This document contains a summary from work done from the Introduction to IFRS 8th edition textbook by Koppeschaar et al as well as lecture notes and examples. It encompasses Learning Area 1 - 10
Contents
LA 1: Chapter 1: Conceptual Framework for Financial Reporting ..................... 2
LA 2: Chapter 2: Presentation of financial statements – IAS 1............................. 7
LA 3: Chapter 10: Revenue from contracts with customers – IFRS 15 ............... 14
LA 4: Chapter 3: Inventories – IAS 2 ...................................................................... 20
LA 5: Chapter 8: Property, plant and equipment ............................................... 32
LA 6: Income Taxes (IAS 12) .................................................................................. 41
LA 7: Impairment of Assets (IAS 36) ...................................................................... 52
LA 8: Intangible Assets (IAS 38) ............................................................................. 59
LA 9: Investment Property (IAS 40) ........................................................................ 65
LA 10: Changes in accounting estimates and errors (IAS 8) ............................. 69
1
,LA 1: Chapter 1: Conceptual Framework for Financial Reporting
1. OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING
General Report that provides financial information about
purpose Economic resources
financial Claims against entity
report Changes in economic resources
Useful in making decisions about
Buying/ selling/ holding equity/ debt instruments
Providing/ settling loans/ other forms of credit
Exercising vote on management’s actions
Expectations about returns are based on
Assessment of amount/ timing/ uncertainty
Assessment of management’s stewardship
Primary users
Existing/ potential investors/ lenders/ other creditors
GPFR not intended for management/ regulators
IASB objective: meet needs of max number of users
GPFR used to estimate value of reporting entity
Objective Provide financial information about the reporting entity
In making decisions relating to providing resources to entity
Accrual Depicts effects of transactions on economic resources
accounting in the periods in which those occur
Even if cash receipts/ payments occur in a different period
2. QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL
INFORMATION
Fundamental Relevance
characteristics Information that is useful
Has ability to make difference in decisions
Helps evaluate past/ present/ future events
Confirms/ corrects past evaluations
Has predictive/ confirmatory value
Materiality: entity-specified aspect based on nature/
magnitude of items to which information relates
Faithful representation
Provides information about substance of an economic
phenomena/ its economic reality
Characteristics
1. Completeness
Includes all information a user would need
To be able to understand economic events/ transactions
Include all necessary descriptions/ explanations
2. Neutrality
Without bias
2
, Not slanted/ weighted/ emphasized/ manipulated
To increase probability that information will be received
favourably/ unfavourably
3. Free from error
Process followed to provide reported information has been
selected/ applied without errors
Enhancing Comparability
characteristics Not uniformity
Consistency helps achieve goal of comparability
Disclosure of accounting policies assists readers to
compare policies of different entities
Statements can be analysed to evaluate performance
Verifiability
Enables users to confirms information represents events/
transactions it purports to present
When different knowledgeable/ independent observers
reach consensus on faithful representation
Direct – counting cash/ indirect – confirmation of inputs
used in calculation of closing balance of inventory
Timeliness
Can influence decision of users
Older information is less useful – except when used for
assessing trends
Understandability
Understandable to average user who has reasonable
knowledge of business
Information shouldn’t be excluded because it may be too
complex
3. FINANCIAL STATEMENTS AND REPORTING ENTITY
Objective Provide financial information about
Entity’s assets/ liabilities/ equity/ income/ expenses
Reporting Assets/ liabilities/ equity existed at end of reporting period
period Income/ expenses for the period
Information occurring after reporting period is provided if
necessary to meet objective
Comparative information provided at least one preceding
reporting period
Perspective Events viewed from perspective of reporting entity
Important for non-controlling interests in a group
Going Assumption that entity will continue operation for
concern foreseeable future – no intention/ need to enter liquidation
assumption
The reporting Required/ chooses to prepare financial statements
entity Single/ portion of/ more than one entity
Not necessarily legal entity
Unconsolidated statements
Reporting entity is parent company alone
3
, Consolidated statements
Reporting entity comprises of parent and subsidiary
Combined statements
2+ entities that are not all linked by parent-subsidiary
relationship
Boundary is driven by information needs – to achieve this
Boundary doesn’t include arbitrary/ incomplete info
Economic activities within boundary includes neutral info
Explanation is provided as to how boundary was
determined
4. ELEMENTS OF FINANCIAL STATEMENTS
Asset Definition
Present economic resource controlled by the entity as a
result of past events
Economic resource: right that has potential to produce
economic benefits
Rights
Economic resource is seen as set of rights
Rights that correspond (and don’t) to obligation of another
party
Established by contract/ legislation
Each right could be a separate asset
Right to use/ sell/ pledge an object
Potential to produce economic benefits
Necessary for right to already exist
Value is derived from present potential to produce future
economic benefits
Control
Links a right to an entity
Encompasses a power/ benefits element
Entity mist direct how resource is used/ obtain benefit
Ability to prevent other party from directing use of
economic resource
As a result of past events
Event that happened that lead entity to obtain control of
economic resource
Recognition criteria
Relevant information
