IFRS

Question 1

IFRS 15 basis

Answer 1

Revenue from Contracts with Customers.

Het basisprincipe van IFRS 15 is dat een onderneming opbrengsten moet verantwoorden voor geleverde goederen of diensten ter hoogte van het bedrag waarop de onderneming verwacht recht te hebben in ruil voor die goederen of diensten. Om het basisprincipe toe te kunnen passen moet een onderneming de volgende stappen doorlopen:

1. identificeren van het contract met een klant;
2. identificeren van prestatieverplichtingen in het contract (performance obligation)
3. vaststellen van de transactieprijs;
4. alloceren van de transactieprijs aan de prestatieverplichtingen in het contract;
5. verantwoorden van opbrengsten op het moment dat de onderneming een prestatieverplichting vervult.

Question 2

IFRS 15 stap 1

Answer 2

Stap 1: Identificeren van het contract met een klant.

De vraag rijst wanneer sprake is van een contract waarop de bepalingen van IFRS 15 van toepassing zijn. Hiervan is sprake als voldaan wordt aan de volgende vijf criteria:
1. de partijen hebben het contract goedgekeurd en hebben zich gecommitteerd aan hun verplichtingen;
2. de onderneming kan de rechten van iedere partij ten aanzien van de te leveren goederen of diensten identificeren;
3. de onderneming kan de betalingscondities voor de te leveren goederen of diensten identificeren;
4. het contract heeft economische betekenis; en
5. het is waarschijnlijk dat de onderneming de vergoeding zal innen in ruil voor de te leveren goederen of diensten aan de klant

Question 3

IFRS 15 stap 2

Answer 3

Stap 2: Identificeren van prestatieverplichtingen in het contract.

Een onderneming kan zich verplichten tot de levering van verschillende goederen of diensten in één contract. In dat geval moet worden vastgesteld of, en zo ja, welke goederen of diensten een prestatieverplichting bevatten (of ze onderscheidbaar (‘distinct’) zijn)?

Daarvan is sprake als
(1) de klant de voordelen van de goederen of diensten zelfstandig kan benutten (dan wel gezamenlijk met
middelen die de klant ter beschikking staan) en
(2) de goederen of diensten onderscheidbaar zijn van de overige afspraken binnen de context van het
contract. Als de goederen of diensten in het contract onderling dusdanig verbonden zijn dat het niet mogelijk is om prestatieverplichtingen aan te wijzen, verwerkt de onderneming het contract als ware het één prestatieverplichting.

Voorbeeld:
1) Verkoop van machine
2) Installatie van machine
3) Training van personeel om machine te gebruiken

Question 4

IFRS 15 stap 3

Answer 4

Stap 3: Vaststellen van de transactieprijs.

De transactieprijs betreft het bedrag waarop de onderneming verwacht recht te hebben in ruil voor de te leveren goederen of diensten. Eventuele afwaarderingen als gevolg van kredietrisico dienen als een afzonderlijke kostenpost te worden verantwoord en gepresenteerd in de winst-en-verliesrekening.

Bij het vaststellen van de transactieprijs moet de onderneming rekening houden met:
* variabele vergoedingen;
* de aanwezigheid van een significante financieringscomponent;
* non-cash vergoedingen;
* vergoedingen te betalen aan de klant.

Variabele vergoedingen ontstaan bijvoorbeeld door kortingen, bonussen, boeteclausules, retouren, etc. IFRS 15 schrijft twee methodes voor op basis waarvan de variabele vergoeding moet worden bepaald:
a. de verwachtingswaardemethode; de som van de verwachte uitkomsten vermenigvuldigd met de daarbij
behorende kansen; en
b. de meest waarschijnlijke uitkomst in een reeks van mogelijke uitkomsten.
Bij de keuze voor een methode moet een onderneming kiezen voor de methode die leidt tot de meest betrouwbare uitkomst.

Het bestaan van een significante financieringscomponent hangt af van factoren zoals het tijdverschil tussen de levering van de goederen of diensten en de betaling. Ondernemingen hebben de keuze (vrijstelling) contracten met een periode tussen levering en betaling van maximaal een jaar uit te zonderen van deze evaluatie. The transaction price is adjusted for the effects of the time value of money if the contract includes a significant financing component

Non-cash vergoedingen dienen te worden gewaardeerd tegen reële waarde.

Vergoedingen te betalen aan de klant worden in mindering gebracht op de transactieprijs. Bijvoorbeeld een cash incentive. Dat is anders als vergoedingen betrekking hebben op een levering van een goed of dienst door de klant aan de onderneming.

Question 5

IFRS 15 stap 4

Answer 5

Stap 4: Alloceren van de transactieprijs aan de prestatieverplichtingen in het contract.

Deze stap veronderstelt het bestaan van meer dan één prestatieverplichting in een contract. De totale transactieprijs wordt gealloceerd aan de prestatieverplichtingen middels een methodiek gebaseerd op de relatieve zelfstandige verkoopprijzen van de prestatieverplichtingen. Deze methodiek maakt zoveel als mogelijk gebruik van waar te nemen verkoopprijzen van het goed of de dienst. Indien deze niet beschikbaar zijn, dan moeten deze worden geschat.

Ter illustratie het volgende voorbeeld.
De totale transactieprijs van een bundel producten A, B en C bedraagt EUR 100. De zelfstandige verkoopprijs bij afzonderlijke verkoop van product A is EUR 50, van product B EUR 25 en van product C EUR 75. Totaal een bedrag ter hoogte van EUR 150. Dit impliceert een korting van EUR 50 voor een bundel van producten A, B en C. Deze methodiek geeft de volgende allocatie van de totale transactieprijs van EUR 100:
A 33 = 50/150 x 100
B 17 = 25/150 x 100
C 50 = 75/150 x 100

Question 6

IFRS 15 stap 5

Answer 6

Stap 5: Verantwoorden van opbrengsten op het moment dat de onderneming een prestatieverplichting vervult.

De onderneming verantwoordt opbrengsten wanneer zij de prestatieverplichting vervult door goederen of diensten over te dragen aan de klant. Het moment van overdracht is:
1. over een periode; of
2. op een moment in de tijd.

Het eerste patroon is vergelijkbaar met de huidige opbrengstverantwoording naar rato van de verrichte prestaties.
Het tweede patroon is vergelijkbaar met de huidige opbrengstverantwoording bij verkoop van goederen.

De volgende voorbeelden illustreren genoemde situaties die leiden tot opbrengstverantwoording over een periode:
1. verzorgen van een cursus;
2. het schilderen van een kantoor in eigendom van klant;
3. juridische diensten.

