Overview of Differences between International Financial Reporting Standards and Czech Accounting Legislation 2014

Transcription

1 Overview of Differences between International Financial Reporting Standards and Czech Accounting Legislation 2014

2 Contents Introduction 3 Authors Comments 4 Financial Statements 5 Non-current Tangible Assets 10 Leases 13 Borrowing Costs 15 Investment Property 16 Non-current Intangible Assets 17 Inventories 19 Share-based Payment 21 Employee Benefits 22 Provisions, Contingent Liabilities and Contingent Assets 24 Financial Instruments 27 Non-current Assets Held for Sale and Discontinued Operations 31 Revenue 32 Construction Contracts 35 Agriculture 36 Impairment of Assets 38 Fair Value Measurement 40 Income Taxes 42 Consolidation and Business Combinations 43 2

3 Introduction International Financial Reporting Standards (), i.e., a set of financial reporting standards issued by the International Accounting Standards Board (IASB) and related interpretations, rank among the most important financial reporting standards in the world. These standards do not substitute the generally applicable legislation, but form a principle-based accounting system designed primarily for listed companies and large-scale businesses. The application of the standards requires considerable professional skills from the assigned staff. While not designated as generally applicable laws may be, to a greater or lesser extent, adopted in national and international legislation, depending on the type of legal environment. In the Czech Republic, entities that are business companies and issuers of securities listed in the regulated securities markets in the European Union Member States currently use International Financial Reporting Standards as adopted by the European Union for accounting purposes and for the preparation of financial statements. Pursuant to an amendment to the Accounting Act, which came into effect on 1 January 2011, may also be applied in the preparation of separate financial statements by entities that are part of a consolidated group that prepares consolidated financial statements in accordance with. Contrary to, Czech Accounting Standards () are a national accounting system, based primarily on rules, which are subject to the EU regulatory requirements and the ensuing obligations of the Czech Republic. As the cornerstone of Czech accounting legislation in its broader sense, the Accounting Act is the fundamental, generally applicable regulation nationwide, setting out accounting policies and financial reporting for all entities in the country s territory, from the smallest to the largest (as well as multinational), whose scope and purpose of business may significantly differ. The form and content of the Act are governed not just by the requirements of European legislation, but also by Czech legislative rules requiring full compliance material and terminological with other regulations of the Czech legal system. Since the Act must be complied with as mentioned above even by very small entities (sole traders, not-for-profit organisations) that are unlikely to possess broad theoretical knowledge of accounting and related fields, it is essential that the text of the Act be as comprehensible and unambiguous as possible. Another factor affecting the Czech accounting rules and their application is that the income tax base is still computed from results obtained in accordance with. Consequently, in practice a great number of assumptions made by management in the preparation of financial statements take into account the potential tax implications of the selected accounting treatment. This might result in the adoption of accounting opinions based on tax impacts rather than on considerations of how to present a true and fair view of a transaction in its substance. Given that each of the systems is based on different priorities and principles, there are many differences in both conceptual and specific attributes. Any comparison between the two systems is relatively difficult and hard to implement in a simplified approach. Nonetheless, this guide attempts to outline some of the differences. The Overview of Differences between International Financial Reporting Standards () and Czech Accounting Standards () follows a similar guide published in The guide is written from the perspective and the sections are organised according to specific standards. We hope you find this guide useful. Please do not hesitate to contact us with any questions. Martin Skácelík Partner martin.skacelik@cz.ey.com Tel.: Alice Machová Senior manager alice.machova@cz.ey.com Tel.: Veronika Mocková Manager veronika.mockova@cz.ey.com Tel.:

4 Authors Comments This guide outlines the differences between and at a general level. For the purpose of this guide, mean a set of standards issued by the International Accounting Standards Board, not International Financial Reporting Standards as adopted by the European Union. The guide is intended to provide general information only and is not for sale. Obviously, no summary publication can fully encompass so many, often minor, differences between and. Although some degree of harmonisation of the fundamental principles of and has been achieved, there are still significant differences in their application that may have a material impact on financial statements. The key focus is on the differences most commonly found in practice. When applying individual accounting frameworks readers must take into account all of the relevant accounting regulations, standards and, where applicable, national legislation in their respective countries. In addition, listed companies must comply with the relevant regulations related to securities legislation, such as decrees from the Czech National Bank. The International Accounting Standards Board is currently developing a number of projects that will mostly have a significant impact on the existing standards. This guide refers to standards effective as at 30 June 2014 and compares them with that were in effect as at 30 June Where or IFRIC interpretations are mentioned that came into force after this date, this fact is pointed out in the text. The Czech Accounting Standards referred to in this guide are those prescribed for entrepreneurs (except for specific cases). The guide does not address any major differences pertaining to banks and other financial institutions, nor differences regarding or interpretations that are perceived as less relevant in the Czech environment. Similarly, the numerous differences between and in disclosure requirements are not addressed either. 4

5 Financial Statements Related s and IFRICs: IAS 1 Presentation of Financial Statements IAS 7 Statement of Cash Flows IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 21 The Effects of Changes in Foreign Exchange Rates Financial statements Presentation currency Balance sheet/statement of financial position format Under, a complete set of financial statements comprises: a balance sheet (now known as a statement of financial position), a statement of comprehensive income, or a separate income statement and a statement of other comprehensive income (if prepared separately from the statement of comprehensive income), a statement of changes in equity, a statement of cash flows, and notes (comprising a summary of significant accounting policies and other explanatory information). Financial statements are prepared for the current period and the prior period. If an entity restates comparable information retrospectively, it shall also prepare a statement of financial position as at the beginning of the comparative period. Under, profit or loss is reported in the presentation currency. However, the statements may be adjusted and presented in another currency. does not prescribe any binding format for a balance sheet, but they set out the minimum scope. Entities classify assets and liabilities as current and non-current, except when a presentation based on liquidity provides more detailed information. Under, financial statements are an integral unit comprising: a balance sheet, an income statement and notes, including accounting policies and comments. Financial statements are prepared for the current period and the prior period. Entities tend to prepare a statement of changes in equity as the primary statement; they are also allowed to include it in the notes to the financial statements. The statement of cash flows is not required, but most entities choose to prepare it. only allows the statements to be presented in Czech currency. prescribes a binding minimum scope, format and description of items in an unconsolidated balance sheet. Entities may choose to classify items in more detail or, in specified cases, group them together. The format of the consolidated balance sheet is less structured. 5

6 Classification of noncurrent items requires that an entity distinguish between current and non-current items (unless the presentation is based on liquidity). An entity shall classify an asset as current when it expects to sell or consume the asset in its normal operating cycle; it holds it primarily for the purpose of trading; it expects to realise it within twelve months after the balance sheet date; or the asset is cash or a cash equivalent. An entity shall classify all other assets as noncurrent. An entity shall classify a liability as current when it expects to settle the liability in its normal operating cycle or within twelve months after the balance sheet date; it holds it primarily for the purpose of trading; or it does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. An entity shall classify its financial liabilities as current when they are due to be settled within twelve months after the balance sheet date even if the original term was for a period longer than twelve months and an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the balance sheet date and before the financial statements are authorised for issue. An entity shall classify all other liabilities as noncurrent. requires that an entity distinguish between current and non-current items, except for accruals. The classification of tangible and intangible assets depends on their expected useful life (one year or longer) and the acquisition cost limit set by the entity with regard to presenting a true and fair view of the items. Securities held for the purpose of trading are classified as non-current financial assets. The classification of receivables and liabilities (including loans) depends on when they are due to be recovered/settled after the balance sheet date (within one year or a period longer than one year). 6

7 Statement of comprehensive income format Exceptional and extraordinary items Under, the statement of comprehensive income shall include: profit or loss; other comprehensive income; total comprehensive income (the sum of profit or loss and other comprehensive income). The statement lists all changes in comprehensive income that are not transactions with owners. An entity may prepare a single statement (the long form of the statement) or two statements. The long-form statement includes an income statement and a statement of other comprehensive income. If an entity presents two statements, it prepares a separate income statement and a separate short-form statement of comprehensive income. The short-form statement only comprises total profit or loss (without displaying its components) and components of other comprehensive income. The standard does not prescribe any binding format for a profit or loss statement, but it sets out the minimum scope. Expenses must be disclosed by function or by nature. The updated IAS 1 requires the grouping of items of comprehensive income depending on whether they can be subsequently reclassified to profit or loss; i.e., the items that can be reclassified and the items that cannot be reclassified. does not specify the exceptional items category, but an entity presents separately items that are material for the explanation of the entity s financial performance (due to their amount, nature or effect on profit or loss). These items are presented either in the income statement/statement of comprehensive income or in the notes. does not allow certain items to be presented as extraordinary. does not define a statement of comprehensive income. prescribes a binding format for an unconsolidated income statement. Expenses must be disclosed by function or by nature. Entities may choose to classify items in more detail or, in specified cases, group them together. The format of the consolidated income statement is less structured. Items of other comprehensive income are included in the summary of changes in equity (see below). does not specify the exceptional items category. The standard requires the explanation of material items of the financial statements, but does not allow the prescribed format to be amended. In practice, exceptional items are reported within extraordinary items or described in the notes. Extraordinary items include transactions of an extraordinary nature in respect of the entity s ordinary course of business and randomly occurring events. 7

