IFRS for SMEs World Bank REPARIS FR CoP

Transcription

1 !International Financial Reporting Standards International Financial Reporting Standards 1 IFRS for SMEs World Bank REPARIS FR CoP 14 September 2010 Vienna, Austria Copyright 2010 IFRS Foundation. All rights reserved.

2 The IFRS for SMEs 2 Topic 1.5(b) Sections 10, 30, 32 and 33 Financial Statement Presentation David Cairns Michael Wells

3 Overview of financial statement presentation 3 Section 10 covers accounting policies, estimates and errors Section 30 covers foreign currency translation Section 32 covers events after the end of the reporting period Section 33 covers related party disclosures the main principles in these sections are generally the same as full IFRSs

4 The IFRS for SMEs 4 Section 10 Accounting Policies, Estimates and Errors

5 Section 10 scope 5 Section 10 Provides guidance for selecting and applying the accounting policies Specifies accounting for changes in accounting estimates corrections of errors in prior period financial statements

6 Section 10 accounting policies hierarchy If IFRS for SMEs addresses an issue, must follow IFRS for SMEs If not choose policy that results in most relevant and reliable information by 1 st try to analogise from requirements in other sections 2 nd use concepts/pervasive principles in Section 2 may also (not required) look to full IFRSs 6

7 Section 10 accounting policies hierarchy Ex 5*: A received a grant of CU50,000 from a non government development agency to set up farming operations in a specified rural area. IFRS for SMEs does not specify how to account for a grant from a non government agency. However, it specifies how to account for government grants (Section 24 Government Grants). By analogy, A should account for the grant received in accordance with Section 24. * see example 5 in Module 10 of the IFRS Foundation training material 7

8 Section 10 consistency of acc. policies 8 Select and apply its accounting policies consistently for similar transactions, other events and conditions Change accounting policy only if is required by change to IFRS for SMEs (compulsory) results in reliable and more relevant information (voluntary)

9 Section 10 accounting policies Ex 7*: A measures invest s in associates at fair value. Because it cannot determine the fair value of its investment in associate B, it measures it using the cost model. A s accounting policy is acceptable. Sect 14 requires A choose cost, equity method, or fair value. If choose fair value still use cost for investments if impracticable to measure fair value reliably without undue cost or effort (see paragraph 14.10). 9 * see example 7 in Module 10 of the IFRS Foundation training material

10 Section 10 accounting policies 10 Ex 9*: A s acc. policy = account for investments in associates at fair value and jointly controlled entities at cost. None of A s investments are traded in a public securities market. A s accounting policies are acceptable. Its policy for associates need not be the same as its policy for jointly controlled entities. * see example 9 in Module 10 of the IFRS Foundation training material

11 Section 10 change in accounting policy 11 Change accounting policy if if mandated, follow the transition guidance as mandated if voluntary, retrospective application impracticability exemption Disclosures

12 Section 10 retrospective application Ex 20*: In 20X7 A voluntarily changed an accounting policy. The cumulative effect of the change is a decrease of CU100,000 in retained earnings at 1/1/20X7 (ie CU25,000 less profit for each of the past four years). The entity presents two years of comparative information. Presented as a restatement of: retained earnings at 1/1/20X5 reduce by CU50,000 profit 20X5 & 20X6 reduce by CU25,000 each 12 * see example 20 in Module 10 of the IFRS Foundation training material

13 Section 10 impracticability exemption 13 Ex 21*: Facts same as Ex 20. Except, it is impracticable to determine the individual period effects of the change of policy. Presented as a restatement of: retained earnings at 1/1/20X7 reduce by CU100,000 (no adjustment to 20X5 & 20X6) additional disclosures * see example 21 in Module 10 of the IFRS Foundation training material

14 Section 10 accounting estimate 14 The use of reasonable estimates is an essential part of accounting. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.

