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IFRS Standards
IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 1 requires an entity that is adopting IFRS Standards for the first
time to prepare a complete set of financial statements for its first IFRS
reporting period and for the immediately preceding year.
The entity uses the same accounting policies throughout all periods
presented in its first IFRS financial statements. Those accounting
policies shall comply with each Standard effective at the end of its first
IFRS reporting period. IFRS 1 provides limited exemptions from the
requirement to restate prior periods in specified areas in which the cost
of complying with them would be likely to exceed the benefits to users
of financial statements. IFRS 1 also prohibits retrospective application of
IFRS Standards in some areas, particularly when retrospective application
would require judgements by management about past conditions after
the outcome of a particular transaction is already known.
The Standard requires disclosures that explain how the transition from
previous GAAP to IFRS Standards affected the entitys reported financial
position, financial performance and cash flows.
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Financial assets
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Financial liabilities
An entity classifies all financial liabilities as subsequently measured at
amortised cost using the effective interest method, except for:
financial liabilities at fair value through profit or loss. Such liabilities,
including derivatives that are liabilities, are subsequently measured at
fair value.
financial liabilities that arise when a transfer of a financial asset does
not qualify for derecognition or when the continuing involvement
approach applies.
financial guarantee contracts (for which special accounting is
prescribed).
commitments to provide a loan at a below-market interest rate (for
which special accounting is prescribed).
contingent consideration recognised by an acquirer in a business
combination to which IFRS 3 applies.
However, an entity may, at initial recognition, irrevocably designate a
financial liability as measured at fair value through profit or loss when
permitted or when doing so results in more relevant information.
After initial recognition, an entity cannot reclassify any financial liability.
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Impairment
Impairment of financial assets is recognised in stages:
Stage 1as soon as a financial instrument is originated or purchased,
12-month expected credit losses are recognised in profit or loss and
a loss allowance is established. This serves as a proxy for the initial
expectations of credit losses. For financial assets, interest revenue is
calculated on the gross carrying amount (ie without adjustment for
expected credit losses).
Stage 2if the credit risk increases significantly and the resulting credit
quality is not considered to be low credit risk, full lifetime expected
credit losses are recognised in profit or loss. Lifetime expected credit
losses are only recognised if the credit risk increases significantly from
when the entity originates or purchases the financial instrument. The
calculation of interest revenue is the same as for Stage 1.
Stage 3if the credit risk of a financial asset increases to the point that
it is considered credit-impaired, interest revenue is calculated based on
the amortised cost (ie the gross carrying amount adjusted for the loss
allowance). Financial assets in this stage will generally be individually
assessed. Lifetime expected credit losses are recognised on these
financial assets.
Hedge accounting
The objective of hedge accounting is to represent, in the financial
statements, the effect of an entitys risk management activities that
use financial instruments to manage exposures arising from particular
risks that could affect profit or loss or other comprehensive income. This
approach aims to convey the context of hedging instruments for which
hedge accounting is applied in order to allow insight into their purpose
and effect.
Under IFRS 9, hedge accounting is aligned with an entitys risk
management activities. Risk components of both financial and nonfinancial items qualify for hedge accounting. Rebalancing (modifying)
a hedging relationship after initial designation does not necessarily
terminate hedge accounting.
Hedge accounting is optional. An entity applying hedge accounting
designates a hedging relationship between a hedging instrument and
a hedged item. For hedging relationships that meet the qualifying
criteria in IFRS 9, an entity accounts for the gain or loss on the hedging
instrument and the hedged item in accordance with the special hedge
accounting provisions of IFRS 9.
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requires an entity (the parent) that controls one or more other entities
(subsidiaries) to present consolidated financial statements;
defines the principle of control, and establishes control as the basis for
consolidation;
sets out how to apply the principle of control to identify whether an
investor controls an investee and therefore must consolidate the investee;
sets out the accounting requirements for the preparation of
consolidated financial statements; and
defines an investment entity and sets out an exception to consolidating
particular subsidiaries of an investment entity.