Question 7

IAS 16 basis

Answer 7

Property, plan and equipment

• Initiële kosten: Een actief wordt aanvankelijk tegen kostprijs erkend. Dit omvat de aankoopprijs en alle kosten die direct toewijsbaar zijn aan het brengen van het actief naar de locatie en conditie voor het beoogde gebruik. If operation of an item of PP&E (e.g. an aircraft) requires regular major inspections, the cost of each major inspection is recognised in the carrying amount of the asset. The carrying amount of an asset is adjusted when there is a change in the estimated decommissioning or restoration liability related to that asset.
• Subsequent costs: Na de initiële erkenning, moet een entiteit kiezen tussen de ‘cost model’ en de ‘revaluation model’ voor de boekhouding van PPE. Het cost model houdt in dat het actief wordt gedragen tegen kostprijs minus cumulatieve afschrijvingen en cumulatieve waardeverminderingen. Het revaluation model houdt in dat het actief wordt gedragen tegen een herwaardeerde hoeveelheid. Jaarlijks via OCI. Bij revaluation model dient de volledig “class” geherwaardeerd te worden, niet slechts één activa.
• Depreciation: Afschrijvingen moeten systematisch over de levensduur van het actief worden toegerekend. De methode van afschrijving moet de manier weerspiegelen waarop de economische voordelen van het actief worden geconsumeerd door de entiteit.
• Disposal: Winst of verlies bij de verkoop van een actief moet worden berekend als het verschil tussen de opbrengsten van de verkoop en de boekwaarde van het actief. Any revaluation surplus on disposal of an asset remains in equity and is not reclassified to profit or loss.

Verschillen tussen IAS 16 en BE-GAAP

• Herwaarderingsmodel: In tegenstelling tot IAS 16, staat BE-GAAP het gebruik van het herwaarderingsmodel niet toe. Alle activa moeten worden gedragen tegen kostprijs minus cumulatieve afschrijvingen en cumulatieve waardeverminderingen.
• Afschrijvingsmethoden: BE-GAAP is strenger in de toegestane afschrijvingsmethoden. Het staat alleen lineaire afschrijving toe, terwijl IAS 16 verschillende methoden toestaat, waaronder lineaire, dalende balans en units of production.
• Component approach: IAS 16 vereist een ‘component approach’, waarbij verschillende delen van een actief afzonderlijk worden afgeschreven als hun nuttige levensduur aanzienlijk verschilt. BE-GAAP heeft geen dergelijke vereiste.
• Impairment: IAS 16 vereist een jaarlijkse toetsing op bijzondere waardeverminderingen, terwijl BE-GAAP alleen een toetsing vereist als er aanwijzingen zijn voor een waardevermindering.

Question 8

IAS 20

Answer 8

Government grants

A company recognises a government grant when it has reasonable assurance that it will comply with the relevant conditions and the grant will be received. This may be a judgemental matter, particularly when governments are introducing new programmes that may require new legislation, or for which there is little established practice for assessing whether the conditions to receive a grant are met.

• grants related to assets – whether to:
  a) deduct the grant from the cost of the asset (net presentation) or
  b) present the grant separately as deferred income to be amortised over the useful life of the asset (gross presentation)
• Revenue grants or grants related to income – whether to:
  a) offset the grant against the related expenditure (net presentation) or
  b) present it separately or under a general heading such as ‘Other income’ (gross presentation).

Question 9

IAS 8

Answer 9

Grondslagen voor financiële verslaggeving, schattingswijzigingen en fouten.

Accounting Policies, Changes in Accounting Estimates and Errors.

Changes in an accounting policy are applied retrospectively unless this is impracticable or unless another IFRS Standard sets specific transitional provisions. Apply to prior year FS and adjust opening retained earnings. The new policy results in more reliable information or is required by an IFRS.
Change from cost model to revaluation model is NOT considered a change in policy but under IAS 16 as a revaluation.

Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. The effect of a change in an accounting estimate is recognised prospectively by including it in profit or loss in:
* the period of the change, if the change affects that period only; or
* the period of the change and future periods, if the change affects both.
Examples: ECL, depreciation, warranty repairs,…

Prior period errors are 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, available reliable information. Unless it is impracticable to determine the effects of the error, an entity corrects material prior period errors retrospectively by restating the comparative amounts for the prior period(s) presented in which the error occurred.

Question 10

IAS 37

Answer 10

Provisions, contingent liabilities (voorwaarderlijke verplichtingen) and contingent assets

• Liability:
  1) present obligation as a result of past events
  2) settlement is expected to result in an outflow of resources (payment)
• Contingent liability:
  1) a possible obligation depending on whether some uncertain future event occurs, or
  2) a present obligation but payment is not probable or the amount cannot be measured reliably
• Contingent asset:
  1) a possible asset that arises from past events, and
  2) 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.
  E.g. when you sue someone,

Recognition of a provision
An entity must recognise a provision if, and only if:
* a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event),
* payment is probable (‘more likely than not’), and
* the amount can be estimated reliably (PV if applicable).

Contingent liabilities
Since there is common ground as regards liabilities that are uncertain, IAS 37 also deals with contingencies. It requires that entities should not recognise contingent liabilities – but should disclose them, unless the possibility of an outflow of economic resources is remote. [IAS 37.86]

Contingent assets
Contingent assets should not be recognised – but should be disclosed where an inflow of economic benefits is probable. When the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.

Question 11

IAS 37 Restructurings

Answer 11

A restructuring is:
* sale or termination of a line of business
* closure of business locations
* changes in management structure
* fundamental reorganisations.

Restructuring provisions should be recognised as follows:
* Sale of operation: recognise a provision only after a binding sale agreement
* Closure or reorganisation: recognise a provision only after a detailed formal plan is adopted and has started being implemented, or announced to those affected. A board decision of itself is insufficient.
* Future operating losses: provisions are not recognised for future operating losses, even in a restructuring
* Restructuring provision on acquisition: recognise a provision only if there is an obligation at acquisition date

Restructuring provisions should include only direct expenditures necessarily entailed by the restructuring, not costs that associated with the ongoing activities of the entity.

