Conceptual Framework .............................................................................................................. 2
IAS 37 Provisions, contingent liabilities and contingent assets ................................................. 6
IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.................................. 8
IFRS 13 Fair value measurement ................................................................................................ 9
IAS 2 Inventories....................................................................................................................... 11
IAS 16 Property, Plant and Equipment ..................................................................................... 12
IAS 40 Investment property ..................................................................................................... 14
IAS 38 Intangible assets ............................................................................................................ 16
IAS 36 Impairment of Assets .................................................................................................... 18
IFRS 16 leases ........................................................................................................................... 21
IFRS 15 Revenue from contracts with customers .................................................................... 25
IAS 12 Income taxes ................................................................................................................. 31
IAS 19 Employee Benefits ......................................................................................................... 34
IFRS 2 Share-based payment .................................................................................................... 37
IFRS 9 Financial instruments .................................................................................................... 39
IFRS 10 Consolidated Financial Statements (subsidiaries) ....................................................... 50
IAS 28 Investments in Associates and Joint Ventures .............................................................. 52
IAS 27 Separate Financial Statements ...................................................................................... 53
IFRS 3 Business Combinations .................................................................................................. 54
IAS 21 The effects of Changes in Foreign Exchange Rates ....................................................... 59
,Conceptual Framework
- Basic view on financial reporting
- It is not a standard that companies need to comply with, but most standards are based on
this framework.
The framework thinks in terms of asset and liability approach instead of income statement
approach
- The asset and liability approach is that you start with recognizing and measuring the assets
and liabilities and after calculate the income/expenses based on the changes in assets and
liabilities.
- With the income statement approach you start with recognizing and measuring the income
and matched expenses. After, the value of Assets and liabilities is considered which are
based on the differences between the recognized income and the actual cashflows.
Only items that meet the definition of an asset, liability or equity are recognized in the balance sheet.
Similarly, only items that meet the definition of income and expenses are recognized in statements of
financial performance (FW 5.6)
Definitions
Definition of an asset
An asset is a present economic resource controlled by the entity as a result of past events (FW 4.3).
- Economic resource is a right that has the potential to produce economic benefits (FW 4.4).
So, the three important aspects are:
- Right
o Rights that have the potential to produce economic benefits;
Not necessarily contractual right (e.g. also creating know-how) (FW 4.7)
Economic benefits beyond benefits available to all other parties (FW 4.9)
- Potential to produce economic benefits
o The potential of economic benefits doesn’t have to be certain. It is already sufficient
when at least in one circumstance the right can produce economic benefits(FW 4.14)
- Control
o Ability to direct the use of the economic resource and obtain the benefits that may
flow from it (FW 4.20).
Definition of a Liability
A liability is a present obligation of the entity to transfer an economic resource as a result of past
events (FW 4.26).
The three important aspects are:
- Obligation
o An obligation is a duty or responsibility that the company has no practical ability to
avoid (FW 4.29)
Not necessarily established by contract or legislation (e.g. also by customary
practices) (FW 4.31)
It could be uncertain whether an obligation exists (e.g. in the case of court)
, In this case look at recognition criteria for uncertain liabilities (FW
5.14)
- Transfer of an economic resource
o It does not have to be certain that the entity will be required to transfer an economic
resource. It is only necessary that the obligation exist and that in at least one
circumstance there will be a transfer of economic resource (FW 4.38)
- Present obligation as a result of past events
o This is the case if:
The entity has already obtained economic benefits or taken action; and
As a consequence, the entity will or may have to transfer an economic
resource. (FW 4.43)
Definition of equity
- Equity is the residual interest in the assets after deducting all the liabilities (FW 4.63)
Definition of income and expenses
- Income
o Increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from holders of equity claims (FW 4.68)
- Expenses
o Decreases in assets, or increases in liabilities, that result in decreases in equity, other
than those relating to distributions to holders of equity claims (FW 4.69)
Recognition criteria
Not all items that meet the definition criteria mentioned above are recognized. Items are only
recognized if it provides users of financial statements with information that is useful.
Useful information is relevant information that provides faithful representation of the asset or
liability and resulting income, expenses or changes in equity (FW 5.7).
- Relevance (FW 5.12)
o Information could not be relevant if:
It is uncertain whether an asset or liability exists; or
If the probability of an inflow or outflow of economic benefits is low.