Consolidated financial statements are the financial statements of a
group in which the assets, liabilities, equity, income, expenses and cash
flows of the parent and its subsidiaries are presented as those of a single
economic entity.
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IFRS 16 Leases
IFRS 16 is effective for annual reporting periods beginning on or after 1
January 2019, with earlier application permitted (as long as IFRS 15 is also
applied).
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IAS 2 Inventories
IAS 2 provides guidance for determining the cost of inventories and
the subsequent recognition of the cost as an expense, including any
write-down to net realisable value. It also provides guidance on the cost
formulas that are used to assign costs to inventories. Inventories are
measured at the lower of cost and net realisable value. Net realisable value
is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make
the sale. The cost of inventories includes all costs of purchase, costs of
conversion and other costs incurred in bringing the inventories to their
present location and condition. The cost of inventories is assigned by:
specific identification of cost for items of inventory that are
individually significant; and
the first-in, first-out or weighted average cost formula for large
quantities of individually insignificant items.
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IAS 17 Leases
Will be superseded by IFRS 16.
IAS 17 classifies leases into two types:
a finance lease if it transfers substantially all the risks and rewards
incidental to ownership; and
an operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership.
IAS 17 prescribes lessee and lessor accounting policies for the two types of
leases, as well as disclosures.
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IAS 18 Revenue
Will be superseded by IFRS 15.
IAS 18 addresses when to recognise and how to measure revenue. Revenue
is the gross inflow of economic benefits during the period arising in the
course of the ordinary activities of an entity when those inflows result in
increases in equity, other than increases relating to contributions from
equity participants. IAS 18 applies to accounting for revenue arising from
the following transactions and events:
the sale of goods;
the rendering of services; and
the use by others of entity assets yielding interest, royalties and dividends.
Revenue is recognised when it is probable that future economic benefits
will flow to the entity and those benefits can be measured reliably. IAS18
identifies the circumstances in which these criteria will be met and,
therefore, revenue will be recognised. It also provides practical guidance
on the application of these criteria. Revenue is measured at the fair value
of the consideration received or receivable.
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Termination benefits
Termination benefits are employee benefits provided in exchange for
the termination of an employees employment. An entity recognises
a liability and expense for termination benefits at the earlier of the
following dates:
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a statement that shows the net assets available for benefits; the
actuarial present value of promised retirement benefits, distinguishing
between vested benefits and non-vested benefits; and the resulting
excess or deficit; or
a statement of net assets available for benefits including either a
note disclosing the actuarial present value of promised vested and
non-vested retirement benefits or a reference to this information in an
accompanying actuarial report.
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Provisions
A provision is a liability of uncertain timing or amount. A liability may be
a legal obligation or a constructive obligation. A constructive obligation
arises from the entitys actions, through which it has indicated to others
that it will accept certain responsibilities, and as a result has created
an expectation that it will discharge those responsibilities. Examples
of provisions may include: warranty obligations; legal or constructive
obligations to clean up contaminated land or restore facilities; and
obligations caused by a retailers policy to refund customers.
A provision is measured at the amount that the entity would rationally
pay to settle the obligation at the end of the reporting period or to
transfer it to a third party at that time. Risks and uncertainties are
taken into account in the measurement of a provision. A provision is
discounted to its present value.
IAS 37 elaborates on the application of the recognition and measurement
requirements for three specific cases:
future operating lossesa provision cannot be recognised because
there is no obligation at the end of the reporting period;
an onerous contract gives rise to a provision; and
a provision for restructuring costs is recognised only when the entity
has a constructive obligation because the main features of the detailed
restructuring plan have been announced to those affected by it.
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Measurement
A financial asset or financial liability is measured initially at fair
value. Subsequent measurement depends on the category of financial
instrument. Some categories are measured at amortised cost, and some
at fair value. In limited circumstances other measurement bases apply,
for example, certain financial guarantee contracts.
The following are measured at amortised cost:
held to maturitynon-derivative financial assets that the entity has the
positive intention and ability to hold to maturity;
loans and receivablesnon-derivative financial assets with fixed or
determinable payments that are not quoted in an active market; and
financial liabilities that are not carried at fair value through profit or
loss or otherwise required to be measured in accordance with another
measurement basis.