Question 12

IAS 37 examples

Answer 12

• Warranty: When an obligating event occurs (sale of product with a warranty and probable warranty claims will be made)
• Restructuring by sale of an operation: Only when the entity is committed to a sale, i.e. there is a binding sale agreement
• Restructuring by closure or reorganisation: Only when a detailed form plan is in place and the entity has started to implement the plan, or announced its main features to those affected. A Board decision is insufficient.
• Land contamination: A provision is recognised as contamination occurs for any legal obligations of clean up, or for constructive obligations if the company’s published policy is to clean up even if there is no legal requirement to do so (past event is the contamination and public expectation created by the company’s policy)
• Customer refunds: Recognise a provision if the entity’s established policy is to give refunds (past event is the sale of the product together with the customer’s expectation, at time of purchase, that a refund would be available)
• Offshore oil rig must be removed and sea bed restored: Recognise a provision for removal costs arising from the construction of the the oil rig as it is constructed, and add to the cost of the asset. Obligations arising from the production of oil are recognised as the production occurs.
• Abandoned leasehold, four years to run, no re-letting possible: A provision is recognised for the unavoidable lease payments.
• CPA firm must staff training for recent changes in tax law: No provision is recognised (there is no obligation to provide the training, recognise a liability if and when the retraining occurs)
• Major overhaul or repairs: No provision is recognised (no obligation)
• Onerous (loss-making) contract: Recognise a provision (e.g. when an entity cannot cancel, and must continue to pay for, a cleaning contract even though it has vacated the premises to which the contract relates)
• Future operating losses: No provision is recognised (no liability)

Question 13

IAS 37 measurement of provisions

Answer 13

The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, that is, the amount that an entity would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party. This means:

• Provisions for one-off events (restructuring, environmental clean-up, settlement of a lawsuit) are measured at the most likely amount.
• Provisions for large populations of events (warranties, customer refunds) are measured at a probability-weighted expected value.
• Both measurements are at discounted present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability.

In reaching its best estimate, the entity should take into account the risks and uncertainties that surround the underlying events.

If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised as a separate asset, and not as a reduction of the required provision, when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The amount recognised should not exceed the amount of the provision.

Question 14

IAS 40

Answer 14

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.

Examples of investment property:
* land held for long-term capital appreciation
* land held for a currently undetermined future use
* building leased out under an operating lease
* vacant building held to be leased out under an operating lease
* property that is being constructed or developed for future use as investment property

The following are NOT investment property and, therefore, are outside the scope of IAS 40:
* property held for use in the production or supply of goods or services or for administrative purposes
* property held for sale in the ordinary course of business or in the process of construction of development for such sale (IAS 2 Inventories)
* property being constructed or developed on behalf of third parties (IAS 11 Construction Contracts)
* owner-occupied property (IAS 16 Property, Plant and Equipment), including property held for future use as owner-occupied property, property held for future development and subsequent use as owner-occupied property, property occupied by employees and owner-occupied property awaiting disposal
* property leased to another entity under a finance lease

Initial measurement
Investment property is initially measured at cost, including transaction costs. Such cost should not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy.

Measurement subsequent to initial recognition
IAS 40 permits entities to choose between:
a) a fair value model, and
b) a cost model.
One method must be adopted for all of an entity’s investment property. Change is permitted only if this results in a more appropriate presentation. IAS 40 notes that this is highly unlikely for a change from a fair value model to a cost model.

Investment property is remeasured at fair value, which 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. Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.

Question 15

S

IAS 16 vs IAS 40: revaluation model vs fair value model

Answer 15

Under the IAS 40 fair value model, investment property is not depreciated and changes in fair value are recognized in profit or loss. This is different from the revaluation model in IAS 16, under which the asset is depreciated and revaluation increases or decreases are recognized in other comprehensive income.

Question 16

IAS 10

Answer 16

Events After the Reporting Period

• Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. Adjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at the end of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the enterprise is not appropriate. (e.g. such as the resolution of a court case after the end of the reporting period)
• Non-adjusting event (e.g.such as a decline in market prices after year end): An event after the reporting period that is indicative of a condition that arose after the end of the reporting period. Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is
  (a) the nature of the event and
  b) an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made.
  E.g. significant aquisitions or disposals after year end.

An entity shall not prepare its financial statements on a going concern basis if management determines after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.

Dividends proposed or declared after the end of the reporting period are NOT recognised as a liability at the end of the reporting period.

Question 17

IAS 19

Answer 17

Employee Benefits (Pensions)

• Defined contribution plans. Under a defined contribution plan, the entity pays fixed contributions into a fund but has no legal or constructive obligation to make further payments if the fund does not have sufficient assets to pay all of the employees’ entitlements to post-employment benefits. The entity’s obligation is therefore effectively limited to the amount it agrees to contribute to the fund and effectively place actuarial and investment risk on the employee
• Defined benefit plans. These are post-employment benefit plans other than a defined contribution plans. These plans create an obligation on the entity to provide agreed benefits to current and past employees and effectively places actuarial and investment risk on the entity. Not common anymore in todays world.

For defined contribution plans, the amount recognised in the period is the contribution payable in exchange for service rendered by employees during the period.

An entity is required to recognise the net defined benefit liability or asset in its statement of financial position. However, the measurement of a net defined benefit asset is the lower of any surplus in the fund and the ‘asset ceiling’ (i.e. the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan). Company is liable for underperformance of pension fund.
The measurement of a net defined benefit liability or assets requires the application of an actuarial valuation method, the attribution of benefits to periods of service, and the use of actuarial assumptions. The fair value of any plan assets is deducted from the present value of the defined benefit obligation in determining the net deficit or surplus.
The present value of an entity’s defined benefit obligations and related service costs is determined using the ‘projected unit credit method’, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately in building up the final obligation.

The components of defined benefit cost is recognised as follows:
* Service cost (resulting from the service of employees) attributable to the current and past periods > Profit or loss
* Net interest (the change in the liability (asset) caused by the passage of time and is recognised in profit or loss) on the net defined benefit liability or asset, determined using the discount rate at the beginning of the period > Profit or loss
* Remeasurements of the net defined benefit liability or asset, comprising: > Other comprehensive income
a) actuarial gains and losses
b) return on plan assets
c) some changes in the effect of the asset ceiling

Question 18

IFRS 2

Answer 18

IFRS 2 Share-based Payment requires an entity to recognise share-based payment transactions (such as granted shares, share options, or share appreciation rights) in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Specific requirements are included for equity-settled and cash-settled share-based payment transactions, as well as those where the entity or supplier has a choice of cash or equity instruments.

A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity’s shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of (a) equity, (b) cash, or (c) equity or cash.

All share-based payment transactions are recognised in the financial statements, using a fair value measurement basis. An expense is recognised when the goods or services received are consumed (including transactions for which the entity cannot specifically identify some or all of the goods or services received).

Equity-settled share-based payments
The issuance of shares or rights to shares requires an increase in a component of equity. IFRS 2 requires the offsetting debit entry to be expensed when the payment for goods or services does not represent an asset. The expense should be recognised as the goods or services are consumed.

