IFRS Presentation of Financial Statements by f34q4h6


									           By: Echo Chen, Jacob Eye,
Kaylee Carpenter & Shu-Yuan Young
What is IFRS?
 Standards and Interpretations adopted by the
  International Accounting Standards Board
They comprise:
 International Financial Reporting Standards;
 International Accounting Standards (IAS)
 Interpretations developed by the International
  Financial Reporting Interpretations Committee
  (IFRIC) or the former Standing Interpretations
  Committee (SIC).
The key difference between IFRS and GAAP is
  that IFRS provides much less overall detail
  and industry-specific instructions.

Effective Date
An entity shall apply this IFRS if its first IFRS
 financial statements are for a period
 beginning on or after January 1, 2009.
 Although earlier application is permitted.
IFRS Financial Statements include:
 Statement of Financial Position

 Statement of Comprehensive Income
 Statement of Cash Flow
 Statement of Changes in Equity
 Notes to Financial Statements
    IAS 1:54 lists the minimum line items that must be
   (a) property, plant and equipment;         (l) provisions;
   (b) investment property;                   (m) financial liabilities (excluding
   (c) intangible assets;                      amounts shown under (k) and (l));
   (d) financial assets (excluding            (n) liabilities and assets for current
    amounts shown under (e), (h) and            tax, as defined in IAS 12 Income
    (i));                                       Taxes;
   (e) investments accounted for using        (o) deferred tax liabilities and
    the equity method;                          deferred tax assets, as defined in
   (f) biological assets;                      IAS 12;
                                               (p) liabilities included in disposal
   (g) inventories;                            groups classified as held for sale in
   (h) trade and other receivables;           accordance with IFRS 5;
   (i) cash and cash equivalents;             (q) non-controlling interests,
   (j) the total of assets classified as       presented within equity; and
    held for sale and assets included in       (r) issued capital and reserves
    disposal groups classified as held          attributable to owners of the parent.
    for sale in accordance with IFRS 5
    Non-current Assets Held for Sale           Other line items, headings and
    and Discontinued Operations;                subtotals should be presented when
                                                the information is relevant in
   (k) trade and other payables;               understanding the entity‟s financial
                                                position. (IAS 1.55)
An entity should present current and non-
 current assets, and current and non-current
 liabilities, as separate classifications in its
 statement of financial position…except when
 a presentation based on liquidity provides
 information that is reliable and more relevant.
 When that exception applies, an entity shall
 present all assets and liabilities in order of
 liquidity. (IAS 1.60)
   An entity that supplies good and/or services
    would generally classify assets and liabilities
    using current or non-current distinctions.
    (IAS 1.62)
   An entity not supplying good and services,
    such as financial institutions, would provide
    more relevant and reliable presentation by
    listing in order of liquidity. (IAS 1.63).
   Entities are also able to present a mixed basis
    of presentation and list some assets and
    liabilities as current/non-current and others
    in order of liquidity. (IAS 1.64)
   Make sure you are presenting the most
    reliable and relevant information in the
    financial statements by choosing the correct
IAS Definitions:
 Fair value is the amount for which an asset
  could be exchanged between knowledgeable,
  willing parties in an arm‟s length transaction.
 Property, plant and equipment are tangible
  items that:
  (a) are held for use in the production or
  supply of goods or services, for rental to
  others, or for administrative purposes; and
  (b) are expected to be used during more than
  one period. (IAS 16)
   Accounting models for property, plant &

    Cost- after recognition of an asset, the item shall be
     carried at its cost less accumulated depreciation
     and any accumulated impairment losses. (IAS
   Revaluation- after recognition of an asset
    whose fair value can be measured reliably can
    be carried at a revalued amount, which is its
    fair value at the date of the revaluation less
    any subsequent accumulated depreciation or
    impairment losses. Revaluations will be made
    with sufficient regularity to ensure that they
    carrying amount does not differ materially
    from that that would be determined using fair
    value at the end of the reporting period. (IAS
   Frequency depends on volatility. Volatile
    assets may need to be revaluated on a yearly
    basis, while less volatile assets may only need
    to be revaluated every 3-5 years. (IAS 16.34)
   When one PP&E item is revalued, that entire
    class of PP&E must be revalued also. (IAS
   When the carrying value is increased, the
    increase is recognized in other
    comprehensive income, accumulated under
    the heading “Revaluation Surplus.” (IAS 16.39)
   If the value decreases, the decrease is
    recognized under profit & loss. (IAS 16.40)
   When the asset is derecognized, the
    revaluation surplus may be transferred to
    retained earnings. (IAS 16.41)
   IAS Definition of Intangibles:

    ◦ An identifiable, non-monetary asset without
      physical substance.
   Important notes on Intangibles:
    ◦ Internally generated goodwill is not an asset. (IAS
    ◦ No Intangibles from research can be recognized.
      (IAS 38.54)
    ◦ Intangibles from development can only be
      recognized under certain conditions. (IAS 38.57)
   Intangibles can also be carried under either
    the cost or revaluation model like PP&E.

   For revaluation purposes, fair value is
    determined by reference to an active market.
    (IAS 38.74 & 75)
   An entity shall present all items of income
    and expense recognized in a period:
    ◦ (a) in a single statement of comprehensive
      income, or
    ◦ (b) in two statements: a statement displaying
      components of profit or loss (separate income
      statement) and a second statement beginning
      with profit or loss and displaying components of
      other comprehensive income (statement of
      comprehensive income). (IAS 1.81)
   IAS 1.82 As a minimum, the statement of
    comprehensive income shall include line
    items that present the following amounts for
    the period:
    ◦ (a) revenue;
    ◦ (b) finance costs;
    ◦ (c) share of the profit or loss of associates and joint
      ventures accounted for using the equity method;
    ◦ (d) tax expense;
◦ (e) a single amount comprising the total of:
  (i) the post-tax profit or loss of discontinued
  (ii) the post-tax gain or loss recognized on the
   disposal of the assets constituting the discontinued
◦ (f) profit or loss;
◦ (g) each component of other comprehensive income
  classified by nature;
◦ (h) share of the other comprehensive income of
  associates and joint ventures accounted for using
  the equity method; and
◦ (i) total comprehensive income.
   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
   Revenue should be measured at the fair value
    of the consideration received or receivable.
    (IAS 18.9)
   Revenue from the sale of goods shall be
    recognized when all the following conditions
    have been satisfied(IAS 18.14):
    ◦ the entity has transferred to the buyer the
      significant risks and rewards of ownership of the
    ◦ the entity retains neither continuing managerial
      involvement to the degree usually associated with
      ownership nor effective control over the goods sold;
    ◦ the amount of revenue can be measured reliably;
    ◦ it is probable that the economic benefits associated
      with the transaction will flow to the entity;
    ◦ the costs incurred or to be incurred in respect of
      the transaction can be measured reliably.
   An entity shall classify its expenses based on
    ◦ their nature or
    ◦ their function within the entity
   Whichever provides information that is
    reliable and more relevant. (IAS 1.99)
   Analysis by the „nature of expense‟ method.
    ◦ For example, depreciation, purchases of materials,
      transport costs, employee benefits and advertising
   Analysis by the „function of expense‟ or „cost
    of sales‟
    ◦ For example, the costs of distribution or
      administrative activities.
    ◦ At a minimum, an entity discloses its cost of sales
      under this method separately from other expenses.
     (IAS 1.103)
   The choice between the function of expense
    method and the nature of expense method
    depends on historical and industry factors and
    the nature of the entity.
   IFRS requires management to select the
    presentation that is reliable and more relevant.
   However, additional disclosure is required when
    the function of expense classification is used,
    because information on the nature of expenses is
    useful in predicting future cash flows, . (IAS
   An entity shall not present any items of
    income or expense as extraordinary items
    ◦ Not in the statement of comprehensive income
    ◦ Not in the separate income statement
    ◦ Not in the notes. (IAS 1.87)
   The components of other comprehensive
    income include:
    ◦ changes in revaluation surplus
    ◦ actuarial gains and losses on defined benefit
    ◦ gains and losses arising from translating the
      financial statements of a
      foreign operation
    ◦ gains and losses on remeasuring available-for-
      sale financial assets
    ◦ gains and losses in a cash flow hedge
   The objective of this Standard is to require
    the provision of information about the
    historical changes in cash and cash
    equivalents of an entity by means of a
    statement of cash flows which classifies cash
    flows during the period from operating,
    investing and financing activities.
   Operating activities are the principal revenue-
    producing activities of the entity and other
    activities that are not investing or financing