8 Statement of changes in equity Statement of cash flows Cash and cash equivalents - definition Under, the statement of changes in equity discloses for each component of equity the changes resulting from: profit or loss; other comprehensive income; transactions with owners in their capacity as owners. The statement includes information about total comprehensive income, showing separately the total amounts attributable to owners of the parent and to non-controlling interests; the effects of retrospective application or retrospective restatement. An entity is required to present a statement of changes in equity. Under, the statement of cash flows shall report cash flows classified by operating, investing and financing activities. To prepare the statement, allows either the direct method or the indirect method to be used. An entity is required to present a statement of cash flows. Under, bank overdrafts (repayable on demand) may be included in cash and cash equivalents. Conversely, short-term borrowings are classified as cash flows from financing activities and are not a component of cash and cash equivalents. Cash equivalents are short-term investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. A statement of changes in equity is not required except for some selected entities. Changes in equity may be included in the notes to financial statements instead of preparing a separate statement of changes in equity. sets out a basic classification of cash flows and the format of the statement for using the indirect method: cash flows from operating, investing and financing activities. Cash flows related to extraordinary items, dividend collection and payment (profit share) and income tax payment are reported separately. To prepare the statement, allows either the direct method or the indirect method to be used. An entity is not required to present a statement of cash flows, but most entities choose to prepare it (see above). A summary of cash flows may be included in the notes to financial statements instead of preparing a separate cash flow statement. Under, stamps and vouchers (e.g., postal stamps, meal vouchers) are also included in cash equivalents, unlike which exclude these items. Changes in accounting policies Under, voluntary changes in accounting policy are applied retrospectively in comparative periods. The resulting adjustment of comparative information is made to the opening balance of retained earnings for prior periods presented in the financial statements. Comparative information for prior periods is not adjusted if a new standard includes a specific exemption as a transitional provision. The effects of changes in accounting policies are recognised in equity as other profit or loss for prior periods. 8

9 Corrections of material errors Changes in accounting estimates Notes Under, corrections of material errors are applied retrospectively in comparative periods. If an error occurred prior to the comparative period presented, an entity shall retrospectively restate and present the opening balance sheet of the comparative period. A prior period error is corrected in the period in which it is discovered. Financial statements, including comparative information for prior periods, are restated as far back as is practicable. An entity may need to revise an estimate if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error. Changes in accounting estimates are recognised in profit or loss in the current period. requires that a large scope of information be disclosed in the notes to financial statements. Each standard specifies the required disclosures. Corrections of material errors arising from erroneous accounting or not accounting for expenses and revenues in prior periods are recognised in equity as other profit or loss for prior periods. Changes in accounting estimates are recognised in profit or loss in the current period. only specifies mandatory information related to the entity and the time of preparation of financial statements, and generally require an explanation of material items in the notes to financial statements. 9

10 Non-current Tangible Assets Related s and IFRICs: IAS 16 Property, Plant and Equipment 13 Fair Value Measurement IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 4 Determining whether an Arrangement Contains a Lease IFRIC 12 Service Concession Arrangements IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine SIC 21 Income Taxes Recovery of Revalued Non-depreciable Assets Definition of noncurrent tangible assets (property, plant and equipment) Under, property, plant and equipment also includes spare parts that are so-called strategic spare parts not intended for daily/regular consumption. Under, spare parts are classified as inventories. Assets available for use Initial recognition Directly attributable Subsidiary costs Measurement of internally generated assets Depreciation of an asset begins when the asset is available for use. At cost. Under, the cost of an item of property, plant and equipment comprises its purchase price (including import duties and taxes), any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating, and the initial estimate of the costs of restoring the site on which the asset is located (see below). provides a list of general types of directly attributable costs, such as costs of employee benefits arising directly from the construction or acquisition of non-current tangible assets, costs of site preparation, initial delivery and handling costs, installation and assembly costs, costs of testing whether the asset is functioning properly, and professional fees. At cost. places a greater emphasis on meeting the legal requirements for putting assets in use (e.g., issuance of an occupancy permit, legal transfer of ownership, etc.). As a result, the date of putting an asset in use may be later under (it may affect the total amount of capitalised costs). At cost. The cost comprises acquisition cost paid to acquire the asset and related costs ( provides an illustrative list of cost types). The definition of costs associated with the acquisition of non-current assets is broader under in comparison with. For instance, in contrast to, the disposal of existing buildings for the purpose of new development is capitalised as part of the acquisition cost of the newly developed asset. At accumulated cost the costs may include part of the general overheads. 10

11 Restoration liabilities The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located are part of the acquisition cost of an item of property, plant and equipment and are offset by a provision. Any effects of changes in estimates on the level of provisions for decommissioning and disposal are recognised as a change in the acquisition cost of an asset. Not addressed. Production stripping costs Component approach Stripping costs in the production phase of a surface mine are accounted for as an addition to (an enhancement or a technical improvement of) an existing asset a mineral ore deposit for which access has been improved by the stripping activity. Production stripping costs are recognised if (i) it is probable that the future economic benefit associated with the stripping activity will flow to the entity; (ii) the entity can identify the component of the ore body for which access has been improved; and (iii) the costs relating to the stripping activity associated with that component can be measured reliably. The stripping costs include the direct acquisition cost plus an allocation of the directly attributable overhead costs. They are classified in relation to the existing asset with which they are associated and are depreciated or amortised on a systematic basis over the expected useful life of the associated asset (which usually differs from the useful life of the mine). A component is a specific part of an asset or of a set of assets or a major inspection of faults whose cost is significant in relation to the total cost of the whole asset or set of assets and whose useful life differs significantly from that of an asset or of a set of assets. Under the component approach, individual components of an item of property, plant and equipment are recognised separately and, subsequently, depreciated separately. Depreciation methods are reviewed periodically. Residual values and useful lives are reviewed at each balance sheet date. Not addressed. The definition of costs associated with the acquisition of non-current assets is broader under in comparison with. Czech companies have been allowed to apply depreciation on a component basis. Unlike, the application of the component approach is optional under. Companies using the component approach do not account for provisions for repairs of noncurrent tangible assets. 11

12 Subsequent measurement and remeasurement of assets Residual value concept Impairment of assets allows the traditional cost model where an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses. also allows the revaluation model where after initial recognition an item of property, plant and equipment shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. applies the residual value concept for the depreciation of property, plant and equipment (the carrying amount of an asset at the end of its useful life does not have to be zero). requires more detailed reviews of assets for impairment performed according to the requirements specified in IAS 36 Impairment of Assets (see a more detailed comparison in the Impairment of Assets section). only allows the traditional cost model where the asset is carried at its cost less any accumulated depreciation and any accumulated impairment losses. Revaluation is only permitted in the case of company transformations and transactions (contribution, divestment). allows entities to apply the residual value concept for depreciation. allows a simplified approach to an assessment of assets for impairment. Review of useful life and residual value of an asset expressly requires that the useful life and the residual value of an asset be reviewed at least each financial year-end. Changes in estimates, if any, must be treated prospectively. requires the reassessment of the useful life of an asset taking into account the manner in which the asset has been used and changes in the pattern of its use. Repairs and maintenance Advances for property, plant and equipment denominated in foreign currencies Generally, repairs and maintenance of property, plant and equipment are recognised in profit or loss as incurred. If asset overhauls qualify as a component of property, plant and equipment, they are recognised in the carrying amount of the asset. If non-refundable, advances for property, plant and equipment are treated as an integral part of asset acquisition and, accordingly, the asset is measured at the original exchange rate prevailing at the time when the advance was made. Repairs and maintenance of non-current assets are recognised in profit or loss. The issue of overhauls is addressed by permitting recognition of provisions. classifies advances for non-current tangible assets denominated in foreign currencies as financial assets that are measured at the current exchange rate. The final acquisition cost of such assets is therefore derived from the final exchange rate. Subsequent costs of acquisition of an asset Under, subsequent costs of acquisition are treated consistently with the original acquisition cost. adopts the technical improvement concept set out in the Income Taxes Act. Service concession arrangements Non-current assets used under a service concession arrangement (provided the conditions defined in IFRIC 12 are met) are recognised in the grantor s balance sheet. The operator accounts for an intangible asset, a financial asset or their combination in accordance with a specific contractual arrangement. does not expressly address service concession arrangements. In practice, the business lease concept is often applied where non-current assets are recognised in the operator s balance sheet. 12

