All you need to know in regards to the Revenue topic (1/7) within the Corporate Reporting Advanced Level exam. Easy to use checklists perfect for the open book exam. The hard work has already been done for you!
[1] IFRS 8 Operating Segments
AIM: To disclose information to users of financial statements to enable them to
evaluate the nature and effects of business activities and the economic
environment in which the business operates.
EXAMPLE 1: OPERATING SEGMENTS
IFRS 8 states that an operating segment is separately reportable if it has been identified as a separate
operating segment meeting the operating segment defintion, and:
- its reported revenue is 10% or more of the combined revenue (external and itnernal) of all operating
segements, or
- the absolute amount of its reported profit or loss is 10% or more of the greater of the combined
profit of all operating segments that did not report a loss and the combined reported loss of all
operating segments that reported a loss, or
- its assets are 10% or more of the combined assets of all operating segments.
Profit and loss (as
positive) added together
= £29m
- At 31-Dec-X5 four out of the six operating segments are reportable operating segments.
- The Pharmaceutical retail segment is not separately reportable, as it does not meet the quantitative
thresholds. It can, however, still be reported as a separate operating segment if management believes
that information about the segment would be useful to users of the FS's. Similarly, the cosmetics
segment could also amalgamate with the Body care segment.
- Alternatively, the group could consider amalgamating it with the Pharmaceuticals wholesale
segment, providing the two operating segments have similar economic characteristics and share a
majority of the 'aggregation; criteria which, excluding the type of customer, may be the case.
Otherwise it would be disclosed in an 'All other segments' column.
- IFRS 8 states that at least 75% of total external revenue must be reported by operating segments.
This condition has been met, as the reportable segments account for 82% of total external revenue.
, [2] IFRS 24 Related Party Disclosures "X is a supplier and although there is significant interdependence between Co A and X, X is not
a related party of Co A."
RPT - A transfer of resources, services or obligations between a reporting entity and a
related party, regardless of whether a price is charged.
RP - A person or entity that is related to the entity that is preparing its FS's.
Q1: "On 1-Apr-X1 Co A made a loan of CU2m to one of the directors of the Co, who also
happens to be a prominent politician. I do not expect any of this sum to be recoverable, but it
would be politically embarrassing to disclose this in the FSs. The loan has been included in TR
and no adjustments have been made. On the grounds of materiality, the board is very keen to
exclude any reference to the loan."
Director's loan
- Given the issues in terms of recoverability of the loan, it should be written off and removed
from TR. This will also result in an expense in profit or loss.
- As the loan is to a director, it is likely to be treated as a RPT, and as such should be disclosed in
the notes to the FS's. The writing off of the loan should also be disclosed.
- There are likely to be current tax implications of this loan write off and the Utopian tax
treatment of this would need to be ascertained.
--> FOR SOFP: Remove 2.0 from accounts receivable under CA, Remove 2.0 from 'loss since acqn'
under equity
Ethical issues
- The loan to the director should be investigated to see if it is legal in accordance with
Utopian company law. It is advisable to seek expert advice on this issue.
- On a separate issue it would be unethical to disregard the rules in relation to IAS 24 in
respect of RPT. I would expect that Co A's auditors will insist that the transaction is disclosed
in the notes to the FS's.
- The board's wish that the loan is not disclosed on the grounds of immateriality is irrelevant;
materiality is determined by nature in RPT rather than value.
Q2: "I have reviewed the Co A draft annual report and I believe that the related party
disclosures may be incomplete. The only RPT identified is the remuneration paid to Co A
directors, which we have already audited. However, I know that Co A CEO, has other business
interests and I am therefore concerned that there may be other transactions to disclose."
"CEO - 50% SH, CEO's wife: 25%"
"I discussed this invoice with FD who referred me to CEO, as supplier A is owned by CEO and
his brother."
Completeness of RP disclosures
- IAS 24 sets out details of what constitutes a RP and what needs to be disclosed.
- There are several related parties and transactions which may require disclosure in the FS's.
Further audit procedures need to be undertaken to identify these before recommendations
can be made.
- Supplier A is owned by CEO and his brother but it is not clear from X's work whether CEO,
CEO's wife and /or their close family members control or have significant influence over the
company. This information should be sought from CEO or from independent sources.
- If they do control it then supplier A will be a related party (as CEO and CEO's wife are key
members of management of Co A) and the nature of the relationship, along with details of
transactions and balances must be disclosed.
- The share option scheme (to key management) is also a RPT.
"There are several related parties and transactions which may require disclosure in the FS.
Further audit procedures need to be undertaken to identify these before recommendations
can be made."
, [3.1] IFRS 1: First-time adoption of international financial reporting standards
AIM: To provide transparent information to ensure comparability and create a starting point for accounting under IFRS
[3.2] IAS 34: Interim financial reporting
AIM: To provide users with more up to date and timely information
IAS 34 requires the same recognition and measurement principles to
apply the preparation of the interim FS as at the YE. Therefore,
although ultimately the sales will be recognised in the year to 31-Dec-
X4, no revenue should be recognised in the 6-months to 30-Jun-X4 in
respect of devices as delivery will take place in Aug-X4.
IAS 19 encourages the use of a professionally qualified actuary in the
measurement of the plan's defined benefit obligations. For interim
purposes, IAS 24 states that reliable estimates may be obtained by
extrapolation of the latest actuarial valuations.
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