   An entity shall report cash flows from
    operating activities using either:(IAS7-17 to 20)
    (a) the direct method
    (b) the indirect method.
   Investing activities are the acquisition and
    disposal of long-term assets and other
    investments not included in cash

   Financing activities are activities that result in
    changes in the size and composition of the
    contributed equity and borrowings of the
    entity. (IAS7-17)
   Reporting cash flows on a net basis (IAS7-22)
   Foreign currency cash flows (IAS7-26)
   Interest and dividends (IAS7-31)
   Taxes on income (IAS7-35)
   Disclosures (IAS7-48)
An entity shall present a statement of changes in
 equity showing in the statement:

a. total comprehensive income for the period,
  showing separately the total amounts attributable
  to owners of the parent and to non-controlling

b. for each component of equity, the effects of
  retrospective application or retrospective
  restatement recognised in accordance with IAS 8;

c. deleted
d. for each component of equity, a reconciliation
  between the carrying amount at the beginning and
  the end of the period, separately disclosing
  changes resulting from:

  (i) profit or loss;
  (ii) each item of other comprehensive income; and
  (iii) transactions with owners in their capacity as
        owners, showing separately contributions by
        and distributions to owners and changes in
        ownership interests in subsidiaries that do not
        result in a loss of control.
An entity shall present, either in the
 statement of changes in equity or in the
 notes, the amount of dividends recognised
 as distributions to owners during the
 period, and the related amount per share.
The notes shall:

a. present information about the basis of preparation of
   the financial statements and the specific accounting
   policies used in accordance with paragraphs 117–124;

b. disclose the information required by IFRSs that is not
   presented elsewhere in the financial statements; and

c.   provide information that is not presented
     elsewhere in the financial statements, but is relevant
     to an understanding of any of them.
An entity normally presents notes in the
 following order, to assist users to
 understand the financial statements and to
 compare them with financial statements of
 other entities:
 a. statement of compliance with IFRSs (see
     paragraph 16);
 b. summary of significant accounting
     policies applied (see paragraph 117);
c.   supporting information for items presented in the
     statements of financial position and of comprehensive
     income, in the separate income statement (if
     presented), and in the statements of changes in equity
     and of cash flows, in the order in which each
     statement and each line item is presented; and

d. other disclosures, including:
     (i) contingent liabilities (see IAS 37) and
     unrecognised contractual commitments, and
     (ii) non-financial disclosures, eg the entity‟s
     financial risk management objectives and
     policies (see IFRS 7).
An entity shall disclose in the summary of
 significant accounting policies:

a.   the measurement basis (or bases) used in
     preparing the financial statements, and

b.   the other accounting policies used that are
     relevant to an understanding of the
     financial statements.
 Same basis with foreign competitors, easy to
  make comparison
 Easy to consolidate the parent‟s company and
  the foreign subsidiaries
 Effectiveness of GAAP will be lost
 Discourage the domestic public companies
  which have no significant market outside the
   Epstein, Barry, and Eva Jermakowicz. Interpretation
    and Application of International Financial Reporting
    Standards. New Jersey: Wiley, 2009.
   Kirk, Robert. IFRS: A Quick Reference Guide.
    Massachusetts:CIMA, 2009.
   International Accounting Standards Committee
    Foundation. 2009.
   Export Import Bank of Bangladesh Limited. 2009.
   American Institute of Certified Public Accountants.
    2009. http://www.ifrs.com.
   Van Greuning, Hennie. International Financial
    Reporting Standards: A Practical Guide. Washington,
    D.C.: The World Bank, 2006.

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