Transcript IAS 1 Presentation of Financial Statements

International Financial Reporting Standards
Reporting financial
performance
Joint World Bank and IFRS Foundation ‘train
the trainers’ workshop hosted by the ECCB
30 April to 4 May 2012
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
The concepts
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
Objective of financial reporting
3
• Provide financial information about the reporting entity
that is useful to existing and potential investors, lenders
and other creditors in making decisions about providing
resources to the entity.
– The information provided about financial
performance helps existing and potential investors,
lenders and other creditors to understand the return
the entity has produced on its economic resources.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Objective of financial reporting continued
4
• Decisions by investors about buying, selling or holding
equity and debt instruments depend on the returns that
they expect from an investment in those instruments, eg
dividends, principal and interest payments or market
price increases.
• Decisions by lenders about providing or settling loans
and other forms of credit depend on the principal and
interest payments or other returns that they expect.
• Information must reflect the effect on performance of
changes in market prices and/or interest rates.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Objective of financial reporting continued
5
• Information about an entity’s financial performance in a
period, reflected by changes in economic resources (other
than by obtaining additional resources directly from
investors or creditors) is useful in assessing the entity’s
past and future ability to generate net cash inflows (see
CF.OB18)
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Elements
6
Income
• resource controlled by the • recognised increase in
asset/decrease in liability
entity
in current reporting period
• result of past event
• that result in increased
• expected inflow of
equity except…
economic benefits
Expense
Liability
• recognised decrease in
• present obligation
asset/increase in liability
in current reporting period
• arising from past event
• that result in decreased
• expected outflow of
equity except…
economic benefits
Asset
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Examples—applying the concepts
7
• Fair value model—measure element at fair value with
changes in fair value recognised as income or expense for
the period in which it arises
• Depreciation represents the consumption of the assets
service potential in the period.
– land with an indefinite useful life is not depreciated
because its service potential does not reduce with time
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 1
Presentation of Financial
Statements
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
9
• IAS 1 provides guidance on the presentation of financial
statements.
• Financial performance is presented in the form of the
statement of profit or loss and other comprehensive
income
• One statement or two statements
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Income and expenses
10
• Concepts for income and expenses
• no concepts for other comprehensive income (OCI)
• IAS 1 defines profit or loss as the total of income less
expenses, excluding the components of OCI
• OCI includes items of income or expense (including
reclassification adjustments) that are not recognised in
profit or loss as required or permitted by other IFRSs
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Profit or loss
11
• IAS1.82 prescribes line-items for profit or loss (eg
revenue and finance costs)
• In addition, items required by other IFRSs must also be
presented
• Additional line items, headings and sub-totals should be
used only when relevant to an understanding of
financial performance
• no extraordinary items
• Expenses may be classified by nature or function (IAS
1.102–105)
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Other comprehensive income
• Items to be classified by nature
• Grouped based on those that will:
• not be reclassified subsequently to profit or loss;
and
• be reclassified to profit or loss when specified
conditions are met
• Income tax effects must be disclosed (net versus
aggregate)
• Reclassification adjustments must be disclosed
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
12
Other comprehensive income continued
13
• Items included in OCI include:
• gains on property revaluation
• remeasurements of defined benefit pension plans
• exchange differences on translating foreign
operations
• cash flow hedges
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 18
Revenue
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Conceptual context
15
• Financial information must be relevant
• Relevant financial information is capable of making a
difference in decisions about providing resources to the
entity, ie the information has
• predictive value
• confirmatory value
• both predictive and confirmatory value (these
concepts are interrelated)
• For example, current year revenue information can be
used as a basis for predicting future revenue and can
be compared to revenue predictions made in previous
years (CF.QC10)
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
16
• Revenue is income that arises in the course of ordinary
activities of the entity
• IAS 18 prescribes accounting for revenue from sale of
goods, from rendering of services, and from the use by
others of entity assets yielding interest, royalties and
dividends.
• Revenue from construction contracts is accounted for in
accordance with IAS 11 Construction Contracts
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Scope exclusions
• IAS 18 does not deal with revenue from:
• Lease agreements;
• Dividends accounted for in accordance with the
equity method;
• Insurance contracts;
• Changes in the fair value of financial instruments
and biological assets;
• Initial recognition of agricultural produce; and
• Extraction of mineral ores
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
17
Revenue recognition
18
• In general, revenue is recognised when it is probable
that economic benefits from the transaction will flow to
the entity and those benefits can be measured reliably.
• Revenue from the sale of goods is recognised when:
– significant risks and rewards of ownership have
been transferred to the buyer; and
– the entity has neither continuing managerial
involvement in, nor effective control over, the
goods.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Revenue recognition continued
19
• For the rendering of services, revenue is recognised as
work is performed (percentage of completion method).