The issuance of fully vested shares, or rights to shares, is presumed to relate to past service, requiring the full amount of the grant-date fair value to be expensed immediately. The issuance of shares to employees with, say, a three-year vesting period is considered to relate to services over the vesting period. Therefore, the fair value of the share-based payment, determined at the grant date, should be expensed over the vesting period.

Cash-settled share-based payments
Recorded by recognising a liability at FV by applying option pricing model and remeasured at each reporting date until settled with any changes in fair value recognised in profit or loss for the period.

Question 19

IFRS 3

Answer 19

Business Combinations
A business combination is a transaction or event in which an acquirer obtains control of one or more businesses.

An acquirer of a business recognises the assets acquired and liabilities assumed at their acquisition-date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition.

The acquirer can elect to measure the components of NCI in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in liquidation either at fair value or at the NCI’s proportionate share of the net assets.

Adjustments to provisional values relating to facts and circumstances that existed at the acquisition date are permitted within one year.

Among the items recognised will be the acquisition-date fair value of contingent consideration. Changes to contingent consideration resulting from events after the acquisition date are recognised in profit or loss.

If the consideration transferred exceeds the net of the assets, liabilities and NCI, that excess is recognised as goodwill. If the consideration is lower than the net assets acquired, a bargain purchase is recognised in profit or loss.

All acquisition-related costs (e.g. finder’s fees, professional or consulting fees, costs of internal acquisition department) are recognised in profit or loss except for costs to issue debt or equity, which are recognised in accordance with IFRS 9 and IAS 32.

Business combinations achieved in stages
If the acquirer increases an existing equity interest so as to achieve control of the acquiree, the previously-held equity interest is remeasured at acquisition-date fair value and any resulting gain or loss is recognised in profit or loss.

Question 20

IFRS 9

Answer 20

Financial Instruments
When the entity becomes a party to the contractual provisions of the instrument.

IFRS 9 sets out requirements for recognition and measurement of financial instruments, including impairment, derecognition and general hedge accounting.

All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs.

Equity investments
Equity investments held are measured at fair value. Changes in the fair value are recognised in profit or loss (FVTPL). However, if an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to recognise the fair value changes in OCI (FVTOCI) with only dividend income recognised in profit or loss. There is no reclassification to profit or loss on disposal. The impairment requirements do not apply to equity instruments.

Classificiation of financial assets
Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding (the contractual cash flows test) are classified according to the objective of the business model of the entity.
1. Measurd at amortized cost: objective is to hold the financial assets to collect the contractual cash flows
2. Measured at fair value through OCI: both collect contractual cash flows and sell financial assets.
3. Measured at fair value through proft and loss: all other financial assets

Classification of financial liabilities
1. Measured at FV through PL: held for trading and designated at intiial recognition at FVTPL
2. Measured at amortised cost: all other liabilities

Measurement at Initial Recognition
1. FA and FL at FVTPL: fair value of consideration
2. Other FA and FL: FV + transaction costs

Subsequent measurement
1. FA and FL at FVTPL: fair value
2. Other FA and FL: amortised cost based on effective interest rate method

Question 21

IFRS 9 Impairment

Answer 21

The impairment model in IFRS 9 is based on expected credit losses. It applies to:
- financial assets measured at amortised cost or
- FA at FVTOCI,
- Lease receivables (IFRS 16)
- Contract assets (IFRS 15)
- Specified written loan commitments
- Financial guarantee contracts.
Not for shares because they are measured at fair value.

Expected credit losses are required to be measured through a loss allowance at an amount equal to the 12-month expected credit losses. If the credit risk has increased significantly since initial recognition of the financial instrument, full lifetime expected credit losses are recognised. This is equally true for credit-impaired financial assets for which interest income is based on amortised cost rather than gross carrying amount.

Simplified approach only for trade recevables and contract assets without significant financing component: only full lifetime expected credit losses.

IFRS 9 requires expected credit losses to reflect an unbiased and probability-weighted amount, the time value of money and reasonable and supportable information about past events, current conditions and forecasts of future economic conditions.

Question 22

IFRS 9 Hedges

Answer 22

• Fair value hedge: When there is a hedge of a change in fair value of a recognised asset or liability or firm commitment, the change in fair values of both the hedging instrument and the hedged item for the designated risk are recognised in profit or loss when they occur and the carrying amount of the hedged item is adjusted to reflect changes in the hedged risk.
• Cash flow hedge: When an entity hedges changes in the future cash flows relating to a recognised asset or liability or a highly probable forecast transaction that involves a party external to the entity, or a firm commitment in some cases, then the change in fair value of the hedging instrument is recognised in other comprehensive income to the extent that the hedge is effective until such time as the hedged future cash flows occur.
• Hedge of a net investment in a foreign operation: This relates to a net investment in a foreign operation (as defined in IAS 21), including a hedge of a monetary item that is accounted for as part of the net investment. The accounting for such a hedge is similar to a cash flow hedge.

Question 23

IFRS 10

Answer 23

Consolidated Financial Statements
An investor controls an investee when it has power over the investee, exposure, or rights, to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the returns.

When a parent-subsidiary relationship exists, consolidated financial statements are required.
There are two exceptions to this requirement:
1) If, on acquisition, a subsidiary meets the criteria to be classified as held for sale in accordance with IFRS 5, it is accounted for under that Standard.
2) The other exception is for investment entities. An entity that obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and measures and evaluates the performance of substantially all of its investments on a fair value basis is an investment entity. An investment entity does not consolidate its subsidiaries. Instead it measures the investment at fair value through profit or loss in accordance with IFRS 9.

Intragroup balances, transactions, income and expenses are eliminated.
All entities in the group use the same accounting policies and, if practicable, the same reporting date.

Non-controlling interests (NCI) are reported in equity separately from the equity of the owners of the parent. Total comprehensive income is allocated between NCI and the owners of the parent even if this results in the NCI having a deficit balance.

A change in the ownership interest of a subsidiary, when control is retained, is accounted for as an equity transaction and no gain or loss is recognised.
Partial disposal of an investment in a subsidiary that results in loss of control triggers remeasurement of the residual holding to fair value at the date control is lost. Any difference between fair value and carrying amount is a gain or loss on the disposal, recognised in profit or loss.

Question 24

IFRS 11

Answer 24

Sets out principles for identifying whether an entity has a joint arrangement, and if it does whether it is a joint venture or joint operation.

Definitions A joint arrangement is one in which two or more parties have joint control over activities.
A joint venture is a joint arrangement in which the venturers have rights to the net assets of the venture.
A joint operation is a joint arrangement whereby each joint operator has rights to assets and obligations for the liabilities of the operation.

A joint venturer applies the equity method, as described in IAS 28, except joint ventures where the investor is a venture capital firm, mutual fund or unit trust, and it elects or is required to measure such investments at fair value through profit or loss in accordance with IFRS 9.

