International Financial Reporting Standards Foundation

Incorporated in the State of Delaware, USA, on 6 February 2001, the International Financial Reporting Standards Foundation (IFRS Foundation) is a not-for-profit charitable organisation with its primary operations based in London.

The governance of the IFRS Foundation rests primarily with its Trustees, who provide oversight of the IASB and its related bodies, the IFRS Interpretations Committee and the IFRS Advisory Council.

(a) Basis of preparation

(b) Contributions

(c) Publications and related revenue

(d) Inventories

(e) Depreciation

(f) Office accommodation - operating leases

(g) Foreign currency translation

(h) Financial instruments

(i) Provisions and contingencies

(j) New standards and interpretations issued

Since 2006, the Trustees have sought to establish national financing regimes, proportionate to a country's relative GDP, that establish a levy on companies or provide an element of publicly supported financing. However, voluntary systems remain in place in some jurisdictions.

Contributions received before 31 December 2012, amounting to £2,695,000 (2011: £2,991,000), which were specifically designated by the contributors for use by the IFRS Foundation in subsequent years, were recognised as current and non-current liabilities, depending upon the designation by the contributor. Contributions received after 31 December 2012, amounting to a total of £1,674,000 (2011: £1,808,000), specifically designated by the contributors for use by the IFRS Foundation in 2012, were recognised as revenues at the end of 2012 and included as contributions receivable.

Separate funding of £613,000 was received for the set-up and operating costs of the Tokyo office; £130,000 has been recognised as other income to offset the current year's costs that commenced 1 October 2012.

The IFRS Foundation had an average of 127 employees (including IASB members and interns) during 2012 (2011: 125).

The Trustees Human Capital Committee is responsible for reviewing, bench-marking and making recommendations on salary and benefit levels. These recommendations are reviewed and approved annually by the Trustees as a whole. Effective April 2012, the Trustees approved annual remuneration levels resulting in the following gross salaries: £537,800 for the IASB Chair (2011: £527,200); £474,100 for the IASB Vice Chair (2011: £ 464,900), and; an average of £440,200 for other full-time members (2011: £435,200).

The Trustees are remunerated by an annual fee and are reimbursed for the expenses of their travel on IFRS Foundation business; there were 21 Trustees in 2012 (2011: 20). In 2012 the fee for the Chair of the Trustees was £200,000 (2011: £100,000 for Acting Co-Chairs of the Trustees). The mix of annual fees for the other Trustees changed during 2012 to a fixed fee of £20,000 with an additional £7,000 paid to the committee chairs; the change maintains these fees at the prior year level. Previously, other Trustees received a fixed fee of £12,500 and an attendance fee of £1,000 for each formal meeting.

(b) Lease commitments

Lease commitments relate to operating leases for office space with lease terms expiring in September 2018 in London and 2022 in Tokyo, and with options to extend for a further 10 years in London. All operating lease contracts contain market review clauses. Payments on the leases, excluding service charges and property rates, are as follows:

Since 2001 the IFRS Foundation has rented office space at 610 Fifth Avenue, New York, USA. The only obligation incurred in this regard relates to payment of on-going rent and a provision of 90 days' notice of termination.

The IFRS Foundation is committed to make payments to cover the cost of reinstating the London building when the lease expires in September 2018 and the Tokyo building when the lease expires in September 2022. The estimated amount assumes that the London reinstatement work would take place in 2018, subject to the option to extend the lease for a further 10 years, which could affect the timing of any outflow.

For accounting purposes, the IFRS Foundation categorises its financial instruments based on their measurement, namely financial instruments at fair value through profit or loss or financial instruments at amortised cost.

The IFRS Foundation measures all other financial instruments at amortised cost. The carrying amount of these instruments is a reasonable approximation of their fair value. These financial instruments include:

• Financial assets: cash and cash equivalents; contributions receivable; and publication related receivables.
• Financial liabilities: trade and other payables; and contributions received in advance.

The IFRS Foundation's activities and holdings of financial instruments, expose it to financial risks namely liquidity, interest rate, credit and currency risks. This note describes the organisation's objectives, policies and processes for managing those risks and the methods used to measure them.

(a) Liquidity and interest rate risk
The IFRS Foundation manages its working capital to ensure sufficient cash resources are maintained to meet short-term liabilities. The IFRS Foundation has no bank borrowings.

Cash holdings: Management seeks to keep an amount in cash equal to or exceeding the upcoming quarter's expenditure. Cash is held either on current or on short-term deposits at floating rates of interest. Part of the cash at bank is held in Euros, Japanese Yen and US Dollar accounts.

