Insights into IFRS. KPMG's practical guide to International Financial Reporting Standards. 4th Edition 2007/8

Transcription

1 Insights into IFRS KPMG's practical guide to International Financial Reporting Standards 4th Edition 2007/8 The KPMG International Financial Reporting Group THOIV1SON

2 Overview of contents ", n. J, < Page Acknowledgments. i KPMG member firms' contributors -, ii Foreword - iv About this publication. vi Abbreviations.,.,.. viii Table of concordance.,.. viii 1. Background "'.!.* Introduction. ' _ The Framework 8 2. General issues Form and components of financial statements Changes in equity Statement of cash flows Basis of accounting, Consolidation Business combinations Foreign currency translation, Accounting policies, errors and estimates Events after the reporting date ' Specific balance sheet items General Property, plant and equipment Intangible assets and goodwill Investment property Investments in associates and joint ventures Financial instruments Hedge accounting Inventories Biological assets Impairment Equity and financial liabilities Provisions Income taxes 617 i 3.14 Contingent assets and liabilities 674 IX

3 4. Specific income statement items General Revenue Government grants Employee benefits. t-.' Share-based payments Financial income and expense Special topics Leases ' Segment reporting A Operating segments Earnings per share ' Non-current assets held for sale and discontinued operations Related party disclosures > ' Financial instruments: presentation and disclosure Non-monetary transactions Accompanying financial and other information Interim financial reporting " Insurance contracts Extractive activities Service concession arrangements First-time adoption of IFRSs First-time adoption 1105 Appendices 1149 Appendix I: Currently effective requirements 1149 Appendix II: Forthcoming requirements 1157 Appendix III: Table of concordance (moved paragraphs and changed paragraph numbers) 1158 Index 1159 / x

4 Detailed contents Page Acknowledgments i KPMG member firms' contributors ii Foreword - iv About this publication. vi Abbreviations viii Table of concordance viii 1. Background Introduction International Accounting Standards Board ' Trustee Appointments Advisory Group Standards Advisory Council International Financial Reporting Interpretations Committee* International Financial Reporting Standards Compliance with IFRSs Hierarchy Small and medium-sized entities* Future developments The Framework Introduction* Assets and liabilities* Relevance versus reliability* Materiality Prudence* Substance over form Transactions with shareholders Future developments General issues Form and components of financial statements Components of the financial statements* Reporting period Comparative information* 17 2.r.40 T Types of financial statements Consolidated financial statements Individual financial statements 20 I Separate financial statements 21 XI

5 Presentation of pro-forma information Future developments Changes in equity ^ Recognised income and expense, or changes in equity* Recognition directly in equity Recycling adjustments* Effect of income tax Changes in accounting policies and errors No gains or losses other than profit or loss Future developments ' Statement of cash flows Cash and cash equivalents ' Operating, investing and financing activities Direct versus indirect method* " Some classification issues Foreign currency differences Offsetting Taxes collected on behalf of third parties Future developments Basis of accounting The modified historical cost convention* Goingconcern Hyperinflation Changing prices Accounting policies Future developments Consolidation Entities included in the consolidated financial statements., The power to govern the financial and operating policies of an entity So as to obtain benefits from its activities Potential-voting rights -. - ' Rebutting the presumption of control Special purpose entities Purchases of the residual interests of an SPE in the secondary market Multi-seller SPEs : Investment funds, Structured transactions Exclusions from consolidation 74 v Subsidiaries'accounting periods and policies Minority interests Intra-group transactions- 79 * Purchases of minority interests*., 81 Xll

