Contents
| The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs Accounting Standard) is set out in Sections 1–35 and Appendices A–B. Terms defined in the Glossary are in bold type the first time they appear in each section, as appropriate. The IFRS for SMEs Accounting Standard is accompanied by a preface, a basis for conclusions and illustrative financial statements. |
IFRS for SMEs Accounting Standard
Introduction
Overview of the amendments in the third edition of the Standard
Table 1 lists the amendments by section of the IFRS for SMEs Accounting Standard. Editorial and minor consequential amendments are only listed for sections with no substantive amendments.
Table 1—Overview of the amendments in the third edition of the Standard
| Section | Subject of amendment | ||||||||||||||||||||||
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| Preface to the IFRS for SMEs Accounting Standard |
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| Section 1 Small and Medium-sized Entities |
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| Section 2 Concepts and Pervasive Principles |
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| Section 3 Financial Statement Presentation |
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| Section 4 Statement of Financial Position |
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| Section 5 Statement of Comprehensive Income and Income Statement |
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| Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings |
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| Section 7 Statement of Cash Flows |
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| Section 8 Notes to the Financial Statements |
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| Section 9 Consolidated and Separate Financial Statements |
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| Section 10 Accounting Policies, Estimates and Errors |
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| Section 11 Financial Instruments |
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| Section 12 Fair Value Measurement |
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| Section 13 Inventories |
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| Section 14 Investments in Associates |
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| Section 15 Joint Arrangements |
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| Section 16 Investment Property |
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| Section 17 Property, Plant and Equipment |
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| Section 18 Intangible Assets other than Goodwill |
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| Section 19 Business Combinations and Goodwill |
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| Section 20 Leases |
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| Section 21 Provisions and Contingencies |
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| Section 22 Liabilities and Equity |
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| Section 23 Revenue from Contracts with Customers |
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| Section 24 Government Grants |
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| Section 25 Borrowing Costs |
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| Section 26 Share-based Payment |
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| Section 27 Impairment of Assets |
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| Section 28 Employee Benefits |
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| Section 29 Income Tax |
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| Section 30 Foreign Currency Translation |
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| Section 31 Hyperinflation |
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| Section 32 Events after the End of the Reporting Period |
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| Section 33 Related Party Disclosures |
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| Section 34 Specialised Activities |
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| Section 35 Transition to the IFRS for SMEs Accounting Standard |
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| Appendix A Effective date and transition |
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| Appendix B Glossary of terms |
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Preface to the IFRS for SMEs Accounting Standard
P1 | This Preface sets out the scope and authority of the IFRS for SMEs Accounting Standard and describes how the Standard is maintained. |
P2 | The International Accounting Standards Board (IASB) was established in 2001. The IASB was preceded by the board of the International Accounting Standards Committee. |
P3 | Full IFRS® Accounting Standards and the IFRS for SMEs Accounting Standard are developed through an international due process set out in the IFRS Foundation’s Due Process Handbook. |
Scope and authority of the IFRS for SMEs Accounting Standard
P4 | The IFRS for SMEs Accounting Standard is designed to apply to the general purpose financial statements and other financial reporting of profit-oriented entities that jurisdictions often refer to as small and medium-sized entities, private entities or non-publicly accountable entities. |
P5 | Other financial reporting comprises information provided outside financial statements that assists in the interpretation of a complete set of financial statements or improves users’ ability to make efficient economic decisions. |
P6 | Profit-oriented entities include those engaged in commercial, industrial, financial and similar activities, whether organised in corporate form or in other forms. |
P7 | The term small and medium-sized entities (or SMEs) as used by the IASB is defined and explained in Section 1 Small and Medium-sized Entities. Many jurisdictions have developed their own definitions of SMEs for a broad range of purposes, including prescribing financial reporting requirements. Definitions that are specific to a particular jurisdiction often include quantified criteria based on revenue, assets, employees or other factors. Furthermore, the term SMEs is often used to mean or to include very small entities, without regard to whether they publish general purpose financial statements for external users. |
P8 | The IFRS for SMEs Accounting Standard sets out recognition, measurement, presentation and disclosure requirements for transactions and events that are important in general purpose financial statements. It also sets out such requirements for transactions and events that arise mainly in specific industries. |
P9 | The IFRS for SMEs Accounting Standard is based on full IFRS Accounting Standards with modifications to reflect the needs of users of SMEs’ financial statements and to reflect cost–benefit considerations relevant for SMEs and the users of their financial statements. |
General purpose financial statements of SMEs
P10 | The objective of a small or medium-sized entity’s general purpose financial statements is to provide financial information about a reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity. |
P11 | SMEs often produce financial statements only for the use of owner-managers or only for the use of tax authorities or other governmental authorities. Financial statements produced solely for those purposes are not necessarily general purpose financial statements. |
P12 | Tax laws are specific to each jurisdiction, and the objectives of general purpose financial statements differ from the objectives of reporting taxable profit. Thus, financial statements prepared in conformity with the IFRS for SMEs Accounting Standard are unlikely to comply fully with all of the measurements required by a particular jurisdiction’s tax laws and regulations. A jurisdiction may be able to lessen the dual reporting burden on SMEs by requiring or permitting an entity’s tax reports to be structured as reconciliations from the profit or loss determined in accordance with the IFRS for SMEs Accounting Standard or by other means. |
Authority of the IFRS for SMEs Accounting Standard
P13 | Decisions on which entities are required or permitted to use full IFRS Accounting Standards or the IFRS for SMEs Accounting Standard rest with the legislative and regulatory authorities and standard-setters in individual jurisdictions. However, a clear definition of the class of entity for which the IFRS for SMEs Accounting Standard is intended—as set out in Section 1 of the Standard—is essential so that:
A clear definition is also essential so that entities that are not small or medium-sized entities—as set out in Section 1 of the Standard—and therefore are not eligible to use the IFRS for SMEs Accounting Standard, do not assert that their financial statements are in compliance with the Standard (see paragraph 1.5). |
Organisation of the IFRS for SMEs Accounting Standard
P14 | The IFRS for SMEs Accounting Standard is organised by topic, with each topic presented in a separate numbered section. Cross-references to paragraphs are identified by section number followed by paragraph number. Paragraph numbers are in the form xx.yy, in which xx is the section number and yy is the sequential paragraph number within that section. In examples that include monetary amounts, the measuring unit is Currency Units (abbreviated as CU). |
P15 | All of the paragraphs in the IFRS for SMEs Accounting Standard have equal authority (except as specified in paragraph 2.2). Some sections include appendices of application guidance, which are an integral part of the section, and some sections include appendices of illustrative examples, which accompany but are not part of the section. Appendices A and B are an integral part of the Standard. The definitions in the Glossary in Appendix B are integral to the sections in which the terms appear. |
Maintenance of the IFRS for SMEs Accounting Standard
P16 | The IASB expects to propose amendments to the IFRS for SMEs Accounting Standard by publishing an exposure draft periodically, but not more frequently than approximately once every three years. In developing those exposure drafts, the IASB expects to consider new and amended full IFRS Accounting Standards as well as specific issues that have been brought to its attention regarding the application of the IFRS for SMEs Accounting Standard. On occasion, the IASB may identify an urgent matter for which amendment of the IFRS for SMEs Accounting Standard may need to be considered outside the periodic review process. However, such occasions are expected to be rare. |
P17 | Until the IFRS for SMEs Accounting Standard is amended, any changes that the IASB may make or propose with respect to full IFRS Accounting Standards do not apply to the IFRS for SMEs Accounting Standard. The IFRS for SMEs Accounting Standard is a stand-alone document. SMEs shall not anticipate or apply changes made to full IFRS Accounting Standards before the IFRS for SMEs Accounting Standard is amended unless, in the absence of specific guidance in the IFRS for SMEs Accounting Standard, an SME chooses to apply guidance in full IFRS Accounting Standards and those principles do not conflict with requirements in the hierarchy set out in paragraphs 10.4–10.5. |
Section 1 Small and Medium-sized Entities
Intended scope of this Standard
1.1 | The IFRS for SMEs Accounting Standard is intended for use by entities without public accountability, which are referred to as small and medium-sized entities (SMEs) in this Standard. This section describes the characteristics of SMEs. |
Description of small and medium-sized entities
1.2 | Small and medium-sized entities are entities that:
Examples of external users include existing and potential investors, lenders and other creditors, and credit rating agencies. |
1.3 | An entity has public accountability if:
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1.4 | Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organisations, co-operative enterprises requiring a nominal membership deposit and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable. |
1.5 | If a publicly accountable entity applies this Standard, its financial statements shall not be described as conforming to the IFRS for SMEs Accounting Standard—even if a law or regulation in that entity’s jurisdiction permits or requires this Standard to be used by publicly accountable entities. |
1.6 | A subsidiary whose parent applies full IFRS Accounting Standards, or that is part of a consolidated group that applies full IFRS Accounting Standards, is not prohibited from applying this Standard in its own financial statements if that subsidiary by itself does not have public accountability. If its financial statements are described as conforming to the IFRS for SMEs Accounting Standard, it must comply with all of the requirements of this Standard. |
1.7 | A parent entity (including the ultimate parent or any intermediate parent) assesses its eligibility to apply this Standard in its separate financial statements on the basis of its own status without considering whether other group entities have, or the group as a whole has, public accountability. If a parent entity by itself does not have public accountability, it may present its separate financial statements in accordance with this Standard (see Section 9 Consolidated and Separate Financial Statements), even if it presents its consolidated financial statements in accordance with full IFRS Accounting Standards or another set of generally accepted accounting principles (GAAP), such as its national accounting standards. Any financial statements prepared in accordance with this Standard shall be clearly distinguished from financial statements prepared in accordance with other requirements. |
Section 2 Concepts and Pervasive Principles
Scope of this section
2.1 | This section describes the objective of financial statements of small and medium-sized entities (SMEs). It also sets out the concepts and basic principles underlying the financial statements of SMEs. |
2.2 | The concepts and principles in this section might not always align with the requirements in other sections of the Standard. In those cases, the requirements in the other sections take precedence over the concepts and principles in this section. |
The objective of financial statements of small and medium-sized entities
Objective, usefulness and limitations of general purpose financial statements
2.3 | The objective of an entity’s general purpose financial statements is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors when making decisions related to providing resources to the entity.1 |
2.4 | Useful information about a reporting entity includes information about:
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2.5 | However, general purpose financial statements do not and cannot provide all the information that existing and potential investors, lenders and other creditors consider when making decisions. These users of an entity’s general purpose financial statements (users) also consider pertinent information from other sources—for example, general economic conditions and expectations, political events, and industry and company outlooks.2 |
Information about a reporting entity’s economic resources, claims against the entity and changes in resources and claims
2.6 | General purpose financial statements provide information about an entity’s financial position, specifically about the entity’s economic resources and the claims against the entity. Financial statements also provide information about the effects of transactions and other events that change the entity’s economic resources and claims. Users use this information to make decisions and form expectations based on their assessment of the amount, timing and uncertainty of the entity’s future cash flows. |
2.7 | Financial statements also show how efficiently and effectively the reporting entity’s management has met its responsibility to use the entity’s economic resources. This information helps users assess management’s stewardship of those resources. |
Qualitative characteristics of information in financial statements
2.8 | An entity uses the qualitative characteristics of useful financial information described in paragraphs 2.9–2.24 to identify the types of information likely to be most useful for users when making decisions about the entity. |
2.9 | Financial information is useful only if it is relevant and faithfully represents what it purports to represent. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and understandable. |
Fundamental qualitative characteristics
2.10 | The fundamental qualitative characteristics of financial information are relevance and faithful representation. |
Relevance
2.11 | Financial information is relevant if it can influence users’ decisions. Information might be relevant even if some users choose not to make use of it or are already aware of it from other sources. |
2.12 | Financial information can affect users’ decisions by having predictive value, confirmatory value or both. |
Materiality
2.13 | Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Materiality is an entity-specific aspect of relevance based on the nature or magnitude, or both, of the items to which the information relates in the context of the entity’s financial statements. Consequently, the IASB cannot specify a uniform quantitative threshold for materiality or predetermine what information might be material in a particular situation. |
Faithful representation
2.14 | Financial statements represent economic phenomena in words and numbers. Useful financial information not only represents relevant phenomena, but also faithfully represents the substance of the phenomena that it purports to represent. In many circumstances, the substance of an economic phenomenon and its legal form are the same. If they are not the same, information about the legal form would not, by itself, faithfully represent the economic phenomenon. |
2.15 | To be a perfectly faithful representation, a depiction of an economic phenomenon would have three characteristics: completeness, neutrality and freedom from error. Perfection is rarely, if ever, achievable. Instead, the IASB’s objective is to maximise those qualities to the extent possible. |
2.16 | To be complete, a depiction of an economic phenomenon includes all information necessary for a user to understand the phenomenon, including all necessary descriptions and explanations. |
2.17 | To be neutral, a depiction of an economic phenomenon is without bias in the selection or presentation of financial information. Neutrality is supported by prudence, which is the exercise of caution when an entity makes judgements under conditions of uncertainty. The exercise of prudence means that assets and income are not overstated and liabilities and expenses are not understated. Equally, prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses. Such misstatements can lead to the overstatement or understatement of income or expenses in future periods. Consequently, some sections of this Standard might contain asymmetric requirements if necessary to help an entity select the most relevant information that faithfully represents what it purports to represent. |
2.18 | Faithful representation does not mean the depiction of an economic phenomenon is accurate in all respects. To be free from error, a depiction of the phenomenon contains no errors or omissions, and an entity has selected and applied, without errors, a process to produce the information in the financial statements. |
Applying the fundamental qualitative characteristics
2.19 | The most efficient and effective process by which an entity applies the fundamental qualitative characteristics of financial information, subject to the effects of enhancing characteristics (see paragraph 2.20) and the cost constraint (see paragraphs 2.25–2.27), is usually:
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Enhancing qualitative characteristics
2.20 | Comparability, verifiability, timeliness and understandability are qualitative characteristics that enhance the usefulness of relevant information that provides a faithful representation of what it purports to represent. These enhancing qualitative characteristics might also help an entity decide how it depicts an economic phenomenon if the entity judges that more than one way provides equally relevant information and an equally faithful representation of that phenomenon. |
Comparability
2.21 | Information about an entity is more useful if users can compare that information with similar information about other entities and with similar information about the same entity for another period or another date. Comparability is the qualitative characteristic that enables users to identify and understand similarities in, and differences between, items. Comparability is reduced if entities are permitted to use alternative accounting methods for the same phenomenon. |
Verifiability
2.22 | Verifiability helps assure users that information faithfully represents the phenomenon it purports to represent. Verifiability means that knowledgeable and independent observers could reach consensus, although not necessarily complete agreement, that a particular depiction is faithful. Quantified information does not have to be a single point estimate to be verifiable; a range of possible amounts and the related probabilities can also be verified. |
Timeliness
2.23 | Timeliness means having information available to decision-makers in time for it to be able to influence their decisions. Generally, the older the information is, the less useful it is. However, some information might continue to be timely long after the end of a reporting period because, for example, some users will use it to identify and analyse trends. |
Understandability
2.24 | Classifying, characterising and presenting information clearly and concisely makes it understandable. However, understandability should not be used as a justification for omitting material information. A set of financial statements would be incomplete if an entity excluded information about phenomena because the phenomena are inherently complex and cannot be made easy to understand. |
The cost constraint on useful financial reporting
2.25 | Cost is a pervasive constraint on the information that an entity can provide. Reporting financial information imposes costs on an entity, so it is important that those costs are justified by the benefits of reporting that information. |
2.26 | Entities expend most of the effort involved in collecting, processing, verifying and disseminating financial information, but users ultimately bear those costs in the form of reduced returns. Users also incur costs of analysing and interpreting the information an entity provides. If entities do not provide needed information, users incur additional costs to obtain that information elsewhere or to estimate it. |
2.27 | Reporting relevant financial information that faithfully represents what it purports to represent helps users to make decisions confidently. Confident decision-making results in more efficient functioning of capital markets and a lower cost of capital for the economy as a whole. An individual user also benefits by making more informed decisions. However, it is not possible for financial statements to provide all the information that every user might find relevant. |
Undue cost or effort
2.28 | Some requirements in this Standard are accompanied by an undue cost or effort exemption. Such exemptions do not apply to other requirements in this Standard. |
2.29 | Whether an entity must spend undue cost or effort to obtain or judge the information necessary to comply with a requirement depends on the entity’s specific circumstances and on management’s judgement of the costs and benefits of applying that requirement. To make this judgement, an entity considers how users’ decision-making could be affected by not having that information. An entity would spend undue cost or effort applying a requirement if the incremental cost (for example, valuers’ fees) or additional effort (for example, endeavours by employees) substantially exceeds the benefits users would receive from having the information. This Standard usually requires an SME to judge undue cost or effort using a lower threshold than other IFRS Accounting Standards require of publicly accountable entities because SMEs are not accountable to public stakeholders. |
2.30 | An entity judges whether a requirement would involve undue cost or effort on initial recognition in the financial statements—for example, at the date of the transaction—based on information about the costs and benefits of the requirement at the time of initial recognition. If the undue cost or effort exemption also applies after initial recognition—for example, to a subsequent measurement of an item—the entity makes a new judgement of undue cost or effort at that subsequent date, based on information available at that date. |
2.31 | If an entity applies an undue cost or effort exemption, the entity shall disclose that fact and the reasons why applying the requirement would involve undue cost or effort. This requirement does not apply to the undue cost or effort exemption in paragraph 19.16, which is covered by the disclosure requirements in paragraph 19.38. |
Financial statements and the reporting entity
Objective and scope of financial statements
2.32 | The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities, equity, income and expenses that is useful to users to assess the prospects for the entity’s future net cash inflows and management’s stewardship of the entity’s economic resources (see paragraph 2.4). |
Reporting period
2.33 | An entity prepares its financial statements for a specified reporting period and discloses information about:
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2.34 | To help users identify and analyse changes and trends, an entity also discloses in its financial statements comparative information for at least one preceding reporting period, except if this Standard permits or requires otherwise. |
2.35 | An entity also discloses in its financial statements information about possible future transactions and events if the information:
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2.36 | An entity does not usually disclose in its financial statements other types of forward-looking information—for example, explanatory material about management’s expectations and strategies. |
Perspective adopted in financial statements
2.37 | An entity discloses in its financial statements information about transactions and other events from the perspective of the entity as a whole, not that of any particular group of the entity’s current or potential investors, lenders or other creditors. |
Going concern assumption
2.38 | An entity normally prepares its financial statements on the assumption that it is a going concern and will continue in operation for the foreseeable future. Users assume that the entity has neither the intention nor the need to enter liquidation or to stop trading. If the entity has such an intention or need, it might prepare the financial statements on another basis. If so, the entity describes in its financial statements the basis it has used (see paragraphs 3.8–3.9). |
The reporting entity
2.39 | A reporting entity is an entity that is required, or chooses, to prepare financial statements. A reporting entity is not necessarily a legal entity. A reporting entity can be a single entity, a portion of an entity or more than one entity. |
2.40 | If a reporting entity comprises both a parent and its subsidiaries, the reporting entity’s financial statements are referred to as consolidated financial statements. If the reporting entity comprises two or more entities that are not linked by a parent–subsidiary relationship, the reporting entity’s financial statements are referred to as combined financial statements. |
2.41 | The boundary of the reporting entity is based on users’ information needs. Users need relevant information that faithfully represents what it purports to represent. Faithful representation requires that:
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The elements of financial statements
2.42 | The elements of financial statements are:
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2.43 | These elements are linked to the economic resources, claims and changes in economic resources and claims discussed in paragraphs 2.6–2.7. |
Definition of an asset
2.44 | An asset is a present economic resource controlled by an entity as a result of past events. |
2.45 | An economic resource is a right that has the potential to produce economic benefits. It does not have to be certain, or even likely, that the right will produce economic benefits for the potential to exist; it is only necessary that the right exists. |
2.46 | Rights that have the potential to produce economic benefits take many forms, including:
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2.47 | Many rights are established by contract, legislation or similar means. For example, an entity might obtain rights from owning or leasing an object, from owning a debt instrument or an equity instrument, or from owning a registered patent. However, an entity might also obtain rights in other ways—for example:
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2.48 | An entity controls an economic resource if it has the present ability to direct the use of the economic resource and obtain the economic benefits that might flow from it. An entity has the present ability to direct the use of an economic resource if it has the right to deploy that economic resource in its activities, or to allow another party to deploy the economic resource in that party’s activities. Control includes the present ability to prevent other parties from directing the use of the economic resource and from obtaining the economic benefits that may flow from it. |
Definition of a liability
2.49 | A liability is an entity’s present obligation to transfer an economic resource as a result of past events. |
2.50 | A liability exists only if:
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2.51 | An entity has an obligation if it has a duty or responsibility that the entity has no practical ability to avoid. An obligation is always owed to another party (or parties). It is not necessary for the entity to know the identity of the party (or parties) to whom the obligation is owed. Many obligations are established by contract, legislation or similar means and are legally enforceable by the party (or parties) to whom they are owed. However, obligations can also arise from an entity’s customary practices, published policies or specific statements if the entity has no practical ability to act in a manner inconsistent with those practices, policies or statements. The obligation that arises in such situations is sometimes referred to as a constructive obligation. |
2.52 | A liability gives rise to an obligation to transfer an economic resource if the obligation has the potential to require an entity to transfer the economic resource to another party (or parties). It does not have to be certain, or even likely, that the entity will be required to transfer the economic resource for that potential to exist. It is only necessary that the obligation exists and that, in at least one circumstance, it would require the entity to transfer the economic resource. |
2.53 | Obligations to transfer an economic resource include:
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2.54 | Instead of fulfilling an obligation to transfer an economic resource to the party that has a right to receive that resource, an entity might sometimes decide, for example:
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2.55 | A present obligation exists as a result of past events only if an entity:
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2.56 | The economic benefits the entity obtained could include, for example, goods or services. The action the entity has taken could include, for example, operating a particular business or operating in a particular market. If the entity has obtained economic benefits, or has taken an action, over time, the resulting present obligation might accumulate over that time. |
Assets and liabilities
Unit of account
2.57 | The unit of account is the right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which an entity applies recognition criteria and measurement concepts. |
2.58 | An entity selects a unit of account for an asset or liability when it considers how recognition criteria and measurement concepts will apply to that asset or liability and to the related income and expenses. In some circumstances, it might be appropriate for the entity to select one unit of account for recognition and another unit of account for measurement. For example, an entity might sometimes recognise contracts individually, but measure them as part of a portfolio of contracts. For presentation and disclosure, an entity might aggregate or separate assets, liabilities, income and expenses into their components. |
Executory contracts
2.59 | An executory contract is a contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partly fulfilled their obligations to an equal extent. |
2.60 | An executory contract establishes a combined right and obligation to exchange economic resources. The right and obligation constitute a single asset or liability. The entity has an asset if the terms of the exchange are currently favourable; it has a liability if the terms of the exchange are currently unfavourable. Whether the entity includes such an asset or liability in its financial statements depends on both the recognition criteria and the measurement basis the entity selected for the asset or liability, including, if applicable, any test for whether the contract is onerous. |
Definition of equity
2.61 | Equity is the residual interest in an entity’s assets after deducting all its liabilities. |
Definitions of income and expenses
2.62 | Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims. |
2.63 | Expenses are decreases in assets, or increases in liabilities, that result in decreases in equity other than those relating to distributions to holders of equity claims. |
2.64 | Income and expenses are the elements of financial statements that relate to an entity’s financial performance. Users need information about both an entity’s financial position and its financial performance. Although income and expenses are defined in terms of changes in assets and liabilities, information about income and expenses is just as important as information about assets and liabilities. |
2.65 | Transactions and other events generate income and expenses with varied characteristics. Separating information about income and expenses that have differing characteristics can help users understand the entity’s financial performance. |
Recognition and derecognition
The recognition process
2.66 | Recognition is the process of capturing assets, liabilities, equity, income and expenses in the statement of financial position or the statement(s) of financial performance.3 Recognition involves depicting the item—either alone or in aggregation with other items—in words and by a single monetary amount in one of those statements and including that amount in one or more totals in that statement. The carrying amount is the amount at which an entity recognises an asset, a liability or equity in the statement of financial position. |
2.67 | Recognition links the elements of financial statements, the statement of financial position and the statement(s) of financial performance (see Figure 2.1). In the statement of financial position at the beginning and end of the reporting period, total assets minus total liabilities equals total equity. Recognised changes in equity during the reporting period comprise:
Figure 2.1—How recognition links the elements of financial statements  |
Recognition criteria
2.68 | Only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position. Similarly, only items that meet the definition of income or expenses are recognised in the statement(s) of financial performance. However, not all items that meet the definition of one of those elements are recognised. |
2.69 | An entity cannot correct its failure to recognise an item that satisfies the recognition criteria by disclosing the accounting policies it used or by providing notes or explanatory material. |
Relevance
2.70 | Information about assets, liabilities, equity, income and expenses is relevant to users. However, recognition of a particular asset or liability and any resulting income, expenses or changes in equity might not always provide relevant information. For example, if it is uncertain whether an asset or liability exists, or if an asset or liability exists but the probability of an inflow or outflow of economic benefits is low, information about that asset or liability might not be relevant. However, that information could be relevant in combination with other factors. |
Existence uncertainty
2.71 | In some cases, it might be unclear whether an asset or liability exists. That uncertainty, which might coincide with a low probability of inflows or outflows of economic benefits and an exceptionally wide range of possible outcomes, might mean that recognising a single asset or liability would not provide relevant information. Whether or not an entity has recognised the asset or liability, the entity might need to provide explanatory information in the financial statements about the associated uncertainties. |
Faithful representation
2.72 | Recognition of a particular asset or liability is appropriate if it provides not only relevant information, but also a faithful representation of that asset or liability and of any resulting income, expenses or changes in equity. Whether an entity can provide a faithful representation might be affected by the level of measurement uncertainty associated with the asset or liability or by other factors. |
Measurement uncertainty
2.73 | An entity measures an asset or liability in order to recognise it. In many cases, an entity estimates this measurement and it is therefore subject to measurement uncertainty. Using estimates is an essential part of preparing financial information and does not undermine the usefulness of the information if an entity clearly and accurately describes and explains the estimates. |
2.74 | An item that fails to meet the recognition criteria might later qualify for recognition as a result of circumstances or events. |
2.75 | Whether or not an entity recognises an asset or liability, the entity might need to include explanatory information to provide a faithful representation of the asset or liability. The entity could include information about the uncertainties associated with the asset or liability’s existence or measurement, or with its outcome—the amount or timing of any inflow or outflow of economic benefits that will ultimately result from the asset or liability (see paragraphs 2.108–2.109). |
Derecognition
2.76 | Derecognition is the removal of all or part of a recognised asset or liability from an entity’s statement of financial position. Derecognition normally occurs if that item no longer meets the definition of an asset or a liability. For example:
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2.77 | Accounting requirements for derecognition in this Standard aim for an entity to faithfully represent any assets and liabilities it retained after a transaction or other event that led to derecognition and the change in the entity’s assets or liabilities as a result of that transaction or other event. |
2.78 | To achieve the aim described in paragraph 2.77, an entity normally:
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2.79 | To achieve the aim described in paragraph 2.77, an entity can:
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Measurement
2.80 | An entity quantifies elements recognised in financial statements in monetary terms. To quantify an element, an entity first selects a measurement basis. |
2.81 | A measurement basis is an identified feature—for example, historical cost, fair value or fulfilment value—of the item being measured. Applying a measurement basis to an asset or liability creates a measure for that asset or liability and for related income and expenses. |
2.82 | The appropriate measurement basis is specific to the item being measured. |
Measurement bases
Historical cost
2.83 | Historical cost measures provide monetary information about assets, liabilities and related income and expenses using information an entity derived, at least in part, from the price of the transaction or other event that gave rise to them. |
2.84 | The historical cost of an asset is the value of the costs incurred in acquiring or creating the asset, comprising the consideration an entity paid to acquire or create the asset plus transaction costs. The historical cost of a liability is the value of the consideration the entity received to incur or take on the liability minus transaction costs. |
2.85 | An entity updates over time the historical cost of an asset to depict, if applicable:
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2.86 | An entity updates over time the historical cost of a liability to depict, if applicable:
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2.87 | One way an entity applies a historical cost measurement basis to financial assets and financial liabilities is to measure them at amortised cost. The amortised cost of a financial asset or financial liability reflects estimates of future cash flows discounted at the rate the entity determined at initial recognition. For variable rate instruments, the entity updates the discount rate to reflect changes in the variable rate. Over time, the entity updates the amortised cost of a financial asset or financial liability to depict changes such as the accrual of interest, the impairment of a financial asset and receipts or payments. |
Current value
2.88 | Measurements based on current value provide monetary information about assets, liabilities and related income and expenses using information updated to reflect conditions at the measurement date. Current value measurement bases include:
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2.89 | Fair value is 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. Because fair value is not derived, even in part, from the price of the transaction or other event that gives rise to the asset or the liability, fair value is not increased by transaction costs an entity incurs when acquiring the asset and is not decreased by the transaction costs an entity incurs when it takes on the liability. |
2.90 | Current cost is the cost of an equivalent asset at the measurement date, comprising the consideration an entity would pay at the measurement date plus the transaction costs the entity would incur at that date. The current cost of a liability is the consideration an entity would receive for an equivalent liability at the measurement date minus the transaction costs the entity would incur at that date. |
2.91 | Value in use is the present value of the cash flows or other economic benefits that an entity expects to derive from the use of an asset and from its ultimate disposal. Fulfilment value is the present value of the cash or other economic resources that an entity expects to be obliged to transfer when it fulfils a liability. Because value in use and fulfilment value are based on future cash flows, they do not include transaction costs incurred when an entity acquires an asset or takes on a liability. |
Information provided by particular measurement bases
2.92 | When an entity selects a measurement basis, it considers the nature of the information that the measurement basis will produce in both the statement of financial position and the statement(s) of financial performance. |
Historical cost
2.93 | If an entity measures an asset or liability at historical cost, the resulting information might be relevant to users because historical cost uses information derived, at least in part, from the price of the transaction or other event that gave rise to the asset or liability. Because an entity reduces historical cost to reflect consumption of an asset and its impairment, the amount expected to be recovered from an asset measured at historical cost is at least as great as its carrying amount. Similarly, because an entity increases the historical cost of a liability when the liability becomes onerous, the value of the obligation to transfer the economic resources needed to fulfil the liability is no more than the carrying amount of the liability. |
Current value
2.94 | If an entity measures an asset or liability at fair value, the resulting information might have predictive value because fair value reflects market participants’ current expectations about the amount, timing and uncertainty of future cash flows. |
2.95 | If an entity measures an asset using value in use, the resulting information is about the present value of the estimated cash flows from the use of the asset and from its ultimate disposal. This information might have predictive value because it can be used in assessing the prospects for future net cash inflows. |
2.96 | If an entity measures a liability using fulfilment value, the resulting information is about the present value of the estimated cash flows needed to fulfil the liability. This information might have predictive value, particularly if the entity expects to fulfil the liability instead of transferring it or settling it by negotiation. |
2.97 | If an entity provides updated estimates of value in use or fulfilment value, combined with information about estimates of the amount, timing and uncertainty of future cash flows, that information might help verify previous estimates of value in use or fulfilment value. |
2.98 | If an entity measures an asset or liability using current cost, the resulting information might be relevant because current cost reflects the cost at which an equivalent asset could be acquired or created at the measurement date or the consideration that would be received from incurring or taking on an equivalent liability. |
Factors to consider when selecting a measurement basis
2.99 | When an entity selects a measurement basis for an asset or liability and for the related income and expenses, the entity considers the nature of the information that the measurement basis will produce in both the statement of financial position and the statement(s) of financial performance. |
2.100 | In most cases, an entity will not select a measurement basis based on a single factor. The relative importance of each factor depends on the facts and circumstances of the item being measured. |
2.101 | An entity selects a measurement basis that will provide useful information to users. To be useful, the information is relevant and faithfully represents what it purports to represent. In addition, the information should be comparable, verifiable, timely and understandable, to the extent possible. |
Relevance
2.102 | The relevance of information an entity provides using a measurement basis is affected by:
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2.103 | If the value of an asset or liability is sensitive to market factors or other risks, its historical cost might differ significantly from its current value. Consequently, historical cost might not provide relevant information if information about changes in value is important to users. |
2.104 | For assets and liabilities that produce cash flows directly, such as assets that can be sold independently and without a substantial economic penalty (for example, without substantial business disruption), the measurement basis that provides the most relevant information is likely a current value that takes into account current estimates of the amount, timing and uncertainty of the future cash flows. For assets and liabilities that do not produce cash flows directly, an entity considers the principles of relevance and faithful representation to the extent that they apply to the facts and circumstances. |
2.105 | If an entity’s business activity involves managing financial assets and financial liabilities with the objective of collecting contractual cash flows, amortised cost might provide relevant information that can be used to derive the margin between the interest earned on the assets and the interest incurred on the liabilities. |
Faithful representation
2.106 | In some circumstances, an entity uses the same measurement basis for related assets and liabilities to provide users with more useful information than the information that would result from using different measurement bases—for example, if the entity’s cash flows from one asset or liability are directly linked to its cash flows from another asset or liability. |
2.107 | As noted in paragraph 2.18, although a perfectly faithful representation is free from error, measures do not have to be perfectly accurate. |
2.108 | Measurement uncertainty arises if an entity estimates an item’s value because it cannot measure the item by observing prices in an active market. The level of measurement uncertainty associated with a particular measurement basis might affect whether the information an entity provides using that measurement basis is a faithful representation of the entity’s financial position and financial performance. A high level of measurement uncertainty does not necessarily prevent an entity from using a measurement basis that provides relevant information, but in some cases, the level is so high that such information might not lead to a sufficiently faithful representation. In these cases, an entity should consider selecting another measurement basis that would also result in relevant information. |
2.109 | Measurement uncertainty is not the same as outcome uncertainty and existence uncertainty. Outcome uncertainty arises when there is uncertainty about the amount or timing of any inflow or outflow of economic benefits that will result from an asset or liability. Existence uncertainty arises when an asset or a liability’s existence is uncertain. Paragraphs 2.70–2.71 discuss how existence uncertainty might affect an entity’s decisions to recognise an asset or liability when the entity is uncertain about whether that asset or liability exists. |
Enhancing qualitative characteristics and the cost constraint
2.110 | The enhancing qualitative characteristics of comparability, understandability and verifiability, and the cost constraint, affect an entity’s selection of a measurement basis. The enhancing qualitative characteristic of timeliness has no specific implications for measurement. |
2.111 | Consistently using the same measurement bases for the same items, either from period to period within a reporting entity or in a single period across entities, can help make financial statements more comparable. |
2.112 | If an entity changes the measurement basis it uses, its financial statements might be less understandable. However, a change might be justified if, for example, the change results in more relevant information. If an entity changes the measurement basis it uses, users might need explanatory information to understand the effect of that change. |
2.113 | Understandability depends partly on how many measurement bases an entity uses and whether its use of those bases changes over time. In general, the more measurement bases an entity uses, the more complex the resulting information. Consequently, the information becomes less understandable and the totals or subtotals in the statement of financial position and the statement(s) of financial performance become less informative. However, it could be appropriate for an entity to use more measurement bases if doing so provides useful information. |
2.114 | Verifiability is improved when an entity uses measurement bases that result in information that can be independently corroborated, either directly (for example, by observing prices) or indirectly (for example, by checking inputs to a model). If a measure cannot be verified, an entity might provide explanatory information to enable users to understand how the entity determined the measure. |
Measurement of equity
2.115 | An entity does not directly measure the total carrying amount of equity (total equity). The total of the carrying amounts of all recognised assets minus the total of the carrying amounts of all recognised liabilities equals the total equity. |
2.116 | Although an entity does not directly measure total equity, the entity might directly measure the carrying amount of some individual classes of equity and some components of equity. |
Presentation and disclosure
Presentation and disclosure as communication tools
2.117 | A reporting entity communicates information about its assets, liabilities, equity, income and expenses by presenting and disclosing information in its financial statements. |
2.118 | An entity that effectively presents and discloses information in its financial statements makes that information more relevant, understandable and comparable. Effective presentation and disclosure also contribute to faithful representation of the entity’s assets, liabilities, equity, income and expenses. |
2.119 | Just as cost constrains other financial reporting decisions, it also constrains an entity’s decisions about presentation and disclosure. When an entity decides how to present and disclose information, it is important that the entity considers whether the benefits to users justify the costs of providing and using that information. |
Classification
2.120 | Classification is the sorting of assets, liabilities, equity, income or expenses on the basis of shared characteristics for presentation and disclosure purposes. Such characteristics include the nature of the item, its role (or function) within the entity’s business activities and how the entity measures it. |
2.121 | Classifying dissimilar assets, liabilities, equity, income or expenses together can obscure relevant information, reduce understandability and comparability and might not result in a faithful representation of what the information purports to represent. |
2.122 | An entity applies the classification to the unit of account the entity selected for an asset or liability. However, an entity separates an asset or liability’s components by characteristic and classifies those components separately if the resulting financial information is more useful. |
2.123 | An entity classifies income and expenses and includes them either:
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2.124 | The statement of profit or loss is the primary source of information about an entity’s financial performance for the reporting period. Therefore, in principle, an entity includes all income and expenses in that statement. An entity presents items of income or expense in other comprehensive income only if explicitly permitted or required by this Standard. |
2.125 | In principle, an entity reclassifies income and expenses it included in other comprehensive income in one period into the statement of profit or loss in a future period if doing so results in the statement of profit or loss providing more relevant information or providing a more faithful representation of the entity’s financial performance, for that future period. Individual sections of this Standard might describe situations in which an entity is permitted or required to reclassify income and expenses included in other comprehensive income. |
Offsetting
2.126 | Offsetting occurs when an entity recognises and measures both an asset and a liability as separate units of account, but groups them into a single net amount in the statement of financial position. Offsetting classifies dissimilar items together and therefore is generally not appropriate unless required or permitted by a specific section of this Standard. |
Classification of equity
2.127 | To provide useful information, an entity might classify equity claims separately if those equity claims have differing characteristics. |
2.128 | Similarly, to provide useful information, an entity might classify components of equity separately if some of those components are subject to particular legal, regulatory or other requirements. For example, in some jurisdictions, an entity is permitted to make distributions to holders of equity claims only if it has enough reserves specified as distributable. Separate presentation or disclosure of those reserves might provide useful information. |
Aggregation
2.129 | Aggregation is the adding together of assets, liabilities, equity, income or expenses that have shared characteristics and are included in the same classification. |
2.130 | Aggregation can make information more useful by summarising a large volume of detail, but in doing so, aggregation also conceals some of that detail. An entity balances its use of aggregation so that relevant information is not obscured either by too little or too much detail. |
Section 3 Financial Statement Presentation
Scope of this section
3.1 | This section explains fair presentation of financial statements, what compliance with the IFRS for SMEs Accounting Standard requires and what comprises a complete set of financial statements. |
Fair presentation
3.2 | Financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in Section 2 Concepts and Pervasive Principles:
The additional disclosures referred to in (a) are necessary when compliance with the specific requirements in this Standard is insufficient to enable users to understand the effect of particular transactions, other events and conditions on the entity’s financial position and financial performance. |
Compliance with the IFRS for SMEs Accounting Standard
3.3 | An entity whose financial statements comply with the IFRS for SMEs Accounting Standard shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with the IFRS for SMEs Accounting Standard unless they comply with all the requirements of this Standard. |
3.4 | In the extremely rare circumstances when management concludes that compliance with this Standard would be so misleading that it would conflict with the objective of financial statements of SMEs set out in Section 2, the entity shall depart from that requirement in the manner set out in paragraph 3.5 unless the relevant regulatory framework prohibits such a departure. |
3.5 | When an entity departs from a requirement of this Standard in accordance with paragraph 3.4, it shall disclose the following:
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3.6 | When an entity has departed from a requirement of this Standard in a prior period, and that departure affects the amounts recognised in the financial statements for the current period, it shall make the disclosures set out in paragraph 3.5(c). |
3.7 | In the extremely rare circumstances when management concludes that compliance with a requirement in this Standard would be so misleading that it would conflict with the objective of financial statements of SMEs set out in Section 2, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing the following:
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Going concern
3.8 | When preparing financial statements, the management of an entity using this Standard shall make an assessment of the entity’s ability to continue as a going concern. An entity is a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the reporting date. |
3.9 | When management is aware, in making its assessment, of material uncertainties related to events or conditions that cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern. |
Frequency of reporting
3.10 | An entity shall present a complete set of financial statements (including comparative information–see paragraph 3.14) at least annually. When the end of an entity’s reporting period changes and the financial statements are presented for a period longer or shorter than one year, the entity shall disclose the following:
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Consistency of presentation
3.11 | An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
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3.12 | When the presentation or classification of items in the financial statements is changed, an entity shall reclassify comparative amounts unless the reclassification is impracticable. When comparative amounts are reclassified, an entity shall disclose the following:
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3.13 | If it is impracticable to reclassify comparative amounts, an entity shall disclose why reclassification was not practicable. |
Comparative information
3.14 | Except when this Standard permits or requires otherwise, an entity shall disclose comparative information in respect of the previous comparable period for all amounts presented in the current period’s financial statements. An entity shall include comparative information for narrative and descriptive information when it is relevant to an understanding of the current period’s financial statements. |
Materiality and aggregation
3.15 | An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial. |
3.15A | When applying this Standard an entity shall decide, after taking into consideration all the relevant facts and circumstances, how it aggregates information in the financial statements, including the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. |
3.16 | Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole. |
Accrual basis
3.16A | An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting. On the accrual basis, items are recognised as assets, liabilities, equity, income or expenses when they satisfy the definitions and recognition criteria for those items. |
Complete set of financial statements
3.17 | A complete set of financial statements of an entity shall include all of the following:
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3.18 | If the only changes to equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy, the entity may present a single statement of income and retained earnings in place of the statement of comprehensive income and statement of changes in equity (see paragraph 6.4). |
3.19 | If an entity has no items of other comprehensive income in any of the periods for which financial statements are presented, it may present only an income statement or it may present a statement of comprehensive income in which the ‘bottom line’ is labelled ‘profit or loss’. |
3.20 | Because paragraph 3.14 requires comparative amounts in respect of the previous period for all amounts presented in the financial statements, a complete set of financial statements means that an entity shall present, as a minimum, two of each of the required financial statements and related notes. |
3.21 | In a complete set of financial statements, an entity shall present each financial statement with equal prominence. |
3.22 | An entity may use titles for the financial statements other than those used in this Standard as long as they are not misleading. |
Identification of the financial statements
3.23 | An entity shall clearly identify each of the financial statements and the notes and distinguish them from other information in the same document. In addition, an entity shall display the following information prominently and repeat it when necessary for an understanding of the information presented:
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3.24 | An entity shall disclose the following in the notes:
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Presentation of information not required by this Standard
3.25 | This Standard does not address presentation of segment information, earnings per share, or interim financial reports by a small or medium-sized entity. An entity making such disclosures shall describe the basis for preparing and presenting the information. |
Section 4 Statement of Financial Position
Scope of this section
4.1 | This section sets out the information that is to be presented in a statement of financial position and how to present it. The statement of financial position (sometimes called the balance sheet) presents an entity’s assets, liabilities and equity as of a specific date—the end of the reporting period. |
Information to be presented in the statement of financial position
4.2 | The statement of financial position shall include line items that present the following amounts:
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4.3 | An entity shall present additional line items (including by disaggregating the line items listed in paragraph 4.2), headings and subtotals in the statement of financial position when such presentation is relevant to an understanding of the entity’s financial position. |
Current/non-current distinction
4.4 | An entity shall present current and non-current assets, and current and non‑current liabilities, as separate classifications in its statement of financial position in accordance with paragraphs 4.5–4.8, except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, all assets and liabilities shall be presented in order of approximate liquidity (ascending or descending). |
Current assets
4.5 | An entity shall classify an asset as current when:
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4.6 | An entity shall classify all other assets as non-current. When the entity’s normal operating cycle is not clearly identifiable, its duration is assumed to be twelve months. |
Current liabilities
4.7 | An entity shall classify a liability as current when:
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4.8 | An entity shall classify all other liabilities as non-current. |
Sequencing of items and format of items in the statement of financial position
4.9 | This Standard does not prescribe the sequence or format in which items are to be presented. Paragraph 4.2 simply provides a list of items that are sufficiently different in nature or function to warrant separate presentation in the statement of financial position. In addition:
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4.10 | The judgement on whether additional items are presented separately is based on an assessment of all of the following:
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Information to be presented either in the statement of financial position or in the notes
4.11 | An entity shall disclose, either in the statement of financial position or in the notes, the following subclassifications of the line items presented:
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4.12 | An entity with share capital shall disclose the following, either in the statement of financial position or in the notes:
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4.13 | An entity without share capital, such as a partnership or trust, shall disclose information equivalent to that required by paragraph 4.12(a), showing changes during the period in each category of equity, and the rights, preferences and restrictions attaching to each category of equity. |
4.14 | If, at the reporting date, an entity has a binding sale agreement for a major disposal of assets, or a group of assets and liabilities, the entity shall disclose the following information:
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Section 5 Statement of Comprehensive Income and Income Statement
Scope of this section
5.1 | This section requires an entity to present its total comprehensive income for a period—ie its financial performance for the period—in one or two financial statements. It sets out the information that is to be presented in those statements and how to present it. |
Presentation of total comprehensive income
5.2 | An entity shall present its total comprehensive income for a period either:
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5.3 | A change from the single-statement approach to the two-statement approach, or vice versa, is a change in accounting policy to which Section 10 Accounting Policies, Estimates and Errors applies. |
Single-statement approach
5.4 | Under the single-statement approach, the statement of comprehensive income shall include all items of income and expense recognised in a period unless this Standard requires otherwise. This Standard provides different treatment for the following circumstances:
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5.5 | As a minimum, an entity shall include, in the statement of comprehensive income, line items that present the following amounts for the period:
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5.6 | An entity shall disclose separately the following items in the statement of comprehensive income as allocations for the period:
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Two-statement approach
5.7 | Under the two-statement approach, the income statement shall display, as a minimum, line items that present the amounts in paragraph 5.5(a)–5.5(f) for the period, with profit or loss as the last line. The statement of comprehensive income shall begin with profit or loss as its first line and shall display, as a minimum, line items that present the amounts in paragraph 5.5(g)–5.5(i) and paragraph 5.6 for the period. |
Requirements applicable to both approaches
5.8 | Under this Standard, the effects of corrections of errors and changes in accounting policies are presented as retrospective adjustments of prior periods instead of as part of profit or loss in the period in which they are identified (see Section 10). |
5.9 | An entity shall present additional line items, headings and subtotals in the statement of comprehensive income (and in the income statement, if presented), when such presentation is relevant to an understanding of the entity’s financial performance. |
5.10 | An entity shall not present or describe any items of income and expense as ‘extraordinary items’ in the statement of comprehensive income (or in the income statement, if presented) or in the notes. |
Analysis of expenses
5.11 | An entity shall present an analysis of expenses using a classification based on either the nature of expenses or the function of expenses within the entity, whichever provides information that is reliable and more relevant. |
Analysis by nature of expense
(a) | Under this method of classification, expenses are aggregated in the statement of comprehensive income according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs) and are not reallocated among various functions within the entity. |
Analysis by function of expense
(b) | Under this method of classification, expenses are aggregated according to their function as part of cost of sales or, for example, the costs of distribution or administrative activities. At a minimum, an entity discloses its cost of sales under this method separately from other expenses. |
Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings
Scope of this section
6.1 | This section sets out requirements for presenting the changes in an entity’s equity for a period, either in a statement of changes in equity or, if specified conditions are met and an entity chooses, in a statement of income and retained earnings. |
Statement of changes in equity
Purpose
6.2 | The statement of changes in equity presents an entity’s profit or loss for a reporting period, other comprehensive income for the period, the effects of changes in accounting policies and corrections of errors recognised in the period and the amounts of investments by, and dividends and other distributions to, owners in their capacity as owners during the period. |
Information to be presented in the statement of changes in equity
6.3 | The statement of changes in equity includes the following information:
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Statement of income and retained earnings
Purpose
6.4 | The statement of income and retained earnings presents an entity’s profit or loss and changes in retained earnings for a reporting period. Paragraph 3.18 permits an entity to present a statement of income and retained earnings in place of a statement of comprehensive income and a statement of changes in equity if the only changes to its equity during the periods for which financial statements are presented arise from profit or loss, payment of dividends, corrections of prior period errors, and changes in accounting policy. |
Information to be presented in the statement of income and retained earnings
6.5 | An entity shall present, in the statement of income and retained earnings, the following items in addition to the information required by Section 5 Statement of Comprehensive Income and Income Statement:
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Information to be disclosed in the notes
6.6 | An entity shall disclose in the notes:
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Section 7 Statement of Cash Flows
Scope of this section
7.1 | This section sets out the information that is to be presented in a statement of cash flows and how to present it. The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period, showing separately changes from operating activities, investing activities and financing activities. |
Cash equivalents
7.2 | Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. They are held to meet short-term cash commitments instead of for investment or other purposes. Consequently, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Bank overdrafts are normally considered financing activities similar to borrowings. However, if they are repayable on demand and form an integral part of an entity’s cash management, bank overdrafts are a component of cash and cash equivalents. |
Information to be presented in the statement of cash flows
7.3 | An entity shall present a statement of cash flows that presents cash flows for a reporting period classified by operating activities, investing activities and financing activities. |
Operating activities
7.4 | Operating activities are the principal revenue-producing activities of the entity. Consequently, cash flows from operating activities generally result from the transactions and other events and conditions that enter into the determination of profit or loss. Examples of cash flows from operating activities are:
Some transactions, such as the sale of an item of plant by a manufacturing entity, may give rise to a gain or loss that is included in profit or loss. However, the cash flows relating to such transactions are cash flows from investing activities. |
Investing activities
7.5 | Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples of cash flows arising from investing activities are:
When a contract is accounted for as a hedge (see Part II of Section 11 Financial Instruments), an entity shall classify the cash flows of the contract in the same manner as the cash flows of the item being hedged. |
Financing activities
7.6 | Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of an entity. Examples of cash flows arising from financing activities are:
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Reporting cash flows from operating activities
7.7 | An entity shall present cash flows from operating activities using either:
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Indirect method
7.8 | Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:
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Direct method
7.9 | Under the direct method, net cash flow from operating activities is presented by disclosing information about major classes of gross cash receipts and gross cash payments. Such information may be obtained either:
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Reporting cash flows from investing and financing activities
7.10 | An entity shall present separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units shall be presented separately and classified as investing activities. |
Foreign currency cash flows
7.11 | An entity shall record cash flows arising from transactions in a foreign currency in the entity’s functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow. |
7.12 | The entity shall translate cash flows of a foreign subsidiary at the exchange rates between the entity’s functional currency and the foreign currency at the dates of the cash flows. |
7.12A | Paragraph 30.19 explains when an exchange rate that approximates the actual rate can be used. |
7.13 | Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, to reconcile cash and cash equivalents at the beginning and the end of the period, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency must be presented in the statement of cash flows. Consequently, the entity shall remeasure cash and cash equivalents held during the reporting period (such as amounts of foreign currency held and foreign currency bank accounts) at period-end exchange rates. The entity shall present the resulting unrealised gain or loss separately from cash flows from operating, investing and financing activities. |
Interest and dividends
7.14 | An entity shall present separately cash flows from interest and dividends received and paid. The entity shall classify cash flows consistently from period to period as operating, investing or financing activities. |
7.15 | An entity may classify interest paid and interest and dividends received as operating cash flows because they are included in profit or loss. Alternatively, the entity may classify interest paid and interest and dividends received as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments. |
7.16 | An entity may classify dividends paid as a financing cash flow because they are a cost of obtaining financial resources. Alternatively, the entity may classify dividends paid as a component of cash flows from operating activities because they are paid out of operating cash flows. |
Income tax
7.17 | An entity shall present separately cash flows arising from income tax and shall classify them as cash flows from operating activities unless they can be specifically identified with financing and investing activities. When tax cash flows are allocated over more than one class of activity, the entity shall disclose the total amount of taxes paid. |
Non-cash transactions
7.18 | An entity shall exclude from the statement of cash flows investing and financing transactions that do not require the use of cash or cash equivalents. An entity shall disclose such transactions elsewhere in the financial statements in a way that provides all the relevant information about those investing and financing activities. |
7.19 | Many investing and financing activities do not have a direct impact on current cash flows even though they affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows because these items do not involve cash flows in the current period. Examples of non-cash transactions are:
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Changes in liabilities arising from financing activities
7.19A | An entity shall disclose a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities. An entity shall include in the reconciliation:
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Supplier finance arrangements
7.19B | Supplier finance arrangements are characterised by one or more finance providers offering to pay amounts an entity owes its suppliers and the entity agreeing to pay according to the terms and conditions of the arrangements at the same date as, or a date later than, suppliers are paid. These arrangements provide the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date. Supplier finance arrangements are often referred to as ‘supply chain finance’, ‘payables finance’ or ‘reverse factoring arrangements’. Examples of arrangements that are not supplier finance arrangements include:
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7.19C | An entity shall disclose in aggregate for its supplier finance arrangements:
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Components of cash and cash equivalents
7.20 | An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in the statement of cash flows with the equivalent items reported in the statement of financial position. However, an entity is not required to present this reconciliation if the amount of cash and cash equivalents presented in the statement of cash flows is identical to the amount similarly described in the statement of financial position. |
Other disclosures
7.21 | An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the entity. Cash and cash equivalents held by an entity may not be available for use by the entity because of, among other reasons, foreign exchange controls or legal restrictions. |
Section 8 Notes to the Financial Statements
Scope of this section
8.1 | This section sets out the principles underlying information that is to be presented in the notes to the financial statements and how to present it. Notes contain information in addition to that presented in the statement of financial position, the statement of comprehensive income (if presented), the income statement (if presented), the combined statement of income and retained earnings (if presented), the statement of changes in equity (if presented) and the statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements. In addition to the requirements of this section, nearly every other section of this Standard requires disclosures that are normally presented in the notes. |
Structure of the notes
8.2 | The notes shall:
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8.3 | An entity shall, as far as practicable, present the notes in a systematic manner. An entity shall cross-reference each item in the financial statements to any related information in the notes. |
8.4 | An entity normally presents the notes in the following order:
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Disclosure of accounting policies
8.5 | An entity shall disclose material accounting policy information. Accounting policy information is material if, when considered together with other information included in the entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. |
Information about judgements
8.6 | An entity shall disclose, along with material accounting policy information or other notes, the judgements, apart from those involving estimations (see paragraph 8.7), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements. Examples of judgements that an entity might be required to disclose include those made in determining:
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Information about key sources of estimation uncertainty
8.7 | An entity shall disclose in the notes information about the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
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Section 9 Consolidated and Separate Financial Statements
Scope of this section
9.1 | This section defines the circumstances in which an entity applying this Standard presents consolidated financial statements and the procedures for preparing those statements in accordance with this Standard. It also includes guidance on separate financial statements and combined financial statements if they are prepared in accordance with this Standard. If a parent by itself does not have public accountability, it may present its separate financial statements in accordance with this Standard, even if it presents its consolidated financial statements in accordance with full IFRS Accounting Standards or another set of generally accepted accounting principles (GAAP). |
Requirement to present consolidated financial statements
9.2 | Except as permitted or required by paragraphs 9.3 and 9.3C, a parent shall present consolidated financial statements. Consolidated financial statements shall include all subsidiaries of the parent, except subsidiaries to which paragraph 9.3A applies. |
9.3 | A parent need not present consolidated financial statements if both of the following conditions are met:
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9.3A | Subject to paragraph 9.3B, a subsidiary is not consolidated if it is acquired and is held with the intention of selling or disposing of it within one year from its acquisition date (see paragraph 19.11). Such a subsidiary is accounted for in accordance with the requirements in Section 11 Financial Instruments for investments in paragraph 11.8(d), instead of in accordance with this section. The parent shall also provide the disclosure required in paragraph 9.23A. |
9.3B | If a subsidiary previously excluded from consolidation in accordance with paragraph 9.3A is not disposed of within one year from its acquisition date:
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9.3C | If a parent has no subsidiaries other than subsidiaries that are not consolidated in accordance with paragraphs 9.3A–9.3B, it shall not present consolidated financial statements. However, the parent shall provide the disclosure required in paragraph 9.23A. |
9.3D | A subsidiary is not excluded from consolidation because:
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Control
9.4 | A subsidiary is an entity (an investee) that is controlled by another entity (an investor). An investor, regardless of the nature of its involvement with an investee, shall determine whether it is a parent by assessing whether it controls the investee. |
9.4A | An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. |
9.4B | Thus, an investor controls an investee if the investor has all the following:
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9.4C | An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 9.4B. |
9.5 | Control is presumed to exist when the investor owns, directly or indirectly through subsidiaries, a majority of the voting rights of an investee. An investor that owns, directly or indirectly through subsidiaries, a majority of the voting rights of an investee is not required to assess whether it has the elements of control listed in paragraph 9.4B. However, the presumption can be rebutted if it can be clearly demonstrated that the investor does not have one or more of the elements of control listed in paragraph 9.4B—for example, if the investor owns a majority of the voting rights of an investee, but another entity has existing rights that give that entity the current ability to direct the relevant activities through contractual arrangements. |
Power
9.6 | An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, that is, the activities that significantly affect the investee’s returns. Depending on the circumstances, relevant activities can include:
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9.7 | An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but is not, in itself, conclusive in determining whether the investor has power over an investee. |
9.7A | If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee. |
9.7B | An investor will typically have power when it holds a majority of the voting rights of an investee (see paragraph 9.5). However, an investor can have power even if it holds less than a majority of the voting rights of an investee, for example, through:
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9.8 | When determining whether it has power, an investor considers its potential voting rights as well as potential voting rights held by other parties. Potential voting rights are rights to obtain voting rights of an investee, such as those arising from convertible instruments or options, including forward contracts. Those potential voting rights are considered only if the holder of the right has the practical ability to exercise that right. Usually, for the holder of the right to have the practical ability to exercise that right, the right needs to be currently exercisable. |
9.9 | If an investor also has voting or other decision‑making rights relating to the investee’s relevant activities, the investor assesses whether those rights, in combination with potential voting rights, give the investor power. |
Returns
9.10 | An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative. |
Link between power and returns
9.11 | For an investor to control an investee, the investor must have not only power over the investee and exposure or rights to variable returns from its involvement with the investee, but also the ability to use its power to affect its returns from its involvement with the investee. |
9.12 | When an investor with decision‑making rights (a decision-maker) assesses whether it controls an investee, it shall determine whether it is a principal or an agent. An investor shall also determine whether another entity with decision‑making rights is acting as an agent for the investor. An agent is a party primarily engaged to act on behalf, and for the benefit, of another party or parties (the principal(s)) and therefore does not control the investee when it exercises its decision‑making authority. Thus, sometimes a principal’s power may be held and exercisable by an agent, but on behalf of the principal. A decision-maker is not an agent simply because other parties can benefit from the decisions that it makes. |
Consolidation procedures
9.13 | The consolidated financial statements present financial information about the group as a single economic entity. In preparing consolidated financial statements, an entity shall:
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9.14 | The proportions of profit or loss and changes in equity allocated to the owners of the parent and to the non-controlling interest are determined on the basis of existing ownership interests and do not reflect the possible exercise or conversion of potential voting rights, and other options or convertible instruments. |
Intragroup balances and transactions
9.15 | Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and property, plant and equipment, are eliminated in full. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements (see Section 27 Impairment of Assets). Section 29 Income Tax applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions. |
Uniform reporting date
9.16 | The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall be prepared as of the same reporting date unless it is impracticable to do so. If it is impracticable to prepare the financial statements of a subsidiary as of the same reporting date as the parent, the parent shall consolidate the financial information of the subsidiary using the most recent financial statements of the subsidiary, adjusted for the effects of significant transactions or events that occur between the date of those financial statements and the date of the consolidated financial statements. |
Uniform accounting policies
9.17 | Consolidated financial statements shall be prepared using uniform accounting policies for like transactions and other events and conditions in similar circumstances. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements. |
Acquisition and disposal of subsidiaries
9.18 | The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date until the date on which the parent loses control of the subsidiary. |
9.18A | If a parent loses control of a subsidiary, the parent:
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9.18B | If a parent loses control of a subsidiary, the parent shall account for all amounts previously recognised in other comprehensive income for that subsidiary, except for the cumulative amount of any exchange differences that relate to a foreign subsidiary, on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. The cumulative amount of any exchange differences that relate to a foreign subsidiary recognised in other comprehensive income in accordance with Section 30 Foreign Currency Translation is not reclassified to profit or loss on disposal of the subsidiary. |
9.19 | If a parent loses control of a subsidiary but continues to hold an interest in the former subsidiary, that interest shall be accounted for in accordance with other sections of this Standard. If the retained interest is a financial asset, Section 11 Financial Instruments applies; if it is an associate, Section 14 Investments in Associates applies; if it is a jointly controlled entity, Section 15 Joint Arrangements applies. The fair value at the date control is lost shall be regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of an investment in an associate or jointly controlled entity, if applicable. |
Non-controlling interest in subsidiaries
9.20 | An entity shall present non-controlling interest in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent, as required by paragraph 4.2(q). |
9.20A | An entity shall treat changes in a parent’s controlling interest in a subsidiary that do not result in a loss of control as transactions with owners in their capacity as owners. Accordingly, the carrying amount of the non-controlling interest shall be adjusted to reflect the change in the parent’s interest in the subsidiary’s net assets. Any difference between the amount by which the non‑controlling interest is so adjusted and the fair value of the consideration paid or received, if any, shall be recognised directly in equity and attributed to owners of the parent. An entity shall not recognise any gain or loss on these changes. Also, an entity shall not recognise any change in the carrying amounts of assets (including goodwill) or liabilities as a result of such transactions. |
9.21 | An entity shall disclose non-controlling interest in the profit or loss of the group separately in the statement of comprehensive income, as required by paragraph 5.6 (or in the income statement, if presented, as required by paragraph 5.7). |
9.22 | Profit or loss and each component of other comprehensive income shall be attributed to the owners of the parent and to the non-controlling interest. Total comprehensive income shall be attributed to the owners of the parent and to the non-controlling interest even if this results in the non-controlling interest having a deficit balance. |
Disclosures in consolidated financial statements
9.23 | The following disclosures shall be made in consolidated financial statements:
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9.23A | In addition to the disclosure requirements in Section 11, a parent shall disclose the carrying amount of investments in subsidiaries that are not consolidated (see paragraphs 9.3A–9.3C) at the reporting date, in total, either in the statement of financial position or in the notes. |
9.23B | An entity shall disclose the gain or loss, if any, calculated in accordance with paragraphs 9.18–9.18B, and:
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Separate financial statements
Presentation of separate financial statements
9.24 | This Standard does not require presentation of separate financial statements for the parent or for the individual subsidiaries. |
9.25 | Separate financial statements are presented by an entity in addition to any of the following:
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9.25A | A parent that is exempt in accordance with paragraph 9.3 from preparing consolidated financial statements is permitted to present separate financial statements as its only financial statements. |
Accounting policy election
9.26 | When an entity prepares separate financial statements and describes them as conforming to the IFRS for SMEs Accounting Standard, those statements shall comply with all of the requirements of this Standard except as follows. The entity shall adopt a policy of accounting for its investments in subsidiaries, associates and jointly controlled entities in its separate financial statements either:
The entity shall apply the same accounting policy for all investments in a single class (subsidiaries, associates or jointly controlled entities), but it can elect different policies for different classes. |
Disclosures in separate financial statements
9.27 | When an entity prepares separate financial statements, those separate financial statements shall disclose:
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Combined financial statements
9.28 | Combined financial statements are the financial statements of a reporting entity that comprises two or more entities that are not all linked by a parent–subsidiary relationship. This Standard does not require combined financial statements to be prepared. |
9.29 | If the investor prepares combined financial statements and describes them as conforming to the IFRS for SMEs Accounting Standard, those statements shall comply with all of the requirements of this Standard. Intercompany transactions and balances shall be eliminated; profits or losses resulting from intercompany transactions that are recognised in assets such as inventory and property, plant and equipment shall be eliminated; the financial statements of the entities included in the combined financial statements shall be prepared as of the same reporting date unless it is impracticable to do so; and uniform accounting policies shall be followed for like transactions and other events in similar circumstances. |
Disclosures in combined financial statements
9.30 | The combined financial statements shall disclose the following:
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Section 10 Accounting Policies, Estimates and Errors
Scope of this section
10.1 | This section provides guidance for selecting and applying the accounting policies used in preparing financial statements. It also covers changes in accounting estimates and corrections of errors in prior period financial statements. |
Selection and application of accounting policies
10.2 | Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. |
10.3 | If this Standard specifically addresses a transaction, other event or condition, an entity shall apply this Standard. However, the entity need not follow a requirement in this Standard if the effect of doing so would not be material. |
10.4 | If this Standard does not specifically address a transaction, other event or condition, an entity’s management shall use its judgement in developing and applying an accounting policy that results in information that is:
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10.5 | In making the judgement described in paragraph 10.4, management shall refer to, and consider the applicability of, the following sources in descending order:
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10.6 | In making the judgement described in paragraph 10.4, management may also consider the requirements and guidance in full IFRS Accounting Standards dealing with similar and related issues. |
Consistency of accounting policies
10.7 | An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless this Standard specifically requires or permits categorisation of items for which different policies may be appropriate. If this Standard requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category. |
Changes in accounting policies
10.8 | An entity shall change an accounting policy only if the change:
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10.9 | The following are not changes in accounting policies:
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10.10 | If this Standard allows a choice of accounting treatment (including the measurement basis) for a specified transaction or other event or condition and an entity changes its previous choice, that is a change in accounting policy. |
10.10A | The initial application of a policy to revalue assets in accordance with Section 17 Property, Plant and Equipment is a change in an accounting policy to be dealt with as a revaluation in accordance with Section 17. Consequently, a change from the cost model to the revaluation model for a class of property, plant and equipment shall be accounted for prospectively, instead of in accordance with paragraphs 10.11–10.12. |
Applying changes in accounting policies
10.11 | An entity shall account for:
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Retrospective application
10.12 | When a change in accounting policy is applied retrospectively in accordance with paragraph 10.11, the entity shall apply the new accounting policy to comparative information for prior periods to the earliest date for which it is practicable, as if the new accounting policy had always been applied. When it is impracticable to determine the individual-period effects of a change in accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period. |
Disclosure of a change in accounting policy
10.13 | When an amendment to this Standard has an effect on the current period or any prior period, or might have an effect on future periods, an entity shall disclose the following:
Financial statements of subsequent periods need not repeat these disclosures. |
10.14 | When a voluntary change in accounting policy has an effect on the current period or any prior period, an entity shall disclose the following:
Financial statements of subsequent periods need not repeat these disclosures. |
Accounting estimates
10.14A | An accounting policy might require items in financial statements to be measured in a way that involves measurement uncertainty—that is, the accounting policy might require such items to be measured at monetary amounts that cannot be observed directly and must instead be estimated. In such cases, the entity develops an accounting estimate to achieve the objective set out by the accounting policy. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information. |
10.14B | An entity uses measurement techniques and inputs to develop an accounting estimate. Measurement techniques include estimation techniques (for example, techniques used to measure depreciation for an item of property, plant and equipment, applying Section 17) and valuation techniques (for example, techniques used to measure the fair value of an asset or liability applying Section 12 Fair Value Measurement). |
Changes in accounting estimates
10.14C | An entity may need to change an accounting estimate if changes occur in the circumstances on which the accounting estimate was based or as a result of new information, developments or more experience. |
10.15 | The effects on an accounting estimate of a change in an input or a change in a measurement technique are changes in accounting estimates unless they result from the correction of prior period errors. A change in the measurement basis applied is a change in an accounting policy and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate. |
10.16 | An entity shall recognise the effect of a change in an accounting estimate, other than a change to which paragraph 10.17 applies, prospectively by including it in profit or loss in:
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10.17 | To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, the entity shall recognise it by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. |
Disclosure of a change in accounting estimates
10.18 | An entity shall disclose the nature of any change in an accounting estimate and the effect of the change on assets, liabilities, income and expense for the current period. If it is practicable for the entity to estimate the effect of the change in one or more future periods, the entity shall disclose those estimates. |
Corrections of prior period errors
10.19 | Prior period errors are omissions from, and misstatements in, an entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
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10.20 | Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts and fraud. |
10.21 | To the extent practicable, an entity shall correct a material prior period error retrospectively in the first financial statements authorised for issue after its discovery by:
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10.22 | When it is impracticable to determine the effects of an error on comparative information for one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). |
Disclosure of prior period errors
10.23 | An entity shall disclose the following about prior period errors:
Financial statements of subsequent periods need not repeat these disclosures. |
Section 11Financial Instruments
Scope of this section
11.1 | Section 11 Financial Instruments deals with recognising, derecognising, measuring and disclosing financial instruments (financial assets and financial liabilities). Part I of Section 11 applies to basic financial instruments and is relevant to all entities. Part II of Section 11 applies to other, more complex financial instruments and transactions. If an entity enters into only basic financial instrument transactions, then Part II of Section 11 is not applicable. However, all entities shall consider the scope of Part II of Section 11 to ensure they are exempt. |
11.2 | [Deleted] |
Part I of Section 11Basic Financial Instruments
Introduction to Part I of Section 11
11.3 | A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. |
11.4 | Part I of Section 11 requires an amortised cost model for all basic financial instruments except for investments in non-convertible preference shares and non-puttable ordinary or preference shares that are publicly traded or whose fair value can otherwise be measured reliably without undue cost or effort. |
11.5 | Basic financial instruments within the scope of Part I of Section 11 are those that satisfy the conditions in paragraph 11.8. Examples of financial instruments that normally satisfy those conditions include:
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11.6 | Examples of financial instruments that do not normally satisfy the conditions in paragraph 11.8, and are therefore within the scope of Part II of Section 11, include:
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Scope of Part I of Section 11
11.7 | Part I of Section 11 applies to all financial instruments meeting the conditions of paragraph 11.8 except for the following:
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11.7A | The impairment requirements in paragraphs 11.21–11.26 apply to contract assets. |
Basic financial instruments
11.8 | An entity shall account for the following financial instruments as basic financial instruments in accordance with Part I of Section 11:
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11.9 | A debt instrument that satisfies all of the conditions in (a)–(d) shall be accounted for in accordance with Part I of Section 11:
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11.9ZA | A debt instrument that does not meet all of the conditions in paragraph 11.9(a)–(d) shall nevertheless be accounted for in accordance with Part I of Section 11 if the contractual terms of the instrument give rise on specified dates to cash flows that are solely payments of principal and interest on the outstanding principal amount. A debt instrument with contractual terms that introduce exposure to unrelated risks or volatility—for example, changes in equity prices or commodity prices—is unlikely to meet this requirement. For the purpose of the requirement in this paragraph, ‘interest’ includes reasonable compensation for the time value of money, credit risk and other basic lending risks and costs—for example, liquidity risk, administrative costs associated with holding the instrument and lender’s profit margin—consistent with a basic lending arrangement. |
11.9A | Examples of debt instruments that would normally satisfy the conditions in paragraph 11.9(a)(iv) include:
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11.9B | An example of a debt instrument that would normally satisfy the conditions set out in paragraph 11.9(b)–(c) would be a bank loan that permits the borrower to terminate the arrangement early, even though the borrower may be required to pay a penalty to compensate the bank for its costs of the borrower terminating the arrangement early. |
11.10 | Other examples of financial instruments that would normally satisfy the conditions in paragraph 11.9 are:
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11.11 | Examples of financial instruments that do not satisfy the conditions in paragraph 11.9 or 11.9ZA (and are therefore within the scope of Part II of Section 11) include:
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11.11A | An entity shall not reassess the classification of a financial instrument after initial recognition. |
Initial recognition of financial assets and liabilities
11.12 | An entity shall recognise a financial asset or a financial liability only when the entity becomes a party to the contractual provisions of the instrument. |
Initial measurement
11.13 | When a financial asset or financial liability is recognised initially, an entity shall measure it at the transaction price (including transaction costs except in the initial measurement of financial assets and liabilities that are subsequently measured at fair value through profit or loss) unless:
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11.13A | A trade receivable shall be recognised initially at the amount determined by applying Section 23, unless the arrangement constitutes, in effect, a financing transaction and the entity does not apply the option in paragraph 23.38. For such arrangements, the entity shall measure the trade receivable in accordance with paragraph 11.13B. |
11.13B | An arrangement constitutes a financing transaction if payment is deferred beyond normal business terms, for example, providing interest-free credit to a buyer for the sale of goods, or is financed at a rate of interest that is not a market rate, for example, an interest-free or below market interest rate loan made to an employee. If the arrangement constitutes a financing transaction, the entity shall measure the financial asset or financial liability at the present value of the future payments discounted at a market rate of interest for a similar debt instrument as determined at initial recognition.