• However, when the outcome of a service contract
cannot be estimated reliably, revenue is recognised
only to the extent of expenses recognised that are
recoverable.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Revenue recognition continued
20
• Interest is recognised over time, computed on the
effective yield on the asset.
• Royalties are recognised in accordance with the
substance of the agreement.
• Dividends are recognised when the shareholder has the
right to receive payment.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Measurement
21
• Revenue is measured at the fair value of the
consideration received or receivable by the entity on its
own account.
• revenue does not include amounts collected on
behalf of third parties.
• when receipt of cash is deferred, the nominal
consideration is split between sales revenue and
interest revenue.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example:
cash discount
22
• Goods sold for 500, due in 60 days. Customer can take
10% discount if paid in 30 days.
• If customer gets the discount, revenue is 450.
• Would be wrong to have revenue 500 and interest
or some other expense of 50.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example:
‘sale’ to agent
23
• We sell goods for 100 through an intermediary (agent)
who gets a commission of 10. We own goods until sold
to end users. We are responsible for defects and
returns from end users.
• We have revenue of 100 and commission expense
of 10 only when agent sells goods to end user.
• Would be wrong to recognise revenue when goods
are shipped to agent.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example:
deferred payment
24
• Example: We sell goods costing 1,500,000 for
2,000,000 due in 2 years interest free. Current cash
price would have been 1,652,893.
• Financing transaction. Up front revenue is
1,652,893. Profit is 152,893.
• PV = (FV) / ((1+int)^periods)
• 1,652,893 = (2,000,000) / ((1+int)^2)
• Int = .10 (10%) by solving the equation
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example
deferred payment
continued
25
– Interest income year 1 = 1,652,893 x 10% =
165,289, unpaid, bringing receivable up to
1,818,182.
– Interest income year 2 = 1,818,182 x 10% =
181,818, bringing receivable up to 2,000,000, which
is then repaid.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example
deferred payment
1 Jan 01
continued
Account receivable
26
1,652,893
Revenue
31 Dec 01 Account receivable
1,652,893
165,289
Interest revenue
31 Dec 02 Account receivable
165,289
181,818
Interest revenue
31 Dec 02 Cash
Account receivable
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
181,818
2,000,000
2,000,000
Measurement continued
27
• An exchange for dissimilar items generates
revenue measured at the fair value of the goods
or services received.
• An exchange of goods or services for similar
items does not generate revenue.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison with the IFRS for SMEs
• IAS 18 and Section 23 Revenue of the IFRS for
SMEs share the same principles. However, the
IFRS for SMEs is written in simplified language.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
28
Judgements and estimates
29
• The primary issue in accounting for revenue is
determining when to recognise revenue.
• whether the risks and rewards have been
transferred to the buyer (sale of goods or financing
arrangement?)
• measuring the fair value of consideration received
or receivable.
• bifurcating multiple element sales (ie determining
different elements).
• services—estimating the stage of completion.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates continued
• Examples of circumstances in which the timing of
recognition of revenue requires careful consideration
include:
–sales with delayed delivery
–sales subject to conditions, eg installation,
inspection and right of return
–sale and repurchase agreements
–consignment sales
–sales to others for resale
–multiple element contracts.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
30
International Financial Reporting Standards
IAS 33
Earnings per Share
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction
32
• IAS 33 deals with the calculation and presentation of
earnings per share (EPS).
• It applies to entities whose ordinary shares or potential
ordinary shares (for example, convertibles, options and
warrants) are publicly traded.
• An entity must present basic EPS and diluted EPS with
equal prominence in the statement of comprehensive
income.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Dilution
33
• Dilution is a notional reduction in Earnings (losses) per
share resulting from the assumption that
• convertible instruments are converted,
• options or warrants are exercised,
• or ordinary shares are issued
upon the satisfaction of specified conditions.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Earnings
34
• The ‘earnings’ of two entities subject to identical
transactions and events could differ because they have
adopted different accounting policies.
• These differences are not adjusted for when calculating
EPS.
• The numerators used in the calculation of basic and
diluted EPS must be reconciled to profit or loss
attributable to the ordinary equity holders of the parent.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Shares
• The denominators (weighted average number of
ordinary shares ‘WANOS’) used in the calculation of
basic and diluted EPS might be affected by:
– share issues during the year
– shares to be issued upon conversion of a
convertible instrument
– contingently issuable or returnable shares;
– bonus issues
– share splits and share consolidation
– the exercise of options and warrants
– contracts that may be settled in shares
– written put options
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
35
Example:
share split
36
An entity issued 100 ordinary shares at incorporation on 1
January 20X1.
• The only change to the issued share capital occurred
on 1 January 20X2 when all ordinary shares were
split—each ordinary share became two ordinary shares
• The entity earned a profit of CU1,000 in each period,
20X1 and 20X2
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example
share split continued
• What is the basic EPS for the entity in 20X1?