A joint operator accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRS applicable to the particular asset, liability, revenue and expense.

The acquisition of an interest in a joint operation in which the activity constitutes a business should be accounted for using the principles of IFRS 3.

Question 25

IFRS 13 Fair value measurement

Answer 25

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.

A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants, under current market conditions.

• Level 1 inputs are quoted prices in active markets for identical assets and liabilities that the entity can access at the measurement date.
• Level 2 inputs are those other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and interest rates and yield curves observable at commonly quoted intervals.
• Level 3 inputs are unobservable for the asset or liability. Examples include an entity using its own data to forecast the cash flows of a cash-generating unit (CGU) or estimating future volatility on the basis of historical volatility.

Question 26

IFRS 16

Answer 26

Leases

LESSEE
A lessee recognises a leased asset and lease obligation for all leases. Lessors continue to distinguish between operating and finance leases. There are optional recognition exemptions when the lease term is 12 months or less or when the underlying asset has a low value when new.

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed when the customer has the right to direct the identified asset’s use and to obtain substantially its economic benefits from that use.

The Standard has a single lessee accounting model, requiring lessees to recognise a right-of-use asset and a lease liability. The right-of-use asset is measured initially at the amount of the lease liability plus any initial direct costs incurred by the lessee.

After lease commencement, the right-of-use asset is accounted for in accordance with IAS 16 (unless specific conditions apply).

The lease liability is measured initially at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessee uses its incremental borrowing rate. Lease payments are allocated between interest expense and repayment of the lease liability.

LESSOR
Lessors classify each lease as an operating lease or a finance lease.
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise a lease is classified as an operating lease.

SALE and LEASE BACK
For sale and leaseback transactions, the seller is required to determine whether the transfer of an asset is a sale by applying the requirements of IFRS 15. If it is a sale the seller measures the right-of-use asset at the proportion of the previous carrying amount that relates to the right of use retained. As a result, the seller only recognises the amount of gain or loss that relates to the rights transferred to the buyer.

If the transfer does not qualify as a sale the parties account for it as a financing transaction. This means that the seller-lessee continues to recognise the asset on its balance sheet as there is no sale. The seller-lessee accounts for proceeds from the sale and leaseback as a financial liability. This arrangement is similar to a loan secured over the underlying asset – in other words a financing transaction.

Question 27

IAS 1

Answer 27

Presentation of Financial Statements

A complete set of financial statements comprises:
* A statement of financial position
* A statement of profit or loss and other comprehensive income
* A statement of changes in equity
* A statement of cash flows
* Notes

A third statement of financial position is required when an accounting policy has been applied retrospectively or items in the financial statements have been restated or reclassified.

Statement of financial position
Assets and liabilities are required to be classified as current or non-current, unless presenting them in order of liquidity provides reliable and more relevant information. Assets and liabilities may not be offset unless offsetting is permitted or required by another IFRS Standard.

Statement of profit or loss and other comprehensive income
It can be presented as either a single statement, with a subtotal for profit or loss, or as separate statements of profit or loss and other comprehensive income. Items can only be presented in other comprehensive income if permitted by an IFRS Standard and are grouped based on whether or not they are potentially reclassifiable to profit or loss at a later date.
Within the profit or loss section expenses are presented either by their nature (eerder BEGAAP, e.g. depreciation) or by function (e.g. cost of sales).

Statement of changes in equity
The statement of changes in equity is required to show the total comprehensive income for the period; the effects on each component of equity of retrospective application or retrospective restatement in accordance with IAS 8; and for each component of equity, a reconciliation between the opening and closing balances, disclosing each change separately.

Notes
The notes must include information about the accounting policies followed; the judgements that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognised in the financial statements; sources of estimation uncertainty; and management of capital and compliance with capital requirements.

Question 28

IFRS 5

Answer 28

Non-current Assets Held for Sale and Discontinued Operations

Non-current assets are ‘held for sale’ either individually or as part of a disposal group when the entity has the intention to sell them, they are available for immediate sale and disposal within 12 months is highly probable.
Assets and liabilities of a subsidiary are classified as held for sale if the parent is committed to a plan involving loss of control of the subsidiary, regardless of whether the entity will retain a non-controlling interest after the sale.

A discontinued operation is a component of an entity that has either been disposed of or is classified as held for sale. It must represent a separate major line of business or major geographical area of operations, be part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

Non-current assets ‘held for sale’ are measured at the lower of the carrying amount and fair value less costs to sell (or costs to distribute). The non-current assets are no longer depreciated.

Non-current assets, and the assets and liabilities in a disposal group, are presented separately in the statement of financial position.

When there are discontinued operations, the statement of comprehensive income is divided into continuing and discontinued operations. The sum of the post-tax profit or loss from discontinued operations for the period and the post-tax gain or loss arising on the disposal of discontinued operations (or on their reclassification as held for sale) is presented as a single amount.

Question 29

IAS 2

Answer 29

Inventories

Inventories are stated at the lower of cost and net realisable value (NRV).

Costs include purchase cost, conversion cost (materials, labour and overheads), and other costs to bring inventory to its present location and condition, but not foreign exchange differences (see IAS 21).

For inventory that is not interchangeable, specific costs are attributed to the specific individual items of inventory. For interchangeable items, cost is determined on either a first in first out (FIFO) or weighted average basis. Last in first out (LIFO) is not permitted.

Question 30

IFRS 16 variable lease payments

Answer 30

Variable lease payments are the payments that can change depending on something in the future, for example inflation rate, future sales, asset use etc.

Under IFRS 16, the lease payments for the purpose of the lease accounting consist of:

• Fixed lease payments less any lease incentives;
• Variable lease payments depending on an index or a rate;
• Exercise price of a purchase option (if the lessee will exercise it); and
• Penalties for terminating the lease (if the lessee will terminate).
• Residual value guarantees.

Subsequently, when the lease payments really change as a result of inflation, you will account for the remeasurement of the lease. You will simply recalculate the new lease liability by discounting adjusted lease payments with the original discount rate.

Basically, the variable lease payment may depend on:
* Index, or a rate – like inflation rate, benchmark interest rate (e.g. LIBOR), consumer price index, etc., or
* Future sales, use of underlying asset or other items unrelated to index/rate.

Question 31

IFRS 16 incremental borrowing rate

Answer 31

The standard IFRS 16 says that the lessee should discount the lease payments using:
* The interest rate implicit in the lease, or
* The lessee’s incremental borrowing rate if the interest rate implicit in the lease cannot be determined.