15 Section 10 errors Prior period errors are omissions from, and misstatements in, financial statements for prior periods arising from a failure to use, or misuse of, reliable information that: was available when financial statements for those periods were authorised for issue, and could reasonably be expected to have been obtained and taken into account in the preparation & presentation of those financial statements. 15

16 Section 10 change in estimate 16 Account for changes in accounting estimates prospectively Disclose nature of change and the effect of the change on assets, liabilities, income and expense for the current period if practicable, estimates of the effect of the change in one or more future periods

17 Section 10 correcting errors 17 Correct prior period errors retrospectively (ie restate comparative figures) Disclose nature of the error financial effects (each line-item) an explanation if it is not practicable to determine the financial effects

18 Section 10 change in estimate 18 Ex 28*: On 1/1/20X1 A buys yacht for CU1,000,000. Useful life = 30 years. Residual value = CU100,000. Straight line method of depreciation. At 31/12/20X9, as a result of research in 20X9, A reassessed the yacht as follows: useful life at 20 years from 1/1/20X1; residual value at nil; fair value at CU800,000; and straight-line depreciation as most appropriate method. * see example 28 in Module 10 of the IFRS Foundation training material

19 Section 10 change in estimate 19 Ex 28 continued: The reassessment of the yacht s useful life and its residual value are changes in accounting estimates. The revised assessments are appropriately made on the basis of new information that arose from research performed in the current reporting period 20X9.* * for accounting entries see example 32 in Module 10 of the IFRS Foundation training material

20 Section 10 prior period error 20 Ex 29*: Same as Ex 28, except, the research was publicly available in late 20X5. A believed the research to be valid but chose to ignore it until 20X9. A s 20X5 20X8 financial statements include errors. The comparative figures in its 20X9 financial statements must be restated to correct the effects of the prior period errors [if material]. * see example 29 in Module 10 of the IFRS Foundation training material

21 The IFRS for SMEs 21 Section 30 Foreign Currency Translation

22 Section 30 background An entity can have transactions in foreign currencies and it can have foreign operations. It may also present its FS in a foreign currency. Accounting for financial instruments denominated in a foreign currency and hedge accounting of foreign currency items are dealt with in Sections 11 and 12 (session on PM day-2 of this workshop). 22

23 Section 30 scope 23 Section 30 prescribes how to: determine an entity s functional currency measure foreign currency transactions include foreign operations in FS (not covered in this workshop) translate FS into a presentation currency (not covered in this workshop). It also specifies disclosures.

24 Section 30 functional currency 24 Each entity identifies its functional currency the currency of the primary economic environment in which the entity operates (ie normally the one in which it primarily generates and expends cash) A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency (ie a currency other than the entity s functional currency)

25 Section 30 foreign currency transaction 25 Initial recognition measure a foreign currency transaction in the functional currency using the spot exchange rate on the date when the transaction first qualifies for recognition

26 Section 30 examples initial recognition 26 Ex 1: A s functional currency is CU. On 1/12/20X1 A buys goods on credit for FCU100,000 (FCU denominated) when spot currency exchange rate = FCU1:CU2. On 1/12/20X1 A recognises inventories and trade payables of CU200,000.

27 Section 30 examples initial recognition 27 Ex 2: A s functional currency is CU. On 1/12/20X1 A buys an investment property for FCU100,000 when the spot currency exchange rate = FCU1:CU2 (ie A pays CU200,000). A accounts for the investment property at its fair value. On 1/12/20X1 A recognises its investment property at CU200,000.