- Faithful representation (FW 5.18)
o Whether a faithful representation can be provided is affected by the level of
measurement uncertainty or by other factors
Do not recognize assets/liabilities with (very) high measurement uncertainty:
If results in unfaithful representation of income, expense, changes in
equity. (very limited circumstances FW 5.22)
Other factor:
If inconsistent with treatment of related assets/liabilities (FW5.25b)
,Measurement
Qualitative characteristics of the useful information and cost constraints result in different
measurement basis for different assets (FW 6.2).
The framework describes the following measurement techniques:
Historical cost:
- The value is derived, at least in part, from the price of the transaction or other events that
gave rise to hem. It does not reflect changes in values, except to the extent that changes
relate to impairment (FW 6.4).
Current value:
Current value measures include updated information to reflect conditions at the measurement date.
The framework describes four current value measures.
- Fair value :
o The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (FW 6.12)
- Value in use (Assets)
o The present value of the cash flows, or other economic benefits, that an entity
expect to derive from the use of an asset and from is ultimate disposal (FW 6.17)
- Fulfilment value (Liabilities)
o The present value of the cash flows, or other economic resources, that an entity
expect to be obliged to transfer as it fulfils a liability (FW 6.17).
- Current cost
o The price that would be paid for an equivalent asset or liability at the measurement
date (including transaction costs) (FW 6.21).
Other comprehensive income
Changes in equity consist of:
- Transactions with owners
- Net profit or loss
- Effect of accounting changes
- Other comprehensive income (OCI)
Total comprehensive income = net profit or loss + OCI
, As the statement of profit or loss is the primary source of information about an entity’s performance,
income and expenses are, in principle, included in that statement. However, income and expenses
could also be recognized in OCI if it results in more relevant information in profit or loss or a more
faithful representation of the financial performance (FW 7.17).
Reclassification adjustments
In principle, income and expenses that are recognized in OCI should be reclassified to profit or loss
when doing so will result in providing more relevant information or providing a more faithful
representation. However, there are exceptions in which items recognized in OCI are not reclassified.
(See FW 7.19)
Recycling example:
1/1 Buy asset for € 100
15/1 Value increase to € 120
30/1 Sell asset for € 120
No recycling
With recycling
IAS 37 Provisions, contingent liabilities and contingent assets ................................................. 6
IAS 8 Accounting Policies, Changes in Accounting Estimates, and Errors.................................. 8
IFRS 13 Fair value measurement ................................................................................................ 9
IAS 2 Inventories....................................................................................................................... 11
IAS 16 Property, Plant and Equipment ..................................................................................... 12
IAS 40 Investment property ..................................................................................................... 14
IAS 38 Intangible assets ............................................................................................................ 16
IAS 36 Impairment of Assets .................................................................................................... 18
IFRS 16 leases ........................................................................................................................... 21
IFRS 15 Revenue from contracts with customers .................................................................... 25
IAS 12 Income taxes ................................................................................................................. 31
IAS 19 Employee Benefits ......................................................................................................... 34
IFRS 2 Share-based payment .................................................................................................... 37
IFRS 9 Financial instruments .................................................................................................... 39
IFRS 10 Consolidated Financial Statements (subsidiaries) ....................................................... 50
IAS 28 Investments in Associates and Joint Ventures .............................................................. 52
IAS 27 Separate Financial Statements ...................................................................................... 53
IFRS 3 Business Combinations .................................................................................................. 54
IAS 21 The effects of Changes in Foreign Exchange Rates ....................................................... 59
,Conceptual Framework
- Basic view on financial reporting
- It is not a standard that companies need to comply with, but most standards are based on
this framework.
The framework thinks in terms of asset and liability approach instead of income statement
approach
- The asset and liability approach is that you start with recognizing and measuring the assets
and liabilities and after calculate the income/expenses based on the changes in assets and
liabilities.
- With the income statement approach you start with recognizing and measuring the income
and matched expenses. After, the value of Assets and liabilities is considered which are
based on the differences between the recognized income and the actual cashflows.
Only items that meet the definition of an asset, liability or equity are recognized in the balance sheet.
Similarly, only items that meet the definition of income and expenses are recognized in statements of
financial performance (FW 5.6)
Definitions
Definition of an asset
An asset is a present economic resource controlled by the entity as a result of past events (FW 4.3).
- Economic resource is a right that has the potential to produce economic benefits (FW 4.4).