Profit:
CU1,000
WANOS :
100
Basic EPS:
CU10 (CU1,000 ÷ 100 shares)
• What is the basic EPS for the entity in 20X2?
Profit:
CU1,000
WANOS :
200
Basic EPS:
CU5 (CU1,000 ÷ 200 shares)
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
37
Example
share split continued
38
• In the 20X2 financial statements, what EPS figures will
be disclosed for each 20X2 and 20X1?
20X2: CU5
20X1: CU5
IAS 33.26—the WANOS must be adjusted for all
periods presented that have resulted in a change in
ordinary shares without an increase in resources, ie a
share split
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example
share issue
39
An entity issued 100 ordinary shares at incorporation on 1
January 20X1.
• The only change to the issued share capital occurred
on 1 January 20X2 when an additional 100 ordinary
shares were issued for CU30 per share
• The entity earned a profit of CU1,000 in each period,
20X1 and 20X2
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Example
share issue continued
• What is the basic EPS for the entity in 20X1?
Profit:
CU1,000
WANOS :
100
Basic EPS:
CU10 (CU1,000 ÷ 100 shares)
• What is the basic EPS for the entity in 20X2?
Profit:
CU1,000
WANOS :
200
Basic EPS:
CU5 (CU1,000 ÷ 200 shares)
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
40
Example—share issue continued
41
• In the 20X2 financial statements, what EPS figures will
be disclosed for each 20X2 and 20X1?
20X2: CU5
20X1: CU10
Shares were issued and the issue led to a
corresponding change in the entity’s resources.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
42
• The IFRS for SMEs does not specify requirements
for Earnings per Share.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
43
• The calculation of EPS includes (as the numerator) a
profit or loss figure. This amount is determined in
accordance with IFRSs and, therefore, the judgements
and estimates made in applying other IFRS will affect
EPS.
• Judgements must also be made relating to the extent of
EPS-related explanations provided in management
commentary.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
International Financial Reporting Standards
IAS 20
Accounting for Government Grants
and Disclosure of Government
Assistance
The views expressed in this presentation are those of the
presenter, not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Requirements
45
• IAS 20 specifies the accounting for government grants
and the disclosure of government assistance from
which the entity has directly benefited.
• Government grants are transfers of resources to an
entity in return for compliance with specified conditions.
– they include reductions in liabilities to the
government and the benefit of a government loan at
below market rate of interest.
• Government assistance is a benefit available to entities
that satisfy qualifying criteria.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Recognition
46
• Government grants are recognised when there is
reasonable assurance that the entity will comply with
any specified conditions and that the grants will be
received.
• Non-monetary grants (eg taxi licence, fishing quota) are
either recognised at fair value or both the asset and the
grant are recognised at a nominal amount.
• Receipt of a grant is not always conclusive evidence
that conditions will be fulfilled.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Recognition continued
47
• Government grants are recognised in profit or loss in
the same periods as the costs they are intended to
compensate for, ie they are not recognised directly in
equity.
• If there are no future related costs, a grant is recognised
in profit or loss when receivable.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Recognition continued
48
• Government grants that relate to assets are initially
recognised in the statement of financial position as
deferred income or as a deduction from the related
assets.
• The grant is then recognised in profit or loss over the
life of the asset, by reducing deferred income over that
period, or by way of reduced depreciation.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs
49
• The main differences in the recognition and
measurement requirements exist between IAS 20 and
Section 24 Government Grants the IFRS for SMEs
include:
• IAS 20 contains numerous options for accounting for
government grants. The IFRS for SMEs contains only
one option
• IAS 20 requires that grants should not be recognised
until there is reasonable assurance that the entity will
comply with the conditions and the grants will be
received. Under Section 24, a grant is not recognised
until the conditions are actually satisfied.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Comparison to the IFRS for SMEs continued
50
• IAS 20 requires government grants to be recognised as
income over the periods necessary to match them with
the related costs for which they are intended to
compensate, on a systematic basis.
• Section 24 does not allow an entity to match the grant
with the expenses for which it is intended to compensate
or the cost of the asset that it is used to finance.
• Section 24 does not prescribe any presentation
requirements relating to government grants.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Judgements and estimates
51
• The main area of judgement is whether the entity will
comply with conditions attached to a government grant.
• Measuring the fair value of some non-monetary grants
received (if accounting policy is to recognise at fair
value not nominal amount).
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Questions or comments?
Expressions of individual
views
by members of the IASB and
its staff are encouraged. The
views expressed in this
presentation
are those of the presenter.
Official positions of the IASB
on accounting matters are
determined only after
extensive due process and
deliberation.
52
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
52
53
The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at
1 January 2012 with an effective date after 1 January
2012 but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and
the publishers do not accept responsibility for loss
caused to any person who acts or refrains from acting
in reliance on the material in this PowerPoint
presentation, whether such loss is caused by
negligence or otherwise.
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org