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Subsequent measurement
11.14 | At the end of each reporting period, an entity shall measure financial instruments as follows, without any deduction for transaction costs the entity may incur on sale or other disposal:
Impairment or uncollectability must be assessed for financial assets in (a), (b) and (c)(ii). Paragraphs 11.21–11.26 provide guidance. |
11.14A | Dividends are recognised in profit or loss only when:
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Amortised cost and effective interest method
11.15 | The amortised cost of a financial asset or financial liability at each reporting date is the net of the following amounts:
Financial assets and financial liabilities that have no stated interest rate, that do not relate to an arrangement that constitutes a financing transaction and that are classified as current assets or current liabilities are initially measured at an undiscounted amount in accordance with paragraph 11.13. Consequently, (c) does not apply to them. |
11.16 | The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or a group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the carrying amount of the financial asset or financial liability. The effective interest rate is determined on the basis of the carrying amount of the financial asset or liability at initial recognition. Under the effective interest method:
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11.17 | When calculating the effective interest rate, an entity shall estimate cash flows considering all contractual terms of the financial instrument (for example prepayment, call and similar options) and known credit losses that have been incurred, but it shall not consider possible future credit losses not yet incurred. |
11.18 | When calculating the effective interest rate, an entity shall amortise any related fees, finance charges paid or received (such as ‘points’), transaction costs and other premiums or discounts over the expected life of the instrument, except as follows. The entity shall use a shorter period if that is the period to which the fees, finance charges paid or received, transaction costs, premiums or discounts relate. This will be the case when the variable to which the fees, finance charges paid or received, transaction costs, premiums or discounts relate is repriced to market rates before the expected maturity of the instrument. In such a case, the appropriate amortisation period is the period to the next such repricing date. |
11.19 | For variable rate financial assets and variable rate financial liabilities, periodic re-estimation of cash flows to reflect changes in market rates of interest alters the effective interest rate. If a variable rate financial asset or variable rate financial liability is recognised initially at an amount equal to the principal receivable or payable at maturity, re-estimating the future interest payments normally has no significant effect on the carrying amount of the asset or liability. |
11.20 | If an entity revises its estimates of payments or receipts, the entity shall adjust the carrying amount of the financial asset or financial liability (or group of financial instruments) to reflect actual and revised estimated cash flows. The entity shall recalculate the carrying amount by computing the present value of estimated future cash flows at the financial instrument’s original effective interest rate. The entity shall recognise the adjustment as income or expense in profit or loss at the date of the revision.
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Impairment of financial assets measured at cost or amortised cost
Recognition
11.21 | At the end of each reporting period, an entity shall assess whether there is objective evidence of impairment of any financial assets that are measured at cost or amortised cost. If there is objective evidence of impairment, the entity shall recognise an impairment loss in profit or loss immediately. |
11.22 | Objective evidence that a financial asset or group of assets is impaired includes observable data that come to the attention of the holder of the asset about the following loss events:
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11.23 | Other factors may also be evidence of impairment, including significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the debtor or issuer operates. |
11.24 | An entity shall assess the following financial assets individually for impairment:
An entity shall assess other financial assets for impairment either individually or grouped on the basis of similar credit risk characteristics. |
Measurement
11.25 | An entity shall measure an impairment loss on the following financial assets measured at cost or amortised cost as follows:
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Reversal
11.26 | If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the entity shall reverse the previously recognised impairment loss either directly or by adjusting an allowance account. The reversal shall not result in a carrying amount of the financial asset (net of any allowance account) that exceeds what the carrying amount would have been had the impairment not previously been recognised. The entity shall recognise the amount of the reversal in profit or loss immediately. |
11.27 | [Deleted] |
11.28 | [Deleted] |
11.29 | [Deleted] |
11.30 | [Deleted] |
11.31 | [Deleted] |
11.32 | [Deleted] |
Derecognition of a financial asset
11.33 | An entity shall derecognise a financial asset only when either:
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11.34 | If a transfer does not result in derecognition because the entity has retained significant risks and rewards of ownership of the transferred asset, the entity shall continue to recognise the transferred asset in its entirety and shall recognise a financial liability for the consideration received. The asset and liability shall not be offset. In subsequent periods, the entity shall recognise any income on the transferred asset and any expense incurred on the financial liability. |
11.35 | If a transferor provides non-cash collateral (such as debt or equity instruments) to the transferee, the accounting for the collateral by the transferor and the transferee depends on whether the transferee has the right to sell or repledge the collateral and on whether the transferor has defaulted. The transferor and transferee shall account for the collateral as follows:
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Derecognition of a financial liability
11.36 | An entity shall derecognise a financial liability (or a part of a financial liability) only when it is extinguished—ie when the obligation specified in the contract is discharged, is cancelled or expires. |
11.37 | If an existing borrower and lender exchange financial instruments with substantially different terms, the entities shall account for the transaction as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, an entity shall account for a substantial modification of the terms of an existing financial liability or a part of it (whether or not attributable to the financial difficulty of the debtor) as an extinguishment of the original financial liability and the recognition of a new financial liability. |
11.38 | The entity shall recognise in profit or loss any difference between the carrying amount of the financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non‑cash assets transferred or liabilities assumed. |
Disclosures
11.39 | The following disclosures make reference to disclosures for financial liabilities measured at fair value through profit or loss. Entities that have only basic financial instruments (and therefore do not apply Part II of Section 11) will not have any financial liabilities measured at fair value through profit or loss and hence will not need to provide such disclosures. |
Disclosure of accounting policies for financial instruments
11.40 | In accordance with paragraph 8.5, an entity shall disclose material accounting policy information. Information about the measurement basis (or bases) for financial instruments used in preparing the financial statements is expected to be material accounting policy information. |
Statement of financial position—categories of financial assets and financial liabilities
11.41 | An entity shall disclose the carrying amounts of each of the following categories of financial assets and financial liabilities at the reporting date, in total, either in the statement of financial position or in the notes:
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11.42 | An entity shall disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance. For example, for long-term debt such information would normally include the terms and conditions of the debt instrument (such as interest rate, maturity, repayment schedule, and restrictions that the debt instrument imposes on the entity). |
11.43 | An entity shall disclose an analysis of the age, by reference to due date, of trade receivables and other financial assets measured at amortised cost at the reporting date, showing separately:
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11.43A | An entity shall disclose a maturity analysis for financial liabilities by category (see paragraph 11.41(d)–(e)). The maturity analysis shall include the remaining contractual maturities. The contractual amounts disclosed in the maturity analysis are the contractual undiscounted cash flows. |
11.43B | In preparing the disclosures in paragraphs 11.43–11.43A, an entity shall use time bands it considers to be the most useful. For example, for paragraph 11.43 the time bands might be:
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11.44 | If a reliable measure of fair value is no longer available, or is not available without undue cost or effort when such an exemption is provided, for any financial instruments that would otherwise be required to be measured at fair value through profit or loss in accordance with this Standard, the entity shall disclose that fact, the carrying amount of those financial instruments and, if an undue cost or effort exemption has been used, the reasons why a reliable fair value measurement would involve undue cost or effort. |
Transferred financial assets that do not qualify for derecognition
11.45 | If an entity has transferred financial assets to another party in a transaction that does not qualify for derecognition (see paragraphs 11.33–11.35), the entity shall disclose the following for each class of such financial assets:
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Collateral
11.46 | When an entity has pledged financial assets as collateral for liabilities or contingent liabilities, it shall disclose the following:
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Defaults and breaches on loans payable
11.47 | For loans payable recognised at the reporting date for which there is a breach of terms or a default of principal, interest, sinking fund or redemption terms that have not been remedied by the reporting date, an entity shall disclose the following:
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Items of income, expense, gains or losses
11.48 | An entity shall disclose the following items of income, expense, gains or losses:
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Part II of Section 11Other Financial Instrument Issues
Scope of Part II of Section 11
11.49 | Part II of Section 11 applies to all financial instruments except the following:
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11.50 | Most contracts to buy or sell a non-financial item such as a commodity, inventory or property, plant and equipment are excluded from this section because they are not financial instruments. However, Part II of Section 11 applies to all contracts that impose risks on the buyer or seller that are not typical of contracts to buy or sell non-financial items. For example, Part II of Section 11 applies to contracts that could result in a loss to the buyer or seller as a result of contractual terms that are unrelated to changes in the price of the non-financial item, changes in foreign exchange rates or a default by one of the counterparties. |
11.51 | In addition to the contracts described in paragraph 11.50, Part II of Section 11 applies to contracts to buy or sell non-financial items if the contract can be settled net in cash or another financial instrument, or by exchanging financial instruments as if the contracts were financial instruments, with the following exception: contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale or usage requirements are not financial instruments for the purposes of Section 11. |
Initial recognition of financial assets and liabilities
11.52 | An entity shall recognise a financial asset or a financial liability only when the entity becomes a party to the contractual provisions of the instrument. |
Initial measurement
11.53 | When a financial asset or financial liability is recognised initially, an entity shall measure it at its fair value, which is normally the transaction price. |
Subsequent measurement
11.54 | At the end of each reporting period, an entity shall measure all financial instruments within the scope of Part II of Section 11 at fair value and recognise changes in fair value in profit or loss, except as follows:
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11.55 | Dividends are recognised in profit or loss only when:
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11.56 | If a reliable measure of fair value is no longer available without undue cost or effort for an equity instrument, or a contract linked to such an instrument that if exercised will result in the delivery of such instruments, that is not publicly traded but is measured at fair value through profit or loss, its fair value at the last date that the instrument was reliably measurable without undue cost or effort is treated as the cost of the instrument. The entity shall measure the instrument at this cost amount less impairment until it is able to determine a reliable measure of fair value without undue cost or effort. |
Fair value
11.57 | An entity shall apply the guidance on fair value in Section 12 to fair value measurements in accordance with Section 11. |
11.58 | The fair value of a financial liability that is due on demand is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid. |
Impairment of financial assets measured at cost or amortised cost
11.59 | An entity shall apply the guidance on impairment in paragraphs 11.21–11.26 to financial assets measured at cost less impairment in accordance with Part II of Section 11. |
Derecognition of a financial asset or financial liability
11.60 | An entity shall apply the derecognition requirements in paragraphs 11.33–11.38 to financial assets and financial liabilities to which Section 11 applies. |
Hedge accounting
11.61 | If specified criteria are met, an entity may designate a hedging relationship between a hedging instrument and a hedged item in such a way as to qualify for hedge accounting. Hedge accounting permits the gain or loss on the hedging instrument and on the hedged item to be recognised in profit or loss at the same time. |
11.62 | To qualify for hedge accounting, an entity shall comply with all of the following conditions:
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11.63 | This Standard permits hedge accounting only for the following risks:
Foreign exchange risk of a debt instrument measured at amortised cost is not in the list because hedge accounting would not have any significant effect on the financial statements. Basic accounts, notes and loans receivable and payable are normally measured at amortised cost (see paragraph 11.5(d)). This would include payables denominated in a foreign currency. Paragraph 30.10 requires any change in the carrying amount of the payable because of a change in the exchange rate to be recognised in profit or loss. Consequently, both the change in fair value of the hedging instrument (the cross-currency swap) and the change in the carrying amount of the payable relating to the change in the exchange rate would be recognised in profit or loss and should offset each other except to the extent of the difference between the spot rate (at which the liability is measured) and the forward rate (at which the swap is measured). |
11.64 | This Standard permits hedge accounting only if the hedging instrument has all of the following terms and conditions:
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Hedge of fixed interest rate risk of a recognised financial instrument or commodity price risk of a commodity held
11.65 | If the conditions in paragraph 11.62 are met and the hedged risk is the exposure to a fixed interest rate risk of a debt instrument measured at amortised cost or the commodity price risk of a commodity that it holds, the entity shall:
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11.66 | If the hedged risk is the fixed interest rate risk of a debt instrument measured at amortised cost, the entity shall recognise the periodic net cash settlements on the interest rate swap that is the hedging instrument in profit or loss in the period in which the net settlements accrue. |
11.67 | The entity shall discontinue the hedge accounting specified in paragraph 11.65 if:
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11.68 | If hedge accounting is discontinued and the hedged item is an asset or liability carried at amortised cost that has not been derecognised, any gains or losses recognised as adjustments to the carrying amount of the hedged item are amortised into profit or loss using the effective interest method over the remaining life of the hedged item. |
Hedge of variable interest rate risk of a recognised financial instrument, foreign exchange risk or commodity price risk in a firm commitment or highly probable forecast transaction or a net investment in a foreign operation
11.69 | If the conditions in paragraph 11.62 are met and the hedged risk is:
the entity shall recognise in other comprehensive income the portion of the change in the fair value of the hedging instrument that was effective in offsetting the change in the fair value or expected cash flows of the hedged item. The entity shall recognise in profit or loss in each period any excess (in absolute amount) of the cumulative change in the fair value of the hedging instrument over the cumulative change in the fair value of the expected cash flows of the hedged item since inception of the hedge (sometimes called hedge ineffectiveness). The hedging gain or loss recognised in other comprehensive income shall be reclassified to profit or loss when the hedged item is recognised in profit or loss, subject to the requirements in paragraph 11.71. However, the cumulative amount of any exchange differences that relate to a hedge of a net investment in a foreign operation recognised in other comprehensive income shall not be reclassified to profit or loss on disposal or partial disposal of the foreign operation. |
11.70 | If the hedged risk is the variable interest rate risk in a debt instrument measured at amortised cost, the entity shall subsequently recognise in profit or loss the periodic net cash settlements from the interest rate swap that is the hedging instrument in the period in which the net settlements accrue. |
11.71 | The entity shall discontinue prospectively the hedge accounting specified in paragraph 11.69 if:
If the forecast transaction is no longer expected to take place or if the hedged debt instrument measured at amortised cost is derecognised, any gain or loss on the hedging instrument that was recognised in other comprehensive income shall be reclassified to profit or loss. |
Disclosures
11.72 | An entity applying Part II of Section 11 shall make all of the disclosures required in Part I of Section 11 incorporating in those disclosures financial instruments that are within the scope of Part II of Section 11 as well as those within the scope of Part I of Section 11. In addition, if the entity uses hedge accounting, it shall make the additional disclosures in paragraphs 11.73–11.75. |
11.73 | An entity shall disclose the following separately for hedges of each of the four types of risks described in paragraph 11.63:
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11.74 | If an entity uses hedge accounting for a hedge of fixed interest rate risk or commodity price risk of a commodity held (paragraphs 11.65–11.68) it shall disclose the following:
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11.75 | If an entity uses hedge accounting for a hedge of variable interest rate risk, foreign exchange risk, commodity price risk in a firm commitment or highly probable forecast transaction or a net investment in a foreign operation (paragraphs 11.69–11.71), it shall disclose the following:
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Section 12Fair Value Measurement
Scope of this section
12.1 | This section applies when another section requires or permits fair value measurements or disclosures about fair value measurements, except:
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12.2 | The disclosures required by this section are not required for:
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Measurement
Objective of fair value measurement
12.3 | The objective of a fair value measurement is to estimate the price at which an orderly transaction (not a forced transaction) to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (an exit price at the measurement date). |
Measurement principles
12.4 | Fair value is 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. Fair value is a market-based rather than entity-specific measurement. An entity shall measure fair value using the same assumptions that market participants would use when pricing the asset or liability. The entity’s intention to hold the asset or settle the liability is not relevant. |
12.5 | An entity shall take into account the characteristics of the asset or liability when measuring fair value if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Such characteristics include:
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12.6 | An entity shall assume that the transaction to sell the asset or transfer the liability takes place in either:
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12.7 | The entity must have access to the principal (or most advantageous) market at the measurement date. In the absence of evidence to the contrary, an entity shall assume the market in which the entity would normally enter into a transaction to sell the asset or to transfer the liability is the principal market or, in the absence of a principal market, the most advantageous market. Even if no observable market exists, the entity shall assume that a transaction takes place at the measurement date as a basis for estimating fair value. |
12.8 | An entity shall ignore transaction costs when using the price in the principal (or most advantageous) market to measure the fair value of the asset or liability. Transaction costs are not a characteristic of an asset or a liability; instead, they are specific to a transaction. |
12.9 | If location is a characteristic of the asset, an entity shall adjust the price in the principal (or most advantageous) market for the costs, if any, that would be incurred to transport the asset from its current location to that market. |
Highest and best use for non-financial assets
12.10 | When making a fair value measurement of a non-financial asset, an entity shall take into account a market participant’s ability to generate economic benefits by using the asset for its highest and best use or by selling it to another market participant that would use the asset for its highest and best use. |
12.11 | The highest and best use of a non-financial asset takes into account any use of the asset that is physically possible, legally allowed and financially feasible as follows:
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12.12 | An entity shall assume the current use of a non-financial asset is its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the asset. |
12.13 | If a non-financial asset provides maximum value to market participants through its use in combination with other assets (and liabilities), an entity shall assume the asset would be used with those other assets (and liabilities) and that those other assets (and liabilities) would be available to market participants. An entity shall make consistent assumptions about the highest and best use of a non-financial asset for all the assets (for which highest and best use is relevant) with which the asset would be used. |
Valuation techniques
12.14 | If a price for an identical asset or liability is not observable, an entity shall measure fair value using another valuation technique. The entity shall use a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The entity shall maximise its use of relevant observable inputs and minimise its use of unobservable inputs. |
12.15 | Three widely used valuation approaches are the market approach, the cost approach and the income approach. An entity shall use a valuation technique consistent with one or more of these approaches:
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12.16 | An entity shall account for revisions resulting from a change in the valuation technique or a change in its application as a change in accounting estimate in Section 10. However, an entity is not required to apply the disclosure requirements in Section 10 for a change in accounting estimate resulting from a change in a valuation technique or its application. |
12.17 | An asset or a liability measured at fair value might have a bid price and an ask price (for example, an input from a dealer market). If so, an entity shall measure the fair value of the asset or liability using the price within the bid–ask spread that is most representative of fair value in the circumstances. The entity shall use this price to measure fair value regardless of how the entity categorises the input within the fair value hierarchy (that is Level 1, Level 2 or Level 3; see paragraphs 12.22–12.27). The entity is permitted, but not required, to use the bid prices for asset positions and ask prices for liability positions. This section does not preclude an entity from using mid‑market pricing or other pricing conventions, within a bid–ask spread, that are used by market participants as a practical expedient for fair value measurements. |
Reliable measure of fair value
12.18 | A valuation technique would be expected to arrive at a reliable measure of fair value if:
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12.19 | The fair value of investments in assets that do not have a quoted market price in an active market is reliably measurable if:
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12.20 | The variability in the range of reasonable fair value measures of assets that do not have a quoted market price is likely not to be significant in many situations. Normally an entity can estimate the fair value of an asset acquired from an outside party. However, if the range of reasonable fair value measures is significant and the probabilities of the various measures cannot be reasonably assessed, then a reliable measure of fair value is not available. |
12.21 | If a reliable measure of fair value is no longer available for an asset measured at fair value (or is not available without undue cost or effort when an undue cost or effort exemption is provided—for example, see paragraphs 11.14(c) and 11.54(b)), an entity shall instead use its carrying amount at the last date the asset was reliably measurable as its new cost. An entity shall measure the asset at this cost amount less impairment until a reliable measure of fair value is available (or is available without undue cost or effort when such an exemption is provided). |
Fair value hierarchy
12.22 | For consistency and comparability in fair value measurements and related disclosures, an entity shall apply a fair value hierarchy, categorising the inputs to valuation techniques used to measure fair value into three levels—Level 1, Level 2 and Level 3. This fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). In some cases, an entity might categorise the inputs used to measure the fair value of an asset or a liability within different levels of the fair value hierarchy. In these cases, an entity shall categorise the entire fair value measurement at the level of the lowest level input that is significant to the entire measurement. |
Level 1 inputs
12.23 | Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. A quoted price in an active market provides the most reliable evidence of fair value. An entity shall use a quoted price in an active market to measure fair value whenever such a price is available. |
12.24 | If an entity holds a position in a single asset or liability (including a position comprising many identical assets or liabilities, such as a holding of financial instruments) and the asset or liability is traded in an active market, the entity shall measure the fair value of the asset or liability by multiplying the quoted price for the individual asset or liability by the quantity it holds. The fair value measurement of the asset or liability would be categorised within Level 1. |
Level 2 inputs
12.25 | Level 2 inputs are directly or indirectly observable inputs—other than quoted prices included within Level 1—for the asset or liability. Level 2 inputs include:
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12.26 | If an entity adjusts a Level 2 input in a way that is significant to the entire measurement and uses significant unobservable inputs, the entity might need to categorise the fair value measurement within Level 3 of the fair value hierarchy. |
Level 3 inputs
12.27 | Level 3 inputs are unobservable inputs for the asset or liability. An entity shall develop unobservable inputs using the best information available in the circumstances, which might include the entity’s own data. In developing unobservable inputs, an entity is permitted to begin with its own data, but the entity shall adjust this data if reasonably available information indicates that other market participants would use different data or there is something particular to the entity that is not available to other market participants (for example, an entity-specific synergy). An entity need not make exhaustive efforts to obtain information about market participant assumptions. However, an entity shall take into account all information about market participant assumptions that is reasonably available. |
Disclosures
12.28 | An entity shall disclose for each class of assets and liabilities measured at fair value in the statement of financial position after initial recognition:
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12.29 | For recurring fair value measurements categorised within Level 3 of the fair value hierarchy, an entity shall disclose total gains or losses for the period recognised in:
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12.30 | An entity shall determine appropriate classes of assets and liabilities on the basis of:
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12.31 | A class of assets and liabilities will often require greater disaggregation than the line items presented in the statement of financial position; however, an entity shall disclose sufficient information to permit reconciliation to the line items presented in the statement of financial position. |
12.32 | An entity shall present the quantitative disclosures required by paragraphs 12.28–12.31 in a table unless another format would be more useful. |
Section 13Inventories
Scope of this section
13.1 | This section sets out the principles for recognising and measuring inventories. Inventories are assets:
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13.2 | This section applies to all inventories, except:
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13.2A | The disclosure requirements in this section apply to returns assets classified as inventory (see paragraph 23A.24(c)). Returns assets are recognised and measured in accordance with paragraphs 23A.23–23A.27 and not in accordance with this section. |
13.3 | This section does not apply to the measurement of inventories held by:
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Measurement of inventories
13.4 | An entity shall measure inventories at the lower of cost and estimated selling price less costs to complete and sell. |
Cost of inventories
13.5 | An entity shall include in the cost of inventories all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. |
Costs of purchase
13.6 | The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities) and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. |
13.7 | An entity may purchase inventories on deferred settlement terms. In some cases, the arrangement effectively contains an unstated financing element, for example, a difference between the purchase price for normal credit terms and the deferred settlement amount. In these cases, the difference is recognised as interest expense over the period of the financing and is not added to the cost of the inventories. |
Costs of conversion
13.8 | The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour. |
Allocation of production overheads
13.9 | An entity shall allocate fixed production overheads to the costs of conversion on the basis of the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities. |
Joint products and by-products
13.10 | A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of raw materials or conversion of each product are not separately identifiable, an entity shall allocate them between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable or at the completion of production. Most by-products, by their nature, are immaterial. When this is the case, the entity shall measure them at selling price less costs to complete and sell and deduct this amount from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost. |
Other costs included in inventories
13.11 | An entity shall include other costs in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. |
13.12 | An entity applying paragraph 11.65(b) adjusts the carrying amount of a commodity (hedged item) held for the change in the fair value of the hedged item related to the hedged risk. |
Costs excluded from inventories
13.13 | Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which they are incurred are:
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13.14 | [Deleted] |
Cost of agricultural produce harvested from biological assets
13.15 | Section 34 requires that inventories comprising agricultural produce that an entity has harvested from its biological assets shall be measured on initial recognition at their fair value less estimated costs to sell at the point of harvest. This becomes the cost of the inventories at that date for application of this section. |
Techniques for measuring cost, such as standard costing, retail method and most recent purchase price
13.16 | An entity may use techniques such as the standard cost method, the retail method or most recent purchase price for measuring the cost of inventories if the result approximates cost. Standard costs take into account normal levels of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions. The retail method measures cost by reducing the sales value of the inventory by the appropriate percentage gross margin. |
Cost formulas
13.17 | An entity shall measure the cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects by using specific identification of their individual costs. |
13.18 | An entity shall measure the cost of inventories, other than those dealt with in paragraph 13.17, by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified. The last-in, first-out method (LIFO) is not permitted by this Standard. |
Impairment of inventories
13.19 | Paragraphs 27.2–27.4 require an entity to assess at the end of each reporting period whether any inventories are impaired, ie the carrying amount is not fully recoverable (for example, because of damage, obsolescence or declining selling prices). If an item (or group of items) of inventory is impaired, those paragraphs require the entity to measure the inventory at its selling price less costs to complete and sell and to recognise an impairment loss. Those paragraphs also require a reversal of a prior impairment in some circumstances. |
Recognition as an expense
13.20 | When inventories are sold, the entity shall recognise the carrying amount of those inventories as an expense in the period in which the related revenue is recognised. |
13.21 | Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are accounted for subsequently in accordance with the section of this Standard relevant to that type of asset. |
Disclosures
13.22 | An entity shall disclose the following:
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Section 14Investments in Associates
Scope of this section
14.1 | This section applies to accounting for associates in consolidated financial statements and in the financial statements of an investor that is not a parent but that has an investment in one or more associates. Paragraph 9.26 establishes the requirements for accounting for associates in separate financial statements. |
Associates defined
14.2 | An associate is an entity over which the investor has significant influence. |
14.3 | Significant influence is the power to participate in the financial and operating policy decisions of the associate but is not control or joint control over those policies:
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Measurement—accounting policy election
14.4 | An investor shall account for all of its investments in associates using one of the following:
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Cost model
14.5 | An investor shall measure its investments in associates, other than those for which there is a published price quotation (see paragraph 14.7) at cost less any accumulated impairment losses recognised in accordance with Section 27 Impairment of Assets. |
14.6 | The investor shall recognise dividends and other distributions received from the investment as income without regard to whether the distributions are from accumulated profits of the associate arising before or after the date of acquisition. |
14.7 | An investor shall measure its investments in associates for which there is a published price quotation using the fair value model (see paragraph 14.9). |
Equity method
14.8 | Under the equity method of accounting, an equity investment is initially recognised at the transaction price (including transaction costs) and is subsequently adjusted to reflect the investor’s share of the profit or loss and other comprehensive income of the associate:
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Fair value model
14.9 | When an investment in an associate is recognised initially, an investor shall measure it at the transaction price. Transaction price excludes transaction costs. |
14.10 | At each reporting date, an investor shall measure its investments in associates at fair value, with changes in fair value recognised in profit or loss, using the fair value measurement guidance in Section 12 Fair Value Measurement. An investor using the fair value model shall use the cost model for any investment in an associate for which fair value cannot be measured reliably without undue cost or effort. |
Financial statement presentation
14.11 | An investor shall classify investments in associates as non-current assets. |
Disclosures
14.12 | An entity shall disclose the following:
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14.13 | For investments in associates accounted for using the cost model, an investor shall disclose the amount of dividends and other distributions recognised as income. |
14.14 | For investments in associates accounted for using the equity method, an investor shall disclose separately its share of the profit or loss and its share of any discontinued operations. |
14.15 | For investments in associates accounted for using the fair value model, an investor shall make the disclosures required in Section 12. If an investor applies the undue cost or effort exemption in paragraph 14.10 for any associates it shall disclose that fact, the reasons why fair value measurement would involve undue cost or effort and the carrying amount of investments in associates accounted for under the cost model. |
Section 15Joint Arrangements
Scope of this section
15.1 | This section applies to accounting for joint arrangements in consolidated financial statements and in the financial statements of an investor that is not a parent but that has one or more joint arrangements. This section also establishes requirements for a party that participates in but does not have joint control in a joint arrangement. Paragraph 9.26 establishes the requirements for accounting for a jointly controlled entity in separate financial statements. |
Joint arrangements defined
15.2 | A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. |
15.2A | An entity that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the returns of the arrangement (that is, the relevant activities). Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively. |
15.3 | Joint arrangements can take the form of jointly controlled operations, jointly controlled assets or jointly controlled entities. |
Jointly controlled operations
15.4 | The operation of some joint arrangements involves the use of the assets and other resources of the parties to the joint arrangement instead of the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the parties themselves. Each party uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint arrangement activities may be carried out by the party’s employees alongside the party’s similar activities. The joint arrangement agreement usually provides a means by which the revenue from the sale of the joint product and any expenses that are common to the parties are to be shared among them. |
15.5 | In respect of its interests in jointly controlled operations, a party shall recognise in its financial statements:
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Jointly controlled assets
15.6 | Some joint arrangements involve the joint control, and often the joint ownership, by the parties of one or more assets contributed to, or acquired for the purpose of, the joint arrangement and dedicated to the purposes of the joint arrangement. |
15.7 | In respect of its interest in a jointly controlled asset, a party shall recognise in its financial statements:
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Jointly controlled entities
15.8 | A jointly controlled entity is a joint arrangement that involves the establishment of a corporation, partnership or other entity in which each party has an interest. The entity operates in the same way as other entities, except that an arrangement between the parties establishes joint control. |
Measurement—accounting policy election
15.9 | A party that has joint control shall account for all of its investments in jointly controlled entities using one of the following:
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Cost model
15.10 | A party that has joint control shall measure its investments in jointly controlled entities, other than those for which there is a published price quotation (see paragraph 15.12) at cost less any accumulated impairment losses recognised in accordance with Section 27 Impairment of Assets. |
15.11 | The party that has joint control shall recognise distributions received from the investment as income without regard to whether the distributions are from accumulated profits of the jointly controlled entity arising before or after the date of acquisition. |
15.12 | Applying the cost model in paragraph 15.10, a party that has joint control shall measure its investments in jointly controlled entities for which there is a published price quotation using the fair value model (see paragraph 15.14). |
Equity method
15.13 | A party that has joint control shall measure its investments in jointly controlled entities using the equity method following the procedures in paragraph 14.8 (substituting ‘joint control’ where that paragraph refers to ‘significant influence’). |
Fair value model
15.14 | When an investment in a jointly controlled entity is recognised initially, a party that has joint control shall measure it at transaction price. Transaction price excludes transaction costs. |
15.15 | At each reporting date, a party that has joint control shall measure its investments in jointly controlled entities at fair value, with changes in fair value recognised in profit or loss, using the fair value measurement guidance in Section 12 Fair Value Measurement. A party using the fair value model shall use the cost model for any investment in a jointly controlled entity for which fair value cannot be measured reliably without undue cost or effort. |
Transactions between a party to the joint arrangement with joint control and a joint arrangement
15.16 | When a party to the joint arrangement that has joint control contributes or sells assets to a joint arrangement, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint arrangement, and provided the party to the joint arrangement has transferred the significant risks and rewards of ownership, the party shall recognise only that portion of the gain or loss that is attributable to the interests of the other parties. The party shall recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss. |
15.17 | When a party to the joint arrangement that has joint control purchases assets from a joint arrangement, that party shall not recognise its share of the profits of the joint arrangement from the transaction until it resells the assets to an independent party. A party to the joint arrangement shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent an impairment loss. |
If a party does not have joint control
15.18 | A party that participates in, but does not have joint control of, a jointly controlled entity shall account for its interest in the arrangement in accordance with Section 11 Financial Instruments unless it has significant influence over the jointly controlled entity, in which case it shall account for the interest in the arrangement in accordance with Section 14 Investments in Associates. |
15.18A | A party that participates in, but does not have joint control of, a jointly controlled operation shall account for its interest in the arrangement in accordance with paragraph 15.5. |
15.18B | A party that participates in, but does not have joint control of, jointly controlled assets shall account for its interest in the arrangement in accordance with paragraph 15.7. |
Disclosures
15.19 | An entity shall disclose the following:
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15.20 | For jointly controlled entities accounted for using the equity method, a party that has joint control shall also make the disclosures required by paragraph 14.14 for equity method investments. |
15.21 | For jointly controlled entities accounted for using the fair value model, a party that has joint control shall make the disclosures required in Section 12. If a party applies the undue cost or effort exemption in paragraph 15.15 for any jointly controlled entity it shall disclose that fact, the reasons why fair value measurement would involve undue cost or effort and the carrying amount of investments in jointly controlled entities accounted for under the cost model. |
Section 16Investment Property
Scope of this section
16.1 | This section applies to accounting for investments in land or buildings that meet the definition of investment property in paragraph 16.2 and some property interests held by a lessee under an operating lease (see paragraph 16.3) that are treated like investment property. Only investment property whose fair value can be measured reliably without undue cost or effort on an ongoing basis is accounted for in accordance with this section at fair value through profit or loss. All other investment property is accounted for using the cost model in Section 17 Property, Plant and Equipment and remains within the scope of Section 17 unless a reliable measure of fair value becomes available and it is expected that fair value will be reliably measurable on an ongoing basis. |
Definition and initial recognition of investment property
16.2 | Investment property is property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, instead of for:
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16.3 | A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property using this section if, and only if, the property would otherwise meet the definition of an investment property and the lessee can measure the fair value of the property interest without undue cost or effort on an ongoing basis. This classification alternative is available on a property-by-property basis. |
16.3A | An entity shall use its judgement to determine whether the acquisition of investment property is the acquisition of an asset or a group of assets, or a business combination within the scope of Section 19 Business Combinations and Goodwill. Determining whether a specific transaction meets the definition of a business combination as defined in Section 19 and includes an investment property as defined in this section requires the separate application of both sections. |
16.4 | Mixed use property shall be separated between investment property and property, plant and equipment. However, if the fair value of the investment property component cannot be measured reliably without undue cost or effort, the entire property shall be accounted for as property, plant and equipment in accordance with Section 17. |
Measurement at initial recognition
16.5 | An entity shall measure investment property at its cost at initial recognition. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure such as legal and brokerage fees, property transfer taxes and other transaction costs. If payment is deferred beyond normal credit terms, the cost is the present value of all future payments. An entity shall determine the cost of a self-constructed investment property in accordance with paragraphs 17.10–17.14. |
16.6 | The initial cost of a property interest held under a lease and classified as an investment property shall be as prescribed for a finance lease by paragraph 20.9, even if the lease would otherwise be classified as an operating lease if it was in the scope of Section 20 Leases. In other words, the asset is recognised at the lower of the fair value of the property and the present value of the minimum lease payments. An equivalent amount is recognised as a liability in accordance with paragraph 20.9. |
Measurement after recognition
16.7 | Investment property whose fair value can be measured reliably without undue cost or effort shall be measured at fair value at each reporting date with changes in fair value recognised in profit or loss. If a property interest held under a lease is classified as investment property, the item accounted for at fair value is that interest and not the underlying property. Section 12 Fair Value Measurement provides guidance on determining fair value. An entity shall account for all other investment property using the cost model in Section 17. |
Transfers
16.8 | If a reliable measure of fair value is no longer available without undue cost or effort for an item of investment property measured using the fair value model, the entity shall thereafter account for that item in accordance with Section 17 until a reliable measure of fair value becomes available. The carrying amount of the investment property on that date becomes its cost under Section 17. Paragraph 16.10(e)(iii) requires disclosure of this change. It is a change of circumstances and not a change in accounting policy. |
16.9 | Other than as required by paragraph 16.8, an entity shall transfer a property to, or from, investment property only when there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. |
Disclosures
16.10 | An entity shall disclose the following for all investment property accounted for at fair value through profit or loss (paragraph 16.7):
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16.11 | In accordance with Section 20, the owner of an investment property provides lessors’ disclosures about leases into which it has entered. An entity that holds an investment property under a finance lease or operating lease provides lessees’ disclosures for finance leases and lessors’ disclosures for any operating leases into which it has entered. |
Section 17Property, Plant and Equipment
Scope of this section
17.1 | This section applies to accounting for property, plant and equipment and accounting for investment property whose fair value cannot be measured reliably without undue cost or effort on an ongoing basis. Section 16 Investment Property applies to investment property whose fair value can be measured reliably without undue cost or effort. |
17.2 | Property, plant and equipment are tangible assets that:
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17.3 | Property, plant and equipment does not include:
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Recognition
17.4 | An entity shall recognise the cost of an item of property, plant and equipment as an asset if, and only if:
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17.5 | Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this section when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory. |
17.6 | Parts of some items of property, plant and equipment may require replacement at regular intervals (for example, the roof of a building). An entity shall add to the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the replacement part is expected to provide incremental future benefits to the entity. The carrying amount of those parts that are replaced is derecognised in accordance with paragraphs 17.27–17.30 regardless of whether the replaced parts had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, the entity may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. Paragraph 17.16 provides that if the major components of an item of property, plant and equipment have significantly different patterns of consumption of economic benefits, an entity shall allocate the initial cost of the asset to its major components and depreciate each such component separately over its useful life. |
17.7 | A condition of continuing to operate an item of property, plant and equipment (for example, a bus) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous major inspection (as distinct from physical parts) is derecognised. This is done regardless of whether the cost of the previous major inspection was identified in the transaction in which the item was acquired or constructed. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed. |
17.8 | Land and buildings are separable assets and an entity shall account for them separately, even when they are acquired together. |
Measurement at recognition
17.9 | An entity shall measure an item of property, plant and equipment at initial recognition at its cost. |
Elements of cost
17.10 | The cost of an item of property, plant and equipment comprises all of the following:
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17.11 | The following costs are not costs of an item of property, plant and equipment and an entity shall recognise them as an expense when they are incurred:
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17.12 | The income and related expenses of incidental operations during construction or development of an item of property, plant and equipment are recognised in profit or loss if those operations are not necessary to bring the item to its intended location and operating condition. |
Measurement of cost
17.13 | The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the cost is the present value of all future payments. |
Exchanges of assets
17.14 | An item of property, plant or equipment may be acquired in exchange for a non-monetary asset, or assets, or a combination of monetary and non-monetary assets. An entity shall measure the cost of the acquired asset at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up. |
Measurement after initial recognition
17.15 | An entity shall choose either the cost model in paragraph 17.15A or the revaluation model in paragraph 17.15B as its accounting policy and shall apply that policy to an entire class of property, plant and equipment. An entity shall apply the cost model to investment property whose fair value cannot be measured reliably without undue cost or effort. An entity shall recognise the costs of day-to-day servicing of an item of property, plant and equipment in profit or loss in the period in which the costs are incurred. |
Cost-model
17.15A | An entity shall measure an item of property, plant and equipment after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses. |
Revaluation model
17.15B | An entity shall measure an item of property, plant and equipment whose fair value can be measured reliably at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. Section 12 Fair Value Measurement provides guidance on determining fair value. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. |
17.15C | If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be recognised in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. |
17.15D | If an asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognised in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus. |
Depreciation
17.16 | If the major components of an item of property, plant and equipment have significantly different patterns of consumption of economic benefits, an entity shall allocate the initial cost of the asset to its major components and depreciate each such component separately over its useful life. Other assets shall be depreciated over their useful lives as a single asset. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. |
17.17 | The depreciation charge for each period shall be recognised in profit or loss unless another section of this Standard requires the cost to be recognised as part of the cost of an asset. For example, the depreciation of manufacturing property, plant and equipment is included in the costs of inventories (see Section 13 Inventories). |
Depreciable amount and depreciation period
17.18 | An entity shall allocate the depreciable amount of an asset on a systematic basis over its useful life. |
17.19 | Factors such as a change in how an asset is used, significant unexpected wear and tear, technological advancement and changes in market prices may indicate that the residual value or useful life of an asset has changed since the most recent annual reporting date. If such indicators are present, an entity shall review its previous estimates and, if current expectations differ, amend the residual value, depreciation method or useful life. The entity shall account for the change in residual value, depreciation method or useful life as a change in an accounting estimate in accordance with Section 10 Accounting Policies, Estimates and Errors. |
17.20 | Depreciation of an asset begins when it is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases when the asset is derecognised. Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production. |
17.21 | An entity shall consider all the following factors in determining the useful life of an asset:
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Depreciation method
17.22 | An entity shall select a depreciation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. The possible depreciation methods include the straight-line method, the diminishing balance method and a method based on usage such as the units of production method. A depreciation method that is based on revenue generated by an activity that includes the use of an asset is not appropriate. |
17.23 | If there is an indication that there has been a significant change since the last annual reporting date in the pattern by which an entity expects to consume an asset’s future economic benefits, the entity shall review its present depreciation method and, if current expectations differ, change the depreciation method to reflect the new pattern. The entity shall account for the change as a change in an accounting estimate in accordance with Section 10. |
Impairment
Recognition and measurement of impairment
17.24 | At each reporting date, an entity shall apply Section 27 Impairment of Assets to determine whether an item or group of items of property, plant and equipment is impaired and, if so, how to recognise and measure the impairment loss. That section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises or reverses an impairment loss. |
Compensation for impairment
17.25 | An entity shall include in profit or loss compensation from third parties for items of property, plant and equipment that were impaired, lost or given up only when the compensation becomes receivable. |
Property, plant and equipment held for sale
17.26 | Paragraph 27.9(f) states that a plan to dispose of an asset before the previously expected date is an indicator of impairment that triggers the calculation of the asset’s recoverable amount for the purpose of determining whether the asset is impaired. |
Derecognition
17.27 | An entity shall derecognise an item of property, plant and equipment:
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17.28 | An entity shall recognise the gain or loss on the derecognition of an item of property, plant and equipment in profit or loss when the item is derecognised (unless Section 20 Leases requires otherwise on a sale and leaseback). The entity shall not classify such gains as revenue. |
17.29 | The date of disposal of an item is the date the recipient obtains control of that item in accordance with the requirements in paragraphs 23.57–23.61 for determining when a promise is fulfilled. Section 20 applies to disposal by a sale and leaseback. |
17.30 | An entity shall determine the gain or loss arising from the derecognition of an item of property, plant and equipment as the difference between the net disposal proceeds, if any, and the carrying amount of the item. |
Disclosures
17.31 | An entity shall disclose the following for each class of property, plant and equipment determined in accordance with paragraph 4.11(a) and separately for investment property carried at cost less accumulated depreciation and impairment:
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17.32 | An entity shall also disclose the following:
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17.33 | If items of property, plant and equipment are stated at revalued amounts, an entity shall disclose the following:
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Section 18Intangible Assets other than Goodwill
Scope of this section
18.1 | This section applies to accounting for all intangible assets other than goodwill (see Section 19 Business Combinations and Goodwill) and intangible assets held by an entity for sale in the ordinary course of business (see Section 13 Inventories and Section 23 Revenue from Contracts with Customers). |
18.2 | An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when:
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18.3 | This section does not apply to the following:
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Recognition
General principle for recognising intangible assets
18.4 | An entity shall recognise an intangible asset as an asset if, and only if:
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18.5 | An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the economic conditions that will exist over the useful life of the asset. |
18.6 | An entity uses judgement to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence. |
18.7 | The probability recognition criterion in paragraph 18.4(a) is always considered satisfied for intangible assets that are separately acquired. |
Acquisition as part of a business combination
18.8 | An intangible asset acquired in a business combination shall be recognised unless its fair value cannot be measured reliably without undue cost or effort at the acquisition date. |
Initial measurement
18.9 | An entity shall measure an intangible asset initially at cost. |
Separate acquisition
18.10 | The cost of a separately acquired intangible asset comprises:
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Acquisition as part of a business combination
18.11 | If an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. |
Acquisition by way of a government grant
18.12 | If an intangible asset is acquired by way of a government grant, the cost of that intangible asset is its fair value at the date the grant is received or receivable in accordance with Section 24 Government Grants. |
Exchanges of assets
18.13 | An intangible asset may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. An entity shall measure the cost of such an intangible asset at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. In that case, the asset’s cost is measured at the carrying amount of the asset given up. |
Internally generated intangible assets
18.14 | An entity shall recognise expenditure incurred internally on an intangible item, including all expenditure for both research and development activities, as an expense when it is incurred unless it forms part of the cost of another asset that meets the recognition criteria in this Standard. |
18.15 | As examples of applying the preceding paragraph, an entity shall recognise expenditure on the following items as an expense and shall not recognise such expenditure as intangible assets:
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18.16 | Paragraph 18.15 does not preclude recognising a prepayment as an asset when payment for goods or services has been made in advance of the delivery of the goods or the rendering of the services. |
Past expenses not to be recognised as an asset
18.17 | Expenditure on an intangible item that was initially recognised as an expense shall not be recognised at a later date as part of the cost of an asset. |
Measurement after recognition
18.18 | An entity shall measure intangible assets at cost less any accumulated amortisation and any accumulated impairment losses. The requirements for amortisation are set out in this section. The requirements for recognition of impairment are set out in Section 27 Impairment of Assets. |
Useful life
18.19 | For the purpose of this Standard, all intangible assets shall be considered to have a finite useful life. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. |
18.20 | If the useful life of an intangible asset cannot be established reliably, the life shall be determined based on management’s best estimate but shall not exceed ten years. |
Amortisation period and amortisation method
18.21 | An entity shall allocate the depreciable amount of an intangible asset on a systematic basis over its useful life. The amortisation charge for each period shall be recognised as an expense, unless another section of this Standard requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment. |
18.22 | Amortisation begins when the intangible asset is available for use, ie when it is in the location and condition necessary for it to be usable in the manner intended by management. Amortisation ceases when the asset is derecognised. The entity shall choose an amortisation method that reflects the pattern in which it expects to consume the asset’s future economic benefits. If the entity cannot determine that pattern reliably, it shall use the straight-line method. |
18.22A | There is a presumption that an amortisation method based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate. However, an entity can rebut this presumption and use an amortisation method based on revenue generated by an activity that includes the use of an intangible asset only in the limited circumstances:
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Residual value
18.23 | An entity shall assume that the residual value of an intangible asset is zero unless:
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Review of amortisation period and amortisation method
18.24 | Factors such as a change in how an intangible asset is used, technological advancement and changes in market prices may indicate that the residual value or useful life of an intangible asset has changed since the most recent annual reporting date. If such indicators are present, an entity shall review its previous estimates and, if current expectations differ, amend the residual value, amortisation method or useful life. The entity shall account for the change in residual value, amortisation method or useful life as a change in accounting estimate in accordance with Section 10 Accounting Policies, Estimates and Errors. |
Recoverability of the carrying amount—impairment losses
18.25 | To determine whether an intangible asset is impaired, an entity shall apply Section 27. That section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount, of an asset and when it recognises or reverses an impairment loss. |
Retirements and disposals
18.26 | An entity shall derecognise an intangible asset, and shall recognise a gain or loss in profit or loss:
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Disclosures
18.27 | An entity shall disclose the following for each class of intangible assets:
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18.28 | An entity shall also disclose:
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18.29 | An entity shall disclose the aggregate amount of research and development expenditure recognised as an expense during the period (ie the amount of expenditure incurred internally on research and development that has not been capitalised as part of the cost of another asset that meets the recognition criteria in this Standard). |
Section 19Business Combinations and Goodwill
Scope of this section
19.1 | This section applies to a transaction or other event that meets the definition of a business combination. It sets out requirements for how an acquirer recognises and measures in its financial statements:
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19.2 | This section does not apply to:
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Identifying a business combination
19.3 | An entity shall determine whether a transaction or other event meets the definition of a business combination. A business combination is a transaction or other event in which an entity (the acquirer) obtains control of one or more businesses (the acquiree). Paragraphs 19A.1–19A.10 provide guidance on how to determine whether the transaction or other event is a business combination. If the assets acquired and liabilities assumed do not constitute a business, the reporting entity shall account for the transaction or other event as an asset acquisition. |
19.4 | An acquirer might obtain control of an acquiree in various ways—for example, by:
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19.5 | A business combination might be structured in various ways for legal, taxation or other reasons. Examples of these structures include transactions or other events in which:
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Accounting for business combinations and goodwill
19.6 | An entity shall account for each business combination by applying the acquisition method. |
19.7 | To apply the acquisition method, an entity shall:
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Identifying the acquirer
19.8 | For each business combination, one of the combining entities shall be identified as the acquirer. |
19.9 | Section 9 Consolidated and Separate Financial Statements shall be used to identify the acquirer—that is, to identify the entity that obtains control of another entity (the acquiree). |
19.10 | If an entity applying Section 9 is not able to clearly identify which of the combining entities is the acquirer, the entity shall consider the factors in paragraphs 19A.11–19A.15 to make that determination. |
Identifying the acquisition date
19.11 | The acquirer shall identify the acquisition date—that is, the date on which the acquirer obtains control of the acquiree. |
Recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree
Recognition principle
19.12 | At the acquisition date, the acquirer shall recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non‑controlling interest in the acquiree—except as specified in paragraphs 19.16–19.21. An acquirer shall recognise the identifiable assets acquired and liabilities assumed only if they:
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Measurement principle
19.13 | The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values—except as specified in paragraphs 19.16–19.21. |
19.14 | For each business combination, the acquirer shall measure at the acquisition date any non-controlling interests in the acquiree at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. |
Exceptions to the recognition and measurement principles
19.15 | Paragraphs 19.16‒19.21 provide exceptions to the recognition and measurement principles set out in paragraphs 19.12‒19.14 and specify both the items for which exceptions are provided and the nature of those exceptions. |
19.16 | An acquirer shall recognise an intangible asset acquired in a business combination if the asset meets the recognition principles set out in Section 18 Intangible Assets other than Goodwill and the asset’s fair value can be measured reliably without undue cost or effort at the acquisition date. |
19.17 | If an acquirer assumes a liability or contingent liability in a business combination and that liability or contingent liability would have been within the scope of Section 21 Provisions and Contingencies had the acquirer incurred it separately, the acquirer shall apply paragraph 21.6 to determine whether a present obligation exists at the acquisition date as a result of past events. |
19.18 | If an acquirer determines, in accordance with paragraph 19.17, that a present obligation exists, the acquirer shall recognise a contingent liability at the acquisition date if:
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19.19 | Therefore, the acquirer recognises a contingent liability assumed in a business combination at the acquisition date even if it is not probable that the acquirer will be required to transfer economic benefits to settle the present obligation. The acquirer does not apply the recognition requirements in paragraphs 21.4(b) and 21.12 to a contingent liability assumed in a business combination. |
19.20 | An acquirer shall recognise and measure in accordance with Section 29 Income Tax a deferred tax asset or deferred tax liability arising from the assets acquired and liabilities assumed in a business combination. |
19.21 | An acquirer shall recognise and measure in accordance with Section 28 Employee Benefits a liability (or asset, if any) related to the acquiree’s employee benefit arrangements. |
Recognising and measuring goodwill or a gain from a bargain purchase
19.22 | The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b):
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Bargain purchases
19.23 | Occasionally, an acquirer will make a bargain purchase—a business combination in which the amount in paragraph 19.22(b) exceeds the sum of the amounts specified in paragraph 19.22(a). If an excess remains after an acquirer applies paragraph 19.24, the acquirer shall recognise the resulting gain in profit or loss on the acquisition date. The gain shall be attributed to the acquirer. |
19.24 | Before recognising a gain on a bargain purchase, the acquirer shall reassess whether it has correctly identified all the assets acquired and all the liabilities assumed and shall recognise any additional assets or liabilities identified in that reassessment. The acquirer shall then review the procedures used to measure the amounts required to be recognised at the acquisition date for:
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Consideration transferred
19.25 | An acquirer shall measure the consideration transferred in a business combination at fair value. The acquirer shall calculate the consideration transferred as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to the former owners of the acquiree and the equity instruments issued by the acquirer. Examples of consideration include cash, other assets, a business or a subsidiary of the acquirer, contingent consideration, ordinary or preference equity instruments, options and warrants. |
Contingent consideration
19.26 | The consideration an acquirer transfers in exchange for an acquiree includes any asset or liability resulting from a contingent consideration arrangement (see paragraph 19.25). The acquirer shall recognise the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree if the fair value of the contingent consideration can be reliably measured without undue cost or effort. |
19.27 | If the acquirer cannot reliably measure the fair value of contingent consideration at the acquisition date without undue cost or effort, it shall measure the contingent consideration at the acquisition date using the most likely amount of consideration. Subsequently, the acquirer shall not reassess whether measuring the fair value of contingent consideration involves undue cost or effort (see paragraph 19.37(b)). |
19.28 | The acquirer shall apply Section 22 Liabilities and Equity to classify an obligation to pay contingent consideration that is a financial instrument as a financial liability or as equity. An acquirer shall classify a right to the return of previously transferred consideration as an asset. Paragraphs 19.36–19.37 set out the requirements for accounting for contingent consideration. |
A business combination achieved in stages
19.29 | An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. In such cases, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss. |
19.30 | If a party to a joint arrangement obtains control of a business that is a jointly controlled operation or a jointly controlled asset immediately before the acquisition date, the transaction is a business combination achieved in stages (a step acquisition). The acquirer shall apply the requirements for a business combination achieved in stages in accordance with paragraph 19.29, including remeasuring its entire previously held interest in the jointly controlled operation or the jointly controlled asset. |
Measurement period
19.31 | If an acquirer’s initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall recognise in its financial statements provisional amounts for the items for which its accounting is incomplete. Within twelve months after the acquisition date, the acquirer shall retrospectively adjust the provisional amounts it recognised as assets and liabilities, and recognise any additional assets and liabilities, to reflect new information it obtained about any relevant facts and circumstances that existed at the acquisition date. Any adjustments affect the goodwill acquired or any gain from a bargain purchase. After more than twelve months have passed since the acquisition date, the acquirer shall recognise adjustments to the initial accounting for a business combination only if correcting an error in accordance with Section 10 Accounting Policies, Estimates and Errors. |
Acquisition-related costs
19.32 | Acquisition-related costs are costs an acquirer incurs to effect a business combination. The acquirer shall account for acquisition-related costs separately from the business combination, as expenses in the periods in which the costs are incurred and the services are received, with two exceptions: the acquirer shall recognise the cost to issue debt in accordance with Section 11 Other Financial Instrument Issues and the cost to issue equity securities in accordance with Section 22. |
Subsequent measurement and accounting
19.33 | After initial recognition, an acquirer shall apply the applicable sections of this Standard to assets acquired, liabilities assumed or incurred, and equity instruments issued in a business combination. After initial recognition, paragraphs 19.34–19.37 apply to:
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Goodwill
19.34 | After an acquirer initially recognises goodwill acquired in a business combination, the acquirer shall measure it at cost less accumulated amortisation and accumulated impairment losses. The acquirer shall apply:
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Contingent liabilities
19.35 | After an acquirer initially recognises a contingent liability in a business combination and until the liability is settled, cancelled or expires, it shall measure the liability at the higher of:
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Contingent consideration
19.36 | Changes resulting from events after the acquisition date (such as meeting an earnings target, reaching a specified share price or reaching a milestone on a research and development project) are not measurement-period adjustments—except for the changes in the amount of contingent consideration that are measurement-period adjustments in accordance with paragraph 19.31. An acquirer shall account for changes in the amount of contingent consideration that are not measurement-period adjustments in accordance with paragraph 19.37. |
19.37 | If the contingent consideration is:
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Disclosures
For business combination(s) during the reporting period
19.38 | For each business combination that occurs during the reporting period, the acquirer shall disclose:
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For all business combinations
19.39 | An acquirer shall disclose the useful lives used to amortise goodwill and a reconciliation of the carrying amount of goodwill at the beginning and end of the reporting period. The acquirer shall disclose separately:
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19.40 | The reconciliation set out in paragraph 19.39 need not be presented for prior periods. |
For reporting periods after the acquisition date
19.41 | For each reporting period after the acquisition date until the entity collects, sells or otherwise loses the right to a contingent consideration asset, or until the entity settles a contingent consideration liability or the liability is cancelled or expires, the entity shall disclose for each material business combination and in aggregate for business combinations that are individually immaterial but collectively material:
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Appendix to Section 19Application guidance
Definition of a business (application of paragraph 19.3)
19A.1 | A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities. A business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. These are the three elements of a business and their definitions:
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Optional test to identify concentration of fair value
19A.2 | Paragraph 19A.3 sets out an optional concentration test for a simplified assessment of whether an acquired set of activities and assets is a business. An entity is permitted to choose whether to apply the test for each transaction or other event. If the concentration test is:
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19A.3 | The concentration test is met, meaning an acquired set of activities and assets is determined not to be a business, if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. For the purposes of the concentration test:
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Elements of a business
19A.4 | Although businesses usually have outputs, an integrated set of activities and assets can have no outputs and still qualify as a business. If an integrated set of activities and assets has two essential elements—inputs and processes applied to those inputs—it can be conducted and managed for the purposes identified in the definition of a business. A business need not include all of the inputs or processes that the seller used in operating that business. However, to be considered a business, an integrated set of activities and assets includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. Paragraphs 19A.7–19A.10 specify how to assess whether a process is substantive. |
19A.5 | If an acquired set of activities and assets has outputs, a continuation of revenue does not, on its own, show that the acquirer has acquired both an input and a substantive process. |
19A.6 | An acquirer determines whether a particular set of activities and assets is a business based on whether the integrated set is capable of being conducted and managed as a business by a market participant. It is not relevant whether a seller operated the set as a business or whether an acquirer intends to operate the set as a business. |
Assessing whether an acquired process is substantive
19A.7 | Paragraphs 19A.8–19A.10 explain how to assess whether an acquired process is substantive depending on whether the acquired set of activities and assets has no outputs (paragraph 19A.9) or has outputs (paragraph 19A.10). Figure 19.1 summarises how an entity assesses whether an acquired process is substantive. Figure 19.1—How an entity assesses whether an acquired process is substantive  |
19A.8 | An example of an acquired set of activities and assets that does not have outputs at the acquisition date is an early-stage entity that has not started generating revenue. If an acquired set of activities and assets generates revenue at the acquisition date, it is considered to have outputs at that date. The acquired set has outputs even if it subsequently will no longer generate revenue from external customers—for example, because it will be integrated by an acquirer. |
19A.9 | If a set of activities and assets does not have outputs at the acquisition date, an acquired process (or group of processes) is considered substantive only if:
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19A.10 | If a set of activities and assets has outputs at the acquisition date, an acquired process (or group of processes) is considered substantive if, when applied to an acquired input or inputs, it:
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Identifying the acquirer (application of paragraphs 19.8–19.10)
19A.11 | In a business combination effected primarily by transferring cash or other assets or by incurring liabilities, the acquirer is usually the entity that transfers the cash or other assets or incurs the liabilities. |
19A.12 | In a business combination effected primarily by exchanging equity instruments, the acquirer is usually the entity that issues its equity instruments. An entity considers other pertinent facts and circumstances to identify the acquirer in a business combination effected by exchanging equity instruments. For example, the acquirer is usually the combining entity:
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19A.13 | The acquirer is usually the combining entity whose size (measured in, for example, assets, revenues or profit) is significantly greater than that of the other combining entity or entities. |
19A.14 | In a business combination involving more than two entities, an entity identifies the acquirer by considering, among other things, which of the combining entities initiated the combination and the relative size of the combining entities. |
19A.15 | A new entity formed to effect a business combination is not necessarily the acquirer. If a new entity is formed to issue equity instruments to effect a business combination, one of the combining entities that existed before the business combination is the acquirer, in accordance with paragraph 19.10 and the guidance in paragraphs 19A.11–19A.14. In contrast, a new entity that transfers cash or other assets or incurs liabilities as consideration might be the acquirer. |
Section 20Leases
Scope of this section
20.1 | This section covers accounting for all leases other than:
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20.2 | This section applies to agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. This section does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other. |
20.3 | Some arrangements, such as some outsourcing arrangements, telecommunication contracts that provide rights to capacity and take-or-pay contracts, do not take the legal form of a lease but convey rights to use assets in return for payments. Such arrangements are in substance leases of assets and they shall be accounted for under this section. |
Classification of leases
20.4 | A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. |
20.5 | Whether a lease is a finance lease or an operating lease depends on the substance of the transaction instead of the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:
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20.6 | Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are:
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20.7 | The examples and indicators in paragraphs 20.5 and 20.6 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all risks and rewards incidental to ownership, the lease is classified as an operating lease. For example, this may be the case if ownership of the asset is transferred to the lessee at the end of the lease for a variable payment equal to the asset’s then fair value, or if there are contingent rents, as a result of which the lessee does not have substantially all risks and rewards incidental to ownership. |
20.8 | Lease classification is made at the inception of the lease and is not changed during the term of the lease unless the lessee and the lessor agree to change the provisions of the lease (other than simply by renewing the lease), in which case the lease classification shall be re-evaluated. |
Financial statements of lessees—finance leases
Initial recognition
20.9 | At the commencement of the lease term, a lessee shall recognise its rights of use and obligations under finance leases as assets and liabilities in its statement of financial position at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, determined at the inception of the lease. Any initial direct costs of the lessee (incremental costs that are directly attributable to negotiating and arranging a lease) are added to the amount recognised as an asset. |
20.10 | The present value of the minimum lease payments shall be calculated using the interest rate implicit in the lease. If this cannot be determined, the lessee’s incremental borrowing rate shall be used. |
Subsequent measurement
20.11 | A lessee shall apportion minimum lease payments between the finance charge and the reduction of the outstanding liability using the effective interest method (see paragraphs 11.15–11.20). The lessee shall allocate the finance charge to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. A lessee shall charge contingent rents as expenses in the periods in which they are incurred. |
20.12 | A lessee shall depreciate an asset leased under a finance lease in accordance with the relevant section of this Standard for that type of asset, for example, Section 17 Property, Plant and Equipment or Section 18. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. A lessee shall also assess at each reporting date whether an asset leased under a finance lease is impaired (see Section 27 Impairment of Assets). |
Disclosures
20.13 | A lessee shall make the following disclosures for finance leases:
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20.14 | In addition, the requirements for disclosure about assets in accordance with Sections 17, 18, 27 and 34 apply to lessees for assets leased under finance leases. |
Financial statements of lessees—operating leases
Recognition and measurement
20.15 | A lessee shall recognise lease payments under operating leases (excluding costs for services such as insurance and maintenance) as an expense over the lease term on a straight-line basis unless either:
If payments to the lessor vary because of factors other than general inflation, then the condition (b) is not met.
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Disclosures
20.16 | A lessee shall make the following disclosures for operating leases:
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Financial statements of lessors—finance leases
Initial recognition and measurement
20.17 | A lessor shall recognise assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease. The net investment in a lease is the lessor’s gross investment in the lease discounted at the interest rate implicit in the lease. The gross investment in the lease is the aggregate of:
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20.18 | For finance leases other than those involving manufacturer or dealer lessors, initial direct costs (costs that are incremental and directly attributable to negotiating and arranging a lease) are included in the initial measurement of the finance lease receivable and reduce the amount of income recognised over the lease term. |
Subsequent measurement
20.19 | The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease. Lease payments relating to the period, excluding costs for services, are applied against the gross investment in the lease to reduce both the principal and the unearned finance income. If there is an indication that the estimated unguaranteed residual value used in computing the lessor’s gross investment in the lease has changed significantly, the income allocation over the lease term is revised, and any reduction in respect of amounts accrued is recognised immediately in profit or loss. |
Manufacturer or dealer lessors
20.20 | Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A finance lease of an asset by a manufacturer or dealer lessor gives rise to two types of income:
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20.21 | The sales revenue recognised at the commencement of the lease term by a manufacturer or dealer lessor is the fair value of the asset or, if lower, the present value of the minimum lease payments accruing to the lessor, computed at a market rate of interest. The cost of sale recognised at the commencement of the lease term is the cost, or carrying amount if different, of the leased asset less the present value of the unguaranteed residual value. The difference between the sales revenue and the cost of sale is the selling profit, which is recognised in accordance with the entity’s policy for outright sales. |
20.22 | If artificially low rates of interest are quoted, selling profit shall be restricted to that which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease shall be recognised as an expense when the selling profit is recognised. |
Disclosures
20.23 | A lessor shall make the following disclosures for finance leases:
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Financial statements of lessors—operating leases
Recognition and measurement
20.24 | A lessor shall present assets subject to operating leases in its statement of financial position according to the nature of the asset. |
20.25 | A lessor shall recognise lease income from operating leases (excluding amounts for services such as insurance and maintenance) in profit or loss on a straight-line basis over the lease term, unless either:
If payments to the lessor vary according to factors other than inflation, then condition (b) is not met. |
20.26 | A lessor shall recognise as an expense costs, including depreciation, incurred in earning the lease income. The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy for similar assets. |
20.27 | A lessor shall add to the carrying amount of the leased asset any initial direct costs it incurs in negotiating and arranging an operating lease and shall recognise such costs as an expense over the lease term on the same basis as the lease income. |
20.28 | To determine whether a leased asset has become impaired, a lessor shall apply Section 27. |
20.29 | A manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is not the equivalent of a sale. |
Disclosures
20.30 | A lessor shall disclose the following for operating leases:
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20.31 | In addition, the requirements for disclosure about assets in accordance with Sections 17, 18, 27 and 34 apply to lessors for assets provided under operating leases. |
Sale and leaseback transactions
20.32 | A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package. The accounting treatment of a sale and leaseback transaction depends on the type of lease. |
Sale and leaseback transaction results in a finance lease
20.33 | If a sale and leaseback transaction results in a finance lease, the seller-lessee shall not recognise immediately, as income, any excess of sales proceeds over the carrying amount. Instead, the seller-lessee shall defer such excess and amortise it over the lease term. |
Sale and leaseback transaction results in an operating lease
20.34 | If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, the seller-lessee shall recognise any profit or loss immediately. If the sale price is below fair value, the seller‑lessee shall recognise any profit or loss immediately unless the loss is compensated for by future lease payments at below market price. In that case the seller‑lessee shall defer and amortise such loss in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the seller‑lessee shall defer the excess over fair value and amortise it over the period for which the asset is expected to be used. |
Disclosures
20.35 | Disclosure requirements for lessees and lessors apply equally to sale and leaseback transactions. The required description of significant leasing arrangements includes description of unique or unusual provisions of the agreement or terms of the sale and leaseback transactions. |
Section 21Provisions and Contingencies
Scope of this section
21.1 | This section applies to all provisions (liabilities of uncertain timing or amount), contingent liabilities and contingent assets except those provisions covered by other sections of this Standard, which include provisions relating to:5
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21.1A | This section applies to financial guarantee contracts issued at nil consideration when the specified debtor is another entity within the group. Other issued financial guarantee contracts are in the scope of Part II of Section 11 Financial Instruments. |
21.2 | The requirements in this section do not apply to executory contracts unless they are onerous contracts. Executory contracts are contracts under which neither party has fulfilled any of its obligations or both parties have partially fulfilled their obligations to an equal extent. |
21.3 | The word ‘provision’ is sometimes used in the context of such items as depreciation, impairment of assets and uncollectable receivables. Those are adjustments of the carrying amounts of assets, instead of recognition of liabilities, and therefore are not covered by this section. |
Initial recognition
21.4 | An entity shall recognise a provision only when:
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21.5 | The entity shall recognise the provision as a liability in the statement of financial position and shall recognise the amount of the provision as an expense, unless another section of this Standard requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment. |
21.6 | The condition in paragraph 21.4(a) (obligation at the reporting date as a result of a past event) means that the entity has no realistic alternative to settling the obligation. This can happen when the entity has a legal obligation that can be enforced by law or when the entity has a constructive obligation because the past event (which may be an action of the entity) has created valid expectations in other parties that the entity will discharge the obligation. Obligations that will arise from the entity’s future actions (ie the future conduct of its business) do not satisfy the condition in paragraph 21.4(a), no matter how likely they are to occur and even if they are contractual. To illustrate, because of commercial pressures or legal requirements, an entity may intend or need to carry out expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a particular type of factory). Because the entity can avoid the future expenditure by its future actions, for example by changing its method of operation or selling the factory, it has no present obligation for that future expenditure and no provision is recognised. |
21.6A | A restructuring is a programme that is planned and controlled by management and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted. Examples of events that may fall under the definition of restructuring:
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21.6B | A constructive obligation to restructure arises only when an entity:
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Initial measurement
21.7 | An entity shall measure a provision at the best estimate of the amount required to settle the obligation at the reporting date. The best estimate is the amount an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time:
When the effect of the time value of money is material, the amount of a provision shall be the present value of the amount expected to be required to settle the obligation. The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money. The risks specific to the liability shall be reflected either in the discount rate or in the estimation of the amounts required to settle the obligation, but not both. |
21.8 | An entity shall exclude gains from the expected disposal of assets from the measurement of a provision. |
21.9 | When some or all of the amount required to settle a provision may be reimbursed by another party (for example, through an insurance claim), the entity shall recognise the reimbursement as a separate asset only when it is virtually certain that the entity will receive the reimbursement on settlement of the obligation. The amount recognised for the reimbursement shall not exceed the amount of the provision. The reimbursement receivable shall be presented in the statement of financial position as an asset and shall not be offset against the provision. In the statement of comprehensive income, the entity may offset any reimbursement from another party against the expense relating to the provision. |
Subsequent measurement
21.10 | An entity shall charge against a provision only those expenditures for which the provision was originally recognised. |
21.11 | An entity shall review provisions at each reporting date and adjust them to reflect the current best estimate of the amount that would be required to settle the obligation at that reporting date. Any adjustments to the amounts previously recognised shall be recognised in profit or loss unless the provision was originally recognised as part of the cost of an asset (see paragraph 21.5). When a provision is measured at the present value of the amount expected to be required to settle the obligation, the unwinding of the discount shall be recognised as a finance cost in profit or loss in the period it arises. |
Contingent liabilities
21.12 | A contingent liability is either a possible but uncertain obligation or a present obligation that is not recognised because it fails to meet one or both of the conditions (b) and (c) in paragraph 21.4. An entity shall not recognise a contingent liability as a liability, except for contingent liabilities assumed in a business combination applying paragraph 19.19. Disclosure of a contingent liability is required by paragraph 21.15 unless the possibility of an outflow of resources is remote. When an entity is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability. |
Contingent assets
21.13 | An entity shall not recognise a contingent asset as an asset. Disclosure of a contingent asset is required by paragraph 21.16 when an inflow of economic benefits is probable. However, when the flow of future economic benefits to the entity is virtually certain, then the related asset is not a contingent asset, and its recognition is appropriate. |
Disclosures
Disclosures about provisions
21.14 | For each class of provision, an entity shall disclose all of the following:
Comparative information for prior periods is not required. |
Disclosures about contingent liabilities
21.15 | Unless the possibility of any outflow of resources in settlement is remote, an entity shall disclose, for each class of contingent liability at the reporting date, a brief description of the nature of the contingent liability and, when practicable:
If it is impracticable to make one or more of these disclosures, that fact shall be stated. |
Disclosures about contingent assets
21.16 | If an inflow of economic benefits is probable (more likely than not) but not virtually certain, an entity shall disclose a description of the nature of the contingent assets at the end of the reporting period and, unless it would involve undue cost or effort, an estimate of their financial effect, measured using the principles set out in paragraphs 21.7–21.11. If such an estimate would involve undue cost or effort, the entity shall disclose that fact and the reasons why estimating the financial effect would involve undue cost or effort. |
Prejudicial disclosures
21.17 | In extremely rare cases, disclosure of some or all of the information required by paragraphs 21.14–21.16 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. |
Disclosures about financial guarantee contracts
21.18 | An entity shall disclose for issued financial guarantee contracts in the scope of this section (see paragraph 21.1A):
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21.19 | An entity shall also make the disclosures required by Section 33 Related Party Disclosures and, if applicable, the disclosures required by paragraphs 21.14 and 21.15. |
Appendix to Section 21Illustrative examples
All of the entities in the examples in this appendix have 31 December as their reporting date. In all cases, it is assumed that a reliable estimate can be made of any outflows expected. In some examples the circumstances described may have resulted in impairment of the assets; this aspect is not dealt with in the examples. References to ‘best estimate’ are to the present value amount, when the effect of the time value of money is material.