So, the three important aspects are:
- Right
o Rights that have the potential to produce economic benefits;
Not necessarily contractual right (e.g. also creating know-how) (FW 4.7)
Economic benefits beyond benefits available to all other parties (FW 4.9)
- Potential to produce economic benefits
o The potential of economic benefits doesn’t have to be certain. It is already sufficient
when at least in one circumstance the right can produce economic benefits(FW 4.14)
- Control
o Ability to direct the use of the economic resource and obtain the benefits that may
flow from it (FW 4.20).
Definition of a Liability
A liability is a present obligation of the entity to transfer an economic resource as a result of past
events (FW 4.26).
The three important aspects are:
- Obligation
o An obligation is a duty or responsibility that the company has no practical ability to
avoid (FW 4.29)
Not necessarily established by contract or legislation (e.g. also by customary
practices) (FW 4.31)
It could be uncertain whether an obligation exists (e.g. in the case of court)
, In this case look at recognition criteria for uncertain liabilities (FW
5.14)
- Transfer of an economic resource
o It does not have to be certain that the entity will be required to transfer an economic
resource. It is only necessary that the obligation exist and that in at least one
circumstance there will be a transfer of economic resource (FW 4.38)
- Present obligation as a result of past events
o This is the case if:
The entity has already obtained economic benefits or taken action; and
As a consequence, the entity will or may have to transfer an economic
resource. (FW 4.43)
Definition of equity
- Equity is the residual interest in the assets after deducting all the liabilities (FW 4.63)
Definition of income and expenses
- Income
o Increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from holders of equity claims (FW 4.68)
- Expenses
o Decreases in assets, or increases in liabilities, that result in decreases in equity, other
than those relating to distributions to holders of equity claims (FW 4.69)
Recognition criteria
Not all items that meet the definition criteria mentioned above are recognized. Items are only
recognized if it provides users of financial statements with information that is useful.
Useful information is relevant information that provides faithful representation of the asset or
liability and resulting income, expenses or changes in equity (FW 5.7).
- Relevance (FW 5.12)
o Information could not be relevant if:
It is uncertain whether an asset or liability exists; or
If the probability of an inflow or outflow of economic benefits is low.
- Faithful representation (FW 5.18)
o Whether a faithful representation can be provided is affected by the level of
measurement uncertainty or by other factors
Do not recognize assets/liabilities with (very) high measurement uncertainty:
If results in unfaithful representation of income, expense, changes in
equity. (very limited circumstances FW 5.22)
Other factor:
If inconsistent with treatment of related assets/liabilities (FW5.25b)
,Measurement
Qualitative characteristics of the useful information and cost constraints result in different
measurement basis for different assets (FW 6.2).
The framework describes the following measurement techniques:
Historical cost:
- The value is derived, at least in part, from the price of the transaction or other events that
gave rise to hem. It does not reflect changes in values, except to the extent that changes
relate to impairment (FW 6.4).
Current value:
Current value measures include updated information to reflect conditions at the measurement date.
The framework describes four current value measures.
- Fair value :
o The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date (FW 6.12)
- Value in use (Assets)
o The present value of the cash flows, or other economic benefits, that an entity
expect to derive from the use of an asset and from is ultimate disposal (FW 6.17)
- Fulfilment value (Liabilities)
o The present value of the cash flows, or other economic resources, that an entity
expect to be obliged to transfer as it fulfils a liability (FW 6.17).
- Current cost
o The price that would be paid for an equivalent asset or liability at the measurement
date (including transaction costs) (FW 6.21).
Other comprehensive income
Changes in equity consist of:
- Transactions with owners
- Net profit or loss
- Effect of accounting changes
- Other comprehensive income (OCI)
Total comprehensive income = net profit or loss + OCI
, As the statement of profit or loss is the primary source of information about an entity’s performance,
income and expenses are, in principle, included in that statement. However, income and expenses
could also be recognized in OCI if it results in more relevant information in profit or loss or a more
faithful representation of the financial performance (FW 7.17).
Reclassification adjustments
In principle, income and expenses that are recognized in OCI should be reclassified to profit or loss
when doing so will result in providing more relevant information or providing a more faithful
representation. However, there are exceptions in which items recognized in OCI are not reclassified.
(See FW 7.19)
Recycling example:
1/1 Buy asset for € 100
15/1 Value increase to € 120
30/1 Sell asset for € 120
No recycling
With recycling