Recognition may not provide relevant info if
The probability of an inflow of economic benefits is low
Faithful representation
May be affected by level of measurement uncertainty
Liability Definition
4
, Present obligation of entity to transfer an economic
resource as a result of past events
Obligation is a duty/ responsibility that an entity has no
practical ability to avoid
Obligation
Established by contract/ legislation
Legally enforceable by party to who they are owed
Arise from customary practices/ published policies/ specific
statements
To transfer an economic resource
Necessary that obligation exists and
Would require entity to transfer an economic resource
E.g. obligations to pay cash
Deliver goods/ provide services
As a result of past events
Only if:
Entity has already obtained economic benefits
Entity will have to transfer an economic resource
Recognition criteria
Relevant information
Recognition may not provide relevant information if
Probability of outflow of economic benefits is low
Faithful representation
May be affected by level of measurement uncertainty
Equity = Assets - liabilities
Income and Income Definition
Expenses Increase in assets/ decrease in liabilities
That result in increases in equity
Except contributions from owners
Expenses Definition
Decreases in assets/ increase in liabilities
That result in decreases in equity
Except distributions to owners
Recognition
Relevance
Probability of inflow/ outflow of economic benefits is low
Faithful representation
Affected by level of measurement uncertainty
5. DERECOGNITION
Definition Removal of all/ part of a recognized asset/ liability from
entity’s statement of financial position
Asset: When entity lost all control/ part of recognized asset
Liability: When entity no longer has present obligation for
all/ part of recognized liability
5
,Represents Control approach: Any assets/ liabilities retained after the
transaction/ event that led to derecognition
Risks-and-rewards approach: The change in entity’s assets/
liabilities as a result of transactions
6. PRESENTATION AND DISCLOSURE
Classification Assets and liabilities
Offsetting
Where entity recognizes/ measures an asset/ liability as
separate units
But groups them into single net amount in statement of
financial position
Equity
Classify components separately if they are subject to
particular legal/ regulatory requirements
Income and expenses
Included in statement of profit/ loss or in other
comprehensive income
Aggregation Adding together of assets/ liabilities/ equity that have
shared characteristics
1. OBJECTIVE AND COMPONENTS OF FINANCIAL STATEMENTS
Objective Provide information about:
Financial position
Financial performance
Cash flows of entity
That is useful to users when making economic decisions
Comprises of 1. Statement of financial position
2. Statement of profit/ loss and other comprehensive income
3. Statement of changes in equity
4. Statement of cash flows
5. Notes to financial statements
6. Comparative info from preceding period
7. Earliest statement of financial position
Financial Main factors that influence performance
overview Entity’s policy regarding maintenance/ enhancement of
includes performance
Dividends policy
Sources of funding
Gearing/ risk management policy
Strength/ resources of entity
Changes in environment – reaction and effect
2. GENERAL FEATURES
Fair Faithful representation:
presentation Characteristic of financial report
and that will reassure users
compliance they can rely on information contained therein
with IFRSs to faithfully represent economic circumstances/ events
they purport/ are expected to represent
Must be appropriately measured/ recognized in accordance with
relevant standards
Non-compliance:
When departure is necessary, the following is considered:
why objective of financial statements is not achieved
way entity’s circumstances differ from others
When departure is permitted, following must be disclosed:
management has concluded that financial statements
fairly present entity’s financial position/ financial
performance/ cash flows
financial statements comply with all other applicable
Standards and Interpretations
Standard/ Interpretation from which entity has departed
Reason why treatment would be misleading
Treatment adopted
7
, Financial impact of departure
When departure is prohibited but conflicts with objectives,
following must be disclosed:
Title of Standard/ Interpretation
Nature of requirement
Reason management has concluded compliance is
misleading and in conflict with objectives
Adjustments to each item in financial statements necessary
to achieve fair presentation
Going Assumed that entity will continue to exist in foreseeable
concern future
Takes information for at least 12 months from end of
reporting period into consideration
Existence of material uncertainties about possibilities of
going concern problem should be disclosed
Effects valuation of assets/ liabilities
Following should be disclosed:
Existence of material uncertainties about possibilities of
going concern problem should be disclosed
Existence of material uncertainties
Liquidation valuation method
Provision for liquidation expenses
Reason why entity is no longer a going concern
Accrual basis Elements of financial statements are recognized when they
meet recognition/ definitions criteria
Transactions are accounted for when they occur – not
when cash is received/ paid
Materiality Each material class should be presented separately (reference to
and size and nature)
aggregation
Offsetting Entity shall not offset assets/ liabilities/ income/ expenses unless
requires/ permitted by IFRS
Frequency Financial statements should be published at least annually
and reporting If not, the following should be provided:
Reason
Fact that amounts in various components are not
comparable
Comparative Entity shall present as a minimum:
information 2 of all financial statements
Related notes
Additional comparative information
Must present 3rd statement of financial position in following
circumstances:
Retrospective application of a change in accounting
policy
Retrospective restatement of items in statements
Reclassification of items in statements
The above has material effect on financial statements
8
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