28 Section 30 subsequent measurement At the end of each reporting period translate foreign currency monetary items using the closing rate; translate non-monetary items that are measured in terms of historical cost in a foreign currency using the exchange rate at the date of the transaction; and translate non-monetary items that are measured at fair value in a foreign currency using the exchange rates at the date when the fair value was determined. 28

29 Section 30 translation gains and losses 29 Monetary items recognise, in profit or loss when the exchange differences arise (ie on settlement or on retranslating (exception see paragraph 30.13). Non-monetary items recognise exchange differences (in profit or loss or OCI) follows classification of the underlying item. Disclose amount of exchange differences recognised in profit or loss (excluding those on items carried using the fair value model)

30 Section 30 subsequent measurement 30 Ex 1 continued: On 31/12/20X1 (A s year-end) the spot currency exchange rate = FCU1:CU2.1. On 1/2/20X2 when the spot rate = FCU1:CU2.05 A pays CU205,000 to settle the FCU100,000 liability. At 31/12/20X1 A reports the trade payable at CU210,000 and recognises loss of CU10,000 in profit or loss. On 1/2/20X2 A derecognises the FCU100,000 payable and recognises gain of CU5,000.

31 Section 30 subsequent measurement Ex 2 continued: On 31/12/20X1 (A s financial year-end) the fair value of the investment property = FCU100,000 (ie coincidentally no change) and the spot currency exchange rate = FCU1:CU2.1. At 31/12/20X1 A remeasures the investment property at CU210,000 and records a gain of CU10,000 as a change in fair value (rather than exchange difference) in profit or loss. 31

32 Section 30 subsequent measurement Ex 3: Same as Ex 2 except: A accounts for its investment property using the cost model (because its fair value cannot be measured reliably on an ongoing basis). At 31/12/20X1 A records the investment property at CU200,000 (ie no remeasurement because it is a nonmonetary asset carried at historical cost). 32

33 Section 30 presentation & disclosure 33 The amount of exchange differences recognised in profit or loss (other than those arising from fair value changes) Non-monetary items recognise exchange differences (in profit or loss or OCI) follows classification of the underlying item.

34 The IFRS for SMEs 34 Section 32 Events after the End of the Reporting Period

35 Section 32 scope Events after the end of the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. 35

36 Section 32 types of events Two types of events after the end of the reporting period adjusting events those that provide evidence of conditions that existed at the end of the reporting period non-adjusting events those that are indicative of conditions that arose after the end of the reporting period 36

37 Section 32 accounting and reporting 37 Adjusting events adjust the amounts recognised (and update disclosures made) in its financial statements Non-adjusting events do not adjust the amounts recognised in its financial statements. However, disclose: the nature of the event, and an estimate of its financial effect, or a statement that estimate cannot be made

38 Section 32 example adjusting event 38 Ex 7*: On 31/12/20X5 A assessed its warranty obligation as CU100,000. Before its 20X5 financial statements were authorised for issue, A discovered a latent defect in one of its lines of products. It reassessed its warranty obligation at 31/12/20X5 at CU150,000. Adjusting event latent defect existed at 31/12/20X5. Measure warranty provision at CU150,000 at 31/12/20X5. * see example 7 in Module 32 of the IFRS Foundation training material

39 Section 32 example non-adjusting event 39 Ex 12*: On 28/2/20X1 A s 31/12/20X0 FS authorised for issue. At 31/12/20X0 the fair value of A s investment in B s publicly traded shares = CU20,000. On 28/2/20X1 fair value of shares = CU25,000. * see example 12 in Module 32 of the IFRS Foundation training material

40 Section 32 example non-adjusting event 40 Ex 12 continued: Non-adjusting event the change in the fair value results from conditions that arose after 20X0. A does not adjust the amounts recognised in its financial statements. However, it must give additional disclosure see paragraph

41 Section 32 disclosure non-adjusting 41 Ex 15*: 1/3/20X1 A s 31/12/20X0 FS authorised for issue when spot ex rate = CU2.5:FCU1. At 31/12/20X0 spot ex rate = CU2:FCU1. A measured its FCU2,000,000 unhedged non current liability at CU4,000,000 in SOFP. * see example 15 in Module 32 of the IFRS Foundation training material

42 Section 32 disclosure non-adjusting Ex 15 continued: Note 20 Events after the end of the reporting period The financial statements were authorised for issue on 1 March 20X1 when the exchange rate was CU2.5:FCU1. The deterioration of the exchange rate from CU2:FCU1 at 31 December 20X1 has increased the expected settlement amount of the FCU denominated liability by CU1,000,

43 The IFRS for SMEs 43 Section 33 Related Party Disclosures

44 Section 33 scope 44 FS include disclosures necessary to draw attention to the possibility that an entity s financial position and performance have been affected by the existence of related parties and by transactions and outstanding balances with such parties. Assess the substance of the relationship and not merely its legal form.