13 Leases Related s and IFRICs: IAS 17 Leases IFRIC 4 Determining whether an Arrangement Contains a Lease IFRIC 12 Service Concession Arrangements SIC 15 Operating Leases Incentives SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 32 Intangible Assets Website Costs The International Accounting Standards Board (IASB) is soon expected to issue a revised exposure draft on leases. The date of the final standard has not yet been announced. The exposure draft no longer distinguishes between operating and finance leases; the new model would require lessees to recognise most leased assets and related liabilities on their balance sheets. New lease classification would be used principally for determining the method and timing for recognising lease revenue and expense. The classification would be based on the economic benefits of the underlying asset expected to be consumed by the lessee over the lease term. To apply that principle, the IASB provides criteria to consider based on whether the leased asset is property (i.e., land, building, part of a building) or an asset other than property (e.g., automobiles, machinery). For lessees, the recognition of lease-related assets could have significant implications in terms of financial performance indicators, debt ratios and borrowing capacity. Definition of a lease Classification of leases Accounting for leases An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. Under, IAS 17 applies to a number of agreements that do not have the legal form of a lease agreement. (e.g., some take-or-pay contracts amongst others). Under, a lease is classified either as a finance lease or as an operating lease. A finance lease transfers substantially all the risks and rewards incidental to ownership to a lessee. An operating lease is a lease that does not qualify as a finance lease. The standard provides guidance on how to identify a finance lease (e.g., the lease term, amount of lease payments, option to purchase the asset at the end of the lease term). Under, recognition of a finance lease and an operating lease differs. does not provide a specific definition of a lease, the legal form of the transaction is of primary importance. also differentiates between a finance lease and an operating lease. A finance lease customarily comprises a prerequisite for the lessee s purchase of the asset on expiry of the lease term. The Income Taxes Act stipulates the minimum lease term required for a lease to be classified as a finance lease. therefore classifies leases according to the legal form of the transaction in contrast to where the economic substance is more material than the legal form. prescribes identical recognition of both finance and operating leases. 13

14 Accounting for an operating lease The lessor presents an asset subject to an operating lease in the balance sheets. Lease income from operating leases is recognised in income on a straight-line basis over the lease term (unless there is another systematic basis which is more suitable for lease income allocation). The lessee recognises operating lease expenses on a straight-line basis over the lease term (unless there is another systematic basis which is more suitable for lease expense allocation). An asset under an operating lease is also recognised in the lessor s balance sheet. The lessor recognises lease income in accordance with the terms of the operating lease contract (usually on a straight-line basis over the lease term). The lessee recognises operating lease expenses in accordance with the terms of the operating lease contract (usually on a straight-line basis over the lease term). Accounting for a finance lease Sale and leaseback transactions An asset subject to a finance lease is, together with the related liability, recognised in the lessee s balance sheet. The lessor accounts for the sale of an asset and the related receivable. The asset is depreciated by the lessee over the lease term; if there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of its useful life and the lease term. The accounting treatment of gains and losses realised by the lessee in a sale and leaseback transaction depends on the nature of the lease contract. An asset under a finance lease is accounted for using the same method as an asset under an operating lease. treats sale and leaseback transactions as a separate sale transaction and a subsequent leaseback transaction regardless of the nature of the leaseback. Sale and finance leaseback If under IAS 17 a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount should not be recognised immediately as income by a seller/lessee. Instead, the excess is deferred and amortised over the lease term. Sale and operating leaseback If under IAS 17 a sale and leaseback transaction results in an operating lease, any profit or loss should be recognised immediately, unless the loss is compensated by future lease payments at below market price, in which case it should be deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value should be deferred and amortised over the period for which the asset is expected to be used. Disclosure requires specified disclosures about finance and operating leases by both the lessee and the lessor. does not specify any requirements for disclosure regarding leases; it merely requires disclosure about leased assets. 14

15 Borrowing Costs Related s and IFRICs: IAS 23 Borrowing Costs IFRIC 12 Service Concession Arrangements Accounting for borrowing costs Qualifying asset IAS 23 requires capitalisation of borrowing costs incurred in connection with the acquisition of qualifying assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, such as non-current assets, some inventories, etc. currently allows borrowing costs to be recognised in profit or loss or for them to be capitalised. An entity may decide whether it will capitalise borrowing costs incurred in the acquisition of non-current tangible and intangible assets. Capitalisation of borrowing costs Only those borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset and that would have been avoided if the expenditure on the qualifying asset had not been made may be capitalised. Borrowing costs are capitalised over the period of construction, production and completion of the asset until it is ready for its intended use or sale (the time of capitalisation may differ under and, see the differences in accounting for non-current assets). Borrowing costs incurred in the acquisition of non-current tangible or intangible assets may be capitalised. does not provide any other guidance. Interest on general/operating financing is also capitalised under if funds are borrowed generally and used for the purpose of obtaining a qualifying asset. The amount of borrowing costs incurred in operating financing eligible for capitalisation should be determined by applying a capitalisation rate to the expenditures on that asset. All interest accrued on loans used specifically for the construction of a qualifying asset are capitalised less any investment income on the temporary investment of an unused part of these specific borrowings. 15

16 Investment Property Related s and IFRICs: IAS 40 Investment Property 13 Fair Value Measurement Definition Property held to earn rentals or for capital appreciation (i.e., not for use in the production or supply of goods or services or for administrative purposes, nor for sale in the ordinary course of business). does not define the investment property category and does not prescribe any specific accounting treatment. IAS 40 also applies to property that is in the process of construction or redevelopment for future use as investment property. Recognition and initial measurement Subsequent remeasurement Investment property is recognised as an asset when it is probable that the future economic benefits that are associated with the investment property will flow to the entity and the cost of the investment property can be measured reliably. An investment property is measured initially at its (directly attributable) cost, which includes transaction costs. Cost model all investment property is measured under the standard cost model prescribed in IAS 16 for non-current assets and in IAS 36 for an impairment of assets, if any. Fair value model - investment property is included in the balance sheet at its fair value at the balance sheet date, and all changes in the fair value are recognised in profit or loss. With a few exceptions, the entity has to apply the model chosen to all of its investment property including investments that are in progress or have not yet been completed. No transition from the fair value model to the cost model is allowed. does not define the investment property category and does not prescribe any specific accounting treatment. Investment property is therefore recognised as standard non-current tangible assets. does not define the investment property category and does not prescribe any specific accounting treatment. Investment property is therefore treated as standard non-current tangible assets. Disclosure requires specified disclosures about investment property (such as rental income, the fair value of the investment property if the cost model is adopted, etc.) does not define the investment property category; there are no specific disclosure requirements. 16

17 Non-current Intangible Assets Related s and IFRICs: IAS 38 Intangible Assets 13 Fair Value Measurement IFRIC 3 Emission Allowances IFRIC 4 Determining whether an Arrangement Contains a Lease IFRIC 12 Service Concession Arrangements SIC 32 Intangible Assets Website Costs Definition of an intangible asset Under, an asset is a resource controlled by an entity as a result of past events, from which future economic benefits are expected to flow to the entity. Intangible assets are identifiable nonmonetary assets without physical substance. The identifiability condition is met if the asset is separable or arises from contractual or other legal rights. contains an open list of items deemed intangible assets (start-up costs, intangible results of research and development, software, rights, goodwill). The definitions of an intangible asset under and under vary substantially. As a result, individual items must be assessed as to whether they qualify as noncurrent intangible assets in accordance with and (typically, start-up costs, various market surveys, rights related to commercials etc., are treated differently). Recognition of an intangible asset If it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably. An intangible asset is available for use and meets all conditions for use stipulated by law. lacks any general criteria to assess the probability of future economic benefits. Initial recognition At cost. At cost. Research and development costs Research costs cannot be recognised as an asset. Development costs are recognised as an intangible asset if an entity can prove technical feasibility, its intention and ability to complete the asset, its ability to use or sell the asset, the probability of the generation of future economic benefits and the reliability of the measurement of the expenditure attributable to the intangible asset. Research and development costs may be recognised as intangible assets provided intangible results of research and development are created for the purpose of trading or purchased from third parties. 17

18 Subsequent remeasurement Amortisation period allows the traditional cost model where a non-current intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses. also allows the revaluation model where after initial recognition a non-current intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortisation and subsequent accumulated impairment losses. Both and define useful life in a similar manner. specifies a category of intangible assets that have an indefinite useful life. Goodwill is not amortised under. only allows the traditional cost model where the asset is carried at its cost less any accumulated amortisation and any accumulated impairment losses. does not include a category of intangible assets with an indefinite useful life. Goodwill, gain or loss on acquired assets and consolidation gain or loss are amortised over a defined period under. Residual value concept applies the residual value concept for amortisation of intangible assets (the carrying amount of an asset at the end of its useful life does not have to be zero). allows the residual value concept to be applied for amortisation of intangible assets. Impairment of an asset requires more detailed reviews of assets for impairment performed according to the requirements specified in IAS 36 Impairment of Assets (see a more detailed comparison in the Impairment of Assets section). allows a simplified approach to an assessment of assets for impairment. Reassessment of the useful life and residual value of an intangible asset expressly requires that the useful lives and residual values of assets be reviewed at least at each financial year-end. Changes in estimates, if any, are recognised prospectively. requires the reassessment of the useful life of an asset taking into account the manner in which the asset has been used and changes in the pattern of its use. Emission allowances currently does not provide specific guidance on accounting for emission allowances. The net liability method is the most widely used in practice (emission allowances allocated are measured at zero value and a provision is recognised to cover their shortage, if any) or an alternative approach according to the repealed IFRIC 3 interpretation (emission allowances are initially recognised at fair value, with a corresponding government grant presented on the balance sheet, and a provision for actual emissions is recognised at the fair value of the allowances at the balance sheet date). Upon allocation, allowances are measured at replacement cost, with a corresponding entry reflecting the grant received. Subsequently, allowances are used up in relation to the volume of emissions and the received grant is amortised to profit or loss. does not allow the net liability method. Classification of intangible assets Intangible assets that are an integral part of the related property, plant and equipment (e.g., operating systems) are accounted for as part of the property, plant and equipment. does not classify software for technology management or for equipment that cannot work without the relevant software as non-current intangible assets. 18