Example 1 Future operating losses
21A.1 | An entity determines that it is probable that a segment of its operations will incur future operating losses for several years. Present obligation as a result of a past obligating event—there is no past event that obliges the entity to pay out resources. Conclusion—the entity does not recognise a provision for future operating losses. Expected future losses do not meet the definition of a liability. The expectation of future operating losses may be an indicator that one or more assets are impaired—see Section 27 Impairment of Assets. |
Example 2 Onerous contracts
21A.2 | An onerous contract is one in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. For example, an entity may be contractually required under an operating lease to make payments to lease an asset for which it no longer has any use. Present obligation as a result of a past obligating event—the entity is contractually required to pay out resources for which it will not receive commensurate benefits. Conclusion—if an entity has a contract that is onerous, the entity recognises and measures the present obligation under the contract as a provision. |
Example 3 Restructurings
21A.3 | [Deleted] |
Example 4 Warranties
21A.4 | A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale, the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On the basis of experience, it is probable (ie more likely than not) that there will be some claims under the warranties. Present obligation as a result of a past obligating event—the obligating event is the sale of the product with a warranty, which gives rise to a legal obligation. An outflow of resources embodying economic benefits in settlement—probable for the warranties as a whole. Conclusion—the entity recognises a provision for the best estimate of the costs of making good under the warranty products sold before the reporting date. Illustration of calculations: In 20X0, goods are sold for CU1,000,000. Experience indicates that 90 per cent of products sold require no warranty repairs; 6 per cent of products sold require minor repairs costing 30 per cent of the sale price; and 4 per cent of products sold require major repairs or replacement costing 70 per cent of sale price. Consequently, estimated warranty costs are:
The expenditures for warranty repairs and replacements for products sold in 20X0 are expected to be made 60 per cent in 20X1, 30 per cent in 20X2 and 10 per cent in 20X3, in each case at the end of the period. Because the estimated cash flows already reflect the probabilities of the cash outflows, and assuming there are no other risks or uncertainties that must be reflected, to determine the present value of those cash flows the entity uses a ‘risk-free’ discount rate based on government bonds with the same term as the expected cash outflows (6 per cent for one-year bonds and 7 per cent for two-year and three-year bonds). Calculation of the present value, at the end of 20X0, of the estimated cash flows related to the warranties for products sold in 20X0 is as follows:
The entity will recognise a warranty obligation of CU41,846 at the end of 20X0 for products sold in 20X0. |
Example 5 Refunds policy
21A.5 | [Deleted] |
Example 6 Closure of a division―no implementation before end of reporting period
21A.6 | On 12 December 20X0 the board of an entity decided to close down a division. Before the end of the reporting period (31 December 20X0) the decision was not communicated to any of those affected and no other steps were taken to implement the decision. Present obligation as a result of a past obligating event—there has been no obligating event, and so there is no obligation. Conclusion—the entity does not recognise a provision. |
Example 7 Closure of a division―communication and implementation before end of reporting period
21A.7 | On 12 December 20X0 the board of an entity decided to close a division making a particular product. On 20 December 20X0 a detailed plan for closing the division was agreed by the board, letters were sent to customers warning them to seek an alternative source of supply and redundancy notices were sent to the staff of the division. Present obligation as a result of a past obligating event—the obligating event is the communication of the decision to the customers and employees, which gives rise to a constructive obligation from that date, because it creates a valid expectation that the division will be closed. An outflow of resources embodying economic benefits in settlement—probable. Conclusion—the entity recognises a provision at 31 December 20X0 for the best estimate of the costs that would be incurred to close the division. |
Example 8 Staff retraining as a result of changes in the income tax system
21A.8 | The government introduces changes to the income tax system. As a result of those changes, an entity in the financial services sector will need to retrain a large proportion of its administrative and sales workforce in order to ensure continued compliance with tax regulations. At the end of the reporting period, no retraining of staff has taken place. Present obligation as a result of a past obligating event—the tax law change does not impose an obligation on an entity to do any retraining. An obligating event for recognising a provision (the retraining itself) has not taken place. Conclusion—the entity does not recognise a provision. |
Example 9 A court case
21A.9 | A customer has sued Entity X, seeking damages for injury the customer allegedly sustained from using a product sold by Entity X. Entity X disputes liability on grounds that the customer did not follow directions in using the product. Up to the date the board authorised the financial statements for the year to 31 December 20X1 for issue, the entity’s lawyers advise that it is probable that the entity will not be found liable. However, when the entity prepares the financial statements for the year to 31 December 20X2, its lawyers advise that, owing to developments in the case, it is now probable that the entity will be found liable:
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Section 22Liabilities and Equity
Scope of this section
22.1 | This section establishes principles for classifying financial instruments as either liabilities or equity and addresses accounting for equity instruments issued to individuals or other parties acting in their capacity as investors in equity instruments (ie in their capacity as owners). Section 26 Share-based Payment addresses accounting for a transaction in which the entity receives goods or services (including employee services) as consideration for its equity instruments (including shares or share options) from employees and other vendors acting in their capacity as vendors of goods and services. |
22.2 | This section shall be applied when classifying all types of financial instruments except:
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Classification of a financial instrument as liability or equity
22.3 | Equity is the residual interest in the assets of an entity after deducting all its liabilities. For the purpose of this section, a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Equity includes investments by the owners of the entity, plus additions to those investments earned through profitable operations and retained for use in the entity’s operations, minus reductions to owners’ investments as a result of unprofitable operations and distributions to owners. |
22.3A | An entity shall classify a financial instrument as a financial liability or as equity in accordance with the substance of the contractual arrangement, not merely its legal form, and in accordance with the definitions of a financial liability and an equity instrument. Unless an entity has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the obligation meets the definition of a financial liability, and is classified as such, except for those instruments classified as equity instruments in accordance with paragraph 22.4. |
22.4 | Some financial instruments that meet the definition of a liability are classified as equity because they represent the residual interest in the net assets of the entity:
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22.5 | The following are examples of instruments that are classified as liabilities instead of equity:
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22.6 | Members’ shares in co-operative entities and similar instruments are equity if:
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Original issue of shares or other equity instruments
22.7 | An entity shall recognise the issue of shares or other equity instruments as equity when it issues those instruments and another party is obliged to provide cash or other resources to the entity in exchange for the instruments:
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22.8 | An entity shall measure equity instruments, other than those issued as part of a business combination or those accounted for in accordance with paragraphs 22.13–22.15B, at the fair value of the cash or other resources received or receivable, net of transaction costs. If payment is deferred and the time value of money is material, the initial measurement shall be on a present value basis. |
22.9 | An entity shall account for the transaction costs of an equity transaction as a deduction from equity. Income tax relating to the transaction costs shall be accounted for in accordance with Section 29 Income Tax. |
22.10 | How the increase in equity arising on the issue of shares or other equity instruments is presented in the statement of financial position is determined by applicable laws. For example, the par value (or other nominal value) of shares and the amount paid in excess of par value may be required to be presented separately. |
Sale of options, rights and warrants
22.11 | An entity shall apply the principles in paragraphs 22.7–22.10 to equity issued by means of sales of options, rights, warrants and similar equity instruments. |
Capitalisation or bonus issues of shares and share splits
22.12 | A capitalisation or bonus issue (sometimes referred to as a stock dividend) is the issue of new shares to shareholders in proportion to their existing holdings. For example, an entity may give its shareholders one dividend or bonus share for every five shares held. A share split (sometimes referred to as a stock split) is the dividing of an entity’s existing shares into multiple shares. For example, in a share split, each shareholder may receive one additional share for each share held. In some cases, the previously outstanding shares are cancelled and replaced by new shares. Capitalisation and bonus issues and share splits do not change total equity. An entity shall reclassify amounts within equity as required by applicable laws. |
Convertible debt or similar compound financial instruments
22.13 | On issuing convertible debt or similar compound financial instruments that contain both a liability and an equity component, an entity shall allocate the proceeds between the liability component and the equity component. To make the allocation, the entity shall first determine the amount of the liability component as the fair value of a similar liability that does not have a conversion feature or similar associated equity component. The entity shall allocate the residual amount as the equity component. Transaction costs shall be allocated between the debt component and the equity component on the basis of their relative fair values. |
22.14 | The entity shall not revise the allocation in a subsequent period. |
22.15 | In periods after the instruments were issued, the entity shall account for the liability component as follows:
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Extinguishing financial liabilities with equity instruments
22.15A | An entity may renegotiate the terms of a financial liability with a creditor of the entity with the result that the entity extinguishes the liability fully or partially by issuing equity instruments to the creditor. Issuing equity instruments constitutes consideration paid in accordance with paragraph 11.38. An entity shall measure the equity instruments issued at their fair value. However, if the fair value of the equity instruments issued cannot be measured reliably without undue cost or effort, the equity instruments shall be measured at the fair value of the financial liability extinguished. An entity shall derecognise the financial liability, or part of the financial liability, in accordance with paragraphs 11.36–11.38. |
22.15B | If part of the consideration paid relates to a modification of the terms of the remaining part of the liability, the entity shall allocate the consideration paid between the part of the liability extinguished and the part that remains outstanding. This allocation should be made on a reasonable basis. If the remaining liability has been substantially modified, the entity shall account for the modification as the extinguishment of the original liability and the recognition of a new liability as required by paragraph 11.37. |
22.15C | An entity shall not apply paragraphs 22.15A–22.15B to transactions in situations in which:
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Treasury shares
22.16 | Treasury shares are the equity instruments of an entity that have been issued and subsequently reacquired by the entity. An entity shall deduct from equity the fair value of the consideration given for the treasury shares. The entity shall not recognise a gain or loss in profit or loss on the purchase, sale, issue or cancellation of treasury shares. |
Distributions to owners
22.17 | An entity shall reduce equity for the amount of distributions to its owners (holders of its equity instruments). Income tax relating to distributions to owners shall be accounted for in accordance with Section 29. |
22.18 | Sometimes an entity distributes assets other than cash to its owners (‘non-cash distributions’). When an entity declares such a distribution and has an obligation to distribute non-cash assets to its owners, it shall recognise a liability. It shall measure the liability at the fair value of the assets to be distributed unless it meets the conditions in paragraph 22.18A. At the end of each reporting period and at the date of settlement, the entity shall review and adjust the carrying amount of the dividend payable to reflect changes in the fair value of the assets to be distributed, with any changes recognised in equity as adjustments to the amount of the distribution. When an entity settles the dividend payable, it shall recognise in profit or loss any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable. |
22.18A | If the fair value of the assets to be distributed cannot be measured reliably without undue cost or effort, the liability shall be measured at the carrying amount of the assets to be distributed. If prior to settlement the fair value of the assets to be distributed can be measured reliably without undue cost or effort, the liability is remeasured at fair value with a corresponding adjustment made to the amount of the distribution and accounted for in accordance with paragraph 22.18. |
22.18B | Paragraphs 22.18–22.18A do not apply to the distribution of a non-cash asset that is ultimately controlled by the same party or parties before and after the distribution. This exclusion applies to the separate, individual and consolidated financial statements of an entity that makes the distribution. |
22.19 | [Deleted] |
Disclosures
22.20 | If the fair value of the assets to be distributed as described in paragraphs 22.18–22.18A cannot be measured reliably without undue cost or effort, the entity shall disclose that fact and the reasons why a reliable fair value measurement would involve undue cost or effort. |
Appendix to Section 22Illustrative example of the issuer’s accounting for convertible debt
On 1 January 20X5 an entity issues 500 convertible bonds. The bonds are issued at par with a face value of CU100 per bond and are for a five-year term, with no transaction costs. The total proceeds from the issue are CU50,000. Interest is payable annually in arrears at an annual interest rate of 4 per cent. Each bond is convertible, at the holder’s discretion, into 25 ordinary shares at any time up to maturity. At the time the bonds are issued, the market interest rate for similar debt that does not have the conversion option is 6 per cent.
When the instrument is issued, the liability component must be valued first, and the difference between the total proceeds on issue (which is the fair value of the instrument in its entirety) and the fair value of the liability component is assigned to the equity component. The fair value of the liability component is calculated by determining its present value using the discount rate of 6 per cent. These calculations and journal entries are illustrated:
| CU | |
| Proceeds from the bond issue (A) | 50,000 |
| Present value of principal at the end of five years (see calculations) | 37,363 |
| Present value of interest payable annually in arrears for five years | 8,425 |
| Present value of liability, which is the fair value of liability component (B) | 45,788 |
| Residual, which is the fair value of the equity component (A) – (B) | 4,212 |
The issuer of the bonds makes the following journal entry at issue on 1 January 20X5:
| Dr Cash | CU50,000 | ||
| Cr Financial Liability – Convertible bond | CU45,788 | ||
| Cr Equity | CU4,212 |
The CU4,212 represents a discount on issue of the bonds, so the entry could also be shown ‘gross’:
| Dr Cash | CU50,000 | ||
| Dr Bond discount | CU4,212 | ||
| Cr Financial Liability – Convertible bond | CU50,000 | ||
| Cr Equity | CU4,212 |
After issue, the issuer will amortise the bond discount according to the following table:
| (a)Interest payment (CU) | (b)Total interest expense (CU) = 6% × (e) | (c)Amortisation of bond discount (CU) = (b) – (a) | (d)Bond discount (CU) = (d) – (c) | (e)Net liability (CU) = 50,000 – (d) | |
|---|---|---|---|---|---|
| 1/1/20X5 | 4,212 | 45,788 | |||
| 31/12/20X5 | 2,000 | 2,747 | 747 | 3,465 | 46,535 |
| 31/12/20X6 | 2,000 | 2,792 | 792 | 2,673 | 47,327 |
| 31/12/20X7 | 2,000 | 2,840 | 840 | 1,833 | 48,167 |
| 31/12/20X8 | 2,000 | 2,890 | 890 | 943 | 49,057 |
| 31/12/20X9 | 2,000 | 2,943 | 943 | 0 | 50,000 |
| Totals | 10,000 | 14,212 | 4,212 |
At the end of 20X5, the issuer would make the following journal entry:
| Dr Interest expense | CU2,747 | ||
| Cr Bond discount | CU747 | ||
| Cr Cash | CU2,000 |
Calculations
Present value of principal of CU50,000 at 6 per cent
CU50,000/(1.06)^5 = CU37,363
Present value of the interest annuity of CU2,000 (= CU50,000 × 4 per cent) payable at the end of each of five years
The CU2,000 annual interest payments are an annuity—a cash flow stream with a limited number (n) of periodic payments (C), receivable at dates 1 to n. To calculate the present value of this annuity, future payments are discounted by the periodic rate of interest (i) using the following formula:
Therefore, the present value of the CU2,000 interest payments is
(2,000/.06) × [1 – [(1/1.06)^5] = CU8,425
This is equivalent to the sum of the present values of the five individual CU2,000 payments, as follows:
| CU | |
|---|---|
| Present value of interest payment at 31 December 20X5 = 2,000/1.06 | 1,887 |
| Present value of interest payment at 31 December 20X6 = 2,000/1.06^2 | 1,780 |
| Present value of interest payment at 31 December 20X7 = 2,000/1.06^3 | 1,679 |
| Present value of interest payment at 31 December 20X8 = 2,000/1.06^4 | 1,584 |
| Present value of interest payment at 31 December 20X9 = 2,000/1.06^5 | 1,495 |
| Total | 8,425 |
Yet another way to calculate this is to use a table of present value of an ordinary annuity in arrears, five periods, interest rate of 6 per cent per period. (Such tables are easily found on the Internet.) The present value factor is 4.2124. Multiplying this by the annuity payment of CU2,000 determines the present value of CU8,425.
Section 23Revenue from Contracts with Customers
Scope of this section
23.1 | This section applies to all contracts with customers, except:
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23.2 | A contract with a customer might be partially within the scope of this section and partially within the scope of other sections listed in paragraph 23.1. If one of the other sections specifies how to initially measure any parts of the contract, then an entity shall first apply the measurement requirements in that section. Otherwise, the entity shall apply this section to initially measure those parts of the contract. |
Revenue recognition model
23.3 | This section describes the revenue recognition model an entity shall apply to account for revenue from contracts with customers. Applying the model requires an entity to recognise an amount of revenue that depicts the goods or services the entity has transferred to customers and that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. An entity shall apply the model in five steps:
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23.4 | An entity shall apply this section consistently to contracts with similar characteristics and in similar circumstances. |
23.5 | This section specifies how an entity accounts for an individual contract with a customer. An entity is permitted to apply this section to a portfolio of similar contracts (or promises) if the entity reasonably expects that the result of doing so would not differ materially from the result of applying the section to each individual contract (or promise). |
Step 1—Identify the contract(s) with a customer
23.6 | A contract is an agreement between two or more parties that creates enforceable rights and obligations. Contracts can be written, oral or implied by an entity’s usual business practices. |
23.7 | An entity shall apply the revenue recognition model to account for a contract with a customer that is within the scope of this section only when all of the following criteria are met:
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23.8 | If a contract with a customer meets the criteria in paragraph 23.7 at the start of the contract, an entity shall reassess whether the contract meets the criteria only if there is a significant change in relevant facts and circumstances. |
23.9 | If a contract with a customer does not meet the criteria in paragraph 23.7, an entity shall reassess the contract until the criteria are met. |
23.10 | When a contract with a customer does not meet the criteria in paragraph 23.7, an entity shall recognise any consideration received from the customer as a liability. If the consideration is non-refundable, the entity shall derecognise the liability and recognise the consideration as revenue when either:
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23.11 | Some contracts with customers might have no fixed duration or might automatically renew periodically. An entity shall apply this section to the duration of the contract in which the parties to the contract have present enforceable rights and obligations. |
23.12 | If a contract is modified, an entity shall account for the contract modification by applying paragraphs 23A.2–23A.4. |
Combination of contracts
23.13 | An entity shall combine two or more contracts it has entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if one or more of the following criteria are met:
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Step 2—Identify the promises in the contract
23.14 | A promise is an obligation to transfer a distinct good or service (or a distinct bundle of goods or services). A contract with a customer might contain more than one promise. At the start of a contract, an entity shall identify the goods and services promised in the contract and determine which goods or services are distinct. |
23.15 | An entity might transfer distinct goods or services to a customer that are essentially the same, but at discrete instances over time (that is, transfer a series of distinct goods or services). The entity shall account for those goods or services as a single promise if:
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23.16 | A contract with a customer usually explicitly states the goods or services that an entity promises to transfer. However, promises might be implied by an entity’s usual business practices, published policies or specific statements, if these create a valid expectation of the customer that the entity will transfer a good or service to the customer. |
23.17 | A promise does not include activities that an entity must undertake to fulfil a contract, such as set-up activities and administrative tasks, unless those activities transfer a good or service to a customer. Non-refundable fees charged to customers at or near the start of a contract often relate to activities that do not transfer a good or service to the customer and, therefore, do not give rise to a promise. In such cases, the non-refundable upfront fee is included in the transaction price and allocated to the promises in the contract in accordance with Steps 3 and 4. |
Distinct goods or services
23.18 | A good or service is distinct if both of these criteria are met:
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23.19 | If a good or service promised to the customer is not distinct, an entity shall combine that good or service with other goods or services in the contract until it identifies a bundle of goods or services that is distinct. In some cases, the entity will account for all the goods or services in a contract as a single promise. |
23.20 | For the purpose of applying the criterion in paragraph 23.18(a), resources readily available to the customer are:
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23.21 | For the purpose of applying the criterion in paragraph 23.18(b), factors that suggest that the entity’s obligation to transfer a good or service is not separate from other obligations in the contract include:
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23.22 | Distinct goods or services can include:
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Step 3—Determine the transaction price
23.23 | The transaction price is the amount of consideration an entity expects to be entitled to in exchange for transferring goods or services promised to a customer, excluding amounts the entity collects on behalf of third parties (for example, some sales taxes). |
23.24 | An entity shall determine the transaction price based on the terms of the contract and its usual business practices. When determining the transaction price, an entity shall assume the goods or services will be transferred to the customer in accordance with the contract. The entity shall also assume the contract will not be cancelled, renewed or modified. |
23.25 | If the consideration promised by the customer is in a form other than cash, an entity shall measure the non‐cash consideration by applying paragraphs 23A.21–23A.22. |
Variable consideration
23.26 | The consideration promised by a customer might vary because of factors such as discounts, rebates, refunds, penalties or performance bonuses. |
23.27 | If the consideration includes a variable amount, an entity shall measure the amount of variable consideration to include in the transaction price by:
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23.28 | An entity shall estimate an amount of variable consideration by using one of two methods:
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23.29 | An entity shall apply one method to estimate the amount of variable consideration consistently throughout the contract. |
23.30 | An entity shall include in the transaction price an amount of variable consideration estimated in accordance with paragraph 23.28 only to the extent that it is highly probable that an entity will become entitled to this amount when the uncertainty associated with the variable consideration is later resolved. |
23.31 | At the end of each reporting period, an entity shall update the amount of variable consideration included in the transaction price to reflect any relevant changes in circumstances. An entity shall allocate any subsequent changes in the transaction price to the promises in the contract on the same basis it used at the start of the contract. An entity shall recognise amounts allocated to a fulfilled promise as revenue (or as a reduction of revenue) in the period in which the estimate changes. |
23.32 | An entity shall apply paragraph 23A.37 to account for consideration in the form of a royalty based on sales or use that is received in exchange for a licence of intellectual property. |
Refund liabilities
23.33 | If an entity receives consideration from a customer and expects to refund some or all of that consideration to the customer, the entity shall recognise a refund liability. |
23.34 | The entity shall measure a refund liability by first applying paragraphs 23.27–23.30 to measure the amount of variable consideration to include in the transaction price. The entity shall then recognise as a refund liability the amount of consideration received (or receivable) for goods or services transferred that is not included in the transaction price. At the end of each reporting period, an entity shall update the estimate of the refund liability to reflect consideration received (or receivable), goods or services transferred, and changes in the transaction price in accordance with paragraph 23.31. |
23.35 | As an exception to paragraph 23.34, an entity shall apply paragraphs 23A.23–23A.27 to account for the variable consideration and refund liability relating to a sale with a right of return. |
Deferred payment
23.36 | If payment is deferred and the arrangement constitutes a financing transaction (see paragraph 11.13B), an entity shall discount the promised amount of consideration at a market rate of interest for a similar debt instrument as determined at the start of the contract. An entity shall recognise the difference between the promised consideration and the discounted value of that amount as interest revenue in accordance with the effective interest method (see paragraphs 11.15–11.20). |
23.37 | An entity shall present interest revenue separately from revenue from contracts with customers. |
23.38 | An entity is permitted not to apply paragraphs 23.36–23.37 if, at the start of a contract, it expects a customer to pay for goods or services within one year of the entity transferring the goods or services. |
Step 4—Allocate the transaction price to the promises in the contract
23.39 | An entity shall allocate the transaction price to each promise it has identified in a contract in accordance with paragraphs 23.40–23.48. |
23.40 | Step 4 does not apply if an entity fulfils all promises in a contract:
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23.41 | Step 4 does not apply if a contract contains a single promise. However, an entity shall apply paragraph 23.48 if the entity accounts for a series of distinct goods or services as a single promise in accordance with paragraph 23.15 and the transaction price includes an amount of variable consideration. |
Allocation based on stand-alone selling prices
23.42 | At the start of a contract, an entity shall determine the stand-alone selling price of the distinct good or service (or distinct bundle of goods or services) in each promise in the contract. The entity shall allocate the transaction price in proportion to those stand-alone selling prices (that is, on a relative stand-alone selling price basis). The entity shall not reallocate the transaction price to reflect changes in the stand-alone selling prices after the start of the contract. |
23.43 | The ‘stand-alone selling price’ is the price at which an entity would separately sell a good or service. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. |
23.44 | If a stand-alone selling price is not directly observable, an entity shall estimate that price. An entity shall take into account all information that is reasonably available to it, including market conditions, entity-specific factors and information about the customer or class of customer. An entity shall apply estimation methods consistently in similar circumstances. Suitable estimation methods might include using the entity’s competitor’s prices for similar goods or services, or the expected costs of the good or service plus an appropriate margin. |
23.45 | As an exception to paragraph 23.42, an entity might allocate a discount or variable consideration using an alternative method (see paragraphs 23.46–23.48). |
Allocation of a discount and variable consideration
23.46 | In a contract:
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23.47 | An entity shall allocate a discount or variable amount to each promise in the contract on a relative stand-alone selling price basis. However, if allocating the discount or variable amount on this basis does not represent the amount of consideration the entity expects to be entitled to in exchange for fulfilling each promise in the contract, the entity shall use another method to allocate the discount or variable amount. For example, the entity might allocate the discount or variable amount to one, or some, of the promises in the contract. |
23.48 | If an entity accounts for a series of distinct goods or services as a single promise in accordance with paragraph 23.15, it shall allocate a variable amount to each distinct good or service on a relative stand-alone selling price basis. However, if allocating the variable amount on this basis does not represent the amount of consideration the entity expects to be entitled to in exchange for transferring each distinct good or service in the promise, the entity shall use another method to allocate the variable amount. For example, the entity might allocate the variable amount to one, or some, of the distinct goods or services in the promise. |
Step 5—Recognise revenue when (or as) the entity fulfils a promise
23.49 | An entity shall recognise revenue when (or as) it fulfils a promise. An entity fulfils a promise by transferring control of the distinct good or service in the promise to the customer. |
23.50 | Goods and services are assets, even if only momentarily, when they are received and used. An entity transfers control of an asset when the customer has the present ability to direct the use of the asset and obtain the economic benefits that might flow from it. |
23.51 | When evaluating whether a customer obtains control of an asset, an entity shall consider any agreements to repurchase the asset. The customer does not obtain control of the asset if the entity has a right and obligation to repurchase the asset (a forward) or a right to repurchase the asset (a call option). |
23.52 | At the start of a contract, an entity shall determine whether it transfers control of the distinct good or service in a promise to a customer either:
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23.53 | If a contract with a customer includes a licence that is distinct from the other goods or services in the contract, an entity shall apply paragraphs 23A.28–23A.36 to determine whether the promise to grant the licence is fulfilled over time or at a point in time. |
Promises fulfilled over time
23.54 | An entity transfers control of a distinct good or service over time, and therefore fulfils a promise over time, if any of these criteria is met:
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23.55 | An asset cannot be easily redirected to another customer if:
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23.56 | A customer might be obliged to pay an entity for work done to date because of specific terms in the contract or laws that apply to that contract. The customer is obliged to pay the entity for work done to date if the entity has either:
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Promises fulfilled at a point in time
23.57 | If an entity does not transfer control of a distinct good or service over time, the entity transfers control of the good or service at a point in time, and therefore fulfils a promise at a point in time. |
23.58 | For each promise an entity fulfils at a point in time, the entity shall recognise revenue at the specific point in time a customer obtains control of the distinct good or service. To identify this point in time, an entity shall consider indicators of the transfer of control, which include:
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23.59 | The indicators in paragraph 23.58 are not always conclusive. Consequently, the absence of an indicator would not preclude the customer from obtaining control of an asset. If it is clear from other features of the transaction that the customer has the present ability to direct the use of the asset and obtain the economic benefits that might flow from it, the customer has obtained control of the asset. |
Customer acceptance
23.60 | Customer acceptance clauses allow a customer to cancel a contract or require an entity to take remedial action if a good or service does not meet agreed-upon specifications. |
23.61 | If a contract includes a customer acceptance clause and the entity cannot identify whether a good or service meets the agreed-upon specifications based on the information available to the entity, it shall wait until it receives the customer’s acceptance before it concludes that the customer has obtained control of the good or service. |
Measuring progress towards fulfilment of a promise
23.62 | For each promise fulfilled over time in accordance with paragraphs 23.54–23.56, an entity shall calculate how much revenue to recognise in each reporting period by measuring its progress towards fulfilment of that promise at the end of the period. |
23.63 | An entity shall choose a method of measuring progress that depicts the entity’s performance in transferring control of goods or services promised to the customer. An entity shall apply one method of measuring progress for each promise fulfilled over time and shall apply that method consistently to similar promises and in similar circumstances. |
23.64 | At the end of each reporting period, an entity shall remeasure its progress towards fulfilment of a promise to reflect any changes in circumstances. The entity shall account for changes to the measure of progress as a change in accounting estimate in accordance with Section 10 Accounting Policies, Estimates and Errors. |
23.65 | When choosing which method to use to measure its progress, an entity shall consider the nature of the good or service it will transfer to a customer. Appropriate methods of measuring progress include methods that recognise revenue based on:
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23.66 | Common methods, and circumstances in which they might be appropriate, include:
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23.67 | If an entity has a right to consideration from the customer in an amount that relates directly to the value to the customer of the entity’s work to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity is permitted to recognise revenue in the amount it has a right to invoice. |
Contract costs
Costs to obtain a contract
23.68 | An entity shall recognise the costs of obtaining a contract with a customer as an expense when incurred, unless another section of this Standard requires the costs to be recognised as part of the cost of an asset. |
Costs to fulfil a contract
23.69 | An entity shall account for the costs incurred to fulfil a contract with a customer in accordance with the relevant section of this Standard for those costs (for example, Section 13 Inventories, Section 17 Property, Plant and Equipment or Section 18 Intangible Assets other than Goodwill). |
23.70 | If the costs incurred to fulfil a contract are not within the scope of another section of this Standard, an entity shall recognise those costs as an asset if:
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23.71 | Costs that relate directly to a contract include direct labour, direct materials and allocations of costs that relate directly to the contract or contract activities. |
23.72 | General and administrative costs do not normally satisfy the criteria in paragraph 23.70 and are therefore recognised as expenses when incurred. |
23.73 | An entity shall recognise costs that relate to promises that are fulfilled (or partially fulfilled) as expenses when incurred, because those costs relate to past performance. |
Measurement after recognition
23.74 | After initial recognition, an entity shall measure assets arising from the costs to fulfil a contract in accordance with paragraph 23.70 at cost less accumulated amortisation and any accumulated impairment losses:
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23.75 | For the purpose of measuring impairment losses, the recoverable amount of an asset arising from the costs to fulfil a contract is:
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23.76 | In measuring the remaining amount of consideration, the amount shall only include consideration for which collection is probable. |
Contract balances
23.77 | When either party to a contract has performed, an entity shall present the contract in the statement of financial position as either a contract asset or a contract liability based on the contract as a whole. The presentation of the contract balance depends on the relationship between:
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23.78 | If an entity has received consideration (or has a trade receivable) before it transfers goods or services to the customer, the entity shall recognise a contract liability when the payment is made or due, whichever is earlier. A contract liability is an entity’s obligation to transfer goods or services to the customer for which the entity has received consideration (or for which the amount is due) from the customer. When (or as) the entity transfers those goods or services to the customer, the entity shall derecognise the contract liability (or part of a contract liability) and recognise revenue, in accordance with Step 5. |
23.79 | If an entity transfers goods or services to a customer before the customer has paid (or before payment is due), the entity has a right to consideration. The entity shall present that right as a contract asset, excluding any amounts presented as a trade receivable (see paragraph 23.80). An entity shall assess a contract asset for impairment and recognise and measure any impairment loss in accordance with Section 11 Financial Instruments. |
23.80 | A receivable is an entity’s unconditional right to consideration. A right to consideration is unconditional if only the passage of time is necessary before payment of that consideration becomes due. An entity can have an unconditional right to consideration even though it might be required to refund the consideration in the future (for example, when a right of return exists). In those instances, the entity might recognise a trade receivable and a refund liability. An entity shall account for a trade receivable in accordance with Section 11. An entity shall present trade receivables separately from contract assets and contract liabilities in the statement of financial position. |
23.81 | An entity is permitted to use different descriptions in the statement of financial position for ‘contract assets’ and ‘contract liabilities’. If an entity uses a different description for ‘contract assets’, the entity shall provide enough information for a user of the financial statements to distinguish between trade receivables and contract assets. |
Disclosures
23.82 | An entity shall disaggregate revenue from contracts with customers using categories based on the characteristics of the entity’s revenue, contracts or customers that are relevant to an understanding of its financial performance. Examples of categories that might be appropriate include:
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23.83 | If not otherwise separately presented or disclosed, an entity shall disclose:
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23.84 | An entity shall disclose:
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23.85 | An entity shall disclose information about its promises in contracts with customers, including a description of:
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23.86 | An entity shall disclose the methods it used to measure its progress towards fulfilment of promises fulfilled over time (for example, a description of the output or input methods it used and how those methods were applied). |
23.87 | An entity shall disclose any judgements it has made that had a significant effect on the amounts it recognised in its financial statements when:
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23.88 | An entity shall disclose the closing balance of assets arising from the costs to fulfil a contract (in accordance with paragraph 23.70) by main category of asset (for example, pre‑contract costs and set-up costs). |
23.89 | If an entity chooses to use the option in paragraph 23.38 not to account for interest revenue separately from revenue from contracts with customers, it shall disclose that fact. |
23.90 | If an entity cannot account for an option to acquire additional goods or services that meets the criteria in paragraph 23A.9(a) as a separate promise without undue cost or effort, the entity shall disclose that fact and the reasons why accounting for the option as a separate promise would involve undue cost or effort. |
Appendix to Section 23Application guidance
23A.1 | This guidance focuses on features found in some contracts with customers. The guidance covers:
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Contract modifications
23A.2 | A contract modification is a change in the scope or price (or both) of a contract that the parties to the contract approve. A contract modification either changes the existing rights and obligations in a contract or creates new ones. |
23A.3 | An entity shall account for a contract modification as a separate contract if:
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23A.4 | For a contract modification that is not a separate contract in accordance with paragraph 23A.3, an entity shall account for the contract modification in one of two ways. If the goods or services an entity will transfer after the contract modification are:
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Warranties
23A.5 | An entity might sell a good or service with a warranty. |
23A.6 | If a customer can choose to buy the good or service either with or without a warranty, the warranty is distinct. In these circumstances, an entity shall account for the warranty as a separate promise and allocate a portion of the transaction price to that promise. |
23A.7 | If the customer has no option to buy the good or service without a warranty, the warranty is not distinct. In these circumstances, an entity shall account for the warranty in accordance with Section 21 Provisions and Contingencies. |
Customer options for additional goods or services
23A.8 | An entity might grant customers the option to acquire additional goods or services for free or at a discount. Such options include sales incentives, customer award credits (or points), contract renewal options or other discounts on future goods or services. |
23A.9 | An entity shall account for an option to acquire additional goods or services as a separate promise if:
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23A.10 | To account for the option as a separate promise, the entity shall:
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23A.11 | In accordance with Step 4, an entity shall allocate the transaction price to each promise in the contract on a relative stand-alone selling price basis. If the stand-alone selling price is not directly observable, an entity shall estimate the price. The estimate of the stand-alone selling price of an option shall reflect the discount that the customer would obtain when exercising the option, adjusted for:
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23A.12 | An entity might grant a customer an option to renew a contract on similar terms. If the entity accounts for the renewal option as a separate promise, it shall allocate the transaction price to the option based on the total expected consideration allocated to the total goods or services it expects to transfer, instead of estimating the stand-alone selling price of the option. The entity shall include expected renewal period(s) when estimating the total goods or services it expects to transfer and corresponding total expected consideration. |
23A.13 | The amount of the transaction price allocated to the renewal option is the difference between:
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Principal versus agent considerations
23A.14 | If another party is involved in providing goods or services to a customer, an entity shall determine whether its promise is to provide the specified goods or services itself (that is, the entity is a principal) or to arrange for the other party to provide those goods or services (that is, the entity is an agent). |
23A.15 | To determine whether an entity is a principal or agent, the entity shall:
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23A.16 | A specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer. A right to a future service to be provided by another party might be a distinct good or service (for example, a ticket that gives the customer the right to fly on a specified flight). |
23A.17 | An entity is a principal if it controls the specified good or service before that good or service is transferred to the customer. |
23A.18 | An entity has control of a specified good or service if it has the present ability to direct the use of that good or service and obtain the economic benefits that might flow from it. Indicators that the entity controls the specified good or service before it is transferred to a customer (and is therefore a principal) include:
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23A.19 | A principal shall recognise as revenue the gross amount of the consideration it expects to be entitled to in exchange for transferring the specified good or service when (or as) it transfers control of that good or service to the customer. |
23A.20 | An entity that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. An agent shall recognise as revenue the amount of the fee or commission it expects to be entitled to in exchange for arranging for another party to provide the specified good or service as the agent fulfils its promise to arrange the transfer of that good or service. |
Non-cash consideration
23A.21 | The consideration promised by a customer might be in a form other than cash, such as goods or services. An example is an exchange of goods in a barter transaction. |
23A.22 | An entity shall measure the non-cash consideration at fair value unless the fair value cannot be reasonably estimated. If the entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall instead measure the consideration based on the stand-alone selling price of the goods or services promised to the customer in exchange for the consideration. |
Sales with a right of return
23A.23 | An entity might sell a product and give the customer the right to return the product in exchange for any combination of:
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23A.24 | To account for products sold with a right of return, an entity shall recognise:
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23A.25 | Products an entity expects to be returned shall exclude:
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23A.26 | An entity shall initially measure the returns asset at the former carrying amount of the products the entity expects to be returned minus:
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23A.27 | At the end of each reporting period, an entity shall adjust the refund liability and returns asset for changes in its expectations about products to be returned. The entity shall recognise adjustments to:
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Licensing
23A.28 | A licence gives a customer rights to an entity’s intellectual property (such as software, technology, trademarks, patents, franchises, music and motion picture films). |
23A.29 | If a contract with a customer includes a licence (or licences) and other goods or services, an entity shall apply Step 2 to identify each of the promises in the contract. If the licence is not distinct from the other goods or services in the contract, an entity shall apply Step 5 to determine whether the promise to grant the licence is fulfilled over time or at a point in time. If the licence is distinct from the other goods or services in the contract, an entity shall apply paragraphs 23A.30–23A.36 to determine whether the promise to grant the licence is fulfilled over time or at a point in time. |
23A.30 | To determine whether the promise to grant a licence is fulfilled over time or at a point in time, an entity shall consider whether the licence gives the customer either:
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23A.31 | A licence gives a customer a right to access an entity’s intellectual property if the entity expects to undertake activities:
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23A.32 | An entity’s expected activities might be included in the terms of a contract or might be activities that a customer reasonably expects the entity will undertake. For the purpose of applying the criteria in paragraph 23A.31, the entity shall exclude activities that result in the transfer of a good or service to the customer. |
23A.33 | Activities undertaken by the entity that change the intellectual property’s substance include activities that change the intellectual property’s design, content or ability to do a function or task (for example, development activities that change the content to which the customer has rights). |
23A.34 | Activities undertaken by the entity that directly expose the customer to positive or negative effects include activities that support or maintain the value of intellectual property (for example, ongoing activities that maintain the value of the brand to which the customer has rights). |
23A.35 | If either criterion in paragraph 23A.31 is met, the promise to grant a licence is fulfilled over time. Otherwise, the promise is fulfilled at a point in time. |
23A.36 | If a promise to grant a licence is fulfilled over time, an entity shall apply paragraphs 23.62–23.67 to choose an appropriate method to measure its progress towards fulfilment of that promise. If a promise to grant a licence is fulfilled at a point in time, an entity shall apply paragraphs 23.57–23.61 to identify the point in time the licence transfers to the customer, which cannot be before the customer is able to use and benefit from the licence. |
Sales-based or usage-based royalties
23A.37 | An entity might grant a licence of intellectual property in exchange for a royalty based on sales or use. If the licence is the sole or main item to which the royalty relates, the entity shall recognise revenue for such a royalty when (or as) the later of two events happens:
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Section 24Government Grants
Scope of this section
24.1 | This section specifies the accounting for all government grants. A government grant is assistance by government in the form of a transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. |
24.2 | Government grants exclude those forms of government assistance that cannot reasonably have a value placed upon them and transactions with government that cannot be distinguished from the normal trading transactions of the entity. |
24.3 | This section does not cover government assistance that is provided for an entity in the form of benefits that are available in determining taxable profit or tax loss, or are determined or limited on the basis of income tax liability. Examples of such benefits are income tax holidays, investment tax credits, accelerated depreciation allowances and reduced income tax rates. Section 29 Income Tax covers accounting for taxes based on income. |
Recognition and measurement
24.4 | An entity shall recognise government grants as follows:
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24.5 | An entity shall measure grants at the fair value of the asset received or receivable. |
Disclosures
24.6 | An entity shall disclose the following:
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24.7 | Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under specified criteria. For the purpose of the disclosure required by paragraph 24.6(c), examples include free technical or marketing advice and the provision of guarantees. |
Section 25Borrowing Costs
Scope of this section
25.1 | This section specifies the accounting for borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs include:
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Recognition
25.2 | An entity shall recognise all borrowing costs as an expense in profit or loss in the period in which they are incurred. |