6 Changes in the status of subsidiaries'*^.-. " Increases in minority interests* Future developments. : Business combinations '.'. ' " Scope Identifying a business combination Applicability of purchase accounting Purchase accounting : Business* combination achieved in stages* Common control transactions De-merger / Spin-off Reverse acquisitions- worked example with minority interests " _,» Reverse acquisitions - worked example without. minority interests "."' < :.* 150 2,6.830 : Future developments ' Foreign currency translation ' Definitions ' Summary of approach to foreign currency translation Translation of foreign currency transactions Foreign operations Translation of foreign currency financial statements Translation from.functional to presentation currency Sale or liquidation of a foreign operation Convenience translations Accounting policies, errors and estimates Changes in accounting'policy ,8.40 Errors Impracticability of retrospective application Changes in accounting estimates ' Change in classification or presentation Future developments Events after the reporting date Overall approach Adjusting events "./Nohradjusting events Current versus non-current classification Earnings per share Identifying the key event Specific balance sheet items General, Format of the balance-sheet* 'Current-versus non-current* ;5O. Offsetting. 192 t Future developments 192 xni

7 3.2 Property, plant and equipment \ ^Definition* Initial recognition., Depreciation * Component accounting ' ' Subsequent expenditure Revaluations Compensation received Retirements and disposals Government grants Disclosure. ; : : Future developments ' " Intangible assets and goodwill,. 220 : Definition Initial recognition and measurement Classification of intangible assets Goodwill and intangible assetswith indefinite useful lives* Intangible assets with finite useful lives Subsequent expenditure Revaluations Retirements and disposals Disclosure ' Future developments Investment property Definition Recognition Initial measurement Subsequent measurement Subsequent expenditure Transfers to or from investment property Redevelopment* Disposals Presentation and disclosure Future developments Investments in associates and joint ventures Associates Joint ventures ^ Jointly.controlled entities Jointly controlled assets and operations Associates and jointly controlled entities classified» as held for sale 269 ^ Venture capita] organisations Accounting periods and policies Accounting for associates and jointly controlled * entities 271 xiv

8 The equity method ; Proportionate consolidation of jointly controlled entities Accounting for jointly controlled assets Accounting for jointly controlled operations Impairment Changes in the status of jointly controlled entities and associates Presentation and disclosure Interests in an entity held via a jointly controlled 299 entity Future developments Financial1 instruments Hedge accounting Inventories Scope Definitions* Derivatives Embedded derivatives Classification Initial recognition Measurement on initial recognition Subsequent measurement Fair value Amortised cost Financial instruments denominated in a foreign currency Derecognition of financial assets Derecognition of financial liabilities Impairment of financial assets Future developments Introduction Hedge accounting models Qualifying hedged items Items that do not qualify as hedged items Qualifying hedging instruments Qualifying hedged risks Effectiveness testing Discontinuing hedge accounting Net investment hedge* Hedging on a group basis Worked examples Hedging other market price risks Future developments Definition Recoanition and derecoanition XV

9 Measurement ; ; '8-<120 Cost.' '. " Net realisable value ' Construction contracts Presentation and disclosure Future developments " : 515 ;i.3.9 Biological assets Definition and scope Recognition ;30 Measurement Agricultural produce Presentation and disclosure * Future developments : ' Impairment Scope Assets to be reviewed When to test for impairment Calculation of recoverable amount Fair value less costs to sell ' Value in use : Recognition and measurement of an impairment loss Reversal of impairment Presentation.' " Equity and financial liabilities Classification. ' Recognition and measurement Treasury'shares Treasury shares held by subsidiaries Costs of an equity transaction Equity presentation Capital maintenance Dividends Future developments Provisions Definitions* Scope*' Recognition* 578 '» '' Measurement* ' ' ' Reimbursements* Use of provisions 587 j ^ Specific application guidance* Presentation and disclosure 613' Future developments 616» 3.13 Income taxes 617 ' '* Scope 618 xvi j

10 Current tax: recognition and measurement Deferred tax: recognition and measurement Liability recognition* Asset recognition* Measurement* \ Classification and presentation Specific application issues Disclosure, Future developments Contingent assets and liabilities Definitions Recognition Disclosure Future developments Specific.income statement items General^ Format of the income statement Classification of expenses Employee benefits and restructuring expenses Additional line items' Use of the description "unusual" or "exceptional" Extraordinary items Operating result Sales of financial investments Share of profit of equity accounted investees Alternative earnings measures Changes in estimates Income tax Offsetting , Pro-forma income statement Future developments Revenue Scope.and definition Gross or net presentation Identification of transactions* Recognition Measurement Sale of goods _, Service contracts Software revenue Barter transactions ?540 Right of use of assets Applicability of IAS, 11 or IAS Construction contracts 738 * Presentation and disclosure 741 xvn

