,000 options x 80% x £15 x 2/3 years 400,000 200,000 Year 3 50,000 options x 80% x £15 x 3/3 years 600,000 200,000 Total over three 600,000 IFRS 2 Share Based Payment
  • Scenario 2 During year 1 20 employees leave then the entity revises its estimate of total departures from 20% to 15%. During year 2 22 employees leave then the entity revises its estimate of total departures from 15% to 12% During year 3 15 employees leave thus 57 in total forfeited their rights leaving 443 x 100 options vested. Cumulative Expense Year 1 50,000 options x 85% x £15 x 1/3 year 212,500 212,500 Year 2 50,000 options x 88% x £15 x 2/3 years 440,000 227,500 Year 3 44,300 options x £15 x 3/3 years 664,500 224,500 Total over three years 664,500 IFRS 2 Share Based Payment
  • Cash Settled Share Based Payment Transactions An entity grants 100 cash share appreciation rights (SARs) as long as an employee stays 3 years. During year 1, 35 employees leave. The entity estimates that a further 60 will leave during years 2 and 3. During year 2, 40 employees leave and the entity estimates a further 25 will leave during year 3. During year 3, 22 employees leave and at the end of year 3, 150 employees exercise their SARs, another 140 exercise at the end of year 4 and the remaining 113 at the end of year 5. Fair value Intrinsic value Year 1 £14.40 2 £15.50 3 £18.20 £15.00 4 £21.40 £20.00 5 £25.00 IFRS 2 Share Based Payment
  • Cash Settled Share Based Payment Transactions Application Year 1 Expense for services received and consumed, and the year end liability Cumulative Expense (500 - 95 employees x 100 SARs x £14.40 x 1/3 194,400 194,400 Year 2 (500 - 100 employees x 100 SARs x £15.50 x 2/3 413,333 218,933 Year 3 (500 - 97 left – 150 exercised x 100 SARs x £18.20 x 3/3 460,460 150 exercised x 100 exercised x £15 225,000 685,460 272,127 Year 4 150 exercised x 100 SARs x £15 225,000 140 exercised x 100 SARS x £20 280,000 ( 500 - 97 left - 290 exercised x 100 SARs x £21.40 241,820 746,820 61,360 Year 5 150 exercised x 100 SARs x £15 225,000 140 exercised x 100 SARs x £20 280,000 113 exercised x 100 SARs x £25 282,500 787,500 40,680 Total charged over the five years 787,500 IFRS 2 Share Based Payment
  • IFRS 2 Share Based Payment
    • Application in Europe
    • 2% of profit in S&P Europe 350
    • 2.7% of wage costs in S&P Europe 350
    • Monte Carlo, Black Scholes and Binomial Lattice models used
  • IFRS 3 Business Combinations
  • IFRS 3 Business Combinations
    • Only use acquisition accounting (merger accounting no longer allowed)
    • Acquirer acquires the business for the fair value of assets and liabilities
    • Amount paid
    • Less fair value of net assets acquired
    • = Goodwill
    • Goodwill carried at cost without any amortisation
  • IFRS 3 Business Combinations
    • Intangible assets acquired
    • UK GAAP – subsumed into overall goodwill – assumption that is can not be valued.
    • IFRS – separately valued if it can be measured reliably. Assumption that it can be reliable measured
    • IFRS
    • Goodwill not amortised
    • Intangible assets amortised
    • If done properly there should be no goodwill as intangible assets should = goodwill.