19 Inventories Related s and IFRICs: IAS 2 Inventories Definition Inventories are assets held for sale in the ordinary course of business; assets in the process of production for such a sale; or assets in the form of materials or supplies to be consumed in the production process or in the rendering of services. No general definitions are provided in, specific inventory items are described within the scope of definitions of balance sheet items. classifies spare parts as inventories. Under, some spare parts (so-called strategic ) are treated as items of property, plant and equipment. Measurement Inventories are measured at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, work in progress and other costs incurred in bringing the inventories to their present location and condition. Overheads are included in the cost of inventories, but they do not include administrative overheads, and the allocation of fixed production overheads is based on the normal capacity of the production facilities. Inventories are measured at cost or at accumulated costs, if produced internally. Temporary impairment of inventories should be recognised through allowances. The costs of inventory produced internally need not comprise production overheads in shortcycle production. Administrative overheads may be included in the measurement of inventories with a long production cycle. does not address allocation of overheads in detail. Inventory impairment Allowances are recognised in the case of a temporary diminution in value. Inventories are written down to their net realisable value; the practice of writing inventories down below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale. No general allowances are allowed under. The amount of the write-down may be reversed; the reversal is limited to the amount of the original write-down. does not address the accounting treatment of allowances in detail. For example, does not specify a) the requirement not to write down the carrying amount of materials below cost, even if the current market price is lower, in cases where the finished product in which the material will be incorporated is expected to be sold at or above cost, or conversely, addresses b) general allowances, e.g., allowances recognised against the slowturnover inventory. Similarly to, allows the write-down to be reversed. 19

20 Capitalisation of borrowing costs requires capitalisation of borrowing costs incurred in connection with the acquisition of qualifying assets (see the Borrowing Costs section). Inventories that necessarily take a substantial period of time to get ready for their sale may be qualifying assets. Under, interest expense incurred in connection with loans obtained for the acquisition of inventories cannot be capitalised. Measurement of inventories held for trading Under, an entity may choose to measure inventories held for trading either at fair value less costs to sell or at the lower of cost and net realisable value. Not addressed. 20

21 Share-based Payment Related s and IFRICs: 2 Share-based Payment 13 Fair Value Measurement IFRIC 8 Scope of 2 IFRIC 11 2 Group and Treasury Share Transactions SIC 12 Consolidation Special Purpose Entities Share-based payment Equity-settled sharebased payment transaction Cash-settled sharebased payment transaction Share-based payment transaction with cash alternatives specifies three types of share-based payment transactions: equity-settled share-based payment transactions, cash-settled share-based payment transactions and share-based payment transactions with alternatives. The transaction results in recognition of an asset or an expense with a corresponding increase in equity. The transaction is measured at the fair value of the goods or services received and, in the case of transactions with employees providing services, at the fair value of the equity instruments granted. The transaction results in the recognition of an asset or an expense against a liability (not in an increase in equity). The transaction is measured at the fair value of the liability that is remeasured to fair value at each reporting date, with any changes in fair value recognised in profit or loss. Transactions with alternatives are recognised as a cash-settled share-based payment transaction if the entity has incurred a liability to settle in cash or other assets, or as an equity-settled share-based payment transaction if no such liability has been incurred. does not expressly address share-based payment. In practice, some entities recognise provisions for related costs. does not expressly address share-based payment. does not expressly address share-based payment. does not expressly address share-based payment. 21

22 Employee Benefits Related s and IFRICs: IAS 19 Employee Benefits IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Definition of employee benefits Short-term employee benefits Defined contribution plans Defined benefit plans - definition Defined benefit plans amount presented in balance sheet IAS 19 Employee Benefits establishes four categories of employee benefits as follows: Short-term employee benefits Post-employment benefits Other long-term employee benefits Termination benefits. Post-employment benefits comprise defined contribution plans and defined benefit plans. Benefits payable within 12 months of the end of the period. The related liability and expense are accrued and measured on an undiscounted basis. A liability arising from accrued vacation not used by an employee is also recognised under. Benefit plans under which an entity pays fixed contributions into another entity and has no obligation to pay further contributions. Expenses and liabilities are recognised in the period in which an employee renders the related service. Any post-employment benefit plans that do not qualify as defined contribution plans are treated as defined benefit plans. A defined benefit plan obligation is measured using the Projected Unit Credit Method (actuarial method), which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. The amount recognised as a liability (asset) shall be the net total of the following: The present value of the defined benefit obligation at the balance sheet date minus The fair value of plan assets at the balance sheet date. In the case of a defined benefit plan surplus, the resulting net asset is measured at the lower of the defined benefit plan surplus and the asset maximum amount ( asset ceiling ). does not contain a specific classification of employee benefits. does not expressly address short-term employee benefits. Expenses are recognised in the period to which they relate. In practice, entities recognise provisions or estimates for accrued vacation. does not provide specific guidance regarding the issue; an accounting treatment similar to that under is applied in practice. does not provide specific guidance on defined benefit plans. does not provide specific guidance on defined benefit plans. In practice, liabilities are recognised through provisions. 22

23 Defined benefit plans actuarial gains and losses Defined benefit plans past service cost Other long-term benefits Termination benefits Social fund Actuarial gains and losses are changes in the present value of a liability or in the fair value of plan assets arising from changes in actuarial assumptions (e.g., changes in discount rates). Actuarial gains and losses are recognised in other comprehensive income. Past service cost results from changes in benefits that are payable for past service under an existing defined benefit plan. Past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. Long-term benefits not classified in other categories (such as jubilee benefits). Other longterm benefits are measured using the Projected Unit Credit Method (actuarial method), with any actuarial gains and losses and past service cost recognised immediately in profit or loss. The principles governing the recognition of a termination benefit liability are similar to those for a restructuring provision (i.e., it is recognised when there is a detailed formal plan for restructuring which was made public or whose implementation has started). Under, equity accounts are not used to recognise employee benefit transactions. Equity accounts are restricted for transactions with shareholders or for other transactions specified by. does not provide specific guidance on defined benefit plans. does not provide specific guidance on defined benefit plans. does not provide specific guidance on other long-term benefits. In practice, liabilities are recognised through provisions. does not provide specific guidance regarding the issue; an accounting treatment similar to that under is applied in practice. Under, a social fund is recognised in equity accounts in some cases. 23

24 Provisions, Contingent Liabilities and Contingent Assets Related s and IFRICs: IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible Assets IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 6 Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 15 Agreements for the Construction of Real Estate IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine IFRIC 21 Levies SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease Definition and recognition of provisions Recognition of provisions Measurement of provisions A provision is recognised when an entity has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. A provision is recognised in the balance sheet if the above criteria are met. In practice, certain provisions recognised in compliance with, such as provisions for repairs of tangible assets, shall not be recognised under as they do not meet the criteria for the recognition of provisions. The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Where the effect of the time value of money is material, the amount of a provision must be discounted. Under, provisions are recognised for risks and losses, for income taxes, for pensions and similar liabilities, and for restructuring. Provisions also include technical provisions or other provisions stipulated by special regulations. A provision for risks and losses under corresponds more to the definition of a contingent liability under (see below); does not allow recognition of provisions for future losses. does not stipulate any specific criteria for recognition of provisions. Recognition of statutory (tax-deductible) provisions is governed by special regulations. Provisions are recognised as a percentage of the determined base, at a fixed amount, or using a method set out in a special regulation. The time value of money is not applied in the measurement of provisions under. 24

