Transcript The IFRS for SMEs

EGE CPA & AUDIT CO.
Who we are?
 Established by Halil Kaya Özer in 2004.
 Provides tax, audit, and consultancy services to
leading firms in Turkey.
 Holds
- Certified Public Accountancy license from Ministry
of Finance,
- Independent Audit license from Capital Market
Board,
- Audit of Energy Companies license from Energy
Market Regulatory Authority.
What we do?
 prepare independent audit report for companies
which are listed on the Istanbul Stock Exchange and
other SMEs
 auditing and evaluating of financial statements and
financial data of companies which need to be publicly
disclosed or submitted to Capital Market Board
 with “accuracy and reflect the truth fairly” policy.
Why do we need IFRS?
 In order to have common standards for
financial reporting in the globalised world
What benefits SMEs can get from IFRS?
 Make it easier to find loans as banks always want
to evaluate financial strenght of the borrowers
 If required in some cases adaptation to full IFRS
will be easier
How to present Financial
Statements?
 Fair
 Full
- Statement of Financial Position
- Statement of Comprehensive Income
- Statement of Changes in Equity
- Statement of Cash Flows
- Notes
 Comparative (i.e. at least one year comparative
financial statements and note data)
How to present Financial
Statements?
 Fair presentation is the faithful representation of
the effects of transactions, other events and
conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and
expenses.
 Comparative presentation means same
presentation and classification each year unless an
important change in the nature of the entity’s
operations occurs
Qualitative Characteristics
of Financial Statements
 Understandability
 Relevance
 Reliability
 Comparability
 Timeliness
 Materiality
 Balance between benefit & cost
What to cover in the notes?
 Basis of preparation
 Summarize the important accounting policies
 Provide information about judgements and items in
financial statements
What are Financial Instruments?
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Cash
Demand and fixed deposits
Commercial paper and bills
Accounts and notes receivable and payable
Debt instruments where returns to the holder are
fixed or referenced to an observable rate
Investments in non-convertible and non-puttable
ordinary and preference shares
Most commitments to receive a loan
Financial Instruments (To do list)
 Amortised cost – apply effective interest method
 Test all amortised cost instruments for impairment
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Attention: Investments in convertible and puttable
ordinary and preference shares, options, forwards, swaps,
and other derivatives are at fair value through profit or
loss!
Inventories
 FIFO or weighted average
 measured at the lower of:
◦ cost; and
◦ estimated selling price less costs to complete
and sell
 Apply impairment (i.e. write down to estimated
selling price less costs to complete and sell)
Inventories
Inventories are assets which are:
◦ finished goods;
◦ in the process of production for sale;
◦ raw materials.
Intangibles
An intangible asset is an asset which is
identifiable, non-monetary with no physical
substance.
Must be separable from the entity and
sold, rented, exchanged, transferred or
licensed either individually or together with
a related asset or liability.
Intangibles
 Internally generated intangible assets must not be
recognised
 Intangibles that are purchased separately, acquired in
a business combination, by grant, and by exchange of
other assets must be amortised
 If not possible to estimate useful life, then use 10 years
Provisions & Contingencies
 Provision: An obligation arising from a past event and amount
can be estimated reliably (uncertain timing or amount)
 Disclose contingent liability; A contingent liability is either a
possible but uncertain obligation or a present obligation that is
not recognised because it fails the recognition criteria
 Measure at best estimate
◦ If large population – calculate weighted average
◦ If single obligation – use adjusted most likely outcome
 Using estimation is critical part of presenting financial
statements and does not harm their reliability.
Liabilities & Equity
 What is the criteria to classify an instrument as
liability or equity?
◦ A liability is an instrument which the
issuer could be required to pay cash
◦ Equity is an instrument which is
puttable only on liquidation or death or
retirement of owner
Borrowing Costs
 All charged to expense when incurred
 No capitalisation
Impairment of Assets
 Inventories - write down selling price less costs
to complete and sell, if below carrying amount
 Other assets - write down to recoverable amount,
if below carrying amount
 Recoverable amount is the greater of fair value
less costs to sell and value in use
Employee Benefits
 If entity is able without undue cost or effort use
projected unit credit calculation for defined benefit
plans. Otherwise:
◦ Ignore estimated future salary increases
◦ Ignore future service of current
employees
◦ Ignore possible future in-service
mortality
 Actuarial gains / losses may be recognised in P&L
Income Tax
 Current tax: Amount of income tax
payable/refundable based on taxable profit/loss
for the current period or past periods
 Deferred tax: Tax payable/recoverable in the
future period as a result of past transactions
 Tax basis: Measurement of asset, liability, or
equity under the tax law
 Temporary difference: Difference in carrying
amount of asset, liability, or other item in the
financial statements and its tax basis
Income Tax
 If the tax basis of an asset or liability is different from
its carrying amount then recognise deferred taxes
 If recovery or settlement of carrying amount is not
expected to affect taxable profit do not recognise
deferred tax on an asset or liability
 Recognise deferred tax assets in full, with valuation
allowance
◦ Criterion is that realisation is probable (i.e. more
likely than not)
Events after End of Reporting Period
 In case of events after the balance sheet date that give
further evidence of conditions that existed at the end
of the reporting period the financial statements must
be adjusted
 For events or conditions that arose after the end of the
reporting period financial statements do not need to
be adjusted
 Dividends declared after end of period are not a
liability!
Related Party Disclosures
 Government departments and agencies are not
related parties simply by virtue of their normal
dealings with an entity
 Disclosure of key management personnel
compensation only as one number in total
 Fewer disclosures about transactions
 Disclose related party transactions
- Significant balances and commitments
- Terms & Conditions
Revenue
 Revenue from what?
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Sale of goods
Rendering of services
Construction contracts
Use of an entity’s assets by others:
 interest,
 royalties,
 dividends received
Revenue
 Principle questions to ask?
- What?
- How?
- When?
Revenue
 What is revenue?
Gross (not gains) inflow of cash or other assets
during the period from ordinary activities of an entity
resulting increases in equity
Revenue
 How to measure revenue?
“Fair value of consideration received or receivable
is the principle” means net of trade discounts and does
not include amounts collected on behalf of others,
such as value added tax or amounts collected while
acting as an agent rather than principal seller (the
commission is revenue though!)
Revenue
 When to recognise revenue?
Recognise it when it is probable that any
future cash associated with the item of revenue
will flow to the entity, and the amount of
revenue can be measured with reliability.
Revenue Recognition
◦ Goods: Revenue recognised when risks and
rewards are transferred and the seller has
no continuing involvement
◦ Services and construction contracts:
Revenue recognised by percentage of
completion
 Principle for measurement is fair value of
consideration received or receivable
Goodwill
 On acquisition date goodwill is allocated to each
cash-generating unit that is expected to benefit
from the synergies of the business combination
 If goodwill cannot be allocated to cashgenerating units on a non-arbitrary basis, then
for the purposes of testing goodwill for
impairment, the entity determines the
recoverable amount of either the acquired entity
in its entirety or the entire group of entities,
excluding any entities that have not been
integrated.
THANKS !