Disclosures
25.3 | Paragraph 5.5(b) requires disclosure of finance costs. Paragraph 11.48(b) requires disclosure of total interest expense (using the effective interest method) for financial liabilities that are not at fair value through profit or loss. This section does not require any additional disclosure. |
Section 26Share-based Payment
Scope of this section
26.1 | This section specifies the accounting for all share-based payment transactions including those that are equity- or cash-settled or those in which the terms of the arrangement provide a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments. |
26.1A | A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving the goods or services. This section also applies to an entity that:
unless the transaction is clearly for a purpose other than the payment for goods or services supplied to the entity receiving them. |
26.1B | In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this section applies (see paragraph 26.17). |
26.1C | This section does not apply to share-based payment transactions in which an entity acquires goods as part of the net assets acquired in:
Therefore, equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of this section. However, equity instruments granted to employees of the acquiree in their capacity as employees (for example, in return for continued service) are within the scope of this section. Similarly, the cancellation, replacement or other modification of share-based payment arrangements because of a business combination or other equity restructuring shall be accounted for in accordance with this section. |
26.1D | This section uses the term ‘fair value’ in a way that differs in some respects from the definition in the Glossary and in other sections of this Standard. When applying this section, an entity shall apply the definition of fair value in paragraph 26.1E and measure fair value in accordance with this section, not Section 12 Fair Value Measurement. |
26.1E | For the purpose of this section, fair value is the amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction. |
26.2 | Cash-settled share-based payment transactions include share appreciation rights. For example, an entity might grant share appreciation rights to employees as part of their remuneration package, whereby the employees will become entitled to a future cash payment (instead of an equity instrument), based on the increase in the entity’s share price from a specified level over a specified period of time. Or an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (for example, upon cessation of employment) or at the employee’s option. |
Recognition
26.3 | An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash‑settled share-based payment transaction. |
26.4 | When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, the entity shall recognise them as expenses. |
Recognition when there are vesting conditions
26.5 | If the share-based payments granted to an employee or another party (the counterparty) vest immediately, the counterparty is not required to complete a specified period of service before becoming unconditionally entitled to those share-based payments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the counterparty as consideration for the share-based payments have been received. In this case, on the grant date the entity shall recognise the services received in full, with a corresponding increase in equity or liabilities. |
26.6 | If the share-based payments do not vest until the counterparty completes a specified period of service, the entity shall presume that the services to be rendered by the counterparty as consideration for those share-based payments will be received in the future, during the vesting period. The entity shall account for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity or liabilities. |
Measurement of equity-settled share-based payment transactions
Measurement principle
26.7 | For equity-settled share-based payment transactions, an entity shall measure the goods or services received, and the corresponding increase in equity, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, by reference to the fair value of the equity instruments granted. To apply this requirement to transactions with employees and others providing similar services, the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received. |
26.8 | For transactions with employees and others providing similar services,6 the fair value of the equity instruments shall be measured at the grant date. For transactions with parties other than employees, the measurement date is the date when the entity obtains the goods or the counterparty renders service. |
26.9 | A grant of equity instruments might be conditional upon satisfying specified vesting conditions related to service or performance. An example of a service condition is when a grant of shares or share options to an employee is conditional on the employee remaining in the entity’s employ for a specified period of time. Examples of performance conditions are when a grant of shares or share options is conditional on a specified period of service and on the entity achieving a specified growth in profit (a non-market vesting condition) or a specified increase in the entity’s share price (a market vesting condition). Vesting conditions and conditions that are not vesting conditions (non-vesting conditions) are accounted for as follows:
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Shares
26.10 | An entity shall measure the fair value of shares (and the related goods or services received) using the following three-tier measurement hierarchy:
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Share options and equity-settled share appreciation rights
26.11 | An entity shall measure the fair value of share options and equity-settled share appreciation rights (and the related goods or services received) using the following three-tier measurement hierarchy:
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Modifications to the terms and conditions on which equity instruments were granted
26.12 | An entity might modify the terms and conditions on which equity instruments are granted in a manner that is beneficial to the employee, for example, by reducing the exercise price of an option or reducing the vesting period or by modifying or eliminating a performance condition. Alternatively an entity might modify the terms and conditions in a manner that is not beneficial to the employee, for example, by increasing the vesting period or adding a performance condition. The entity shall take the modified vesting conditions into account in accounting for the share-based payment transaction, as follows:
The requirements in this paragraph are expressed in the context of share‑based payment transactions with employees. The requirements also apply to share-based payment transactions with parties other than employees if these transactions are measured by reference to the fair value of the equity instruments granted, but reference to the grant date refers to the date that the entity obtains the goods or the counterparty renders service. |
Cancellations and settlements
26.13 | An entity shall account for a cancellation or settlement of an equity-settled share-based payment award as an acceleration of vesting, and therefore shall recognise immediately the amount that otherwise would have been recognised for services received over the remainder of the vesting period. |
Cash-settled share-based payment transactions
26.14 | For cash-settled share-based payment transactions, an entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall remeasure the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. |
26.14A | A cash-settled share-based payment transaction might be conditional upon satisfying specified vesting conditions related to service or performance. Vesting conditions and conditions that are not vesting conditions (non-vesting conditions) are accounted for as follows:
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26.14B | As a result of applying paragraph 26.14A, the cumulative amount ultimately recognised for goods or services received as consideration for the cash-settled share-based payment is equal to the cash paid. |
Share-based payment transactions with cash alternatives
26.15 | Some share-based payment transactions give either the entity or the counterparty a choice of settling the transaction in cash (or other assets) or by transfer of equity instruments. In such a case, the entity shall account for the transaction as a cash-settled share-based payment transaction unless:
In circumstances (a) and (b), the entity shall account for the transaction as an equity-settled share-based payment transaction in accordance with paragraphs 26.7–26.13. In circumstance (c), the entity shall account for the transaction in accordance with paragraphs 26.15B–26.15D. |
Share-based payment transactions with a net settlement feature for withholding tax obligations
26.15A | Tax laws or regulations might oblige an entity to withhold an amount for an employee’s tax obligation associated with a share-based payment and transfer that amount, normally in cash, to the tax authority on the employee’s behalf. A share-based payment arrangement has a net settlement feature if the terms of the arrangement require or permit an entity to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment. |
26.15B | The share-based payment transaction described in paragraph 26.15A shall be classified as an equity-settled share-based payment transaction if:
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26.15C | For a transaction that satisfies the conditions in paragraph 26.15B, an entity shall account for the payment to the tax authority as a deduction from equity for the equity instruments withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld. |
26.15D | Paragraph 26.15B does not apply to any equity instruments that the entity withholds in excess of the monetary value of the employee’s tax obligation associated with the share-based payment. Such excess shares withheld shall be accounted for as a cash-settled share-based payment when this amount is paid in cash (or other assets) to the employee. |
Group plans
26.16 | If a share-based payment award is granted by an entity for goods or services received by one or more group entities, and the group presents consolidated financial statements using either the IFRS for SMEs Accounting Standard or full IFRS Accounting Standards, the group entities are permitted, as an alternative to the treatment set out in paragraphs 26.3–26.15D, to measure the share-based payment expense on the basis of a reasonable allocation of the expense for the group. |
Unidentifiable goods or services
26.17 | If the identifiable consideration received appears to be less than the fair value of the equity instruments granted or the liability incurred, this situation typically indicates that other consideration (ie unidentifiable goods or services) has been (or will be) received. For example, some jurisdictions have programmes by which owners (such as employees) are able to acquire equity without providing goods or services that can be specifically identified (or by providing goods or services that are clearly less than the fair value of the equity instruments granted). This indicates that other consideration has been or will be received (such as past or future employee services). The entity shall measure the unidentifiable goods or services received (or to be received) as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received (or to be received) measured at the grant date. For cash-settled transactions, the liability shall be remeasured at the end of each reporting period until it is settled in accordance with paragraph 26.14. |
Disclosures
26.18 | An entity shall disclose the following information about the nature and extent of share-based payment arrangements that existed during the period:
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26.19 | For equity-settled share-based payment arrangements, an entity shall disclose information about how it measured the fair value of goods or services received or the value of the equity instruments granted. If a valuation methodology was used, the entity shall disclose the method and its reason for choosing it. |
26.20 | For cash-settled share-based payment arrangements, an entity shall disclose information about how the liability was measured. |
26.21 | For share-based payment arrangements that were modified during the period, an entity shall disclose an explanation of those modifications. |
26.22 | If the entity is part of a group share-based payment plan, and it measures its share-based payment expense on the basis of a reasonable allocation of the expense recognised for the group, it shall disclose that fact and the basis for the allocation (see paragraph 26.16). |
26.23 | An entity shall disclose the following information about the effect of share‑based payment transactions on the entity’s profit or loss for the period and on its financial position:
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Section 27Impairment of Assets
Objective and scope
27.1 | An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount. This section shall be applied in accounting for the impairment of all assets other than the following, for which other sections of this Standard establish impairment requirements:
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Impairment of inventories
Selling price less costs to complete and sell
27.2 | An entity shall assess at each reporting date whether any inventories are impaired. The entity shall make the assessment by comparing the carrying amount of each item of inventory (or group of similar items—see paragraph 27.3) with its selling price less costs to complete and sell. If an item of inventory (or group of similar items) is impaired, the entity shall reduce the carrying amount of the inventory (or the group) to its selling price less costs to complete and sell. That reduction is an impairment loss and it is recognised immediately in profit or loss. |
27.3 | If it is impracticable to determine the selling price less costs to complete and sell for inventories item by item, the entity may group items of inventory relating to the same product line that have similar purposes or end uses and are produced and marketed in the same geographical area for the purpose of assessing impairment. |
Reversal of impairment
27.4 | An entity shall make a new assessment of selling price less costs to complete and sell at each subsequent reporting date. When the circumstances that previously caused inventories to be impaired no longer exist or when there is clear evidence of an increase in selling price less costs to complete and sell because of changed economic circumstances, the entity shall reverse the amount of the impairment (ie the reversal is limited to the amount of the original impairment loss) so that the new carrying amount is the lower of the cost and the revised selling price less costs to complete and sell. |
Impairment of assets other than inventories
General principles
27.5 | If, and only if, the recoverable amount of an asset is less than its carrying amount, the entity shall reduce the carrying amount of the asset to its recoverable amount. That reduction is an impairment loss. Paragraphs 27.11–27.20 provide guidance on measuring recoverable amount. |
27.6 | An entity shall recognise an impairment loss immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with the revaluation model in Section 17 Property, Plant and Equipment. Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with paragraph 17.15D. |
Indicators of impairment
27.7 | An entity shall assess at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. If there is no indication of impairment, it is not necessary to estimate the recoverable amount. |
27.8 | If it is not possible to estimate the recoverable amount of the individual asset, an entity shall estimate the recoverable amount of the cash-generating unit to which the asset belongs. This may be the case because measuring recoverable amount requires forecasting cash flows and sometimes individual assets do not generate cash flows by themselves. An asset’s cash-generating unit is the smallest identifiable group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. |
27.9 | In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a minimum, the following indications: External sources of information
Internal sources of information
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27.10 | If there is an indication that an asset may be impaired, this may indicate that the entity should review the remaining useful life, the depreciation (amortisation) method or the residual value for the asset and adjust it in accordance with the section of this Standard applicable to the asset (for example, Section 17 and Section 18 Intangible Assets other than Goodwill), even if no impairment loss is recognised for the asset. |
Measuring recoverable amount
27.11 | The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If it is not possible to estimate the recoverable amount of an individual asset, references in paragraphs 27.12–27.20 to an asset should be read as references also to an asset’s cash-generating unit. |
27.12 | It is not always necessary to determine both an asset’s fair value less costs to sell and its value in use. If either of these amounts exceeds the asset’s carrying amount, the asset is not impaired and it is not necessary to estimate the other amount. |
27.13 | If there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its recoverable amount. This will often be the case for an asset that is held for disposal. |
Fair value less costs to sell
27.14 | When measuring fair value less costs to sell, an entity shall apply the guidance on measuring fair value in Section 12 Fair Value Measurement and deduct the costs of disposal. |
Value in use
27.15 | Value in use is the present value of the future cash flows expected to be derived from an asset. This present value calculation involves the following steps:
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27.16 | The following elements shall be reflected in the calculation of an asset’s value in use:
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27.17 | In measuring value in use, estimates of future cash flows shall include:
The entity may wish to use any recent financial budgets or forecasts to estimate the cash flows, if available. To estimate cash flow projections beyond the period covered by the most recent budgets or forecasts an entity may wish to extrapolate the projections based on the budgets or forecasts using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. |
27.18 | Estimates of future cash flows shall not include:
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27.19 | Future cash flows shall be estimated for the asset in its current condition. Estimates of future cash flows shall not include estimated future cash inflows or outflows that are expected to arise from:
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27.20 | The discount rate (rates) used in the present value calculation shall be a pre‑tax rate (rates) that reflect(s) current market assessments of:
The discount rate (rates) used to measure an asset’s value in use shall not reflect risks for which the future cash flow estimates have been adjusted, to avoid double-counting. |
Recognising and measuring an impairment loss for a cash-generating unit
27.21 | An impairment loss shall be recognised for a cash-generating unit if, and only if, the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit in the following order:
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27.22 | However, an entity shall not reduce the carrying amount of any asset in the cash-generating unit below the highest of:
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27.23 | Any excess amount of the impairment loss that cannot be allocated to an asset because of the restriction in paragraph 27.22 shall be allocated to the other assets of the unit pro rata on the basis of the carrying amount of those other assets. |
Additional requirements for impairment of goodwill
27.24 | Goodwill, by itself, cannot be sold. Nor does it generate cash flows to an entity that are independent of the cash flows of other assets. As a consequence, the fair value of goodwill cannot be measured directly. Consequently, the fair value of goodwill must be derived from measurement of the fair value of the cash-generating unit(s) of which the goodwill is a part. |
27.25 | For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash-generating units that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. |
27.26 | Part of the recoverable amount of a cash-generating unit is attributable to the non-controlling interest in goodwill. For the purpose of impairment testing a non-wholly-owned cash-generating unit with goodwill, the carrying amount of that unit is notionally adjusted, before being compared with its recoverable amount, by grossing up the carrying amount of goodwill allocated to the unit to include the goodwill attributable to the non-controlling interest. This notionally adjusted carrying amount is then compared with the recoverable amount of the unit to determine whether the cash-generating unit is impaired. |
27.27 | If goodwill cannot be allocated to individual cash-generating units (or groups of cash-generating units) on a non-arbitrary basis, then for the purposes of testing goodwill the entity shall test the impairment of goodwill by determining the recoverable amount of either:
In applying this paragraph, an entity will need to separate goodwill into goodwill relating to entities that have been integrated and goodwill relating to entities that have not been integrated. Also the entity shall follow the requirements for cash-generating units in this section when calculating the recoverable amount of, and allocating impairment losses and reversals to assets belonging to, the acquired entity or group of entities. |
Reversal of an impairment loss
27.28 | An impairment loss recognised for goodwill shall not be reversed in a subsequent period. |
27.29 | For all assets other than goodwill, an entity shall assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased. Indications that an impairment loss may have decreased or may no longer exist are generally the opposite of those set out in paragraph 27.9. If any such indication exists, the entity shall determine whether all or part of the prior impairment loss should be reversed. The procedure for making that determination will depend on whether the prior impairment loss on the asset was based on:
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Reversal where recoverable amount was estimated for an individual impaired asset
27.30 | When the prior impairment loss was based on the recoverable amount of the individual impaired asset, the following requirements apply:
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Reversal when recoverable amount was estimated for a cash-generating unit
27.31 | When the original impairment loss was based on the recoverable amount of the cash-generating unit to which the asset belongs, the following requirements apply:
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Disclosures
27.32 | An entity shall disclose the following for each class of assets indicated in paragraph 27.33:
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27.33 | An entity shall disclose the information required by paragraph 27.32 for each of the following classes of asset:
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Section 28Employee Benefits
Scope of this section
28.1 | Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees, including directors and management. This section applies to all employee benefits, except for share‑based payment transactions, which are covered by Section 26 Share‑based Payment. Employee benefits covered by this section will be one of the following four types:
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28.2 | Employee benefits also include share-based payment transactions by which employees receive equity instruments (such as shares or share options) or cash or other assets of the entity in amounts that are based on the price of the entity’s shares or other equity instruments of the entity. An entity shall apply Section 26 in accounting for share-based payment transactions. |
General recognition principle for all employee benefits
28.3 | An entity shall recognise the cost of all employee benefits to which its employees have become entitled as a result of service rendered to the entity during the reporting period:
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Short-term employee benefits
Examples
28.4 | Short-term employee benefits include items such as:
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Measurement of short-term benefits
28.5 | When an employee has rendered service to an entity during the reporting period, the entity shall measure the amounts recognised in accordance with paragraph 28.3 at the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service. |
Recognition and measurement—short-term compensated absences
28.6 | An entity may compensate employees for absence for various reasons including annual vacation leave and sick leave. Some short-term compensated absences accumulate—they can be carried forward and used in future periods if the employee does not use the current period’s entitlement in full. Examples include annual vacation leave and sick leave. An entity shall recognise the expected cost of accumulating compensated absences when the employees render service that increases their entitlement to future compensated absences. The entity shall measure the expected cost of accumulating compensated absences at the undiscounted additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period. The entity shall present this amount as a current liability at the reporting date. |
28.7 | An entity shall recognise the cost of other (non-accumulating) compensated absences when the absences occur. The entity shall measure the cost of non‑accumulating compensated absences at the undiscounted amount of salaries and wages paid or payable for the period of absence. |
Recognition—profit-sharing and bonus plans
28.8 | An entity shall recognise the expected cost of profit-sharing and bonus payments only when:
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Post-employment benefits: distinction between defined contribution plans and defined benefit plans
28.9 | Post-employment benefits include, for example:
Arrangements whereby an entity provides post-employment benefits are post‑employment benefit plans. An entity shall apply this section to all such arrangements whether or not they involve the establishment of a separate entity to receive contributions and to pay benefits. In some cases, these arrangements are imposed by law instead of by action of the entity. In some cases, these arrangements arise from actions of the entity even in the absence of a formal, documented plan. |
28.10 | Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on their principal terms and conditions:
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Multi-employer plans and state plans
28.11 | Multi-employer plans and state plans are classified as defined contribution plans or defined benefit plans on the basis of the terms of the plan, including any constructive obligation that goes beyond the formal terms. However, if sufficient information is not available to use defined benefit accounting for a multi-employer plan or a state plan that is a defined benefit plan, an entity shall account for the plan in accordance with paragraph 28.13 as if it was a defined contribution plan and make the disclosures required by paragraph 28.40. |
Insured benefits
28.12 | An entity may pay insurance premiums to fund a post-employment benefit plan. The entity shall treat such a plan as a defined contribution plan unless the entity has a legal or constructive obligation either:
A constructive obligation could arise indirectly through the plan, through the mechanism for setting future premiums, or through a related party relationship with the insurer. If the entity retains such a legal or constructive obligation, the entity shall treat the plan as a defined benefit plan. |
Post-employment benefits: defined contribution plans
Recognition and measurement
28.13 | An entity shall recognise the contribution payable for a period:
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Post-employment benefits: defined benefit plans
Recognition
28.14 | In applying the general recognition principle in paragraph 28.3 to defined benefit plans, an entity shall recognise:
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Measurement of the defined benefit liability
28.15 | An entity shall measure a defined benefit liability for its obligations under defined benefit plans at the net total of the following amounts:
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Inclusion of both vested and unvested benefits
28.16 | The present value of an entity’s obligations under defined benefit plans at the reporting date shall reflect the estimated amount of benefit that employees have earned in return for their service in the current and prior periods, including benefits that are not yet vested (see paragraph 28.26) and including the effects of benefit formulas that give employees greater benefits for later years of service. This requires the entity to determine how much benefit is attributable to the current and prior periods on the basis of the plan’s benefit formula and to make estimates (actuarial assumptions) about demographic variables (such as employee turnover and mortality) and financial variables (such as future increases in salaries and medical costs) that influence the cost of the benefit. The actuarial assumptions shall be unbiased (neither imprudent nor excessively conservative), mutually compatible and selected to lead to the best estimate of the future cash flows that will arise under the plan. |
Discounting
28.17 | An entity shall determine the rate used to discount the future payments by reference to market yields at the reporting date on high quality corporate bonds. For currencies for which there is no deep market in such high quality corporate bonds, the entity shall use the market yields (at the reporting date) on government bonds denominated in that currency. The currency and term of the corporate bonds or government bonds shall be consistent with the currency and estimated period of the future payments. |
Actuarial valuation method
28.18 | If an entity is able, without undue cost or effort, to use the projected unit credit method to measure its defined benefit obligation and the related expense, it shall do so. If defined benefits are based on future salaries, the projected unit credit method requires an entity to measure its defined benefit obligations on a basis that reflects estimated future salary increases. Additionally, the projected unit credit method requires an entity to make various actuarial assumptions in measuring the defined benefit obligation, including discount rates, the expected rates of return on plan assets, expected rates of salary increases, employee turnover, mortality, and (for defined benefit medical plans) medical cost trend rates. |
28.19 | If using the projected unit credit method to measure an entity’s obligation under defined benefit plans would involve undue cost or effort, the entity is permitted to measure the obligation with respect to current employees by both:
An entity that uses the foregoing measurement simplification must still include both vested benefits and unvested benefits when measuring its obligation under defined benefit plans. |
28.20 | This Standard does not require an entity to engage an independent actuary to perform the comprehensive actuarial valuation needed to calculate its defined benefit obligation. Nor does it require that a comprehensive actuarial valuation must be done annually. In the periods between comprehensive actuarial valuations, if the principal actuarial assumptions have not changed significantly the defined benefit obligation can be measured by adjusting the prior period measurement for changes in employee demographics such as number of employees and salary levels. |
Plan introductions, changes, curtailments and settlements
28.21 | If a defined benefit plan has been introduced or changed in the current period, the entity shall increase or decrease its defined benefit liability to reflect the change, and shall recognise the increase (decrease) as an expense (income) in measuring profit or loss in the current period. Conversely, if a plan has been curtailed (ie benefits or group of covered employees are reduced) or settled (the employer’s obligation is completely discharged) in the current period, the defined benefit obligation shall be decreased or eliminated and the entity shall recognise the resulting gain or loss in profit or loss in the current period. |
Defined benefit plan asset
28.22 | If the present value of the defined benefit obligation at the reporting date is less than the fair value of plan assets at that date, the plan has a surplus. An entity shall recognise a plan surplus as a defined benefit plan asset only to the extent that it is able to recover the surplus either through reduced contributions in the future or through refunds from the plan. |
Cost of a defined benefit plan
28.23 | An entity shall recognise the net change in its defined benefit liability during the period, other than a change attributable to benefits paid to employees during the period or to contributions from the employer, as the cost of its defined benefit plans during the period. That cost is recognised either entirely in profit or loss as an expense or partly in profit or loss and partly as an item of other comprehensive income (see paragraph 28.24) unless another section of this Standard requires the cost to be recognised as part of the cost of an asset such as inventories or property, plant and equipment. |
Recognition–accounting policy election
28.24 | An entity is required to recognise all actuarial gains and losses in the period in which they occur. An entity shall:
as an accounting policy election. The entity shall apply its chosen accounting policy consistently to all of its defined benefit plans and all of its actuarial gains and losses. Actuarial gains and losses recognised in other comprehensive income shall be presented in the statement of comprehensive income. |
28.25 | The net change in the defined benefit liability that is recognised as the cost of a defined benefit plan includes:
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28.26 | Employee service gives rise to an obligation under a defined benefit plan even if the benefits are conditional on future employment (in other words, they are not yet vested). In measuring its defined benefit obligation, an entity considers the probability that some employees may not satisfy vesting requirements. Similarly, although some post-employment benefits (such as post-employment medical benefits) become payable only if a specified event occurs when an employee is no longer employed (such as an illness), an obligation is created when the employee renders service that will provide entitlement to the benefit if the specified event occurs. The probability that the specified event will occur affects the measurement of the obligation, but does not determine whether the obligation exists. |
28.27 | If defined benefits are reduced for amounts that will be paid to employees under government-sponsored plans, an entity shall measure its defined benefit obligations on a basis that reflects the benefits payable under the government plans, but only if:
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Reimbursements
28.28 | If an entity is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, the entity shall recognise its right to reimbursement as a separate asset. The entity shall measure the asset at fair value. In the statement of comprehensive income (or in the income statement, if presented), the expense relating to a defined benefit plan may be presented net of the amount recognised for a reimbursement. |
Other long-term employee benefits
28.29 | Other long-term employee benefits include, for example:
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28.30 | An entity shall recognise a liability for other long-term employee benefits measured at the net total of the following amounts:
An entity shall recognise the net change in the liability during the period, other than a change attributable to benefits paid to employees during the period or to contributions from the employer, as the cost of its other long‑term employee benefits during the period. That cost is recognised entirely in profit or loss as an expense unless another section of this Standard requires it to be recognised as part of the cost of an asset, such as inventories or property, plant and equipment. |
Termination benefits
28.31 | Termination benefits result from either an entity’s decision to terminate employment or an employee’s decision to accept an entity’s offer of benefits in exchange for termination of employment. The form of the employee benefit does not determine whether it is provided in exchange for service or in exchange for termination of the employee’s employment. Some termination benefits are provided in accordance with the terms of an employee benefit plan. For example, the benefits might be specified by statute, employment contract or union agreement, or might be implied as a result of the employer’s past practice of providing similar benefits. Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they both result from an entity’s decision to terminate employment and are not conditional on future service being provided. |
Recognition
28.32 | Because termination benefits do not provide an entity with future economic benefits, an entity shall recognise them as an expense in profit or loss immediately. |
28.33 | When an entity recognises termination benefits, the entity may also have to account for a curtailment of retirement benefits or other employee benefits. |
28.34 | An entity shall recognise a liability and an expense for termination benefits at the earlier of:
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28.34A | For termination benefits payable as a result of an employee’s decision to accept an offer of benefits in exchange for termination of employment, the time when an entity can no longer withdraw the offer of termination benefits is the earlier of:
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28.34B | For termination benefits payable as a result of an entity’s decision to terminate employment, the entity can no longer withdraw the offer after it has communicated to the affected employees a termination plan for which all of these criteria apply:
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28.35 | [Deleted] |
Measurement
28.36 | An entity shall measure termination benefits at the best estimate of the expenditure that would be required to settle the obligation at the reporting date. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits shall be based on the number of employees expected to accept the offer. |
28.37 | When termination benefits are due more than twelve months after the end of the reporting period, they shall be measured at their present value. |
Group plans
28.38 | If a parent entity provides benefits to the employees of one or more subsidiaries in the group, and the parent presents consolidated financial statements using either the IFRS for SMEs Accounting Standard or full IFRS Accounting Standards, such subsidiaries are permitted to recognise and measure employee benefit expense on the basis of a reasonable allocation of the expense recognised for the group. |
Disclosures
Disclosures about short-term employee benefits
28.39 | This section does not require specific disclosures about short-term employee benefits. |
Disclosures about defined contribution plans
28.40 | An entity shall disclose the amount recognised in profit or loss as an expense for defined contribution plans. If an entity treats a defined benefit multi‑employer or state plan as a defined contribution plan because sufficient information for defined benefit accounting is not available (see paragraph 28.11) it shall disclose the fact that the plan is a defined benefit plan and the reason why it is being accounted for as a defined contribution plan, along with any available information about the plan’s surplus or deficit and the implications, if any, for the entity. |
Disclosures about defined benefit plans
28.41 | Except for any defined benefit multi-employer or state plan that is accounted for as a defined contribution plan in accordance with paragraph 28.11 (and to which paragraph 28.40 applies), an entity shall disclose the following information about defined benefit plans:
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28.41A | The reconciliations in 28.41(e) and 28.41(f) are not required to be presented for prior periods. |
28.41B | If an entity has more than one defined benefit plan, the entity is permitted to make the disclosures required by paragraph 28.41 in total, separately for each plan, or in such groupings the entity considers to be the most useful. |
28.41C | If an entity participates in a defined benefit plan that is a group plan, it shall disclose:
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28.41D | The information required by paragraph 28.41C(c) can be disclosed by cross‑reference to disclosures required by these subparagraphs in another group entity’s financial statements if:
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28.41E | If required by Section 21, an entity discloses information about contingent liabilities arising from post-employment benefit obligations. |
Disclosures about other long-term employee benefits
28.42 | For each category of other long-term employee benefits that an entity provides to its employees, the entity shall disclose the nature of the benefit, the amount of its obligation and the extent of funding at the reporting date. |
Disclosures about termination benefits
28.43 | For each category of termination benefits that an entity provides to its employees, the entity shall disclose the nature of the benefit, the amount of its obligation and the extent of funding at the reporting date. |
28.44 | [Deleted] |
Section 29Income Tax
Scope of this section
29.1 | For the purpose of this Standard, income tax includes all domestic and foreign taxes that are based on taxable profit. Income tax also includes taxes, such as withholding taxes, that are payable by a subsidiary, associate or joint arrangement on distributions to the reporting entity. |
29.2 | This section covers accounting for income tax. It requires an entity to recognise the current and future tax consequences of transactions and other events that have been recognised in the financial statements. These recognised tax amounts comprise current tax and deferred tax. Current tax is income tax payable (recoverable) in respect of the taxable profit (tax loss) for the current period or past periods. Deferred tax is income tax payable or recoverable in future periods, generally as a result of the entity recovering or settling its assets and liabilities for their current carrying amount, and the tax effect of the carryforward of currently unused tax losses and tax credits. |
29.3 | This section does not deal with the methods of accounting for government grants (see Section 24 Government Grants). However, this section does deal with the accounting for temporary differences that may arise from such grants. |
29.3A | This section applies to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (OECD), including tax law that implements qualified domestic minimum top-up taxes described in those rules. Such tax law, and the income taxes arising from it, are hereafter referred to as ‘Pillar Two legislation’ and ‘Pillar Two income taxes’. As an exception to the requirements in this section, an entity shall neither recognise deferred tax assets and liabilities related to Pillar Two income taxes nor disclose information that would otherwise be required by paragraphs 29.39–29.40 about deferred tax assets and liabilities related to Pillar Two income taxes. |
Recognition and measurement of current tax
29.4 | An entity shall recognise a current tax liability for tax payable on taxable profit for the current and past periods. If the amount paid for the current and past periods exceeds the amount payable for those periods, the entity shall recognise the excess as a current tax asset. |
29.5 | An entity shall recognise a current tax asset for the benefit of a tax loss that can be carried back to recover tax paid in a previous period. |
29.6 | An entity shall measure a current tax liability (asset) at the amount it expects to pay (recover) using the tax rates and laws that have been enacted or substantively enacted by the reporting date. An entity shall regard tax rates and tax laws as substantively enacted when the remaining steps in the enactment process have not affected the outcome in the past and are unlikely to do so. Paragraphs 29.32–29.33 provide additional measurement guidance. |
Recognition of deferred tax
General recognition principle
29.7 | It is inherent in the recognition of an asset or a liability that the reporting entity expects to recover or settle the carrying amount of that asset or liability. If it is probable that recovery or settlement of that carrying amount will make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences, this section requires an entity to recognise a deferred tax liability (deferred tax asset) with certain limited exceptions. If the entity expects to recover the carrying amount of an asset or settle the carrying amount of a liability without affecting taxable profit, no deferred tax arises in respect of the asset or liability. |
29.8 | An entity shall recognise a deferred tax asset or liability for tax recoverable or payable in future periods as a result of past transactions or events. Such tax arises from the differences between the carrying amounts of the entity’s assets and liabilities in the statement of financial position and the amounts attributed to those assets and liabilities by the tax authorities (such differences are called ‘temporary differences’), and the carryforward of currently unused tax losses and tax credits. |
Tax bases and temporary differences
29.9 | The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount. |
29.10 | The tax base of a liability is its carrying amount less any amount that will be deductible for tax purposes in respect of that liability in future periods. In the case of revenue that is received in advance, the tax base of the resulting liability is its carrying amount less any amount of the revenue that will not be taxable in future periods. |
29.11 | Some items have a tax base but are not recognised as assets and liabilities in the statement of financial position. For example, research and development costs are recognised as an expense when determining accounting profit in the period in which they are incurred but may not be permitted as a deduction when determining taxable profit (tax loss) until a later period. The difference between the tax base of the research and development costs, being the amount that the taxation authorities will permit as a deduction in future periods, and the carrying amount of nil is a deductible temporary difference that results in a deferred tax asset. |
29.12 | Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base. In consolidated financial statements, temporary differences are determined by comparing the carrying amounts of assets and liabilities in the consolidated financial statements with the appropriate tax base. The tax base is determined by reference to a consolidated tax return in those jurisdictions in which such a return is filed. In other jurisdictions, the tax base is determined by reference to the tax returns of each entity in the group. |
29.13 | Examples of situations in which temporary differences arise include:
Not all of these temporary differences will give rise to deferred tax assets and liabilities (see paragraphs 29.14 and 29.16). |
Taxable temporary differences
29.14 | A deferred tax liability shall be recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
However, for taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, a deferred tax liability shall be recognised in accordance with paragraph 29.25. |
29.15 | Some temporary differences arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period. Such temporary differences are often described as timing differences. The following are examples of temporary differences of this kind that are taxable temporary differences and that therefore result in deferred tax liabilities:
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Deductible temporary differences
29.16 | A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or a liability in a transaction that:
However, for deductible temporary differences associated with investments in subsidiaries, branches and associates and for interests in joint arrangements, a deferred tax asset shall be recognised in accordance with paragraph 29.26. |
29.16A | In applying paragraph 29.16, an entity considers whether tax law restricts the sources of taxable profits against which the deductible temporary difference can be utilised. |
29.17 | The following are examples of deductible temporary differences that result in deferred tax assets:
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29.18 | The reversal of deductible temporary differences results in deductions when taxable profits of future periods are determined. It is probable that taxable profit will be available against which a deductible temporary difference can be utilised when there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity that are expected to reverse:
In such circumstances, the deferred tax asset is recognised in the period in which the deductible temporary differences arise. |
29.19 | When there are insufficient taxable temporary differences relating to the same taxation authority and the same taxable entity, the deferred tax asset is recognised to the extent that:
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29.19A | The estimate of probable future taxable profit might include the recovery of some of an entity’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the entity will achieve this. |
29.20 | When an entity has a history of recent losses, the entity considers the guidance in paragraphs 29.21–29.22. |
Unused tax losses and unused tax credits
29.21 | A deferred tax asset shall be recognised for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. When assessing the probability that taxable profit will be available against which the unused tax losses or unused tax credits can be utilised, an entity considers the following criteria:
To the extent that it is not probable that taxable profit will be available against which the unused tax losses or unused tax credits can be utilised, the deferred tax asset is not recognised. |
29.22 | The existence of unused tax losses is strong evidence that future taxable profit may not be available. Consequently, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has sufficient taxable temporary differences or to the extent that there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity. |
Reassessment of unrecognised deferred tax assets
29.23 | At the end of each reporting period, an entity reassesses any unrecognised deferred tax assets. The entity recognises a previously unrecognised deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. |
Investments in subsidiaries, branches and associates and interests in joint arrangements
29.24 | Temporary differences arise when the carrying amount of investments in subsidiaries, branches and associates and interests in joint arrangements (for example, in the parent’s consolidated financial statements the carrying amount of a subsidiary is the net consolidated assets of that subsidiary, including the carrying amount of any related goodwill) becomes different from the tax base (which is often cost) of the investment or interest. Such differences may arise in a number of different circumstances, for example:
Investments may be accounted for differently in the parent's separate financial statements compared to the consolidated financial statements, in which case the temporary difference associated with that investment may also differ. For example, in the parent’s separate financial statements the carrying amount of a subsidiary will depend on the accounting policy chosen in paragraph 9.26. |
29.25 | An entity shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:
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29.26 | An entity shall recognise a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates and interests in joint arrangements, only to the extent that it is probable that:
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Measurement of deferred tax
29.27 | An entity shall measure a deferred tax liability (asset) using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date. An entity shall regard tax rates and tax laws as substantively enacted when the remaining steps in the enactment process have not affected the outcome in the past and are unlikely to do so. |
29.28 | When different tax rates apply to different levels of taxable profit, an entity shall measure deferred tax liabilities (assets) using the average enacted or substantively enacted rates that it expects to be applicable to the taxable profit (tax loss) of the periods in which it expects the deferred tax liability to be settled (deferred tax asset to be realised). |
29.29 | The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that would follow from the manner in which the entity expects, at the reporting date, to recover or settle the carrying amount of the related assets and liabilities. Consequently, an entity measures deferred tax liabilities and deferred tax assets using the tax rate and the tax base that are consistent with the expected manner of recovery or settlement. For example, if the temporary difference arises from an item of income that is expected to be taxable as a capital gain in a future period, the deferred tax expense is measured using the capital gain tax rate and the tax base that is consistent with recovering the carrying amount through sale. |
29.30 | If a deferred tax liability or deferred tax asset arises from a non-depreciable asset measured using the revaluation model in Section 17, the measurement of the deferred tax liability or deferred tax asset shall reflect the tax consequences of recovering the carrying amount of the non-depreciable asset through sale. If a deferred tax liability or asset arises from investment property that is measured at fair value, there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale. Accordingly, unless the presumption is rebutted, the measurement of the deferred tax liability or the deferred tax asset shall reflect the tax consequences of recovering the carrying amount of the investment property entirely through sale. This presumption is rebutted if the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, instead of through sale. If the presumption is rebutted, the requirements of paragraph 29.29 shall be followed. |
29.31 | The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. An entity shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that recognised deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available. |
Measurement of both current and deferred tax
29.32 | An entity shall not discount current or deferred tax assets and liabilities. |
29.33 | In some jurisdictions, income tax is payable at a higher or lower rate if part or all of the profit or retained earnings is paid out as a dividend to shareholders of the entity. In other jurisdictions, income tax may be refundable or payable if part or all of the profit or retained earnings is paid out as a dividend to shareholders of the entity. In both of those circumstances, an entity shall measure current and deferred tax at the tax rate applicable to undistributed profits until the entity recognises a liability to pay a dividend. When the entity recognises a liability to pay a dividend, it shall recognise the resulting current or deferred tax liability (asset) and the related tax expense (income). |
Withholding tax on dividends
29.34 | When an entity pays dividends to its shareholders, it may be required to pay a portion of the dividends to taxation authorities on behalf of shareholders. Such an amount paid or payable to taxation authorities is charged to equity as a part of the dividends. |
Uncertainty over income tax treatments