25 Provisions for asset disposal Provision for onerous contracts Provision for levies Contingent liabilities An initial amount of provision is capitalised as part of the cost of the related asset. Any subsequent changes in estimates for the level of provisions are recognised as a change in the cost of an asset. Generally, provisions shall not be recognised for future operating losses. However, if an entity is a party to an onerous contract (in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it), the present obligation under the contract shall be recognised as a provision. An entity recognises a liability for a levy when the activity that triggers payment occurs. A levy liability can only be accrued progressively if the activity that triggers payment occurs over a period of time. For a levy that is triggered upon reaching a minimum threshold, no liability is recognised before the specified minimum threshold is reached. IFRIC 21 applies to all levies imposed by governments and government authorities in accordance with legislation, other than those outflows of resources that are within the scope of other standards (such as IAS 12 Income Taxes) and fines or other penalties that are imposed for breaches of the legislation. Levies also include additional non-reciprocal payments made to government authorities (such as fees paid by pharmaceutical companies to the state). Contingent liabilities are possible obligations as it has yet to be confirmed whether an entity has an obligation that could lead to an outflow of resources embodying economic benefits, or present obligations that do not meet the criteria for the recognition of provisions (see above). Contingent liabilities are not recognised, only disclosed. does not set out any specific requirements for the recognition of provisions for the disposal of assets, i.e., such provisions are accounted for as any other provisions. does not expressly address the issue of onerous contracts; general requirements apply for recognition of provisions for anticipated risks and losses. does not stipulate any specific criteria for recognition of provisions. Recognition of statutory (tax-deductible) provisions is governed by special regulations. does not provide any definition of a contingent liability. 25

26 26

27 Financial Instruments Related s and IFRICs: IAS 32 Financial Instruments: Presentation IAS 39 Financial Instruments: Recognition and Measurement 7 Financial Instruments: Disclosures IFRIC 2 Members Shares in Co-operative Entities and Similar Instruments IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds IFRIC 9 Reassessment of Embedded Derivatives IFRIC 10 Interim Financial Reporting and Impairment IFRIC 12 Service Concession Arrangements IFRIC 16 Hedges of a Net Investment in a Foreign Operation 19 Extinguishing Financial Liabilities with Equity Instruments SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease 9 Financial Instruments As mentioned in the Introduction, the following section summarises the differences between and applicable to entrepreneurs other than financial institutions. for financial institutions may differ in some areas from the description below. 9 Financial Instruments will be effective for annual periods beginning on or after 1 January 2018, subject to EU endorsement. The standard provides guidance on the classification and measurement of financial instruments and will mark a significant change from the current practice. Principal areas of change are as follows: Classes of financial instruments the standard provides new rules for the classification and measurement of financial instruments (including the presentation of embedded derivatives). Impairment of financial assets the standard introduces a new expected credit loss impairment model. Hedge accounting hedge accounting rules have been amended to better reflect the entity s risk management approach. 9 has yet to pass through the EU endorsement procedure; thus, it cannot be excluded that the mandatory effective date will be deferred. 27

28 Classification of financial instruments Financial assets and liabilities at fair value through profit or loss establishes four categories of financial assets and two categories of financial liabilities as follows: Financial assets at fair value through profit or loss ( FVTPL ); Held-to-maturity investments ( HTM ); Loans and receivables ( LAR ); Available-for-sale financial assets ( AFS ); Other financial liabilities. The category includes the following: Assets and liabilities held for trading, including derivatives; Assets and liabilities initially classified as at fair value through profit or loss. Generally, any asset can be classified in this category if it results in more relevant information for the financial statements users, i.e., i) if the use of fair value eliminates or significantly reduces inconsistency; ii) the portfolio of financial assets and liabilities is managed on a fair value basis; and iii) a contract containing one or more embedded derivatives that otherwise would have to be separated. Under, balance sheet items are primarily classified as current and non-current. Financial assets are (directly or indirectly) classified into the following categories: Securities (and receivables) held for trading (non-current); Securities held to maturity (current and noncurrent); Other securities 1 (current and non-current); Loans, bank deposits, receivables and advances granted (current and non-current). The classification of financial liabilities is similar: Issued bonds (current and non-current); Loans, payables and advances received (current and non-current). Other securities virtually correspond to the available-for-sale category of financial assets under. Similarly, securities held to maturity correspond to held-to-maturity investments under. In contract, does not contain an explicit specification of the held-for-trading category for assets (generally) and liabilities; e.g., under fair values of derivatives are reported within receivables/payables while under these are classified as FVTPL. For the differences between the other categories, refer below. only contains the category of securities and receivables held for trading, which are financial assets held for trading for the purpose of generating a profit from short-term fluctuations in price (12 months at a maximum). Unlike under, no asset may be initially classified in this category to eliminate measurement inconsistencies. Derivatives are also classified in this category (although this is not specifically stated and although they are presented within Other receivables/payables in the balance sheet). This is due to the fact that under, derivatives must be measured at fair value through profit or loss. 1 Available-for-sale securities 28

29 Loans and receivables Initial measurement This category includes financial assets with fixed or determinable payments that are not quoted in an active market, that do not qualify for the FVTPL or AFS categories and that do not meet the condition of the holder not recovering substantially all of its initial investment, other than as a result of credit deterioration. A financial asset or a financial liability is initially recognised at fair value; for financial assets and liabilities other than those classified as FVTPL, the fair value is adjusted for directly attributable transaction costs (or specific income, see below). Under, loans and receivable are not defined as a specific category of financial instruments. However, financial assets of this type are presented in a way similar to, unless designated by an entity as held for trading. Loans and receivables that have been acquired and designated by the entity as held for trading are remeasured at fair value with changes reported in finance income or cost. This corresponds to the procedure applied under ; however, under such loans would be classified as FVTPL. What is different is the treatment of receivables originated by the entity (i.e., when the entity has sold goods or provided services) that will not be held to maturity as the entity intends to sell them before they become due. Under, these receivables are classified as FVTPL; under originated loans may neither be classified in this category nor remeasured at fair value. As mentioned above, only acquired receivables may be remeasured. Loans and receivables (unless acquired for consideration or by contribution) and payables are initially measured at nominal value. Other financial assets and liabilities are initially recognised at cost plus acquisition-related costs. Recognition of interest income/expense The effective interest method is required to be used for the subsequent remeasurement of financial instruments measured at amortised cost (i.e., of financial instruments classified as LAR or HTM and of other financial liabilities) and for the recognition of interest income/expense. Over the period to expected maturity, the method allocates to interest income/expense not only contractual interest, but also other items, such as the above mentioned transaction costs and certain specific income (e.g., a fee for the provision of a loan). The income statement provides information about effective interest income/expense. For financial assets classified as AFS, the method is required to be applied to report interest income. The effective interest method is not defined under ; accordingly, it may not be applied on items initially measured at nominal value to accrue the related (transaction) costs. Interest income/expense is based on contractual interest and is presented on an accrual basis (for financial instruments other than discounted securities where interest income/expense corresponds to the difference between the nominal value and cost). For securities held to maturity, the difference between cost and nominal value is reported in profit or loss (as either finance income or cost, as appropriate), taking into account the accrual principle. As does not provide specific guidance on accounting for interest income and interest expense, practical approaches may differ, particular with the costs of issue of longterm debt (direct expense vs. some form of accruals). 29

30 Derecognition of financial assets Impairment of financial assets Embedded derivatives provisions governing derecognition of financial assets are fairly complex. The transfer of risks and rewards and of control is decisive for derecognition of a financial asset. provides guidance concerning objective evidence that a financial asset or group of financial assets is impaired (i.e., applying the incurred loss model). An entity shall assess whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for insignificant financial assets and for significant financial assets that have been individually assessed, but for which there is no objective evidence of impairment. For financial assets classified as LAR or HTM, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows. Future cash flows from financial assets are discounted at the financial asset s original effective interest rate, i.e., the effective interest rate computed at initial recognition. For financial assets classified as AFS, the amount of the loss is measured as the difference between the asset s fair value and amortised cost. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. requires that an embedded derivative be separated if the economic characteristics and risks of the embedded derivative differ from those of the host contract. provides examples illustrating when the economic characteristics and risks of the embedded derivative differ and when they do not. for entrepreneurs does not provide detailed guidance on derecognition. Additional guidance can be found in Accounting Standards for Financial Institutions. The derecognition principle is also based on the transfer of control; however, no examples specifying the meaning of the transfer of control are provided. Moreover, the risk and reward concept is not applied. does not specify objective evidence indicating that a financial asset is impaired and that allowances should be recognised. Allowances only cover a temporary diminution in value of assets (or, in the case of available-forsale securities, a diminution in value that is probably permanent). provides no guidance on individual and subsequent collective assessment of financial assets for impairment. In addition, there is no detailed specification of how to compute impairment losses. Under, accounting for embedded derivatives is not obligatory, i.e., entrepreneurs have an option to do so. The conditions under which an embedded derivative is separated from the host contract are, in principle, the same as under. What is different is the list of examples where the economic characteristics and risks of the embedded derivative are not closely related to the host contract or, conversely, where this relationship is deemed close. 30