Interest rate implicit in the lease is very hard to determine for all the lessees. Therefore if you are a lessee, you should find out the unguaranteed residual value and the lessor’s initial direct cost. The trouble is that not many lessors would tell you this information as they might consider it confidential and sensitive.

IFRS says that the incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow the funds to obtain:
* An asset of a similar value to the underlying asset,
* Over a similar term,
* With a similar security,
* In a similar economic environment (e.g. different years)

This definition implies that the incremental borrowing rate is not only a specific for the lessee, but also for the underlying asset and that’s the reason why you cannot use the same incremental borrowing rate for all of your leases.

Question 32

IAS 7

Answer 32

Statement of Cash Flows

Requires a statement of cash flows to present information about changes in cash and cash equivalents, classified as operating, investing and financing activities.

• Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities. Operating cash flows are reported using either the direct (recommended) or the indirect method. Cash flows from taxes on income are classified as operating unless they can be specifically identified with financing or investing activities.
• Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
• Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.

It’s a huge mistake to make the statement of cash flows based on the consolidated balance sheets– i.e. make differences in balances, classify them, make non-cash adjustments, etc.
Your cash flow figures would contain a lot of non-cash foreign exchange differences and that’s not right.

Instead, please follow these steps:
1. Make the individual statements of cash flows, separately for a parent and separaten for a subsidiary.
1. Translate subsidiary’s statement of cash flows to the presentation currency. You would usually use the transaction date rates for this purpose, but you can use the average rates as an approximation (exactly as for the income and expenses).
1. Aggregate subsidiary’s and parent’s cash flows.
1. Eliminate intragroup transactions. This requires a bit more work, but well, this is the correct approach.
1. Done.

Question 33

IAS 12

Answer 33

Income Taxes - current and deferred tax

Deferred tax assets and liabilities are the income taxes recoverable or payable in future periods as a result of differences between the amounts attributed to assets and liabilities from applying IFRS Standards and the amounts those assets and liabilities are attributed for tax purposes (called temporary differences).

A deferred tax asset is recognised for deductible temporary differences, unused tax losses and unused tax credits, but only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised.

Deferred tax liabilities and assets are measured at the tax rates expected to apply when the liability is settled or the asset is realised. Deferred tax assets and liabilities are not discounted.

Current and deferred tax is recognised as income or expense in profit or loss unless it relates to a transaction or event that is recognised outside profit or loss or to a business combination. Deferred tax assets and liabilities are classified as non-current items.

Exceptions:
A deferred tax liability is not recognised when the temporary difference arises from:
* the initial recognition of goodwill; when, at the time of the transaction,
* the initial recognition of an asset or liability does not affect either the accounting or the taxable profit (unless it is a business combination); and
* investments in subsidiaries, branches, associates and joint arrangements (e.g. due to undistributed profits) when the entity is able to control the timing of the reversal of the difference and it is probable that the reversal will not occur in the foreseeable future.

A deferred tax asset is not recognised for temporary differences related to:
* the initial recognition of an asset or liability, other than in a business combination, which, at the time of the transaction, does not affect the accounting or the taxable profit; and
* deductible temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements are recognised only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available to utilise the difference.

Question 34

IAS 21 The Effects of Changes in Foreign Exchange Rates

Answer 34

An entity’s functional currency is the currency of the primary economic environment in which the entity operates. All foreign currency items are translated into that currency.

Transactions are recognised on the date that they occur using the exchange rate on that date for initial recognition and measurement. You can use the average rate for the year if the actual rates do not differ too much.

At the end of a reporting period:
* non-monetary items carried at historical amounts continue to be measured using transaction-date exchange rates,
* monetary items are retranslated using the closing rate and
* non-monetary items carried at fair value are measured at valuation-date exchange rates.

Exchange differences arising on settlement or translation of monetary items are included in profit or loss, with one exception. Exchange differences arising on monetary items that are part of the reporting entity’s net investment in a foreign operation are recognised in the consolidated financial statements that include the foreign operation in other comprehensive income. Such differences are reclassified from equity to profit or loss on disposal of the net investment.

When an entity has a presentation currency that is different from its functional currency, the results and financial position are translated into that presentation currency.
Assets (including goodwill arising on the acquisition of a foreign operation) and liabilities for each statement of financial position presented (including comparatives) are translated at the closing rate at the date of each statement.
Income and expenses for each period presented (including comparatives) are translated at exchange rates at the dates of the transactions.
All resulting exchange differences are recognised as other comprehensive income and the cumulative amount is presented in a separate component of equity until disposal of the foreign operation.

Every company has just ONE functional currency, but it can present its financial statements in MANY presentation currencies. While the functional currency depends on the economic environment of a company and its specific operations, the presentation currency is a matter of CHOICE.

If you translate the financial statements using different foreign exchange rates, then the balance sheet would not balance (i.e. assets will not equal liabilities plus equity). Therefore, CTD, or currency translation difference arises – it’s a balancing figure and shows the difference from translating the financial statements in the presentation currency. This is a separate component in equity.

Question 35

IAS 23 Borrowing costs

Answer 35

Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are included in the cost of that asset. All other borrowing costs are expensed when incurred.

A qualifying asset is one that takes a substantial period of time to make it ready for its intended use or sale.

If funds are borrowed generally and used for the purpose of obtaining a qualifying asset, a capitalisation rate (using a weighted average of the borrowing costs over the period) is used. The borrowing costs eligible for capitalisation cannot exceed the amount of borrowing costs incurred.

Question 36

IAS 28 Investments in Associates and Joint Ventures

Answer 36

An associate is an entity over which the investor has significant influence. There is a rebuttable presumption that an investor that holds an investment, directly and indirectly, of 20 per cent or more of the voting power of the investee has significant influence.

A joint venture is a joint arrangement in which the venturers have rights to the net assets of the venture.

The equity method is used to account for investments in associates and joint ventures.
The investment is recorded initially at cost and is subsequently adjusted by the investor’s share of changes in the investee’s net assets.
The investor’s statement of comprehensive income reflects its share of the investee’s post-acquisition profit or loss.

The accounting policies of the associate and joint venture need to be the same as those of the investor for like transactions and events in similar circumstances. The end of the reporting period of an associate or a joint venture cannot be more than three months different from the investor’s end of the reporting period.

Impairment according to IAS 36.

If an investment in an associate or joint venture becomes a subsidiary, the entity applies IFRS 3 and IFRS 10.

If an investment ceases to be an associate or a joint venture to become a financial asset in the scope of IFRS 9, the investment retained is remeasured to its fair value, with any gain or loss recognised in profit or loss.

Question 37

IAS 29

Answer 37

Financial Reporting in Hyperinflationary Economies

Generally, an economy is hyperinflationary when the cumulative inflation rate over three years is approaching or exceeds 100 per cent.