Bond holdings: The Trustees have invested surplus funds of the IFRS Foundation in sterling-denominated, fixed rate bonds of international organisations, with AAA ratings at the time of purchase; these funds are reserves for continuing operations. The IFRS Foundation manages and receives information, from its advisors, on its investments in bonds on a fair value basis that includes value changes attributable to interest rate risk. Information is provided on that basis to the Trustees and key management personnel. Bond values are quoted on active markets (described as level 1) and can be converted into cash if necessary.

b) Credit risk
The IFRS Foundation is not exposed to material credit risk as investments are with highly rated and established institutions and contributions are due primarily from large regulatory or governmental bodies. For publications and subscriptions sales the IFRS Foundation generally does not offer credit. For licensing and royalty arrangements some credit risk arises. If accounts receivable are unpaid six months or more after the invoice date, the IFRS Foundation considers the amount impaired and recognises a bad debt provision. At 31 December 2012 the amount provided for was £55,000 (2011: £19,000).

(c) Foreign currency risk
The IFRS Foundation's expenses arise largely in sterling, whereas the organisation receives funding and future financing commitments, under various funding regimes, primarily in US Dollars and Euros. Some expenses are incurred and paid in US Dollars and Euros after which the net contributions in those currencies are exchanged for sterling. This exposes the organisation to currency risk.

The Trustees have implemented a strategy to mitigate the foreign exchange fluctuations and timing risks connected with these expected future net contributions. The IFRS Foundation generally forward sells approximately 90 per cent of its expected net US Dollar contributions and 50 per cent of its expected net Euro contributions to fix a sterling equivalent. Foreign currency is sold forward on a two-year rolling basis. See note 12 for more information on the fair value of these forward contracts.

As at 31 December 2012 the IFRS Foundation had sold forward, on a two-year rolling basis, US Dollar $25,300,000 at a weighted average rate of 1.602 (2011: $24,650,000 at a weighted average rate of 1.589). It had also sold forward, on a two-year rolling basis Euro €6,600,000 at a weighted average rate of 1.186 (2011: €6,600,000 at a weighted average rate of 1.151).

All non-current forward contracts expire in 2014 (2011: expire in 2013).

(d) Foreign currency sensitivity
As a result of its use of forward contracts as described above, the IFRS Foundation is exposed to the currency risk associated with the remaining 10 per cent of projected net US Dollar contributions and 50 per cent of projected net Euro contributions that are not covered by the forward contracts.

A potential 10 per cent increase in average exchange rates for sterling would have produced estimated losses on the remaining 10 per cent of actual net US Dollar contributions received during the year of £130,000 and on the remaining 50 per cent of actual net Euro contributions received during the year of £290,000. To the extent that projected contributions in either currency change, the IFRS Foundation actively manages the amount of each currency forward sold.

For US tax purposes, the IFRS Foundation is classified as a not-for-profit, tax-exempt organisation.

In 2006 the IFRS Foundation reached an agreement with the UK authorities regarding the status of taxation on its publications and related revenues. For 2012 the taxation expense is calculated on this basis, and is estimated to be £0 (2011: £0). On the basis of activity for 2012 and from previous years, at the end of 2012 the IFRS Foundation is carrying forward a loss for UK tax purposes of £3,626,000 (2011: £2,728,000). Consistently with IAS 12 Income Taxes, the IFRS Foundation does not recognise this loss as a deferred tax asset, because of the uncertainty of being able to utilise these losses in the future.

In May 2011 the UK tax authority (HMRC) began a review of the IFRS Foundation's records related to the employment taxation of staff and secondees from other jurisdictions, as well as for other more general taxation matters. Because of time-limited nature of their inquiry, the HMRC requested and the IFRS Foundation agreed to make payments on account of £76,000 (2011: £24,000), on a without prejudice basis pending final resolution and settlement.

During 2012 the HMRC agreed with the IFRS Foundation's position on one of the significant outstanding issues; as a result, a reduction in provision of £290,000 has been recognised in the statement of comprehensive income. Discussions are progressing on the remaining issue and a final liability has not been assessed by the HMRC. An estimated remaining cost of £170,000 (2011: £460,000) has been provided and the net liability after payments on account amounts to £94,000 (2011: £436,000).

These financial statements were approved by the Trustees of the IFRS Foundation on 10 April 2013 and authorised for issue on 10 April 2013, and at that date there were no significant events after the reporting period.