29.34A | It might not be clear how tax law applies to a particular transaction or circumstance. An uncertain tax treatment is a tax treatment whose acceptability by the relevant taxation authority under tax law is uncertain. |
29.34B | An entity shall determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. |
29.34C | An entity shall assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes that it is:
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29.34D | An entity shall reflect the effect of a change in relevant facts and circumstances, or of new information, on its judgements or estimates about uncertain tax treatments as a change in accounting estimate by applying Section 10 Accounting Policies, Estimates and Errors. |
Presentation
Allocation in comprehensive income and equity
29.35 | An entity shall recognise tax expense in the same component of total comprehensive income (ie continuing operations, discontinued operations or other comprehensive income) or equity as the transaction or other event that resulted in the tax expense. |
Current/non-current distinction
29.36 | When an entity presents current and non‑current assets, and current and non‑current liabilities, as separate classifications in its statement of financial position, it shall not classify any deferred tax assets (liabilities) as current assets (liabilities). |
Offsetting
29.37 | An entity shall offset current tax assets and current tax liabilities, if, and only if, it has a legally enforceable right to set off the amounts and the entity intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. |
29.37A | An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
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Disclosures
29.38 | An entity shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of the current and deferred tax consequences of recognised transactions and other events (including the enactment or substantive enactment of tax rates and tax laws, such as Pillar Two legislation). |
29.39 | An entity shall disclose separately the major components of tax expense (income). Such components of tax expense (income) may include:
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29.40 | An entity shall disclose the following separately:
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29.41 | [Deleted] |
International tax reform—Pillar Two model rules
29.42 | An entity within the scope of Pillar Two legislation shall disclose that it has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes (see paragraph 29.3A). |
29.43 | An entity shall disclose separately its current tax expense (income) related to Pillar Two income taxes. |
Section 30Foreign Currency Translation
Scope of this section
30.1 | An entity can conduct foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency. This section prescribes how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency. Accounting for financial instruments that derive their value from the change in a specified foreign exchange rate (for example, foreign currency forward exchange contracts) and hedge accounting of foreign currency items are dealt with in Part II of Section 11 Financial Instruments. |
Functional currency
30.2 | Each entity shall identify its functional currency. An entity’s functional currency is the currency of the primary economic environment in which the entity operates. |
30.3 | The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. Consequently, the following are the most important factors an entity considers in determining its functional currency:
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30.4 | The following factors may also provide evidence of an entity’s functional currency:
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30.5 | The following additional factors are considered in determining the functional currency of a foreign operation, and whether its functional currency is the same as that of the reporting entity (the reporting entity, in this context, being the entity that has the foreign operation as its subsidiary, branch, associate or joint arrangement):
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Estimating the spot exchange rate when a currency is not exchangeable (paragraphs 30A.12–30A.18)
30.5A | If, at a measurement date, a currency is not exchangeable into another currency (as described in paragraphs 30A.2–30A.11), an entity shall estimate the spot exchange rate at that date. An entity’s objective in estimating the spot exchange rate is to reflect the rate at which an orderly exchange transaction would take place at the measurement date between market participants under prevailing economic conditions. |
Reporting foreign currency transactions in the functional currency
Initial recognition
30.6 | A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity:
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30.7 | An entity shall record a foreign currency transaction, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. |
30.8 | The date of a transaction is the date on which the transaction first qualifies for recognition in accordance with this Standard. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used, for example, an average rate for a week or a month might be used for all transactions in each foreign currency occurring during that period. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate. |
30.8A | When an entity pays or receives consideration in advance in a foreign currency, it recognises a non-monetary asset or non-monetary liability. The exchange rate to be used on the initial recognition of the related asset, expense or income (or part of it) is the exchange rate at the date on which the entity initially recognised the non-monetary asset or the non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. |
Reporting at the end of the subsequent reporting periods
30.9 | At the end of each reporting period, an entity shall:
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30.10 | An entity shall recognise, in profit or loss in the period in which they arise, exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous periods, except as described in paragraph 30.13. |
30.11 | When another section of this Standard requires a gain or loss on a non‑monetary item to be recognised in other comprehensive income, an entity shall recognise any exchange component of that gain or loss in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, an entity shall recognise any exchange component of that gain or loss in profit or loss. |
Net investment in a foreign operation
30.12 | An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net investment in that foreign operation, and is accounted for in accordance with paragraph 30.13. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables. |
30.13 | Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation shall be recognised in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. In the financial statements that include the foreign operation and the reporting entity (for example, consolidated financial statements when the foreign operation is a subsidiary), such exchange differences shall be recognised in other comprehensive income and reported as a component of equity. They shall not be recognised in profit or loss on disposal of the net investment. |
Change in functional currency
30.14 | When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change. |
30.15 | As noted in paragraphs 30.2–30.5, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions. For example, a change in the currency that mainly influences the sales prices of goods and services may lead to a change in an entity’s functional currency. |
30.16 | The effect of a change in functional currency is accounted for prospectively. In other words, an entity translates all items into the new functional currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as their historical cost. |
Use of a presentation currency other than the functional currency
Translation to the presentation currency
30.17 | An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity’s functional currency, the entity shall translate its items of income and expense and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the items of income and expense and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented. |
30.18 | An entity whose functional currency is not the currency of a hyperinflationary economy shall translate its results and financial position into a different presentation currency using the following procedures:
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30.19 | For practical reasons, an entity may use a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate. |
30.20 | The exchange differences referred to in paragraph 30.18(c) result from:
When the exchange differences relate to a foreign operation that is consolidated but not wholly-owned, accumulated exchange differences arising from translation and attributable to the non-controlling interest are allocated to, and recognised as part of, non-controlling interest in the consolidated statement of financial position. |
30.21 | An entity whose functional currency is the currency of a hyperinflationary economy shall translate its results and financial position into a different presentation currency using the procedures specified in Section 31 Hyperinflation. |
Translation of a foreign operation into the investor’s presentation currency
30.22 | In incorporating the assets, liabilities, income and expenses of a foreign operation with those of the reporting entity, the entity shall follow normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a subsidiary (see Section 9 Consolidated and Separate Financial Statements) and the translation procedures set out in paragraphs 30.17–30.21. However, an intragroup monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements. This is because the monetary item represents a commitment to convert one currency into another and exposes the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements, a reporting entity continues to recognise such an exchange difference in profit or loss or, if it arises from the circumstances described in paragraph 30.13, the entity shall recognise it as other comprehensive income. |
30.23 | Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus, they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate in accordance with paragraph 30.18. |
Disclosures
30.24 | In paragraphs 30.26 and 30.27, references to ‘functional currency’ apply, in the case of a group, to the functional currency of the parent. |
30.25 | An entity shall disclose the following:
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30.26 | An entity shall disclose the currency in which the financial statements are presented. When the presentation currency is different from the functional currency, an entity shall state that fact and shall disclose the functional currency and the reason for using a different presentation currency. |
30.27 | When there is a change in the functional currency of either the reporting entity or a significant foreign operation, the entity shall disclose that fact and the reason for the change in functional currency. |
30.28 | When an entity estimates a spot exchange rate because a currency is not exchangeable into another currency (see paragraph 30.5A), the entity shall disclose:
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30.29 | When a foreign operation’s functional currency is not exchangeable into an entity’s presentation currency or the presentation currency is not exchangeable into a foreign operation’s functional currency, an entity shall disclose:
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Appendix to Section 30Application guidance
Exchangeability
30A.1 | The purpose of this application guidance is to help entities assess whether a currency is exchangeable (see paragraphs 30A.2–30A.11) and to estimate the spot exchange rate when a currency is not exchangeable (see paragraphs 30A.12–30A.18). |
Step 1—Assessing whether a currency is exchangeable
30A.2 | A currency is exchangeable into another currency when an entity is able to obtain the other currency within a time frame that allows for a normal administrative delay and through a market or exchange mechanism in which an exchange transaction would create enforceable rights and obligations. An entity assesses whether a currency is exchangeable into another currency:
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30A.3 | If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not exchangeable into the other currency. |
30A.4 | An entity might determine that a currency is not exchangeable into another currency, even though that other currency might be exchangeable in the other direction. For example, an entity might determine that currency PC is not exchangeable into currency LC, even though currency LC is exchangeable into currency PC. |
Time frame
30A.5 | A spot exchange rate is the exchange rate for immediate delivery. However, an exchange transaction might not always complete instantaneously because of legal or regulatory requirements, or for practical reasons such as public holidays. A normal administrative delay in obtaining the other currency does not preclude a currency from being exchangeable into that other currency. What constitutes a normal administrative delay depends on the facts and circumstances surrounding the exchange transaction. |
Ability to obtain the other currency
30A.6 | In assessing whether a currency is exchangeable into another currency, an entity shall consider its ability to obtain the other currency (either directly or indirectly), instead of its intention or decision to do so. For example, subject to the other requirements in paragraphs 30A.2–30A.11, regardless of whether the entity intends or decides to obtain currency PC, currency LC is exchangeable into currency PC if the entity is able either (directly) to exchange LC for PC, or (indirectly) to exchange LC for another currency (FC) and then exchange FC for PC. |
Markets or exchange mechanisms
30A.7 | In assessing whether a currency is exchangeable into another currency, an entity shall consider only markets or exchange mechanisms in which a transaction to exchange the currency for the other currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether an exchange transaction in a market or exchange mechanism would create enforceable rights and obligations depends on the facts and circumstances surrounding the exchange transaction. |
Purpose of obtaining the other currency
30A.8 | Exchange rates might vary depending on how the currency is to be used. For example, the relevant authorities of a jurisdiction might set a preferential exchange rate for imports of specific goods and a ‘penalty’ exchange rate for dividend payments to other jurisdictions. |
30A.9 | Accordingly, whether a currency is exchangeable into another currency could depend on the purpose for which an entity obtains (or hypothetically might need to obtain) the other currency. In assessing exchangeability, an entity shall assume its purpose in obtaining the other currency is:
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30A.10 | An entity shall assess whether a currency is exchangeable into another currency separately for each purpose specified in paragraph 30A.9. |
Ability to obtain only limited amounts of the other currency
30A.11 | A currency is not exchangeable into another currency at the measurement date if, for a purpose specified in paragraph 30A.9, an entity is able to obtain no more than an insignificant amount of the other currency. For example, an entity with a functional currency of LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC it can obtain for the purpose of settling those liabilities is no more than an insignificant amount compared with the aggregated amount (the sum) of its liability balances denominated in FC. |
Step 2—Estimating the spot exchange rate when a currency is not exchangeable (paragraph 30.5A)
30A.12 | This Standard does not specify how an entity estimates the spot exchange rate when a currency is not exchangeable. In estimating the spot exchange rate to meet the objective in paragraph 30.5A, an entity is permitted to use either:
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Using an observable exchange rate without adjustment
30A.13 | Examples of an unadjusted observable exchange rate include:
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Using an observable exchange rate for another purpose
30A.14 | A currency that is not exchangeable into another currency for one purpose might be exchangeable into that currency for another purpose. For example, an entity might be able to obtain a currency to import specific goods but not to pay dividends. In such situations, the entity might conclude that an observable exchange rate for another purpose meets the objective described in paragraph 30.5A. |
30A.15 | An observable exchange rate for another purpose might not reflect the prevailing economic conditions when, for example:
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Using the first subsequent exchange rate
30A.16 | A currency that is not exchangeable into another currency at the measurement date for a specified purpose might subsequently become exchangeable into that currency for that purpose. In such situations, an entity might conclude that the first subsequent exchange rate meets the objective described in paragraph 30.5A. |
30A.17 | The first subsequent exchange rate might not reflect the prevailing economic conditions when, for example:
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Using another estimation technique
30A.18 | An entity using another estimation technique is permitted to use any observable exchange rate—including rates from exchange transactions in markets or exchange mechanisms that do not create enforceable rights and obligations—and adjust that rate, as necessary, to meet the objective described in paragraph 30.5A. |
Section 31Hyperinflation
Scope of this section
31.1 | This section applies to an entity whose functional currency is the currency of a hyperinflationary economy. It requires such an entity to prepare financial statements that have been adjusted for the effects of hyperinflation. |
Hyperinflationary economy
31.2 | This section does not establish an absolute rate at which an economy is deemed hyperinflationary. An entity shall make that judgement by considering all available information including, but not limited to, the following possible indicators of hyperinflation:
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Measuring unit in the financial statements
31.3 | All amounts in the financial statements of an entity whose functional currency is the currency of a hyperinflationary economy shall be stated in terms of the measuring unit current at the end of the reporting period. The comparative information for the previous period required by paragraph 3.14, and any information presented in respect of earlier periods, shall also be stated in terms of the measuring unit current at the reporting date. |
31.4 | The restatement of financial statements in accordance with this section requires the use of a general price index that reflects changes in general purchasing power. In most economies there is a recognised general price index, normally produced by the government, that entities will follow. |
Procedures for restating historical cost financial statements
Statement of financial position
31.5 | Statement of financial position amounts not expressed in terms of the measuring unit current at the end of the reporting period are restated by applying a general price index. |
31.6 | Monetary items are not restated because they are expressed in terms of the measuring unit current at the end of the reporting period. Monetary items are money held and items to be received or paid in money. |
31.7 | Assets and liabilities linked by agreement to changes in prices, such as index‑linked bonds and loans, are adjusted in accordance with the agreement and presented at this adjusted amount in the restated statement of financial position. |
31.8 | All other assets and liabilities are non-monetary:
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31.9 | At the beginning of the first period of application of this section, the components of equity, except retained earnings and any revaluation surplus, are restated by applying a general price index from the dates the components were contributed or otherwise arose. Any revaluation surplus that arose in previous periods is eliminated. Restated retained earnings are derived from all the other amounts in the restated statement of financial position. |
31.10 | At the end of the first period and in subsequent periods, all components of owners’ equity are restated by applying a general price index from the beginning of the period or the date of contribution, if later. The changes for the period in owners’ equity are disclosed in accordance with Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings. |
Statement of comprehensive income and income statement
31.11 | All items in the statement of comprehensive income (and in the income statement, if presented) shall be expressed in terms of the measuring unit current at the end of the reporting period. Consequently, all amounts need to be restated by applying the change in the general price index from the dates when the items of income and expenses were initially recognised in the financial statements. If general inflation is approximately even throughout the period, and the items of income and expense arose approximately evenly throughout the period, an average rate of inflation may be appropriate. |
Statement of cash flows
31.12 | An entity shall express all items in the statement of cash flows in terms of the measuring unit current at the end of the reporting period. |
Gain or loss on net monetary position
31.13 | In a period of inflation, an entity holding an excess of monetary assets over monetary liabilities loses purchasing power, and an entity with an excess of monetary liabilities over monetary assets gains purchasing power, to the extent the assets and liabilities are not linked to a price level. An entity shall include in profit or loss the gain or loss on the net monetary position. An entity shall offset the adjustment to those assets and liabilities linked by agreement to changes in prices made in accordance with paragraph 31.7 against the gain or loss on net monetary position. |
Economies ceasing to be hyperinflationary
31.14 | When an economy ceases to be hyperinflationary and an entity discontinues the preparation and presentation of financial statements prepared in accordance with this section, it shall treat the amounts expressed in the presentation currency at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements. |
Disclosures
31.15 | An entity to which this section applies shall disclose the following:
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Section 32Events after the End of the Reporting Period
Scope of this section
32.1 | This section defines events after the end of the reporting period and sets out principles for recognising, measuring and disclosing those events. |
Events after the end of the reporting period defined
32.2 | Events after the end of the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue. There are two types of events:
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32.3 | Events after the end of the reporting period include all events up to the date when the financial statements are authorised for issue, even if those events occur after the public announcement of profit or loss or other selected financial information. |
Recognition and measurement
Adjusting events after the end of the reporting period
32.4 | An entity shall adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the end of the reporting period. |
32.5 | The following are examples of adjusting events after the end of the reporting period that require an entity to adjust the amounts recognised in its financial statements, or to recognise items that were not previously recognised:
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Non-adjusting events after the end of the reporting period
32.6 | An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the end of the reporting period. |
32.7 | Examples of non-adjusting events after the end of the reporting period include:
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Dividends
32.8 | If an entity declares dividends to holders of its equity instruments after the end of the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. The amount of the dividend may be presented as a segregated component of retained earnings at the end of the reporting period. |
Disclosure
Date of authorisation for issue
32.9 | An entity shall disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the entity’s owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact. |
Non-adjusting events after the end of the reporting period
32.10 | An entity shall disclose the following for each category of non-adjusting event after the end of the reporting period:
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32.11 | The following are examples of non-adjusting events after the end of the reporting period that would generally result in disclosure; the disclosures will reflect information that becomes known after the end of the reporting period but before the financial statements are authorised for issue:
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Section 33Related Party Disclosures
Scope of this section
33.1 | This section requires an entity to include in its financial statements the disclosures necessary to draw attention to the possibility that its financial position and profit or loss have been affected by the existence of related parties and by transactions and outstanding balances with such parties. |
Related party defined
33.2 | A related party is a person or entity that is related to the reporting entity:
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33.3 | In considering each possible related party relationship, an entity shall assess the substance of the relationship and not merely the legal form. |
33.4 | In the context of this Standard, the following are not necessarily related parties:
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Disclosures
Disclosure of controlling party relationships
33.5 | Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been related party transactions. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so (if any) shall also be disclosed. |
Disclosure of key management personnel compensation
33.6 | Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. Compensation includes all employee benefits (as defined in Section 28 Employee Benefits) including those in the form of share-based payment (see Section 26 Share-based Payment). Employee benefits include all forms of consideration paid, payable or provided by the entity, or on behalf of the entity (for example, by its parent or by a shareholder), in exchange for services rendered to the entity. It also includes such consideration paid on behalf of a parent of the entity in respect of goods or services provided to the entity. |
33.7 | An entity shall disclose key management personnel compensation in total. |
33.7A | An entity that obtains key management personnel services from another entity (management entity) is not required to make any disclosure that might otherwise be required by paragraph 33.7 in relation to the compensation paid or payable by the management entity to the management entity’s employees or directors. However, the amounts incurred by the entity for the provision by a separate management entity of such services shall be disclosed. |
Disclosure of related party transactions
33.8 | A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. Examples of related party transactions that are common to SMEs include, but are not limited to:
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33.9 | If an entity has related party transactions, it shall disclose the nature of the related party relationship as well as information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements. Those disclosure requirements are in addition to the requirements in paragraph 33.7 to disclose key management personnel compensation. At a minimum, disclosures shall include:
Such transactions could include purchases, sales or transfers of goods or services; leases; guarantees; and settlements by the entity on behalf of the related party or vice versa. |
33.10 | An entity shall make the disclosures required by paragraph 33.9 separately for each of the following categories:
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33.11 | An entity is exempt from the disclosure requirements of paragraph 33.9 in relation to related party transactions and outstanding balances, including commitments, with:
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33.12 | The following are examples of transactions that shall be disclosed if they are with a related party:
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33.13 | An entity shall not state that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions unless such terms can be substantiated. |
33.14 | An entity may disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity. |
33.15 | If a reporting entity applies the exemption in paragraph 33.11, it shall disclose the following about the transactions and related outstanding balances referred to in paragraph 33.11:
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Section 34Specialised Activities
Scope of this section
34.1 | This section provides guidance on financial reporting by SMEs involved in three types of specialised activities—agriculture, extractive activities, and service concessions. |
Agriculture
34.2 | An entity applying this Standard that is engaged in agricultural activity shall determine its accounting policy for each class of its biological assets, except for bearer plants that can be measured separately from the produce on them without undue cost or effort (see paragraph 34.2A), as follows:
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34.2A | This section does not apply to bearer plants that, at initial recognition, can be measured, both initially and on an ongoing basis, separately from the produce on them without undue cost or effort (see Section 17 Property, Plant and Equipment). However, this section applies to the produce on those bearer plants. If, at initial recognition, an entity determines that bearer plants cannot be measured separately from the produce on them without undue cost or effort initially or on an ongoing basis, this section applies to the entire plant. |
34.2B | Examples of plants that are not bearer plants:
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Recognition
34.3 | An entity shall recognise a biological asset or agricultural produce when, and only when:
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Measurement—fair value model
34.4 | An entity shall measure a biological asset on initial recognition and at each reporting date at its fair value less costs to sell. Changes in fair value less costs to sell shall be recognised in profit or loss. |
34.5 | Agricultural produce harvested from an entity’s biological assets shall be measured at its fair value less costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 Inventories or another applicable section of this Standard. |
34.6 | Section 12 Fair Value Measurement provides guidance on fair value measurement. |
Disclosures—fair value model
34.7 | An entity shall disclose the following with respect to its biological assets measured at fair value:
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Measurement—cost model
34.8 | The entity shall measure at cost less any accumulated depreciation and any accumulated impairment losses those biological assets whose fair value is not readily determinable without undue cost or effort. |
34.9 | The entity shall measure agricultural produce harvested from its biological assets at fair value less estimated costs to sell at the point of harvest. Such measurement is the cost at that date when applying Section 13 or other sections of this Standard. |
Disclosures—cost model
34.10 | An entity shall disclose the following with respect to its biological assets measured using the cost model:
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Exploration for and evaluation of mineral resources
34.11 | An entity using this Standard that is engaged in the exploration for, or evaluation of, mineral resources shall determine an accounting policy that specifies which expenditures are recognised as exploration and evaluation assets in accordance with paragraph 10.4 and apply the policy consistently. An entity is exempt from applying paragraph 10.5 to its accounting policies for the recognition and measurement of exploration and evaluation assets. |
34.11A | The following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):
Expenditures related to the development of mineral resources shall not be recognised as exploration and evaluation assets. |
34.11B | Exploration and evaluation assets shall be measured on initial recognition at cost. After initial recognition, an entity shall apply Section 17 and Section 18 Intangible Assets other than Goodwill to the exploration and evaluation assets according to the nature of the assets acquired subject to paragraphs 34.11D–34.11F. If an entity has an obligation to dismantle or remove an item, or to restore the site, such obligations and costs are accounted for in accordance with Section 17 and Section 21 Provisions and Contingencies. |
34.11C | Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. An entity shall measure, present and disclose any resulting impairment loss in accordance with Section 27 Impairment of Assets, except as provided by paragraph 34.11F. |
34.11D | For the purposes of exploration and evaluation assets only, paragraph 34.11E shall be applied instead of paragraphs 27.7–27.10 when identifying an exploration and evaluation asset that may be impaired. Paragraph 34.11E uses the term ‘assets’ but applies equally to separate exploration and evaluation assets or a cash-generating unit. |
34.11E | One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive):
The entity shall perform an impairment test, and recognise any impairment loss, in accordance with Section 27. |
34.11F | An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. |
34.11G | An entity shall treat exploration and evaluation assets as a separate class of assets and make the disclosures required by either Section 17 or Section 18 consistent with how the assets are classified. |
Service concession arrangements
34.12 | A service concession arrangement is an arrangement whereby a government or other public sector body (the grantor) contracts with a private operator to develop (or upgrade), operate and maintain the grantor’s infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals. In those arrangements, the grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement. |
34.13 | There are two principal categories of service concession arrangements:
Sometimes, a single contract may contain both types: to the extent that the government has given an unconditional guarantee of payment for the construction of the public sector asset, the operator has a financial asset; to the extent that the operator has to rely on the public using the service in order to obtain payment, the operator has an intangible asset. |
Accounting—financial asset model
34.14 | The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services. The operator shall measure the financial asset at fair value. Thereafter, it shall follow Section 11 Financial Instruments in accounting for the financial asset. |
Accounting—intangible asset model
34.15 | The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. The operator shall initially measure the intangible asset at fair value. Thereafter, it shall follow Section 18 in accounting for the intangible asset. |
Operating revenue
34.16 | The operator of a service concession arrangement shall recognise, measure and disclose revenue in accordance with Section 23 Revenue from Contracts with Customers for the services it performs. |
Section 35Transition to the IFRS for SMEs Accounting Standard
Scope of this section
35.1 | This section applies to a first-time adopter of the IFRS for SMEs Accounting Standard, regardless of whether its previous accounting framework was full IFRS Accounting Standards or another set of generally accepted accounting principles (GAAP) such as its national accounting standards or another framework such as the local income tax basis. |
35.2 | An entity that has applied the IFRS for SMEs Accounting Standard in a previous reporting period, but whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with the IFRS for SMEs Accounting Standard, must either apply this section or apply the IFRS for SMEs Accounting Standard retrospectively in accordance with Section 10 Accounting Policies, Estimates and Errors as if the entity had never stopped applying the IFRS for SMEs Accounting Standard. When such an entity does not elect to apply this section, it is still required to apply the disclosure requirements in paragraph 35.12A in addition to the disclosure requirements in Section 10. |
First-time adoption
35.3 | A first-time adopter of the IFRS for SMEs Accounting Standard shall apply this section in its first financial statements that conform to this Standard. |
35.4 | An entity’s first financial statements that conform to this Standard are the first annual financial statements in which the entity makes an explicit and unreserved statement in those financial statements of compliance with the IFRS for SMEs Accounting Standard. Financial statements prepared in accordance with this Standard are an entity’s first such financial statements if, for example, the entity:
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35.5 | Paragraph 3.17 defines a complete set of financial statements. |
35.6 | Paragraph 3.14 requires an entity to disclose, in a complete set of financial statements, comparative information in respect of the previous comparable period for all monetary amounts presented in the financial statements, as well as specified comparative narrative and descriptive information. An entity may present comparative information in respect of more than one comparable prior period. Consequently, an entity’s date of transition to the IFRS for SMEs Accounting Standard is the beginning of the earliest period for which the entity presents full comparative information in accordance with this Standard in its first financial statements that conform to this Standard. |
Procedures for preparing financial statements at the date of transition
35.7 | Except as provided in paragraphs 35.9–35.11, an entity shall on its date of transition to the IFRS for SMEs Accounting Standard (ie the beginning of the earliest period presented):
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35.8 | The accounting policies that an entity uses on adoption of this Standard may differ from those that it used for the same date using its previous financial reporting framework. The resulting adjustments arise from transactions, other events or conditions before the date of transition to this Standard. Consequently, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to this Standard. |
35.9 | On first-time adoption of this Standard, an entity shall not retrospectively change the accounting that it followed under its previous financial reporting framework for any of the following transactions:
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35.10 | An entity may use one or more of the following exemptions in preparing its first financial statements that conform to this Standard:
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35.11 | If it is impracticable for an entity to make one or more of the adjustments required by paragraph 35.7 at the date of transition, the entity shall apply paragraphs 35.7–35.10 for such adjustments in the earliest period for which it is practicable to do so, and shall identify which amounts in the financial statements have not been restated. If it is impracticable for an entity to provide any of the disclosures required by this Standard, including those for comparative periods, the omission shall be disclosed. |
Disclosures
Explanation of transition to the IFRS for SMEs Accounting Standard
35.12 | An entity shall explain how the transition from its previous financial reporting framework to this Standard affected its reported financial position, financial performance and cash flows. |
35.12A | An entity that has applied the IFRS for SMEs Accounting Standard in a previous period, as described in paragraph 35.2, shall disclose:
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Reconciliations
35.13 | To comply with paragraph 35.12, an entity’s first financial statements prepared using this Standard shall include:
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35.14 | If an entity becomes aware of errors made under its previous financial reporting framework, the reconciliations required by paragraph 35.13(b) and (c) shall, to the extent practicable, distinguish the correction of those errors from changes in accounting policies. |
35.15 | If an entity did not present financial statements for previous periods, it shall disclose that fact in its first financial statements that conform to this Standard. |
Appendices
Appendix AEffective date and transition
Effective date
A1 | The third edition of the IFRS for SMEs Accounting Standard issued in February 2025 amended and revised sections of the IFRS for SMEs Accounting Standard. An entity shall apply the amended and revised sections for annual periods beginning on or after 1 January 2027. Earlier application is permitted. If an entity applies the third edition of the IFRS for SMEs Accounting Standard for an earlier period, the entity shall disclose that fact. |
Transition
A2 | An entity shall retrospectively apply the amended and revised sections in the third edition of the IFRS for SMEs Accounting Standard in accordance with Section 10 Accounting Policies, Estimates and Errors except as stated in paragraphs A3–A49. In paragraphs A4–A49, the date of initial application is the beginning of the reporting period in which an entity first applies the third edition of the Standard. |
A3 | An entity need not disclose the information required by paragraph 10.13(b) for the current period. Furthermore, if an entity has not restated comparative information in accordance with the requirements in this appendix, the entity is not required to disclose the amount of the adjustment for each affected line item for prior periods in accordance with paragraphs 10.13(b)–(c). |
Materiality
A4 | An entity shall prospectively apply the amended requirements in paragraphs 3.15A–3.16 from the date of initial application. |
Control model
A5 | If an entity applies the amended requirements in Section 9 Consolidated and Separate Financial Statements at the date of initial application and as a result consolidates an investee not previously consolidated, the entity shall:
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A6 | If an entity applies the amended requirements in Section 9 at the date of initial application and as a result no longer consolidates an investee it previously consolidated, the entity shall:
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A7 | If an entity applies paragraph A6(a) and applies the cost model in accordance with paragraph 14.4 or 15.9 and it is impracticable to determine the cost at the date of purchase, the entity is permitted to measure the cost (deemed cost) as either:
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A8 | At the date of initial application an entity is not required to make adjustments for previous accounting periods for its involvement in entities that:
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A9 | An entity applying the amended requirements in Section 9 is only required to disclose the amount of the adjustment for each line item affected in accordance with paragraph 10.13(b) for the annual period immediately preceding the date of initial application (and not earlier comparative periods), and only if it has restated comparative information in accordance with this appendix. |
A10 | An entity shall not restate the carrying amount of an investment in a former subsidiary if the entity lost control before the date of initial application. In addition, an entity shall not remeasure any gain or loss on the loss of control of a former subsidiary that occurred before the date of initial application. An entity is not required to apply the disclosure requirements in paragraph 9.23B to comparative information provided for periods before the date of initial application. |
Transition from IAS 39 Financial Instruments: Recognition and Measurement
A11 | An entity that previously applied the recognition and measurement requirements in IAS 39 Financial Instruments: Recognition and Measurement shall retrospectively apply the recognition and measurement requirements in Section 11 Financial Instruments in accordance with Section 10. However, such an entity shall:
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Fair value measurement
A12 | An entity shall prospectively apply the new Section 12 Fair Value Measurement and paragraph 2.89 from the date of initial application. |
A13 | An entity is not required to apply the disclosure requirements in the new Section 12 to comparative information provided for periods before the date of initial application. |
A14 | The new Section 12 amended paragraphs 11.14(c), 11.43, 11.57, 13.3(a), 14.10, 14.15, 15.15, 15.21, 16.7, 17.15B, 27.9(c), 27.14, 28.15(b), 34.4 and 34.6; deleted paragraphs 11.27–11.32, 12.12, 16.10(a), 17.33(c) and 34.7(b); and added paragraphs 26.1D–26.1E. An entity shall also prospectively apply those amendments from the date of initial application. |
Joint arrangements
A15 | An entity applying the amended requirements in Section 15 Joint Arrangements is only required to disclose the amount of the adjustment for each line item affected in accordance with paragraph 10.13(b) for the annual period immediately preceding the date of initial application (and not earlier comparative periods). |
Investment property
Business combinations
A16 | An entity shall prospectively apply the requirements in paragraph 16.3A for acquisitions of investment property on or after the date of initial application. |
Transfers of investment property
A17 | An entity shall apply the amended requirements in paragraph 16.9 to changes in use that occur on or after the date of initial application. At the date of initial application, an entity shall reassess the classification of property held at that date and, if applicable, reclassify property by applying paragraphs 16.2–16.4 to reflect the conditions that exist at that date. |
A18 | If an entity reclassifies property at the date of initial application in accordance with paragraph 16.9, the entity shall disclose the amounts reclassified to or from investment property as part of the reconciliation between the carrying amounts of investment property at the beginning and at the end of the period as required by paragraph 16.10(e). |
Depreciation of property, plant and equipment
A19 | An entity shall prospectively apply the amended requirements in paragraphs 17.21–17.22 from the date of initial application. |
Amortisation of intangible assets
A20 | An entity shall prospectively apply the requirements in paragraph 18.22A from the date of initial application. |
Business combinations and goodwill
A21 | An entity shall prospectively apply the revised Section 19 Business Combinations and Goodwill to business combinations for which the acquisition date is on or after the date of initial application and to asset acquisitions that occur on or after the date of initial application. The entity is not required to apply the disclosure requirements in the revised Section 19 to comparative information provided for periods before the date of initial application. |
A22 | An entity shall leave unadjusted on the date of initial application assets and liabilities from business combinations whose acquisition dates preceded the date of initial application. |
A23 | The revised Section 19 amended paragraph 11.49(g), added paragraph 21.1(e) and deleted paragraph 22.2(c). An entity shall prospectively apply those amendments to business combinations for which the acquisition date is on or after the date of initial application and to asset acquisitions that occur on or after the date of initial application. |
A24 | An entity shall not adjust on the date of initial application any contingent consideration balances arising from business combinations whose acquisition dates preceded the date of initial application. An entity shall omit these balances from the information it discloses in accordance with paragraph 19.41. An entity shall prospectively apply paragraphs A25–A26 from the date of initial application. Paragraphs A25–A26 refer exclusively to business combinations whose acquisition dates precede the date of initial application. |
A25 | If a business combination agreement provides for an adjustment to the cost of the combination contingent on future events and the adjustment is probable and can be measured reliably, the acquirer shall include the amount of that adjustment in the cost of the business combination at the acquisition date. |
A26 | However, if a business combination agreement provides for such an adjustment and the adjustment either is not probable or cannot be measured reliably, an entity shall not include the adjustment in the cost of the combination at the time of initially accounting for the combination. If that adjustment subsequently becomes probable and can be measured reliably, the entity shall treat the additional consideration as an adjustment to the cost of the combination. |
Revenue from contracts with customers
A27 | An entity shall apply the revised Section 23 Revenue from Contracts with Customers consistently to all contracts with customers either:
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Retrospective application
A28 | If an entity retrospectively applies the revised Section 23, it is permitted to use one or more of three exemptions:
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A29 | In paragraph A28(a)–(b), a completed contract is a contract for which the entity has transferred all goods or services identified in accordance with the requirements for accounting for revenue from contracts with customers that were replaced by the revised Section 23. |
A30 | If an entity uses any of the exemptions in paragraph A28, the entity shall disclose that fact and apply that exemption consistently to all periods presented. |
A31 | An entity retrospectively applying the revised Section 23 shall disclose the amount of the adjustment for each line item affected for the annual period immediately preceding the date of initial application and not earlier comparative periods as required by paragraph 10.13(b). |
Prospective application
A32 | If an entity prospectively applies the revised Section 23, the entity shall apply the revised Section 23 to contracts that begin after the date of initial application. The entity shall not change its accounting policy for any contracts in progress at that date. |
A33 | The revised Section 23 amended paragraphs 4.11(b), 11.13, 11.14(a), 17.29, 18.1, 21.1(b), 27.1(f) and 34.16; deleted paragraphs 13.2(a), 13.14 and 21A.5; and added paragraphs 11.7(g), 11.7A, 11.13A–11.13B, 11.14A, 11.49(j), 11.55 and 13.2A. If an entity prospectively applies the revised Section 23, the entity shall apply those amendments in accordance with paragraph A32. |
A34 | An entity prospectively applying the revised Section 23 shall disclose:
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A35 | An entity prospectively applying the revised Section 23 is not required to apply the disclosure requirements in that section to comparative information provided for periods before the date of initial application. |
A36 | In the financial statements for periods in which contracts that were in progress at the date of initial application remain in progress, an entity prospectively applying the revised Section 23 shall disclose:
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Share-based payment
Scope of Section 26 Share-based Payment
A37 | An entity shall prospectively apply paragraph 26.1C for transactions occurring on or after the date of initial application. |
Definition of fair value measurement
A38 | An entity shall prospectively apply paragraphs 26.1D–26.1E from the date of initial application. |
Definition of a vesting condition
A39 | An entity shall prospectively apply the amendments to paragraph 26.9, the amended definitions of ‘vesting condition’ and ‘market vesting condition’ and the new definitions of ‘performance condition’ and ‘service condition’ to share-based payment transactions with a grant date on or after the date of initial application. |
Effects of vesting conditions on the measurement of a cash-settled share-based payment
A40 | An entity shall prospectively apply paragraphs 26.14A–26.14B to share-based payment transactions that are unvested at the date of initial application and to share-based payment transactions with a grant date on or after the date of initial application. For unvested share-based payment transactions granted before the date of initial application, an entity shall remeasure the liability at that date and recognise the effect of the remeasurement in the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application. |
Share-based payment transactions with a net settlement feature for withholding tax obligations
A41 | An entity shall apply the amended requirements in paragraphs 26.15–26.15D to share-based payment transactions that are unvested (or vested but unexercised) at the date of initial application and to share-based payment transactions with a grant date on or after the date of initial application. For unvested (or vested but unexercised) share-based payment transactions that were previously classified as cash-settled but then became classified as equity‑settled in accordance with the amended requirements in paragraphs 26.15–26.15D, an entity shall reclassify the carrying amount of the share‑based payment liability to equity at the date of initial application. |
Measurement simplifications for defined benefit obligations
A42 | An entity shall retrospectively apply the amended requirements in paragraph 28.19 in accordance with Section 10. However, an entity is not required to adjust the carrying amount of assets in the scope of other sections of this Standard for changes in employee benefit costs that were included in the carrying amount before the date of initial application. |
Income tax
Recognition of deferred tax assets for unrealised losses
A43 | An entity shall retrospectively apply the amended requirements in paragraphs 29.16A, 29.19(a) and 29.19A in accordance with Section 10. However, on initial application of these amended requirements, an entity is permitted to recognise the change in the opening equity of the earliest comparative period in the opening balance of retained earnings (or other component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. If an entity applies this relief, it shall disclose that fact. |
Uncertainty over income tax treatments
A44 | An entity shall retrospectively apply paragraphs 29.34A–29.34D either:
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Foreign currency translation
Lack of exchangeability
A45 | An entity shall not retrospectively apply paragraph 30.5A. Instead, if the entity:
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A46 | An entity is not required to apply the disclosure requirements in paragraph 30.28 to comparative information provided for periods before the date of initial application. |
Foreign currency transactions and advance consideration
A47 | An entity is permitted to prospectively apply paragraph 30.8A to all assets, expenses and income within the scope of paragraph 30.8A that were initially recognised on or after either:
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A48 | An entity that applies paragraph A47 shall apply paragraph 30.8A on initial application to assets, expenses and income initially recognised on or after the date in paragraph A47(a) or paragraph A47(b) for which the entity has recognised non-monetary assets or non-monetary liabilities arising from advance consideration before that date. |
Bearer plants
A49 | An entity is permitted to measure a bearer plant at its fair value at the beginning of the earliest period presented and use that fair value as its deemed cost at that date. The entity shall recognise any difference between the previous carrying amount and fair value in opening balance of retained earnings at the beginning of the earliest period presented. |
Paragraph changes in the third edition of the Standard
Appendix BGlossary of terms
This Appendix is an integral part of the Standard.