  • IFRS 3 Business Combinations
    • Negative goodwill
    • Written off of p/l in year of acquisition
  • IFRS 3 Business Combinations Revised
  • Amendments Buy 100% of company for 1000 Sell 10% for 200 a year later Cost of 10% 100 Sales value 200 IFRS 3 Business Combinations Revised Gain on sale 100 To equity 100
  • IFRS 3 Business Combinations Revised
    • A/C periods beginning after 1 July 2009
    • Acquisition costs now I&E
    • Acquisition accounting only when control achieved
    • Pre-acquisition interest
      • Treat as FI under IAS 39
      • JV (IAS 31) or Associate (IAS 28)
    • Control acquired
      • All subsequent increases in ownership interest to equity
      • No goodwill / gain or loss
  • IFRS 3 Business Combinations Revised
    • Goodwill
    • + Fair value of consideration
    • + Minority interest (NCI)
    • + fair value of pre-control interest
    • - net assets acquired
    • Minority at fair value, or
    • Minority at % share of assets
  • IFRS 3 Business Combinations Revised
    • Example
    • Paid 1000 in 1999 for 40%
    • Paid 2000 today for 40% (market value)
    • Net assets today are worth 3000
    • Goodwill – FV option for NCI
      • Paid 1000+2000+1000* = 4000
      • Got 3000
      • Goodwill 1000
    • *FV of 40% is 2000, so FV of 20% is 1,000
  • IFRS 3 Business Combinations Revised
    • Example
    • Paid 1000 in 1999 for 40%
    • Paid 2000 today for 40% (market value)
    • Net assets today are worth 3000
    • Goodwill – share of assets
      • Paid 1000+2000+600* = 3600
      • Got 3000
      • Goodwill 600
    • *Total assets are 3000 and 20% is 600
  • IFRS 3 Business Combinations Revised
    • Contingent Consideration
    • Measured at fair value
    • Only change if additional information about conditions at balance sheet date
    • All other changes to I&E
      • (meet targets, milestones etc…)
  • IFRS 3 Business Combinations Revised
    • Reacquired of right where there is a pre-existing relationship
    • Non market price: gain or loss recognised and purchase price adjusted
    • Intangible asset recognised at FV and amortised
  • IFRS 3 Business Combinations Revised
    • Reassessment
    • Recalculate and classify contractual arrangements
      • Except leases and insurance contracts
    • Mainly will apply to financial instruments
    • Loss of control:
      • De-recognise all assets and liabilities and NCI at carrying value
      • Remaining interest at fair value
      • Net proceeds to p/l
    IFRS 3 Business Combinations Revised + Carrying value before loss of control - Proceeds received - retained interest = Profit or loss
  • Group accounting US V’s IFRS
    • Basic principals converged
    • Different definition of control
      • “ power to govern” IFRS
      • “ Controlling financial interest” US
    • Different definition of fair value
      • Per IAS 39
      • SFAS 157
    • Contingencies
      • Present obligation, past event, measured (IFRS)
      • Contractual liabilities same as IFRS under US
      • Non contractual – “more likely than not”
  • Group accounting US V’s IFRS
    • Employee benefits
    • Different measurement basis under US and IFRS
    • Measuring Non Controlling Interest
    • FV or % of assets under IFRS
    • FV under US
  • IFRS 3 Business Combinations
    • Application in Europe
    • Different presentations
    • some net amortised goodwill against goodwill. Some show gross.
    • Lack of detail on FV of acquisitions
    • Some restatement on first application
      • Ryanair
      • PPR (a French retailer)
  • IFRS 4 Insurance Contracts
  • IFRS 4 Insurance Contracts
    • Relevant to issuers of insurance contracts
    • Insurance and reinsurance
    • Product warranties issued by manufacturers excluded
  • IFRS 5 Non Current assets Held for Sale and Discontinued Operations
  • IFRS 5 Non Current assets Held for Sale and Discontinued Operations
    • Assets (or subsidiaries) reclassified as current assets if held for resale:
    • Available for immediate sale
    • Sale is highly probable
    • Measure at lower of:
    • Fair value less selling costs
    • Carrying amount
    • Loss on reclassification to P/L
  • IFRS 5 Non Current assets Held for Sale and Discontinued Operations
    • Discontinued operations
    • Has been disposed of
    • Is held for resale
    • Separately disclosed
  • IFRS 6 Exploration for and Evaluation of Mineral Resources
  • IFRS 6 Exploration for and Evaluation of Mineral Resources
    • guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets
    • mining and oil and gas companies
  • IFRS 7 Financial Instruments: Disclosure
  • IFRS 7 Financial Instruments: Disclosure
    • Replaces IAS 30 and requires additional disclosure on financial instruments.
  • IFRS 8 Operational Segments
  • IFRS 8 Operational Segments
    • Applies to Quoted companies only
    • Operational segments:
    • engages in business activities from which it may earn revenues and incur expenses
    • whose operating results are reviewed regularly by the entity’s chief operating decision maker;
    • for which discrete financial information is available.