45 Section 33 related parties defined 45 (a) A person or a close member of that person s family that (i) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity; (ii) has control over the reporting entity; or (iii) has joint control or significant influence over the reporting entity or has significant voting power in it.

46 Section 33 related parties defined continued 46 (b) An entity if any of the following conditions applies: (i) the entity & the reporting entity are members of the same group (parent, subsidiary & fellow subsidiary are related to the others). (ii) either entity is an associate or joint venture of the other entity (or of a member of a group of which the other entity is a member). (iii) both entities are joint ventures of a third entity.

47 Section 33 related parties defined continued 47 (b) An entity if any of the following conditions applies continued: (iv) either entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the plan.

48 Section 33 related parties defined continued 48 (b) An entity if any of the following conditions applies continued: (vi) the entity is controlled or jointly controlled by a person identified in (a). (vii) a person identified in (a)(i) has significant voting power in the entity. (viii) a person identified in (a)(ii) has significant influence over the entity or significant voting power in it.

49 Section 33 related parties defined continued 49 (b) An entity if any of the following conditions applies continued: (ix) a person or a close member of that person s family has both significant influence over the entity or significant voting power in it and joint control over the reporting entity. (x) a member of the key management personnel of the entity or of a parent of the entity, or a close member of that member s family, has control or joint control over the reporting entity or has significant voting power in it.

50 Section 33 not necessarily related party 50 2 entities simply because of common director 2 venturers simply because they share joint control Simply by virtue of their normal dealings with an entity: providers of finance; trade unions; public utilities; and government departments and agencies. A customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence.

51 Section 33 relationship disclosures 51 Disclose related party relationship only if an entity has related party transactions Exception disclose parent-subsidiary relationship irrespective of whether there are related party transactions including name of its parent and ultimate controlling party if neither parent nor ultimate controlling party produces FS available for public use then also disclose name of the next most senior parent that does do so

52 Section 33 relationship disclosures 52 Disclose key management personnel compensation in total this disclosure is in addition to disclosures about related party transactions (see following slides)

53 Section 33 related party transactions 53 A RPT is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. If an entity has a RPT it discloses information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements. Do not state RPT made on terms equivalent to arm s length transactions unless can be 2010 substantiated. IFRS Foundation. 30 Cannon Street London EC4M 6XH UK.

54 Section 33 RPT disclosures 54 RPT disclosures include (at minimum): the amount of the transactions the amount of outstanding balances and: their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and details of any guarantees given or received. provisions for uncollectible RP receivables. expense recognised for RP bad/doubtful debts.

55 Section 33 aggregation 55 Disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of RPTs on the financial statements Disclose separately for each of entities with control, joint control or significant influence over the entity entities over which the entity has control, joint control or significant influence key management personnel of the entity or its parent (in the aggregate) other related parties

56 Section 33 exemption from RPT discl. Exemption applies to transaction disclosures only (ie the nature of the relationship must be disclosed). a state (a national, regional or local government) that has control, joint control or significant influence over the reporting entity, and another entity that is a related party because the same state has control, joint control or significant influence over both the reporting entity and the other entity. 56

57 Questions or comments? 57 Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

58 58 This presentation may be modified from time to time. The latest version may be downloaded from: +the+trainer+workshops.htm The accounting requirements applicable to small and medium sized entities (SMEs) are set out in the International Financial Reporting Standard (IFRS) for SMEs, which was issued by the IASB in July The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.