When an entity’s functional currency is the currency of a hyperinflationary economy, its financial statements are restated so that all amounts are measured at current amounts at the end of the reporting period. The adjusting gain or loss on the net monetary position is recognised in profit or loss.
Comparative figures for prior period(s) are also restated into the same current measuring unit.

When an economy ceases to be hyperinflationary, the amounts expressed in the measuring unit current at the end of the previous reporting period become the basis for the carrying amounts in subsequent financial statements.

Question 38

IAS 32 Financial Instruments: presentation

Answer 38

An equity instrument is an instrument that evidences a residual interest in the assets of the entity after deducting all of its liabilities.
A financial liability is an instrument that obligates an entity to deliver cash or another financial asset, or the holder has a right to demand cash or another financial asset.

An issuer classifies separately the debt and equity components of a single compound instrument such as convertible debt, at the time of issue.

Costs of issuing or reacquiring equity instruments are accounted for as a deduction from equity.

Financial assets and liabilities can only be offset, and the net amount reported, when an entity has a legally enforceable right to set off the amounts and intends either to settle on a net basis or simultaneously.

Question 39

IAS 33 earnings per share

Answer 39

EPS is reported for profit or loss attributable to equity holders of the parent entity, for profit or loss from continuing operations attributable to equity holders of the parent entity and for any discontinued operations.

The numerator is earnings after deduction of all expenses including tax and after deduction of non-
controlling interests and preference dividends.
The denominator is the weighted average number of shares outstanding during the period.

Dilution is a reduction in EPS on the assumption that convertible instruments are converted, that options or warrants are exercised or that ordinary shares are issued when specified conditions are met.

The numerator is the profit for the period attributable to ordinary shares, increased by the after-tax amount of dividends and interest recognised in the period in respect of the dilutive potential ordinary shares (such as options, warrants, convertible securities and contingent insurance agreements) and adjusted for any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares.
The denominator is adjusted for the number of shares that would be issued on the conversion of all of the dilutive potential ordinary shares into ordinary shares.

Anti-dilutive potential ordinary shares are excluded from the calculation.

Question 40

IAS 34 Interim Financial Reporting

Answer 40

The minimum components of an interim financial report are condensed versions of the primary financial statements.
The notes in an interim financial report provide an explanation of events and transactions significant to understanding the changes since the last annual financial statements.

Materiality is based on interim financial data, not forecast annual amounts.
The accounting policies are the same as for the annual report.

Question 41

IAS 36

Answer 41

Impairment of assets: assets are carried at no more than their recoverable amount.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use.

Value in use is the present value of estimated future cash flows expected to arise from the continuing use of
an asset and from its disposal at the end of its useful life. The discount rate used is the pre-tax rate of return.
If it is not possible to determine the recoverable amount for an individual asset, then the recoverable amount of the CGU (cash generating unit) to which the asset belongs is determined. A CGU is 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.

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. Examples for costs of disposal are set out in IAS 36, for example legal costs, costs of removing an asset and direct incremental costs to bring an asset into condition for its sale.

At the end of each reporting period, assets are reviewed to look for any indication that they may be impaired.
Intangible assets with an indefinite useful life and goodwill must be tested annually irrespective of whether there is any indication of impairment.

An impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount.
An impairment loss is recognised in profit or loss for assets carried at cost and treated as a revaluation decrease for assets carried at the revalued amount.
Reversal of prior years’ impairment losses is required in some cases, but is prohibited for goodwill.

Question 42

IAS 38

Answer 42

Intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance. Examples include software, brands, music and film rights and development assets.

There are specific recognition criteria for internally-generated intangible assets. All research costs are charged to expense when incurred. Development costs are capitalised only after technical and commercial feasibility of the resulting product or service have been established.
Internally-generated goodwill, brands, mastheads, publishing titles, customer lists, start-up costs, training costs, advertising costs and relocation costs are never recognised as assets.

Intangible assets are classified as having either a finite or indefinite life. Indefinite means that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows, not infinite.

The cost of an intangible asset with a finite useful life is amortised over that life, normally to a nil residual value. Impairment testing under IAS 36 is required whenever there is an indication that the carrying amount exceeds the recoverable amount of the intangible asset.
Intangible assets with indefinite useful lives are not amortised but are tested for impairment on an annual basis. If the recoverable amount is lower than the carrying amount, an impairment loss is recognised. The entity also considers whether the intangible asset continues to have an indefinite life.

If an intangible asset has a quoted market price in an active market, a revaluation model can be used. The asset is carried at fair value at revaluation date less any subsequent amortisation or impairment.

Question 43

IFRIC 12 Concessions

Answer 43

Infrastructure assets that are not controlled by an operator are not recognised as property, plant and equipment of the operator.

Instead, the operator recognises:
* A financial asset when the operator has an unconditional right to receive a specified amount of cash or other financial asset over the life of the arrangement
* An intangible asset when the operator’s future cash flows are not specified (e.g. when they will vary according to usage of the infrastructure asset)
* Both a financial asset and an intangible asset when the operator’s return is provided partially by a financial asset and partially by an intangible asset.

Question 44

IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information

Answer 44

An entity is required to apply IFRS S1 for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted.

You will not find any specific rules for the disclosures, because IFRS S1 serves as a framework for your reporting. You should provide only material information about sustainability-related risks and opportunities that can affect your (entity’s) cash flows, access to finance or cost of capital, etc.
Directly in the general-purpose financial reports, for example in the management commentary, annual reports, etc..

The process of developing your IFRS S1 disclosures has two basic steps:
Step 1: Identify which risks and opportunities you will report on
It primarily refers you to SASB standards, but you can use the other guidance, too. SASB standards are developed by The Sustainability Accounting Standards Board (hence the abbreviation SASB) and they are industry-specific. Currently, there are 77 different SASB standards for 77 different industries, so what you need to do is to use the SASB standard applicable for your own industry.

Step 2: Identify applicable disclosure requirements
Once you identified what you are going to report about, you need to identify what information you are going to provide about it. Your information must be relevant, true and should include the disclosures about governance of that risk, the strategy used to manage risks and opportunities, risk management and different metrics and targets.

Sustainability-related risks and opportunities that is useful to the primary users of general purpose financial reports in making decisions relating to providing resources to the entity. For sustainability-related financial information to be useful, it must be relevant and faithfully represent what it purports to represent. The usefulness of sustainability-related financial information is enhanced if the information is comparable, verifiable, timely and understandable.