31 Non-current Assets Held for Sale and Discontinued Operations Related s and IFRICs: 5 Non-current Assets Held for Sale and Discontinued Operations 13 Fair Value Measurement Assets classified as held for sale definition Assets classified as held for sale measurement Under, a non-current asset is classified as held for sale if its carrying amount shall be recovered principally through a sale transaction rather than through continuing use over its useful life. A non-current asset is classified as held for sale if it is available for immediate sale and its sale is highly probable. At the lower of carrying amount (at the time of reclassification to assets held for sale) and fair value less costs to sell. does not establish the category of held-forsale non-current asset and discontinued operations; no specific guidance provided. provides no guidance on this asset group treated as a standard non-current asset. Assets classified as held for sale depreciation Assets are not depreciated. provides no guidance on this asset group treated as a standard non-current asset. Assets classified as held for sale presentation Presented separately on the face of the balance sheet within current assets or liabilities. provides no guidance on this asset group treated as a standard non-current asset. Discontinued operations presentation A discontinued operation is a separate line of business or geographical area of operations (taking into account its materiality) that either has been disposed of, or is classified as held for sale. Under, an entity must provide specific disclosures about discontinued operations, including the separate profit or loss of the discontinued operation. does not address discontinued operations and, accordingly, no specific disclosures are required. 31

32 Revenue Related s and IFRICs: IAS 18 Revenue IFRIC 12 Service Concession Arrangements IFRIC 13 Customer Loyalty Programmes IFRIC 15 Agreements for the Construction of Real Estate IFRIC 18 Transfers of Assets from Customers SIC 13 Jointly Controlled Entities Non-monetary Contributions by Venturers SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease SIC 31 Revenue Barter Transactions Involving Advertising Services 15 Revenue from Contracts with Customers In May 2014, the International Accounting Standards Board (IASB) issued 15 Revenue from Contracts with Customers, which replaces all existing standards and interpretations governing revenue recognition. The standard will be effective for annual periods beginning on or after 1 January 2017, subject to EU endorsement. The standard establishes fundamental principles to be applied by entities to the preparation of financial statements to enable their users to understand the amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, on the basis of which an entity supplies finished products or services to customers. The core principle of the standard is to recognise revenue so as to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard s requirements will also apply to the recognition and measurement of gains and losses on the sale of some non-financial assets that are not an output of the entity s ordinary activities (e.g., sales of property, plant and equipment or intangibles). Unlike the current standards, 15 provides detailed guidance on certain specific transactions, such as multiple-element arrangements. The standard will also affect some regular aspects of sales transactions, namely warranties. In addition, the standard provides guidance on how to determine whether customer contract costs will be recognised as an asset or in profit or loss. The Standard requires extensive disclosures, including disaggregation of total revenue, information about performance obligations, changes in contract asset and liability account balances between periods and key judgements and estimates. Definition of revenue IAS 18 defines revenue as the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an entity from the sale of goods, from rendering of services, and from the use by others of entity resources yielding interest royalties and dividends. does not provide any definition of revenue. 32

33 Recognition of revenue from the sale of finished products and goods Recognition of revenue from the rendering of services Measurement of revenue Complex transaction establishes the following criteria for the recognition of revenue from the sale of finished products and goods: transfer of the significant risks and rewards of ownership to the buyer; not retaining continuing managerial involvement to a degree usually associated with ownership; the amount of revenue must be measured reliably; the flow of economic benefits associated with the transaction is probable; the costs incurred in respect of the transaction can be measured reliably. establishes the following criteria for the recognition of revenue from the rendering of services: the amount of revenue must be measured reliably; the flow of economic benefits associated with the transaction is probable; the stage of completion of the transaction at the end of the reporting period can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates and eliminating the effects of a financing transaction (i.e., discounting future receipts). Under, individual components of a complex transaction are required to be identified in accordance with its substance; the recognition criteria are then applied to separately identifiable components. Revenue is allocated to each transaction component by reference to the fair value of the entire transaction and of each component. provides guidance on the recognition of different types of sales transactions, such as sale with the right of withdrawal, etc. Under, the approach to revenue recognition is based on the transfer of a legal title rather than on the transfer of risks and rewards. Revenue from the rendering of services is recognised upon agreed billing milestones or after the transaction is completed. The percentage of completion method is not permitted under. does not provide detailed guidance on the measurement of revenue; no separation of financing element from the revenue is required. does not specifically address the issue. 33

34 Transfers of assets from customers An entity is required to assess agreements to receive items of property, plant and equipment (or, alternatively, cash to acquire such items) which the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (e.g., supplies of water, gas, electricity, and IT services). If the transferred item of property, plant and equipment meets the definition of an asset (the transfer of the right of ownership is not essential), the item is measured at fair value in accordance with IAS 16. Revenue from an agreement on transfers of assets from customers is recognised in accordance with IAS 18 Revenue. If the connection is a separately identifiable service, revenue is recognised over the life of the agreement. In the case of an ongoing service, the period over which revenue is recognised is determined by the terms of the agreement and shall not exceed the useful life of the asset used to provide an ongoing service. does not specifically address the issue. 34

35 Construction Contracts Related s and IFRICs: IAS 11 Construction Contracts IFRIC 12 Service Concession Arrangements IFRIC 15 Agreements for the Construction of Real Estate In May 2014, the International Accounting Standards Board (IASB) issued 15 Revenue from Contracts with Customers, which replaces all existing standards and interpretations governing revenue recognition. Construction contracts have been incorporated into the new standard and IAS 11 shall be withdrawn. Definition of construction contracts Contract costs Recognition of contract revenue and costs Disclosures identifies two specific types of construction contracts: a fixed price contract in which the contractor agrees to a fixed contract price or to a fixed rate per unit of output; and a cost plus contract. Contract costs comprise costs that relate directly to the specific contract; costs that are attributable to contract activity in general and can be allocated to the contract; and costs that are specifically chargeable to the customer under the terms of the contract. also specifies the costs that cannot be attributed to contract activity or cannot be allocated to a contract. Such costs include general administration costs for which reimbursement is not specified in the contract; selling costs; research and development costs for which reimbursement is not specified in the contract; and depreciation of idle plant and equipment that is not used on a particular contract. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the balance sheet date. An expected loss on the construction contract shall be recognised as an expense immediately. The stage of completion of a contract shall be determined using a method that measures reliably the work performed, e.g., the proportion of contract costs incurred for work performed to date to the total contract costs. requires specific disclosures concerning construction contracts. There is no specific definition of construction contracts in. General principles apply to accounting for construction contracts, see below. There is no specific definition of construction contracts in. Costs related to construction contracts are recognised similarly to any other production costs, i.e., as the contract progresses the amount of completed work increases and is usually measured based on direct production costs and production overhead costs; administrative overhead costs are also permitted for consideration. only states that revenues and costs are recorded on an accrual, not cash, basis. Under, the percentage of completion method is neither required nor prohibited. Revenue is generally recognised upon agreed billing milestones or after completion. Expected loss on the contract can be treated as a general provision or a specific provision for work in progress. does not specifically address construction contracts. 35

36 Agriculture Related s and IFRICs: IAS 41 Agriculture IAS 16 Property, Plant and Equipment From annual periods beginning on or after 1 January 2016, bearer biological assets (e.g., grape vines and fruit trees) shall fall within the scope of IAS 16 Property, Plant and Equipment because their operation is similar to that of manufacturing. Bearer biological assets (bearer plants) are used solely to grow produce over several periods. At the end of their productive lives they are usually scrapped. Once a bearer plant is mature, apart from bearing produce, its biological transformation is no longer significant in generating future economic benefits. The only significant future economic benefits it generates come from the agricultural produce that it creates. Consequently, bearer plants shall be included within the scope of IAS 16 Property, Plant and Equipment, while the produce growing on bearer plants shall remain within the scope of IAS 41 Agriculture. Scope IAS 41 is applied to account for the following when they relate to agricultural activity: a) biological assets; b) agricultural produce at the point of harvest; and c) government grants. IAS 41 is applied to agricultural produce, which is the harvested product of the entity s biological assets, only at the point of harvest. Thereafter, IAS 2 Inventories or another applicable standard is applied. Under, there is no specific standard or guidance on agricultural activity. Biological assets and agricultural produce are classified as non-current assets and inventory. 36

37 Measurement Government grants Disclosures Under, biological assets and agricultural produce are measured on initial recognition and at the end of each reporting period at their fair value less estimated costs to sell. If an active market does not exist, an entity uses one or more of the following in determining fair value: a) the most recent market transaction price, provided that there has not been a significant change in economic circumstances between the date of that transaction and the end of the reporting period; b) market prices for similar assets with adjustment to reflect differences; and c) sector benchmarks such as the value of an orchard expressed per export tray, bushel, or hectare, and the value of cattle expressed per kilogram of meat. There is a presumption that fair value can be measured reliably for a biological asset. However, that presumption can be rebutted only on initial recognition for a biological asset for which market-determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable. In such a case, that biological asset is measured at its cost less any accumulated depreciation and any accumulated impairment losses. An unconditional government grant related to a biological asset measured at its fair value less costs to sell shall be recognised in profit or loss when, and only when, the government grant becomes receivable. If a government grant related to a biological asset measured at its fair value less costs to sell is conditional, an entity recognises the government grant in profit or loss when, and only when, the conditions attached to the government grant are met. requires specific disclosures regarding biological assets, agricultural produce and government grants related to agricultural activity. Under, fair value measurement is not allowed for biological assets. Biological assets are measured at cost less accumulated depreciation. Biological assets and agricultural produce that are classified as inventory are measured at cost. If, at the balance sheet date, the cost is lower than realisable value, the difference is offset by allowance or write-off. Recognition and presentation requirements are similar under and. However, while requires reasonable assurance that the conditions attaching to the government grant have been met, includes no such requirement. If the conditions are not met, requires that the previous recognition be cancelled. does not provide specific guidance on the recognition of agricultural activity and related disclosures. 37