11 Future developments Government grants Definitions * Recognition and measurement Presentation and disclosure Future developments Employee benefits Scope Short-term employee benefits* Scope of post-employment benefits Classification as a defined benefit or a defined contribution plan Accounting for defined contribution plans Valuation of defined benefit plan liabilities and assets Plan assets of a defined benefit plan Accounting for defined benefit plans Asset ceiling* Current funding level deficit Insured benefits Reimbursement rights Death-in-service benefits Inter-related post-employment benefit plans Settlements and curtailments Change in estimate Errors Change in classification Business combinations Other long-term employee benefits Termination benefits* Consolidation of employee benefit plans and employee benefit trusts Presentation Future developments Share-based payments Scope Basic recognition principles Classification and definitions # Equity-settled transactions with employees Cash-settled transactions with employees Employee transactions with a choice of settlement 852 f Modifications and cancellations of employee transactions Non-employee transactions Employee benefit trusts Hedging of share-based payment transactions 862 xviii

12 Tax consequences related to share-based payments Transitional requirements Future developments Financial income and expense. _ : Introduction Interest income and expense Impairment Net gains and net losses Dividend income , 4.6:290 Fee income and.expense Capitalisation of borrowing costs # Presentation and disclosure Special topics 5.1 Leases L :2 Segment A Operating segments 5.2A A A A A A A A AM70 5.2A.18O 5.2A.240 Introduction Classification of a lease Accounting for leases Other issues Sale and leasebaek transactions Linked transactions in the legal form of a lease Lease transactions not in the form of a lease Forthcoming requirements Presentation and disclosure Future developments reporting Scope- Identification of reportable segments Definition of segment assets, liabilities, revenue and expenses Segment accounting policies Disclosure Changes in the identification of segments Scope Core principle Management approach Identification of CODM Identification of operating segments Aggregation Reportable segments Remaining operating segments Changes in the composition of operating segments Segment disclosure requirements Effective date and transition requirements XIX

13 5.3 Earnings per share Scope Basic earnings per share Diluted earnings per share Worked example of a basic and diluted EPS calculation Restatement Presentation and disclosure Future developments Non-current assets held for sale and discontinued operations General ' Held for sale Discontinued operations Acquired exclusively with a view to resale Future developments Related party disclosures Scope Identification of related parties*' Disclosure Future developments Financial instruments: presentation and-'disclosure Overview >;. ' Scope* Presentation - general considerations Offsetting Significance of financial instruments for financial position and performance Nature and extent of risks arising from financial instruments Future developments Non-monetary transactions Introduction Exchanges of assets held for use Revenue recognition Donated assets Future developments' Accompanying financial and other information 1029, General ' Non-financial information < Corporate governance Future developments " J 5.9 f Interim financial reporting; Scope Form and content* 1036 JJ Recognition and measurement Accounting policies 1050 xx

14 Future developments Insurance contracts Introduction Scope * Recognition and measurement Insurance contracts acquired in a business combination Contracts with discretionary participation features Presentation and disclosures Issues related to the application of IAS Future developments Extractive activities Scope E&E expenditure Impairment Pre-exploration expenditure Development expenditure Changes in accounting policies Specific application issues Future developments Service concession arrangements Scope Key requirements Worked example Effective date and transition requirements Future developments First-time adoption of IFRSs 6.1 First-time adoption General requirements Prospective application and optional exemptions Mandatory exceptions Estimates Application issues Assets and liabilities in separate and consolidated financial statements Presentation and disclosure Future developments Appendices Appendix I: Currently effective requirements Appendix II: Forthcoming requirements Appendix III Table of concordance (moved paragraphs and changed paragraph numbers) tlndex ^ xxi