  • IFRS 8 Operational Segments
    • Same as SFAS 131
    • Increased number of segments
    • view through eyes of management
    • Timely and lower cost
    • better link to management discussion
  • Interpretations
  • Interpretations
    • IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments
    • If you can demand back they are debt
    • If you can’t they are equity
    • IFRIC 4 Determining Whether an Arrangement Contains a Lease
    • Accounting for outsourcing and telecommunications and “take or pay” arrangements.
    • IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
    • Setting up a separate entity to pay for decommissioning and determining the accounting
  • Interpretations
    • IFRIC 6 Liabilities Arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment
    • Disposal of pre August 2005 sales of WEEE
    • Participation in the market pre 2005 triggers liability
    • IFRIC 12 Service Concession Arrangements
    • Grant of a contract to operate a public utility
      • Financial asset: right to cash for building a school
        • Value at fair value of cash to be received
      • Intangible asset: right to charge a toll on an asset you build
        • Value at fair value
  • Interpretations
    • IFRIC 13 Customer Loyalty Programmes
    • Reduce sales for liability (fair value of award)
    • Recognise sale when aware taken up
    • Obligation > Consideration = liability
    • Prior year adjustment allowed
    • 1 July 2008 (allowed apply earlier)
    • IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
    • Refund = asset
    • Payment holiday = PV of future service costs
  • Interpretations
    • IFRIC 15 Agreements for the Construction of Real Estate
    • Sale of goods or a long term contract
    • IFRIC 16 Hedges of a Net Investment in a Foreign Operation
    • Can not hedge against presentation currency only a functional currency
    • IFRIC 17 Distributions of Non-cash Assets to Owners
    • Transferred at fair value
    • IFRIC 17 Transfers of Assets from Customers
    • Who owned assets given to for example electricity supplier
  • Interpretations
    • SIC 12 Consolidation – Special Purpose Entities
    • Similar concept to UK GAAP Quasi Subsidiaries
    • SIC 15 Operating Leases – Incentives
    • Recognise over life of lease
    • SIC 29 Disclosure – Service Concession Arrangements
    • Specifies disclosure requirements where you have private ownership of public utilities
    • SIC 31 Revenue – Barter Transactions Involving Advertising Services
    • Only recognise “real” revenue
  • Interpretations
    • SIC 32 Intangible Assets – Website Costs
    • Similar to UK GAAP – only capitalise website development costs when revenue exceeds costs – no capitalisation of “advertising” web sites
    • Planning
      • Expense costs
    • Application and infrastructure development
      • Capitalise if revenue to exceed costs
    • Content development
      • Expense
    • Operating
      • Expense
  • Interpretations
    • SIC 21 Income Taxes – Recovery of Re-valued Non-Depreciable Assets
    • Use CGT rate of tax to calculate deferred taxation for investment property
    • SIC 27 Evaluating the Substance of Transactions in the Legal Form of a Lease
    • Guidance on when to capitalise a lease when it is unclear.
  • Interpretations
    • SIC 21 Income Taxes – Recovery of Re-valued Non-Depreciable Assets
    • Use CGT rate of tax to calculate deferred taxation for investment property
    • SIC 27 Evaluating the Substance of Transactions in the Legal Form of a Lease
    • Guidance on when to capitalise a lease when it is unclear.
