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IAS 39 in Transition
Conceptual framework
User
Fundamental
characteristics
Contd
Enhancing Characteristics:
Comparability Verifiability Timeliness Understandability
comprehensive Income
Foundation principles
Economic
Entity Monetary unit Periodicity Revenue recognition/New Standards expected in 2011 Full disclosure Consider cost/benefit and materiality
Financial Instruments
Contract
that creates a financial asset for one party and a financial liability or equity instrument for the other party Financial means that the asset will settle for cash either directly or indirectly
Financial instruments
Include
Cash Trade receivables and payables Loans and notes receivable and payable Investment in equities Investment in debt instruments Investment in derivative contracts, e.g. forward contracts, swaps options
in subsidiaries Joint ventures Significant influence over investees Leases Stock based payments Insurance contracts, certain guarantees Employee benefits, loan commitments
should an entity recognize a financial instrument on its Balance sheet? How should it measure the financial instrument? IAS 39 and IFRS 9(Financial Assets) More disclosures required about fair value measurements and liquidity risks
Basic Principles
Financial
instruments and non financial derivatives represent rights and obligations that meet the definitions of assets or liabilities and should be reported in financial statements
value is the most relevant measure for financial instruments and the only relevant measure for derivative financial instruments
Financial Assets/categories
Loans and receivables Held to maturity investments Available for sale financial assets Held for trading (IFRS: or called Fair value through profit and loss (FVTPL) Longer term trend: reduce complexity and reduce valuation models to fair value and amortized cost
Subsequent measurement
Held
for trading
taking, almost all derivatives You may designate any financial instrument in this category when first recognized Report at fair value, Gains/losses recognized in income immediately
Reclassification
rarely possible
all financial assets that are not held for trading, held to maturity (most debt instruments) or loans and receivables All equity instruments must be classified as Available for Sale or Held for Trading
instruments reported at fair value Gains and losses recognized in other comprehensive income (equity section) Impairment loss reclassified from OCI to Income statement If no quoted marked price in an active market equity instruments, cost may best represent fair value