38 Impairment of Assets Related s and IFRICs: IAS 36 Impairment of Assets 13 Fair Value Measurement IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 3 Emission Allowances IFRIC 10 Interim Financial Reporting and Impairment IFRIC 12 Service Concession Arrangements SIC 32 Intangible Assets Website Costs Impairment of assets Timing of impairment test Impairment test provides detailed requirements for impairment reviews of assets and specify when and how impairment reviews shall be performed. In addition, specifies accounting for impairment losses and the conditions for their reversal. Under, all intangible assets with an indefinite life, intangible assets not yet available for use and goodwill are required to be tested annually for impairment; an impairment test may be performed at any time during the period, but it must be performed at the same time every year. For all other assets, i.e., for property, plant and equipment and for intangible assets with finite useful lives, an entity is required to assess at each balance sheet date whether there is any indication of impairment. An impairment test is only performed if any such indication exists. An impairment test is performed at the level of a separate cash-generation unit, i.e., either for a single asset or for a group of assets that generate independent cash inflows. An entity is required to compare the carrying amount of an asset with the recoverable amount. The recoverable amount of an asset is the higher of its value in use and fair value (determined in accordance with 13) less costs to sell. The value in use of an asset is the estimate of discounted future cash flows that will be derived from the use of the asset and from its ultimate disposal. stipulates only a general requirement for entities to account for impairment of assets. No detailed guidance on the determination of impairment losses is provided. Under, all assets have to be reviewed for impairment at the balance sheet date. Entities are required to assess and document the appropriateness and adequacy of amounts recognised as allowances that reduce the carrying amounts of the assets. does not provide any detailed guidance on the recognition of the allowances or the method for their calculation. 38

39 Reversal of an impairment loss Generally, an impairment loss may be reversed under provided that the impairment loss recognised previously no longer exists or has decreased. The reversal of impairment losses on goodwill is not permitted. Under, the new (increased) carrying amount of an asset attributable to a reversal of an impairment loss may not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. The treatment is based on an assessment made by an entity at the time of accounting for the impairment of an asset. If the entity assessed the impairment of the asset as temporary and recognised an allowance, the relevant allowance may be reversed. If the entity assessed the nature of the impairment as permanent and recognised a write-off, the writeoff is irreversible. does not stipulate any limit for the reversal of recognised allowances. Adjustment of depreciation (amortisation) charge after the recognition of an impairment loss The depreciation (amortisation) charge for an asset must be adjusted to allocate the asset s revised carrying amount on a systematic basis over its remaining useful life. does not specifically address the issue. 39

40 Fair Value Measurement Related s and IFRICs: 13 Fair Value Measurement Definition of fair value Principal (most advantageous) market Highest and best use for non-financial assets Fair value is the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date (it can also be referred to as an output price). Fair value includes transport costs and excludes transaction costs. Fair value is not an entity-specific measurement, but rather is focused on market participant assumptions for a particular asset or liability. When measuring fair value, an entity considers the characteristics of the asset or liability, if market participants would consider those characteristics when pricing the asset or liability at the measurement date. Fair value is the price achieved in the principal market, which is the market with the greatest volume and level of activity for the asset or liability that the entity has access to. In the absence of a principal market, the price achieved in the most advantageous market, i.e., the market that provides the best price to the entity (after considering transaction costs and transport costs) is used. The fair value of a non-financial asset must be determined considering the highest and best use of the asset by market participants. Some entities may purposefully decide not to employ an asset at its highest and best use (e.g., when an entity holds an asset defensively to prevent others from using it). In such circumstances, an entity is still required to measure the asset based on its highest and best use and to disclose the fact that the asset is not used in that way. The following can serve as fair value under : a) market value; b) a qualified estimate or expert appraisal in those cases when the market price is not available or when it does not reflect the fair value adequately; c) a measurement performed pursuant to special legislation, unless the methods described under a) and b) above can be used. The market price is the price quoted at a local or foreign stock exchange or at another regulated market. Not specifically addressed in. Not specifically addressed in. 40

41 Valuation techniques Fair value hierarchy When transactions are not directly observable in a market, the following valuation techniques shall be used: Market approach an entity uses prices and other relevant information from market transactions involving identical or similar assets, liabilities or a group of assets and liabilities. Income approach an entity converts future amounts (e.g., cash flows) to a single current (discounted) amount. Cost approach an entity determines a value which reflects the amount required currently to replace the service capacity of an asset (also referred to as current replacement cost). A valuation technique should be selected and consistently applied to maximise the use of relevant observable inputs (and minimise unobservable inputs). 13 includes the following fair value hierarchy which prioritises the inputs in a fair value measurement: Level 1: Fair value is determined on the basis of quoted prices in an active market. Revaluation is obtained using the prices of an identical asset or liability; no model is involved in the revaluation. Level 2: Fair value is determined using valuation techniques based on observable inputs, either directly (i.e., prices) or indirectly (i.e., derived from prices). Level 3: Fair value is determined using valuation techniques based on significant unobservable inputs. The valuation techniques include inputs that are not based on observable data and where the unobservable inputs have a significant effect on the revaluation of assets/liabilities. Fair value of an asset/liability is determined using one of these approaches, on the basis of the lowest-level input that is significant for the valuation. If market value is not available, a qualified estimate, expert appraisal or measurement performed pursuant to special legislation shall be used under. No further guidance on valuation techniques is provided. Not specifically addressed in. 41

42 Income Taxes Related s and IFRICs: IAS 12 Income Taxes IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies SIC 25 Income Taxes Changes in the Tax Status of an Entity or its Shareholders Deferred tax method Recognition of deferred tax liability Recognition of deferred tax asset Recovery of underlying assets Tax rate The balance sheet liability method is applied. provides more detailed guidance on particular treatment and specific situations (e.g., tax aspects of intragroup eliminations and business combinations). A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from (a) the initial recognition of goodwill; (b) the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit nor taxable profit. A deferred tax asset is recognised for all taxdeductible temporary differences up to the amount of probable taxable profits against which the deductions can be offset. A deferred tax asset is not recognised if it arises from a difference upon the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting profit (loss) nor taxable profit (loss). The tax base of an asset or liability and the applicable tax rate may depend on the expected manner of recovery or settlement. An entity measures deferred tax liabilities and deferred tax assets using the tax rate and the tax base that are consistent with the expected manner of recovery or settlement. requires that deferred tax liabilities and assets be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted by the balance sheet date. The balance sheet liability method is applied. Complex situations are not expressly addressed. A deferred tax liability is recognised for all taxable temporary differences with no exceptions. A deferred tax asset arising from temporary differences is recognised with respect to the principle of prudence, i.e., at each balance sheet date, an entity assesses the probability that a sufficient tax base will be generated to recover the tax asset or a portion thereof. The value of a deferred tax asset is reduced to the extent it is unlikely that a sufficient tax base will be available in the future. does not expressly address this area. Under, deferred tax liabilities/assets are measured at the tax rates applicable to the period in which the deferred tax liability is settled or asset is realised. If the applicable tax rate is not known, the tax rate applicable for the following period is to be used. 42

43 Consolidation and Business Combinations Related s and IFRICs: 3 (revised) Business Combinations 10 Consolidated Financial Statements (the standard will be effective for annual periods beginning on or after 1 January 2013; EU-based entities are required to apply the standard for annual periods beginning on or after 1 January 2014) 11 Joint Arrangements (the standard will be effective for annual periods beginning on or after 1 January 2013; EU-based entities are required to apply the standard for annual periods beginning on or after 1 January 2014) 12 Disclosure of Interests in Other Entities (the standard will be effective for annual periods beginning on or after 1 January 2013; EU-based entities are required to apply the standard for annual periods beginning on or after 1 January 2014) IAS 27 Consolidated and Separate Financial Statements IAS 28 Investments in Associates and Joint Ventures Definition of control Quantitative requirements for the obligation to present consolidated financial statements An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Thus, an investor controls an investee if the investor has all the following: power over the investee; exposure, or rights, to variable returns from its involvement with the investee; the ability to use its power over the investee to affect the amount of the investor s returns. does not contain any quantitative requirements for the obligation to present consolidated financial statements. does not provide an explicit definition of control. A consolidated group is defined by reference to the Czech Commercial Code and to the definition of a controlling entity, which is the consolidating entity that prepares consolidated financial statements. A controlling entity is an entity which has factual or legal control over management or operations of another entity, either directly or indirectly. As a result of insufficient guidance in, the assessment of control over an investee may lead to differing conclusions under and. A parent company shall present consolidated financial statements if at least two of the following three requirements were met in the two latest periods: total assets exceeded CZK 350 million; total net annual sales exceeded CZK 700 million; average recalculated headcount exceeded 250 during the period. Banks, insurance companies, or issuers of securities listed in regulated securities markets are always required to prepare consolidated financial statements. 43