  • Recent draft Interpretations
    • D21 Real Estate Sales
    • Construction services or
    • Sale of goods
    • D22 Hedges of a Net Investment in a Foreign Operation
    • Disallow the use of hedge accounting when translating a functional currency into a presentation currency
    • D23 Distribution of non cash assets to owners
    • Dispose at fair value not holding value
    • D24 Customer contributions
    • Building an electricity sub station in a housing estate
    • Recognise the asset at fair value, recognise liability to provide service
  • More information
  • www.iasb.org/Summaries+of+International+Financial+Reporting+Standards/IFRS+and+IAS+Summaries/IFRS+and+IAS+Summaries.htm
  • http://www.iasplus.com/standard/standard.htm
  • Accessing on line Technical Resource www.accaglobal.com
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  • The Knowledge Library main page
  • The list of technical material you can access
  • The text of the standard is accessed by clicking on the links
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  • IFRS for Private Entities
  • IFRS for Private Entities Aims 200 A5 pages in total no general fall back to big GAAP Allow Governments to decide who can apply
  • IFRS for Private Entities Exposure Draft issued March 2007 Topics omitted Hyperinflation Share based payment Agriculture extractive industries interim reporting lessor accounting recoverable amount of goodwill earnings per share Segment reporting
  • IFRS for Private Entities Only simple options included cost model for investment property no revaluation of property plant and equipment borrowing costs to be expensed Grants single method
  • IFRS for Private Entities Recognition and measurement simplifications Financial instruments Two categories not four de-recognition simpler Hedge accounting simpler Goodwill impairment – “indicator” not annual Expense all R&D Cost method for Associates and JV’s Less fair value for agriculture (only if easy to do) pensions – corridor omitted First time adoption less prior year disclosures
  • IFRS for Private Entities Fall back to full IFRS No mandatory fall back to full IFRS Use treatment for similar items in IFRS for SME Use statement of principals
  • IASB Work plan Joint Ventures IFRS Q4 2008 Income tax ED Q2 2008 IFRS 2009 Consolidations DP Q3 2008 ED, IFRS 2009 FV guidance RT Q2 008 ED 2009 Presentation of F/S DP Q2 2008 Revenue recognition DP Q2 2008 Pensions DP Q1 2008 ED 2009 Leases DP 2009 SME IFRS Q4 2008 Insurance contracts ED 2009 Annual improvements IFRS 2008 IFRS 2009
  • IASB Work plan IAS 39 (portions) IFRS Q4 2008 IAS 32 puttable instrument IFRS Q1 2008 Related parties IFRS Q1 2008 SBP IFRS Q2 2008 Research De-recognition Financial Instruments Intangible assets Liabilities and equity Extractive industries
  • FRRP and CESR findings
  • FRRP: Financial Reporting Review Panel CESR: The Committee of European Securities Regulators
  • CESR – IFRS findings
    • Capitalisation of borrowing costs while applying for planning on a green field site is acceptable
    • Not providing for a bad debt was not acceptable
    • Bad debt reserves in a bank should take account of any liquidation dividend.
    • Immature salmon to be valued at fair value
    • Costs of a business acquisition are not to go to p/l
    • Excise duty is included in purchases and sales
    • Negative goodwill coming forward goes to reserves on conversion to IFRS.
  • CESR – IFRS findings
    • Speculative building projects are sale of goods
    • Do not recognise deferred taxation where there is ongoing losses
  • CESR – IFRS findings – 4 th extract
    • Identification of parent in a merger
    • Identification of associates
    • Disclosure of financial instruments
    • Acquired mobile phone companies, split intangible assets between pre and post paid customers
    • Customer relationships had an indefinite useful life
    • Deferred taxation assets when ongoing losses
    • Maturing whiskey stock is a current asset
    • DB V’s DC pensions
    • Non compliance with half yearly reports requirement
  • IAASA – observations on financial statements Valuation and impairment of assets Retirement benefits Going concern/principal risks and uncertainties Financial instruments: IFRS 7/FRS 29 disclosures Hedge effectiveness Judgements Related party disclosures Deferred tax assets Prior period errors
  • FRRP – IFRS and UK findings
    • Cambrian Mining Plc
      • Multiple non compliance, FX, associates, FV on acq.
    • Grainger Trust plc
      • Property held for investment / or as stock
    • Eurovestech Plc
      • Exclusion of “held for resale” subsidiaries from the consolidation.
    • The Sanctuary Group Plc
      • Adverse opinion re prior year adjustments
      • Change of accounting policy V fundamental errors
  • FRRP – IFRS and UK findings
    • Highams Systems Services Group Plc
      • Paid for acquisition with shares – date of valuation
    • Inveresk Plc
      • Audit disagreement, post B/S sale of land – subject to pp
    • Berkeley Berry Birch Plc
      • Non disclosure of RR policy, EPS excluded exceptional
    • Royal Bank of Scotland
      • JV with Tesco consolidated
    • Aidan Clifford FCCA, FCA,
    • Advisory Services Manager Ireland
    • Association of Chartered Certified Accountants
    • [email_address]
    • Phone + 353 1 4988 907
    • UK helpline + 44 207 059 5920
    DipIFR