A complete set of sustainability-related financial disclosures presents fairly all sustainability-related risks and opportunities that could reasonably be expected to affect an entity’s prospects, and their faithful representation. To achieve faithful representation, an entity is required to provide a complete, neutral and accurate depiction of those sustainability-related risks and opportunities.

An entity is required to disclose material information about the sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s prospects. Information is material if omitting, misstating orobscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports.

An entity is required to provide disclosures about:
* Governance—the governance processes, controls and procedures the entity uses to monitor and manage sustainability-related risks and opportunities
* Strategy—the approach the entity uses to manage sustainability-related risks and opportunities
* Risk management—the processes the entity uses to identify, assess, prioritise and monitor sustainability-related risks and opportunities
* Metrics and targets—the entity’s performance in relation to sustainability-related risks and opportunities, including progress towards any targets the entity has set, or is required to meet by law or regulation

Question 45

IFRS S2 Climate-related Disclosures

Answer 45

4 What is climate resilience?

An entity is required to apply IFRS S2 for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted. If an entity applies IFRS S2 earlier, it is required to disclose that fact and apply IFRS S1 at the same time.

Disclose information about climate-related risks and opportunities that is useful to primary users of general purpose financial reports in making decisions relating to providing resources to the entity.

An entity, regardless of the industry in which it operates, is required to disclose specified metrics in respect of:
* Greenhouse gases
* Climate-related transition and physical risks
* Climate-related opportunities
* Capital deployment
* Internal carbon prices
* Remuneration

An entity is required to disclose the quantitative and qualitative climate-related targets it has set to monitor progress towards achieving its strategic goals, and any targets it is required to meet by law or regulation, including any greenhouse gas emissions targets.

IFRS S2 requires you to disclose material information about climate-related risks, more specifically:
* Physical risks, such as the risks resulting from severity of extreme weather, and
* Transition risks, for example those associaties with policy action and changes in technology, that can affect how a company can run its business in a future.
Also, you need to provide information about climate-related opportunities.
In short, you should provide only relevant and material information that affect YOUR company.

The company needs to disclose the information in two main categories:
1. Strategy, governance and risk management specifically related to climate:
* 1. Strategy and decision making;
* 1. Current and anticipated financial effects;
* 1. Climate resilience (please see more about it below)
1. Metrics and targets related to climate:
* 1. GHG emissions Scope 1 to Scope 3 (see more about it below)
* 1. Industry-based disclosures
* 1. Climate-related targets.

This is the resilience of company’s strategy and business model to climate-related changes, developments and uncertainties. Here, you would need to use climate-related scenario analysis to form your disclosures about climate resilience, but IFRS S2 does not tell you WHICH scenarios you should use.

GHG emissions are greenhouse gases emissions. You are required to disclose the information about both direct and indirect emissions; in three scopes:
Scope 1: Direct emissions
Scope 2: Indirect emissions from the generation of purchased energy consumed by the company
Scope 3: All other indirect emissions that occur in the company’s value chain – here, 15 categories of these emissions are listed.

Even if your company is NOT producing direct emissions, you need to report on the indirect emissions, too.

Question 46

IFRS 1

Answer 46

First-time Adoption of International Financial Reporting Standards

An entity that adopts IFRS Standards for the first time (by an explicit and unreserved statement of compliance with IFRS Standards) in its annual financial statements for the year ended 31 December 2023 would be required to select accounting policies based on IFRS Standards effective at 31 December 2023 (with the early application of any new IFRS Standard not yet mandatory being permitted).

The entity presents an opening statement of financial position that is prepared at 1 January 2022. That opening statement of financial position is the entity’s first IFRS financial statements. Therefore, at least, three statements of financial position are presented.

Question 47

Examples OCI

Answer 47

Changes resulting from other, non-primary or non-revenue producing activities of the company that are not reported in profit or loss as required or permitted by other IFRS standard.

Here’s the list of them:
* Changes in revaluation surplus related to property, plant and equipment (in line with IAS 16)
* Actuarial gains and losses (in line with IAS 19)
* Gains and losses arising from translating the financial statements of a foreign operation
* The effective portion of gains and losses on hedging instruments in a cash flow hedge
* Gains and losses on remeasuring available-for-sale financial assets (in line with IAS 39)
* For financial liabilities designated as at fair value through profit or loss: fair value changes attributable to changes in the liability’s credit risk (IFRS 9).

Question 48

IFRS Framework

Answer 48

Fundamental qualitative characteristics
* Relevance: capable of making a difference in the users’ decisions. The financial information is relevant when it has predictive value, confirmatory value, or both.
* Materiality is closely related to relevance.
* Faithful representation: The information is faithfully represented when it is complete, neutral and free from error.

Enhancing qualitative characteristics
* Comparability: Information should be comparable between different entities or time periods;
* Verifiability: Independent and knowledgeable observers are able to verify the information;
* Timeliness: Information is available in time to influence the decisions of users;
* Understandability: Information shall be classified, presented clearly and consisely.

Question 49

IAS 33 diluted EPS

Answer 49

Question 50

IAS 33 basic EPS

Answer 50

Question 51

IFRS 16 lease term:
A company has opened a branch at a building, by signing a rental agreement with the landlord of the building on which branch is situated.
The initial agreement will be for 10 years and either party can terminate the agreement at any time by giving two month’s notice.
The tenure of the agreement can be extended at both parties consent. The company has no intention to discontinue the branch operations in near future. However, loss-making branches may be subject to relocation or closure in the future.
What is the lease term in this case? And, how to account for this lease?

Answer 51

The situation would be different if the right to terminate the lease on a short-term notice has just one party:

• If the right to terminate the lease with 2 months notice has just the lessee and the lessor must keep the lease term at 10 years as agreed, then the right to terminate is the same as the option to terminate. In this case, lessee would assess how long would he want to stay in the property based on many factors.
• If the right to terminate the lease has just the lessor, not the lessee, then the non-cancellable period includes the period covered by the option to terminate the lease (just 2 months in the question).

Well, as soon as you understand that the lease is non-cancellable only for 2 months in this case, it is a short-term lease and you have 2 options:

• Either you can apply the exemption for short-term leases and book the rental payments as expenses in profit or loss. Just be careful, because you should apply this exemption to all class, not on one-by-one basis. So, let’s say you’re a bank and you regularly rent the offices for your branches with similar terms, you have to apply the exemption to all of them, not selectively.
• The second option is not to apply exemption, but account for the lease as for any other lease, that is – right-of-use asset, lease liability, etc. But, in this case, I would not recommend it because it would be highly impractical for various reasons.

Question 52

IFRS 18 Presentation and Disclosure in Financial Statements (NEW)

Answer 52

Question 53

IFRS 18 impact P&L

Answer 53