44 Exemptions from the requirement to present consolidated financial statements Use of for the presentation of consolidated financial statements Consolidated entities A parent need not present consolidated financial statements if it meets all of the following conditions: it is a wholly-owned subsidiary or is a partiallyowned subsidiary of another entity and minority shareholders do not object to the parent not presenting consolidated financial statements; the parent has not issued debt or equity instruments traded on a public market; the parent is not in the process of issuing financial instruments in a public market; the parent s controlling entity produces consolidated financial statements in accordance with. The use of for the presentation of consolidated financial statements is obligatory. All subsidiaries controlled by the parent shall be consolidated. Subsidiaries acquired for sale are accounted for in accordance with 5 Non-current Assets Held for Sale and Discontinued Operations. Subsidiaries of investment entities may be measured at fair value. Exemptions from the requirement to prepare consolidated financial statements are similar to those under, i.e., a parent is not required to present consolidated financial statements if it is a subsidiary consolidated by another parent within the European Union and its securities are not traded in a public market. Consolidating entities that have issued securities registered in a regulated securities market in EU Member States shall present consolidated financial statements in accordance with as adopted by the EU. Other entities may also prepare consolidated financial statements in accordance with as adopted by the EU. The following subsidiaries may be excluded from consolidation: their share in the consolidation is insignificant; significant long-term obstructions prevent the parent from exercising its rights or, in exceptional circumstances, the information necessary to prepare consolidated financial statements cannot be obtained without undue costs or delay; shares in consolidated entities are held exclusively for sale. 44

45 Investment entity Typical characteristics of an investment entity Definition of investment entity: obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and measures and evaluates the performance of substantially all of its investments on a fair value basis. An investment entity does not consolidate its subsidiaries or apply 3 Business Combinations when it obtains control of another entity. Instead, an investment entity measures an investment in a subsidiary at fair value, except for subsidiaries providing services that relate to the investment entity s investment activities (these are fully consolidated). A parent of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity. The following typical characteristics are considered in assessing whether an entity meets the definition of investment entity: it has more than one investment; it has more than one investor; it has investors that are not related parties of the entity; it has ownership interests in the form of equity or similar interests. If an investment entity does not have all of these typical characteristics, it is required to disclose its reasons for concluding that it is nevertheless an investment entity. A parent that either ceases to be an investment entity or becomes an investment entity shall account for the change in its status prospectively from the date at which the change in status occurred. does not use the term investment entity and provides no exemption from consolidation to entities based on their business activity. includes specific accounting guidance for entities that are investment funds. does not use the term investment entity and provides no exemption from consolidation to entities based on their business activity. 45

46 Consolidation methods Full consolidation is used for all entities controlled by the investor. Associates (entities under significant influence) are consolidated using the equity method. Joint-ventures are consolidated using the equity method. A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the s applicable to the particular assets, liabilities, revenues and expenses. Full consolidation is used for all subsidiaries, i.e., entities controlled by the parent. Associates (entities under significant influence) are consolidated using proportionate consolidation. Joint ventures may be consolidated using proportionate consolidation or the equity method. The equity method is based on the measurement of the consolidating entity s interest in an associate by the share in an associate s equity, after possible reclassifications and adjustments of financial statement items. Translation of the financial statements of foreign operations Presentation of noncontrolling interests Balance sheet items shall be translated at the closing rate; income statement items shall be translated at exchange rates prevailing at the date of the transaction or at an average rate (if immaterial). All resulting exchange differences shall be recognised as a separate component of equity. Non-controlling interests are presented within equity. Financial statements of an entity maintaining accounting in a foreign currency shall be translated at the exchange rate prevailing at the balance sheet date. Non-controlling interests are presented as a separate component of liabilities. Goodwill/positive and negative consolidation difference Joint arrangements Goodwill is not amortised; however, it shall be tested for impairment on an annual basis. Negative goodwill is recognised in profit or loss, after the appropriateness of the computation has been reviewed. An entity shall determine the type of joint arrangement in which it is involved based on the rights and obligations of the parties to the arrangement. A joint arrangement is classified as a joint operation or a joint venture. Positive and negative consolidation difference is amortised on a straight-line basis over 20 years, unless there are grounds for a shorter period. Goodwill and negative goodwill is amortised over a maximum of five years; however, an entity may elect to amortise goodwill over a longer period (the reasons must be explained in the notes to financial statements). Gain or loss on acquired property is depreciated on a straightline basis over 15 years; however, an entity may elect to depreciate the gain or loss over a shorter period if the acquired property does not include assets with useful lives exceeding 15 years. does not distinguish between a joint operation and a joint venture. 46

47 Joint operation Joint venture Business combination definition and scope Combination of entities under common control Acquisition-related costs Acquisition method acquisition-date fair value Acquisition method non-controlling interests A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers. A business combination is defined as the bringing together of separate entities or businesses into one reporting entity. Accordingly, 3 is applied to a number of transactions that represent the acquisition of control of one entity over another entity, including regular purchases of ownership interests in subsidiaries and various types of company transformations and acquisitions of businesses or parts thereof (i.e., net assets). The acquisition method is the only method permitted to account for business combinations. Combinations of entities or businesses under common control are exempt from the scope of 3. As a result, prescribes no consistent and binding method for these transactions. The acquisition method or the pooling of interest method is usually applied in practice. Acquisition-related costs are recognised in profit or loss. All identifiable assets acquired and liabilities assumed are measured at their acquisition-date fair values. Non-controlling interests are measured by reference to the fair value of the proportionate share of the acquiree's net assets or at the fair value of the non-controlling interest (which also includes a share in goodwill). does not distinguish between a joint operation and a joint venture. does not distinguish between a joint operation and a joint venture. Business combinations falling within the scope of 3 are not treated consistently under. There are separate provisions for the acquisition and consolidation of a subsidiary, acquisition and contribution of a business (or of its part) and for company transformations. Combinations of entities under common control are not specifically addressed in. These transactions are treated in accordance with their legal form as company transformations, acquisitions and contributions of businesses, or acquisitions and consolidations of subsidiaries. Generally, costs related to the acquisition of a subsidiary are included in its acquisition cost and, accordingly, affect the consolidation difference. Assets and liabilities are remeasured as required for the transaction in question (company transformations, acquisitions and contributions of businesses, acquisitions of subsidiaries). The requirement to remeasure assets and liabilities at fair value is not as strict as under. Non-controlling interests are measured by reference to the fair value of the proportionate share of the acquiree's net assets. 47

48 Acquisition method contingent consideration Acquisition and sale of non-controlling interests A business combination achieved in stages Contingent consideration is measured at acquisition-date fair value and subsequently carried in accordance with the applicable s (e.g., IAS 39, IAS 37, etc.). Financial liabilities are measured at fair value through profit or loss. Acquisitions and sales of non-controlling interests not involving the loss of control over a subsidiary are accounted for as transactions directly affecting equity. Goodwill is only calculated at the acquisition date (i.e., at the date when the acquirer gains control over the acquiree). The acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss. provides no guidance on contingent consideration for acquisition of subsidiaries. For transactions involving goodwill or gain or loss on acquired property, any subsequent changes in the acquisition cost of a business or its part are reflected in goodwill or negative goodwill or in gain or loss on acquired property. provides no specific guidance on sales of non-controlling interests. Although the issue is not expressly addressed in, phase calculation of the consolidation difference is usually applied in practice. 48

49 Financial Accounting Advisory Services We know that quality in accounting and financial reporting means more than just following a set of policies and procedures. It means delivering a powerful and superior client experience across borders, while also managing the business risks posed by changing regulations and a volatile economic environment. High-performing teams, delivering exceptional client service, worldwide EY s accounting, regulatory, compliance and IT professionals combine technical expertise with business and industry insights. Whether your focus is on managing complex accounting requirements or addressing governance and regulatory issues, having the right advisors on your side can make all the difference. Our seasoned multi-disciplinary teams help clients navigate the ever-changing accounting and reporting landscape, so they can face their challenges with confidence. Your EY team will understand your industry and use proven, integrated methodologies to help you solve your most challenging business problems, deliver a strong performance in complex market conditions and make improvements sustainable for the longer term. We understand that you need services that are adapted to your industry issues, so we bring our broad sector experience and deep subject-matter knowledge to bear in a proactive and objective way. Above all, we are committed to measuring the gains and identifying where the strategy is delivering the value your business needs. Contacts Martin Skácelík Partner Tel.: martin.skacelik@cz.ey.com Klára Mádlová Senior manager Tel.: klara.madlova@cz.ey.com Alice Machová Senior manager Tel.: alice.machova@cz.ey.com Veronika Mocková Manager Tel.: veronika.mockova@cz.ey.com Financial institutions Michaela Kubýová Partner Tel.: michaela.kubyova@cz.ey.com 49