- accounting estimates
-
Monetary amounts in financial statements that are subject to measurement uncertainty.
- accounting policies
-
The specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
- accounting profit
-
Profit or loss for a period before deducting tax expense.
- accumulating compensated absences
-
Compensated absences that are carried forward and can be used in future periods if the current period’s entitlement is not used in full.
- acquiree
-
The business or businesses that the acquirer obtains control of in a business combination.
- acquirer
-
The entity that obtains control of the acquiree.
- active market
-
A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
- aggregation
-
The adding together of assets, liabilities, equity, income or expenses that have shared characteristics and are included in the same classification.
- agricultural activity
-
The management by an entity of the biological transformation of biological assets for sale, into agricultural produce or into additional biological assets.
- agricultural produce
-
The harvested product of the entity’s biological assets.
- amortisation
-
The systematic allocation of the depreciable amount of an asset over its useful life.
- amortised cost of a financial asset or financial liability
-
The amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability.
- asset
-
A present economic resource controlled by the entity as a result of past events.
- associate
-
An entity over which the investor has significant influence.
- bearer plant
-
A bearer plant is a living plant that:
(a)
is used in the production or supply of agricultural produce;
(b)
is expected to bear produce for more than one period; and
(c)
has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.
- biological asset
-
A living animal or plant.
- borrowing costs
-
Interest and other costs incurred by an entity in connection with the borrowing of funds.
- business
-
An integrated set of activities and assets that is capable of being conducted and managed for the purpose of:
(a)
providing goods or services to customers;
(b)
generating investment income (such as dividends or interest); or
(c)
generating other income from ordinary activities.
- business combination
-
A transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also business combinations as that term is used in this Standard.
- carrying amount
-
The amount at which an asset, a liability or equity is recognised in the statement of financial position.
- cash
-
Cash on hand and demand deposits.
- cash equivalent
-
Short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
- cash flows
-
Inflows and outflows of cash and cash equivalents.
- cash-generating unit
-
The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
- cash-settled share-based payment transaction
-
A share-based payment transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity.
- class of assets
-
A grouping of assets of a similar nature and use in an entity’s operations.
- classification
-
The sorting of assets, liabilities, equity, income or expenses on the basis of shared characteristics for presentation and disclosure purposes.
- close members of the family of a person
-
Those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity, including:
(a)
that person’s children and spouse or domestic partner;
(b)
children of that person’s spouse or domestic partner; and
(c)
dependants of that person or that person’s spouse or domestic partner.
- closing rate
-
The spot exchange rate at the end of the reporting period.
- combined financial statements
-
Financial statements of a reporting entity that comprises two or more entities that are not all linked by a parent–subsidiary relationship.
- component of an entity
-
Operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity.
- compound financial instrument
-
A financial instrument that, from the issuer’s perspective, contains both a liability and an equity element.
- consolidated financial statements
-
The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.
- constructive obligation
-
An obligation that derives from an entity’s actions where:
(a)
by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and
(b)
as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
- contingent asset
-
A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.
- contingent consideration
-
Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met.
- contingent liability
-
(a)
A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or
(b)
a present obligation that arises from past events but is not recognised because:
(i)
it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or
(ii)
the amount of the obligation cannot be measured with sufficient reliability.
- contract
-
An agreement between two or more parties that creates enforceable rights and obligations.
- contract asset
-
An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).
- contract liability
-
An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.
- control (of an entity)
-
An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
- current tax
-
The amount of income tax payable (recoverable) in respect of the taxable profit (tax loss) for the current period or past periods.
- customer
-
A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.
- date of transition to the IFRS for SMEs Accounting Standard
-
The beginning of the earliest period for which an entity presents full comparative information under the IFRS for SMEs Accounting Standard in its first financial statements that comply with the IFRS for SMEs Accounting Standard.
- deductible temporary differences
-
Temporary differences that will result in amounts that are deductible in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.
- deferred tax
-
Income tax payable (recoverable) in respect of the taxable profit (tax loss) for future periods as a result of past transactions or events.
- deferred tax assets
-
The amounts of income tax recoverable in future periods in respect of:
(a)
deductible temporary differences;
(b)
the carryforward of unused tax losses; and
(c)
the carryforward of unused tax credits.
- deferred tax liabilities
-
The amounts of income tax payable in future periods in respect of taxable temporary differences.
- defined benefit liability
-
The defined benefit obligation at the reporting date minus the fair value at the reporting date of plan assets (if any) out of which the obligations are to be settled directly.
- defined benefit obligation
-
The present value of an entity’s obligations under defined benefit plans.
- defined benefit plans
-
Post-employment benefit plans other than defined contribution plans.
- defined contribution plans
-
Post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions or to make direct benefit payments to employees if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
- depreciable amount
-
The cost of an asset, or other amount substituted for cost (in the financial statements), less its residual value.
- depreciation
-
The systematic allocation of the depreciable amount of an asset over its useful life.
- derecognition
-
The removal of all or part of a recognised asset or liability from an entity’s statement of financial position.
- development
-
The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
- discontinued operation
-
A component of an entity that either has been disposed of, or is held for sale, and:
(a)
represents a separate major line of business or geographical area of operations;
(b)
is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
(c)
is a subsidiary acquired exclusively with a view to resale.
- dividends
-
Distributions of profits to holders of equity instruments in proportion to their holdings of a particular class of capital.
- economic resource
-
A right that has the potential to produce economic benefits.
- effective interest method
-
A method of calculating the amortised cost of a financial asset or a financial liability (or a group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period.
- effective interest rate
-
The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability.
- effectiveness of a hedge
-
The degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument.
- employee benefits
-
All forms of consideration given by an entity in exchange for service rendered by employees.
- enhancing qualitative characteristic
-
A qualitative characteristic that makes useful information more useful. The enhancing qualitative characteristics are comparability, verifiability, timeliness and understandability.
- equity
-
The residual interest in the assets of the entity after deducting all its liabilities.
- equity claim
-
A claim on the residual interest in the assets of an entity after deducting all its liabilities.
- equity-settled share-based payment transaction
-
A share-based payment transaction in which the entity:
(a)
receives goods or services as consideration for its own equity instruments (including shares or share options); or
(b)
receives goods or services but has no obligation to settle the transaction with the supplier.
- errors
-
Omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
(a)
was available when financial statements for those periods were authorised for issue; and
(b)
could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.
- executory contract
-
A contract, or a portion of a contract, that is equally unperformed—neither party has fulfilled any of its obligations, or both parties have partially fulfilled their obligations to an equal extent.
- existence uncertainty
-
Uncertainty about whether an asset or liability exists.
- expenses
-
Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims.
- fair presentation
-
Faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses.
- fair value
-
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.
- finance lease
-
A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. A lease that is not a finance lease is an operating lease.
- financial asset
-
Any asset that is:
(a)
cash;
(b)
an equity instrument of another entity;
(c)
a contractual right:
(i)
to receive cash or another financial asset from another entity; or
(ii)
to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or
(d)
a contract that will or may be settled in the entity’s own equity instruments and:
(i)
under which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or
(ii)
that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.
- financial guarantee contract
-
A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.
- financial instrument
-
A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
- financial liability
-
Any liability that is:
(a)
a contractual obligation:
(i)
to deliver cash or another financial asset to another entity; or
(ii)
to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or
(b)
a contract that will or may be settled in the entity’s own equity instruments and:
(i)
under which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments, or
(ii)
will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.
- financial position
-
The relationship of the assets, liabilities and equity of an entity as reported in the statement of financial position.
- financial statements
-
Structured representation of the financial position, financial performance and cash flows of an entity.
- financing activities
-
Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
- firm commitment
-
A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
- first-time adopter of the IFRS for SMEs Accounting Standard
-
An entity that presents its first annual financial statements that conform to the IFRS for SMEs Accounting Standard, regardless of whether its previous accounting framework was full IFRS Accounting Standards or another set of accounting standards.
- forecast transaction
-
An uncommitted but anticipated future transaction.
- foreign operation
-
An entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
- full IFRS Accounting Standards
-
Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise:
(a)
International Financial Reporting Standards;
(b)
International Accounting Standards;
(c)
IFRIC Interpretations; and
(d)
SIC Interpretations.
- functional currency
-
The currency of the primary economic environment in which the entity operates.
- functional currency normalisation date
-
The date when an entity’s functional currency no longer has either, or both, of the two characteristics of severe hyperinflation, or when there is a change in the entity’s functional currency to a currency that is not subject to severe hyperinflation.
- fundamental qualitative characteristic
-
A qualitative characteristic that financial information must possess to be useful to the primary users of general purpose financial statements. The fundamental qualitative characteristics are relevance and faithful representation.
- funding (of post-employment benefits)
-
Contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting entity and from which the employee benefits are paid.
- general purpose financial statements
-
Financial reports that provide information about the reporting entity’s assets, liabilities, equity, income and expenses.
- going concern
-
An entity is a going concern unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
- goodwill
-
An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.
- government
-
Government, government agencies and similar bodies whether local, national or international.
- government grants
-
Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity.
- grant date
-
The date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. At the grant date, the entity confers on the counterparty the right to cash, other assets or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (for example, by shareholders), the grant date is the date when that approval is obtained.
- gross investment in a lease
-
The aggregate of:
(a)
the minimum lease payments receivable by the lessor under a finance lease; and
(b)
any unguaranteed residual value accruing to the lessor.
- group
-
A parent and all its subsidiaries.
- hedged item
-
For the purpose of special hedge accounting by SMEs under Part II of Section 11, a hedged item is:
(a)
interest rate risk of a debt instrument measured at amortised cost;
(b)
foreign exchange or interest rate risk in a firm commitment or a highly probable forecast transaction;
(c)
price risk of a commodity that it holds or in a firm commitment or highly probable forecast transaction to purchase or sell a commodity; or
(d)
foreign exchange risk in a net investment in a foreign operation.
- hedging instrument
-
For the purpose of special hedge accounting by SMEs under Part II of Section 11, a hedging instrument is a financial instrument that meets all of the following terms and conditions:
(a)
it is an interest rate swap, a foreign currency swap, a foreign currency forward exchange contract or a commodity forward exchange contract that is expected to be highly effective in offsetting a risk identified in paragraph 11.63 that is designated as the hedged risk;
(b)
it involves a party external to the reporting entity (ie external to the group, segment or individual entity being reported on);
(c)
its notional amount is equal to the designated amount of the principal or notional amount of the hedged item;
(d)
it has a specified maturity date not later than:
(i)
the maturity of the financial instrument being hedged;
(ii)
the expected settlement of the commodity purchase or sale commitment; or
(iii)
the occurrence of the highly probable forecast foreign currency or commodity transaction being hedged.
(e)
it has no prepayment, early termination or extension features.
- highest and best use
-
The use of a non‑financial asset by market participants that would maximise the value of the asset or the group of assets and liabilities (for example, a business) within which the asset would be used.
- highly probable
-
Significantly more likely than probable.
- impairment (loss)
-
The amount by which the carrying amount of an asset exceeds:
(a)
in the case of inventories, its selling price less costs to complete and sell; or
(b)
in the case of other non-financial assets, its recoverable amount.
- impracticable
-
Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.
- income
-
Increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.
- income statement
-
A financial statement that presents all items of income and expense recognised in a reporting period, excluding the items of other comprehensive income.
- income tax
-
All domestic and foreign taxes that are based on taxable profits. Income tax also includes taxes, such as withholding taxes, that are payable by a subsidiary, associate or joint arrangement on distributions to the reporting entity.
- insurance contract
-
A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
- intangible asset
-
An identifiable non-monetary asset without physical substance. Such an asset is identifiable when it:
(a)
is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or
(b)
arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
- interest rate implicit in the lease
-
The discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the lessor.
- interim financial report
-
A financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period.
- interim period
-
A financial reporting period shorter than a full financial year.
- intrinsic value
-
The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of CU15, on a share with a fair value of CU20, has an intrinsic value of CU5.
- inventories
-
Assets:
(a)
held for sale in the ordinary course of business;
(b)
in the process of production for such sale; or
(c)
in the form of materials or supplies to be consumed in the production process or in the rendering of services.
- investing activities
-
The acquisition and disposal of long-term assets and other investments not included in cash equivalents.
- investment property
-
Property (land or a building, or part of a building, or both) held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, instead of for:
(a)
use in the production or supply of goods or services or for administrative purposes; or
(b)
sale in the ordinary course of business.
- joint arrangement
-
An arrangement of which two or more parties have joint control. Joint arrangements can take the form of jointly controlled operations, jointly controlled assets, or jointly controlled entities.
- joint control
-
The contractually agreed sharing of control of an arrangement. It exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
- jointly controlled entity
-
A joint arrangement that involves the establishment of a corporation, partnership or other entity in which each party has an interest. The entity operates in the same way as other entities, except that an arrangement between the parties establishes joint control.
- lease
-
An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.
- lessee’s incremental borrowing rate of interest
-
The rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to purchase the asset.
- liability
-
A present obligation of the entity to transfer an economic resource as a result of past events.
- loans payable
-
Financial liabilities other than short-term trade payables on normal credit terms.
- market participants
-
Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:
(a)
they are independent of each other, that is, they are not related parties as defined in Section 33;
(b)
they are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information;
(c)
they are able to enter into a transaction for the asset or liability; and
(d)
they are willing to enter into a transaction for the asset or liability—that is, they are motivated but not forced or otherwise compelled to do so.
- market vesting condition
-
A performance condition upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price (or value) of the entity’s equity instruments (or the equity instruments of another entity in the same group), such as:
(a)
attaining a specified share price or a specified amount of intrinsic value of a share option; or
(b)
achieving a specified target that is based on the market price (or value) of the entity’s equity instruments (or the equity instruments of another entity in the same group) relative to an index of market prices of equity instruments of other entities.
A market vesting condition requires the counterparty to complete a specified period of service (that is, a service condition); the service requirement can be explicit or implicit.
- material
-
Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
- measure
-
The result of applying a measurement basis to an asset or liability and related income and expenses.
- measurement basis
-
An identified feature—for example, historical cost, fair value or fulfilment value—of an item being measured.
- measurement uncertainty
-
Uncertainty that arises when monetary amounts in financial reports cannot be observed directly and must instead be estimated.
- minimum lease payments
-
The payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:
(a)
for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or
(b)
for a lessor, any residual value guaranteed to the lessor by:
(i)
the lessee;
(ii)
a party related to the lessee; or
(iii)
a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.
However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it.
- monetary items
-
Units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
- most advantageous market
-
The market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.
- multi-employer (benefit) plans
-
Defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that:
(a)
pool the assets contributed by various entities that are not under common control; and
(b)
use those assets to provide benefits to employees of more than one entity, on the basis that contribution and benefit levels are determined without regard to the identity of the entity that employs the employees concerned.
- net investment in a lease
-
The gross investment in a lease discounted at the interest rate implicit in the lease.
- non-controlling interest
-
The equity in a subsidiary not attributable, directly or indirectly, to a parent.
- notes (to financial statements)
-
Notes contain information in addition to that presented in the statement of financial position, statement of comprehensive income, income statement (if presented), combined statement of income and retained earnings (if presented), statement of changes in equity and statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements.
- notional amount
-
The quantity of currency units, shares, bushels, pounds or other units specified in a financial instrument contract.
- objective of financial statements
-
To provide financial information about an entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.
- observable inputs
-
Inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.
- offsetting
-
Grouping an asset and liability that are recognised and measured as separate units of account into a single net amount in the statement of financial position.
- onerous contract
-
A contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
- operating activities
-
The principal revenue-producing activities of the entity and other activities that are not investing or financing activities.
- operating lease
-
A lease that does not transfer substantially all the risks and rewards incidental to ownership. A lease that is not an operating lease is a finance lease.
- orderly transaction
-
A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (for example, a forced liquidation or distress sale).
- ordinary share
-
An equity instrument that is subordinate to all other classes of equity instruments.
- other comprehensive income
-
Items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by this Standard.
- outcome uncertainty
-
Uncertainty about the amount or timing of any inflow or outflow of economic benefits that will result from an asset or liability.
- owners
-
Holders of instruments classified as equity.
- parent
-
An entity that controls one or more entities.
- performance
-
The relationship of the income and expenses of an entity, as reported in the statement of comprehensive income.
- performance condition (of a share-based payment arrangement)
-
A vesting condition that requires:
(a)
the counterparty to complete a specified period of service (that is, a service condition); the service requirement can be explicit or implicit; and
(b)
specified performance target(s) to be met while the counterparty is rendering the service required in (a).
The period of achieving the performance target(s):
(a)
shall not extend beyond the end of the service period; and
(b)
may start before the service period on the condition that the commencement date of the performance target is not substantially before the commencement of the service period.
A performance target is defined by reference to:
(a)
the entity’s own operations (or activities) or the operations or activities of another entity in the same group (that is, a non-market vesting condition); or
(b)
the price (or value) of the entity’s equity instruments or the equity instruments of another entity in the same group (including shares and share options) (that is, a market vesting condition).
A performance target might relate either to the performance of the entity as a whole or to some part of the entity (or part of the group), such as a division or an individual employee.
- plan assets (of an employee benefit plan)
-
Assets held by a long-term employee benefit fund and qualifying insurance policies.
- post-employment benefits
-
Employee benefits (other than termination benefits) that are payable after the completion of employment.
- post-employment benefit plans
-
Formal or informal arrangements under which an entity provides post-employment benefits for one or more employees.
- potential to produce economic benefits
-
Within an economic resource, a feature that already exists and that, in at least one circumstance, would produce for the entity economic benefits beyond those available to all other parties.
- present value
-
A current estimate of the present discounted value of the future net cash flows in the normal course of business.
- presentation currency
-
The currency in which the financial statements are presented.
- primary users
-
Existing and potential investors, lenders and other creditors.
- principal market
-
The market with the greatest volume and level of activity for the asset or liability.
- probable
-
More likely than not.
- profit or loss
-
The total of income less expenses, excluding the components of other comprehensive income.
- projected unit credit method
-
An actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method).
- promise (in a contract with a customer)
-
An obligation to transfer a distinct good or service (or a distinct bundle of goods or services).
- property, plant and equipment
-
Tangible assets that:
(a)
are held for use in the production or supply of goods or services, for rental to others or for administrative purposes; and
(b)
are expected to be used during more than one period.
- provision
-
A liability of uncertain timing or amount.
- prudence
-
The exercise of caution when making judgements under conditions of uncertainty. The exercise of prudence means that assets and income are not overstated and liabilities and expenses are not understated. Equally, the exercise of prudence does not allow for the understatement of assets or income or the overstatement of liabilities or expenses.
- public accountability
-
An entity has public accountability if:
(a)
its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
(b)
it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (for example, banks, credit unions, insurance companies, securities brokers/dealers, mutual funds and investment banks often meet this second criterion).
- publicly traded (debt or equity instruments)
-
Traded, or in process of being issued for trading, in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets).
- recognition
-
The process of capturing for inclusion in the statement of financial position or the statement(s) of financial performance an item that meets the definition of one of the elements of financial statements—an asset, a liability, equity, income or expenses. Recognition involves depicting the item in one of those statements—either alone or in aggregation with other items—in words and by a monetary amount, and including that amount in one or more totals in that statement.
- recoverable amount
-
The higher of an asset’s (or cash-generating unit’s) fair value less costs to sell and its value in use.
- related party
-
A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity):
(a)
a person or a close member of that person’s family is related to a reporting entity if that person:
(i)
is a member of the key management personnel of the reporting entity or of a parent of the reporting entity;
(ii)
has control or joint control over the reporting entity; or
(iii)
has significant influence over the reporting entity.
(b)
an entity is related to a reporting entity if any of the following conditions applies:
(i)
the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii)
one entity is an associate or jointly controlled entity of the other entity (or an associate or jointly controlled entity of a member of a group of which the other entity is a member).
(iii)
both entities are jointly controlled entities of the same third entity.
(iv)
one entity is a jointly controlled entity of a third entity and the other entity is an associate of the third entity.
(v)
the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi)
the entity is controlled or jointly controlled by a person identified in (a).
(vii)
the entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.
(viii)
a person identified in (a)(ii) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
- related party transaction
-
A transfer of resources, services or obligations between related parties, regardless of whether a price is charged.
- relevant activities (of an investee)
-
The activities that significantly affect the investee’s returns.
- reliability
-
The quality of information that makes it free from material error and bias and represent faithfully that which it either purports to represent or could reasonably be expected to represent.
- reporting date
-
The end of the latest period covered by financial statements or by an interim financial report.
- reporting entity
-
An entity that is required, or chooses, to prepare general purpose financial statements.
- reporting period
-
The period covered by financial statements or by an interim financial report.
- research
-
Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
- residual value (of an asset)
-
The estimated amount that an entity would currently obtain from disposal of an asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
- retrospective application (of a change in accounting policy)
-
Applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.
- revenue
-
Income arising in the course of an entity’s ordinary activities.
- separate financial statements
-
Those presented by an entity, in which the entity could elect, in accordance with paragraphs 9.25–9.26, to account for its investments in subsidiaries, jointly controlled entities and associates either at cost less impairment, at fair value with changes in fair value recognised in profit or loss or using the equity method following the procedures in paragraph 14.8.
- service concession arrangement
-
An arrangement whereby a government or other public sector body contracts with a private operator to develop (or upgrade), operate and maintain the grantor’s infrastructure assets such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals.
- service condition
-
A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, it has failed to satisfy the condition. A service condition does not require a performance target to be met.
- severe hyperinflation
-
The currency of a hyperinflationary economy is subject to severe hyperinflation if it has both of the following characteristics:
(a)
a reliable general price index is not available to all entities with transactions and balances in the currency; and
(b)
the currency is not exchangeable into a relatively stable foreign currency. Exchangeability is assessed in accordance with Section 30.
- share-based payment arrangement
-
An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive:
(a)
cash or other assets of the entity for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity; or
(b)
equity instruments (including shares or share options) of the entity or another group entity
provided the specified vesting conditions, if any, are met.
- share-based payment transaction
-
A transaction in which the entity:
(a)
receives goods or services from the supplier of those goods or services (including an employee) in a share-based payment arrangement; or
(b)
incurs an obligation to settle the transaction with the supplier in a share-based payment arrangement when another group entity receives those goods or services.
- small and medium-sized entities
-
Entities that:
(a)
do not have public accountability; and
(b)
publish general purpose financial statements for external users.
An entity has public accountability if:
(a)
it files, or it is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; or
(b)
it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.
- state (employee benefit) plan
-
Employee benefit plans established by legislation to cover all entities (or all entities in a particular category, for example a specific industry) and operated by national or local government or by another body (for example an autonomous agency created specifically for this purpose) which is not subject to control or influence by the reporting entity.
- statement of cash flows
-
A financial statement that provides information about the changes in cash and cash equivalents of an entity for a period, showing separately changes during the period from operating, investing and financing activities.
- statement of changes in equity
-
A financial statement that presents the profit or loss for a period, items of income and expense recognised directly in equity for the period, the effects of changes in accounting policy and corrections of errors recognised in the period and (depending on the format of the statement of changes in equity chosen by the entity) the amounts of transactions with owners acting in their capacity as owners during the period.
- statement of comprehensive income
-
A financial statement that presents all items of income and expense recognised in a period, including those items recognised in determining profit or loss (which is a subtotal in the statement of comprehensive income) and items of other comprehensive income. If an entity chooses to present both an income statement and a statement of comprehensive income, the statement of comprehensive income begins with profit or loss and then displays the items of other comprehensive income.
- statement of financial position
-
A financial statement that presents the relationship of an entity’s assets, liabilities and equity as of a specific date (also called the balance sheet).
- statement of income and retained earnings
-
A financial statement that presents the profit or loss and changes in retained earnings for a period.
- subsidiary
-
An entity that is controlled by another entity.
- tax base
-
The tax base of an asset or liability is the amount attributed to that asset or liability for tax purposes.
- tax expense
-
The aggregate amount included in total comprehensive income or equity for the reporting period in respect of current tax and deferred tax.
- taxable profit (tax loss)
-
The profit (loss) for a reporting period upon which income taxes are payable or recoverable, determined in accordance with the rules established by the taxation authorities. Taxable profit equals taxable income less amounts deductible from taxable income.
- taxable temporary differences
-
Temporary differences that will result in taxable amounts in determining taxable profit (tax loss) of future periods when the carrying amount of the asset or liability is recovered or settled.
- temporary differences
-
Differences between the carrying amount of an asset or liability in the statement of financial position and its tax base.
- termination benefits
-
Employee benefits provided in exchange for the termination of an employee’s employment as a result of either:
(a)
an entity’s decision to terminate an employee’s employment before the normal retirement date; or
(b)
an employee’s decision to accept an offer of benefits in exchange for the termination of employment.
- timeliness
-
Having information available to decision-makers in time to be capable of influencing their decisions.
- timing differences
-
Income or expenses that are recognised in profit or loss in one period but, under tax laws or regulations, are included in taxable income in a different period.
- total comprehensive income
-
The change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners (equal to the sum of profit or loss and other comprehensive income).
- transaction costs
-
The costs to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criteria:
they result directly from and are essential to that transaction; and
they would not have been incurred by the entity had the decision to sell the asset or transfer the liability not been made.
- transaction costs (financial instruments)
-
Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument.
- transaction price (for a contract with a customer)
-
The amount of consideration an entity expects to be entitled to in exchange for transferring goods or services promised to a customer, excluding amounts the entity has collected on behalf of third parties.
- treasury shares
-
An entity’s own equity instruments, held by the entity or other members of the consolidated group.
- understandability
-
Classifying, characterising and presenting information clearly and concisely makes it understandable.
- unit of account
-
The right or the group of rights, the obligation or the group of obligations, or the group of rights and obligations, to which recognition criteria and measurement concepts are applied.
- unobservable inputs
-
Inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.
- useful life
-
The period over which an asset is expected to be available for use by an entity or the number of production or similar units expected to be obtained from the asset by an entity.
- value in use
-
The present value of the future cash flows expected to be derived from an asset or cash-generating unit.
- vest
-
Become an entitlement. Under a share-based payment arrangement, a counterparty’s right to receive cash, other assets or equity instruments of the entity vests when the counterparty’s entitlement is no longer conditional on the satisfaction of any vesting conditions.
- vested benefits
-
Benefits, the rights to which, under the conditions of a retirement benefit plan, are not conditional on continued employment.
- vesting condition
-
A condition that determines whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement. A vesting condition is either a service condition or a performance condition.
- vesting period
-
The period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied.
Board Approvals
Approval by the Board of the IFRS for SMEs issued in July 2009
The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) was approved for issue by thirteen of the fourteen members of the International Accounting Standards Board. Mr Leisenring dissented. His dissenting opinion is set out after the Basis for Conclusions.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice-Chairman |
| Mary E Barth | |
| Stephen Cooper | |
| Philippe Danjou | |
| Jan Engström | |
| Robert P Garnett | |
| Gilbert Gélard | |
| Prabhakar Kalavacherla | |
| James J Leisenring | |
| Warren J McGregor | |
| John T Smith | |
| Tatsumi Yamada | |
| Wei-Guo Zhang |
Approval by the Board of 2015 Amendments to the IFRS for SMEs issued in May 2015
2015 Amendments to the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) was approved for publication by thirteen of the fourteen members of the International Accounting Standards Board. Ms Tokar voted against its publication. Her dissenting opinion is set out after the Basis for Conclusions.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice-Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Amaro Luiz De Oliveira Gomes | |
| Martin Edelmann | |
| Patrick Finnegan | |
| Gary Kabureck | |
| Suzanne Lloyd | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Chungwoo Suh | |
| Mary Tokar | |
| Wei-Guo Zhang |
Approval by the IASB of International Tax Reform—Pillar Two Model Rules—Amendments to the IFRS for SMEs Standard issued in September 2023
International Tax Reform—Pillar Two Model Rules—Amendments to the IFRS for SMEs Standard was approved for issue by all 14 members of the International Accounting Standards Board.
| Andreas Barckow | Chair |
| Linda Mezon-Hutter | Vice-Chair |
| Nick Anderson | |
| Patrina Buchanan | |
| Tadeu Cendon | |
| Florian Esterer | |
| Zach Gast | |
| Hagit Keren | |
| Jianqiao Lu | |
| Bruce Mackenzie | |
| Bertrand Perrin | |
| Rika Suzuki | |
| Ann Tarca | |
| Robert Uhl |
Approval by the IASB of the IFRS for SMEs Accounting Standard issued in February 2025
The third edition of the IFRS for SMEs Accounting Standard was approved for issue by 13 of the 14 members of the International Accounting Standards Board (IASB) as at February 2025. Mr Gast dissented. His dissenting opinion is set out after the Basis for Conclusions.
| Andreas Barckow | Chair |
| Linda Mezon-Hutter | Vice-Chair |
| Nick Anderson | |
| Patrina Buchanan | |
| Tadeu Cendon | |
| Florian Esterer | |
| Zach Gast | |
| Hagit Keren | |
| Jianqiao Lu | |
| Bruce Mackenzie | |
| Bertrand Perrin | |
| Rika Suzuki | |
| Ann Tarca | |
| Robert Uhl |
Footnotes
| 1 | Throughout this section, ‘financial statements’ refers to general purpose financial statements unless specified otherwise. (back) |
| 2 | Throughout this section, ‘users’ refers to those existing and potential investors, lenders and other creditors who must rely on general purpose financial statements for much of the financial information they need (primary users of general purpose financial statements). (back) |
| 3 | The IFRS for SMEs Accounting Standard does not specify whether the statement(s) of financial performance comprise(s) a single statement or two statements. The term ‘statement of profit or loss’ refers to both a separate statement and a separate section within a single statement of financial performance. (back) |
| 4 | This section uses the term ‘asset’ in a way that differs in some respects from the definition in paragraph 2.44 and the Glossary. For the purpose of this section, an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. (back) |
| 5 | This section uses the term ‘liability’ in a way that differs in some respects from the definition in paragraph 2.49 and the Glossary. For the purpose of this section, a liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. (back) |
| 6 | In the rest of this section, all references to employees also include others providing similar services. (back) |