Chapter 10 Performance Reporting Flashcards
Accounting policies (IAS 8)
Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.
Changed in accounting policies
A change in accounting policies is only allowed if:
- Required by an IFRS
- Results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.
Operating segments (IFRS 8)
An operating segment is a component of an equity:
- Engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity).
- Whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.
- For which discrete financial information is available.
Determining reportable segments
An entity must report separate information about each operating segment that:
- Has been identified as meeting the definition of an operating statement.
- Segment total is 10% or more of total:
- Revenue or
- All segments not reporting a loss or
- Assets - At least 75% of total external revenue must be reported by operating segments. Where this is not the case, additional segments must be identified (even if they do not meet the 10% thresholds).
- Two or more operating segments below the thresholds may be aggregated to produce a reportable segment have similar economic characteristics, and the segments are similar in a majority of the majority of the aggregation criteria above.
- Operating segments that do not meet any of the quantitive thresholds may be reported separately if management believes that information about the segment would be useful to users of the financial statements.
Management commentary
A narrative report that relates to financial statements that have been prepared in accordance with IFRSs.
Provides users with historical explanations of the amounts in the financial statements.
Provides commentary on an entity’s prospects and other information not presented in the financial statements.
Also serves as a basis for understanding management’s objectives and its strategies for achieving those objectives.
Principles for the preparation of management commentary
Management should present commentary that is consistent with the following principles:
- To provide management’s view of the entity’s performance position and progress.
- To supplement and complement information presented in the financial statements.
Management commentary should include:
- Forward looking information
- Information that possesses the qualitative characteristics described in the Conceptual Framework for Financial Reporting.
Elements of management company
Management commentary should include information that is essential to an understanding of:
- The nature of the business
- Management’s objectives and its strategies for meeting those objectives.
- The entity’s most significant resources, risks and relationships.
- The results of operations and prospects.
- The critical performance measures and indicators that management uses to evaluate the entity’s performance against stated objectives.
First time adoption of international financial reporting standards (IFRS 1)
An entity in its first IFRS financial statements applies IFRS 1.
An entity’s first IFRS financial statements are the first annual financial statements in which the entity adopts IFRSs by an explicit and unreserved statement of compliance with IFRSs.
Opening IFRS statement of financial position
An entity prepares and presents an opening IFRS statement of financial position at the date of transition to IFRS as a starting point for IFRS accounting.
This will be the beginning of the earliest comparative shown.
Preparation of an opening IFRS statement of financial position involves adjusting the amounts reported at the same date under previous GAAP. All adjustments are recognised directly in retained earnings (or another category of equity) and not in profit or loss.
Main exemptions from applying IFRSs in the opening IFRS statement of financial position.
- Deemed cost
Fair value may be used as deemed cost at date of transition to IFRS for:
- PPE
- Investment properties (using the cost model)
- Intangible assets (meet IAS 38 recognition and revaluation criteria)
A previous GAAP revaluation may be used as deemed cost at the date of the revaluation.
Further an event driven valuation as deemed cost at the date of measurement.
- Business combinations
Prior to the date of transition to IFRSs
- The same classification is retained as under previous GAAP
- For items requiring a cost measure for IFRSs, the carrying amount at the date of the business combination is treated as deemed cost and IFRS rules applied
- Items requiring a fair value measure for IFRSs are revalued at the date of transition to IFRSs
- The carrying amount of goodwill at the date of transition to IFRSs is the amount as repeated under previous GAAP
- Borrowing costs
Only need to be capitalised for assets where the commencement date for capitalisation is on or after the date of transition to IFRSs. - Cumulative translation differences on foreign operations
Translation differences may be deemed zero at the date of transition to IFRSs. - Adoption of IFRSs by subsidiaries, associates and joint ventures
If a subsidiary, associate or joint venture adopts IFRSs later than its parent, it measures its assets and liabilities:
- At the amount that would be included in the parent ‘s financial statements based on the parent’s date of transition.
- At the amount based on the subsidiary date of transition
Interim financial reporting (IAS 34)
A financial report containing either a complete set of financial statements or a set of condensed financial statements for an interim period.
Reporting period and comparative figures
- Statement of financial position
Current period: At end of current interim period.
Comparative: At end of immediately preceding financial year. - Statement of profit or loss and other income
Current period: Current interim period and cumulatively for current financial year to date.
Comparative: Comparable interim period of immediately preceding financial year and comparable year to date period of immediately preceding financial year. - Statement of changes in equity
Current period: Cumulatively for current financial year to date.
Comparative: Comparable year to date period of immediately preceding financial year. - Statement of cash flows
Current period: Cumulatively for current financial year to date.
Comparative: Comparable year to date period of immediately preceding financial year.
Notes
Limited notes to the financial statements are required (explanation of events and transactions that are significant to an understanding of the changes in financial position and financial performance since the end of the last annual reporting period e.g. Inventory write downs, litigation settlements etc.
Other disclosures are required (comments about seasonality of interim operations, nature and amount of estimates and unusual items, capital changes and limited segment data.
Recognition and measurement principles
- Accounting policies
Same as annual financial statements except for accounting policy changes made since the date of the most recent financial statements. - Revenues received seasonally, cyclically or occasionally
Not anticipated or deferred if application or deferral would not be appropriate at the year end. - Costs incurred unevenly
Anticipated or deferred if and only if it is also appropriate to anticipate or defer that type of cost at the year end. - Estimates
Measurement principles must ensure the resulting information is reliable and that all relevant material financial information is disclosed.
Interim reports generally require greater use of estimation methods than annual reports.