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IAS 41 Agriculture
IAS 41 prescribes the accounting treatment, financial statement presentation,
and disclosures related to agricultural activity. Agricultural activity is the
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The IFRS Standard for Small and Medium-sized Entities (IFRS for
SMEs Standard)
The IFRS for SMEs Standard is a small (250-page) Standard that is tailored for
small companies. It focuses on the information needs of lenders, creditors,
and other users of SME financial statements who are primarily interested
in information about cash flows, liquidity and solvency. And it takes into
account the costs to SMEs and the capabilities of SMEs to prepare financial
information. While based on the principles in full IFRS Standards, the IFRS
for SMEs Standard is stand-alone. It is organised by topic. The IFRS for SMEs
Standard reflects five types of simplifications from full IFRS Standards:
some topics in full IFRS Standards are omitted because they are not
relevant to typical SMEs;
some accounting policy options in full IFRS Standards are not allowed
because a more simplified method is available to SMEs;
many of the recognition and measurement principles that are in full
IFRS Standards have been simplified;
substantially fewer disclosures are required; and
the text of full IFRS Standards has been redrafted in plain English for
easier understandability and translation.
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IFRS quiz
The IFRS Foundation is making the entire set of 220 Q&As available
to accounting educators and trainers who use this Pocket Guide as a
textbook. For further information, please email ppacter@ifrs.org.
The quiz is provided as a convenience for interested parties. Completion of the quiz should not be considered as any form of certification of
participants by the IFRS Foundation.
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http://go.ifrs.org/Use-around-the-world
IFRS Standards
http://go.ifrs.org/Unaccompanied-Standards
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http://go.ifrs.org/IASB-work-plan
Meetings calendar
http://go.ifrs.org/Meetings-Calendar
IFRS Foundation
Constitution
http://go.ifrs.org/IFRS-Foundation-Constitution
http://go.ifrs.org/Due-Process-Handbook
IFRS Foundation
http://go.ifrs.org/IFRS-Foundation
IASB members
http://go.ifrs.org/IASB-members
Accounting Standards
Advisory Forum
http://go.ifrs.org/ASAF
http://go.ifrs.org/IFRS-Advisory-Council
http://shop.ifrs.org/
http://go.ifrs.org/IFRS-Research-Centre
Conferences and
workshops
http://go.ifrs.org/Conferences-and-workshops
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Contact us
IFRS Foundation and IASB
headquarters
30 Cannon Street
London EC4M 6XH
United Kingdom
Phone: +44 (0)20 7246 6410
Fax: +44 (0)20 7246 6411
Email: info@ifrs.org
Asia-Oceania office
Media enquiries
Investor liaison
Website enquiries
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The author
Paul Pacter
Paul Pacter was a member of the Board from 20102012. He is now a
consultant to the Board. In that capacity he manages a project to assess
progress towards adoption of IFRS Standards in individual jurisdictions
throughout the world.
Prior to serving on the Board, Paul held two concurrent positions:
Director in the Global IFRS Office of Deloitte Touche Tohmatsu in Hong
Kong (20002010).
Director of Standards for Small and Medium-Sized Entities (SMEs) at
the Board (20032010). In that capacity he helped the Board develop
an accounting standard that reduces the financial reporting burden
on SMEs.
He worked for the IASBs predecessor, the International Accounting
Standards Committee, from 19942000, managing projects on
financial instruments, interim financial reporting, segment reporting,
discontinued operations, extractive industries, agriculture and electronic
financial reporting.
Previously, Paul worked for the FASB for 16 years, and, for seven years,
was Commissioner of Finance of the City of Stamford, Connecticut. Paul
was Vice-Chairman of the Advisory Council to the US Governmental
Accounting Standards Board (GASB) (19841989) and a member of the
GASBs pensions task force and the FASBs consolidation task force.
He is co-author of two university textbooks and has published over
100 professional monographs and articles. He received his PhD from
Michigan State University and is a Certified Public Accountant. He has
taught in several MBA programmes for working business managers.
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