IFRS Pocket Guide

IFRS pocket guide
2016
inform.pwc.com
Introduction
1 Introduction
This pocket guide provides a summary of the recognition and measurement
requirements of International Financial Reporting Standards (IFRS) issued up to
August 2016.
The information in this guide is arranged in five sections:
Accounting principles.
Balance sheet and related notes.
Consolidated and separate financial statements.
Other subjects.
Industry-specific topics.
More detailed guidance and information on these topics can be found on
inform.pwc.com in the Accounting topic home pages and in the IFRS Manual of
Accounting. A list of PwCs key IFRS publications are provided on the inside
frontcover.
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Contents
Contents
1
Introduction 1
Accounting rules and principles
Accounting principles and applicability of IFRS
First-time adoption of IFRS IFRS 1
Presentation of financial statements IAS 1
Accounting policies, accounting estimates and errors IAS 8
12
Fair value IFRS 13
14
7.1 Financial instruments Introduction, objectives and scope

IAS32, IAS 39, IFRS 7 and IFRS 9
14
7.2
Nature and characteristics of financial instruments
15
7.3
Embedded derivatives in host contracts
16
7.4
Classification of financial instruments
16
7.5
Financial liabilities and equity
17
7.6
Recognition and derecognition
18
7.7
Measurement of financial assets and liabilities
19
7.8
Hedge accounting under IAS 39
21
7.9
Presentation and disclosure
22
7.10 IFRS 9
22
Foreign currencies and hyper-inflationary economies IAS 21 and IAS 29
25
Insurance contracts IFRS 4
26
10 Revenue and construction contracts IAS 18, IFRS 15, IAS 11

and IAS 20
27
11
Segment reporting IFRS 8
36
12
Employee benefits IAS 19
37
13
Share-based payment IFRS 2
40
14
Taxation IAS 12
42
15
Earnings per share IAS 33
44
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Contents
Balance sheet and related notes
45
16
Intangible assets IAS 38
45
17
Property, plant and equipment IAS 16
46
18
Investment property IAS 40
47
19
Impairment of assets IAS 36
48
20
Lease accounting IAS 17 and IFRS 16
49
21
Inventories IAS 2
51
22
Provisions and contingencies IAS 37
52
23
Events after the reporting period and financial commitments IAS 10
55
24
Share capital and reserves
55
Consolidated and separate financial statements
57
25
Consolidated financial statements IFRS 10 and IFRS 12
57
26
Separate financial statements IAS 27
58
27
Business combinations IFRS 3
58
28 Disposal of subsidiaries, businesses and non-current

assets IFRS 5
61
29
Equity accounting IAS 28
63
30
Joint arrangements IFRS 11
64
Other subjects
65
31
Related-party disclosures IAS 24
65
32
Cash flow statements IAS 7
66
33
Interim financial reporting IAS 34
67
34
Service concession arrangements SIC 29 and IFRIC 12
69
Industry-specific topics
70
35
Agriculture IAS 41
70
36
Extractive industries IFRS 6 (extractive industries)
71
Index by standard and interpretation
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2 Accounting principles and applicability of IFRS
The IASB has the authority to set IFRS and to approve interpretations of
thosestandards.
IFRSs are intended to be applied by profit-orientated entities. These entities
financial statements give information about performance, position and cash flow
that is useful to a range of users in making financial decisions. These users
include shareholders, creditors, employees and the general public. A complete set
of financial statements includes a:
Balance sheet.
Statement of comprehensive income.
Cash flow statement.
Statement of changes in equity.
Description of accounting policies.
Notes to the financial statements.
The concepts underlying accounting practices under IFRS are set out in the IASBs
Conceptual Framework for Financial Reporting issued in September 2010 (the
Framework). It supersedes the Framework for the preparation and presentation of
financial statements (the Framework (1989)). The Conceptual Framework covers:
Objectives of general purpose financial reporting, including information about
a reporting entitys economic resources and claims.
The reporting entity (in the process of being updated).
Qualitative characteristics of useful financial information of relevance and
faithful representation and the enhancing qualitative characteristics of
comparability, verifiability, timeliness and understandability.
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The remaining text of the 1989 Framework (in the process of being updated),
which includes:
Underlying assumption, the going concern convention.
Elements of financial statements, including financial position (assets,
liabilities and equity) and performance (income and expenses).
Recognition of elements, including probability of future benefit, reliability
of measurement and recognition of assets, liabilities, income and expenses.
Measurement of elements, including a discussion on historical cost and
itsalternatives.
Concepts of capital and its maintenance.
The IASB has issued an exposure draft on the areas of the Conceptual Framework
that are being updated, including: elements of financial statements, recognition
and derecognition, the distinction between equity and liabilities, measurement,
presentation and disclosure, and fundamental concepts (including prudence,
business model, unit of account, going concern and capital maintenance). The
final revised Framework is aimed to be published in 2017.
3 First-time adoption of IFRS IFRS 1

An entity moving from national GAAP to IFRS should apply the requirements of
IFRS 1. It applies to an entitys first IFRS financial statements and the interim
reports presented under IAS 34 that are part of that period. It also applies to
entities under repeated first-time application. The basic requirement is for full
retrospective application of all IFRSs effective at the reporting date. However,
there are a number of optional exemptions and mandatory exceptions to the
requirement for retrospective application.
The exemptions cover standards for which the IASB considers that retrospective
application could prove too difficult or could result in a cost likely to exceed any
benefits to users. The exemptions are optional. Any, all or none of the exemptions
may be applied.
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The optional exemptions relate to:

business combinations;
deemed cost;
cumulative translation differences;
compound financial instruments;
assets and liabilities of subsidiaries, associates and joint ventures;
designation of previously recognised financial instruments;
share-based payment transactions;
insurance contracts;
fair value measurement of financial assets or financial liabilities at initial
recognition;
decommissioning liabilities included in the cost of property, plant and
equipment;
leases;
fi nancial assets or intangible assets accounted for in accordance with IFRIC 12;
borrowing costs;
investments in subsidiaries, joint ventures and associates;
transfers of assets from customers;
extinguishing financial liabilities with equity instruments;
severe hyperinflation;
joint arrangements; and
stripping costs in the production phase of a surface mine.
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The exceptions cover areas in which retrospective application of the IFRS

requirements is considered inappropriate. The following exceptions are
mandatory, not optional:
Estimates;
Hedge accounting;
Derecognition of financial assets and liabilities;
Non-controlling interests;
Classification and measurement of financial assets (IFRS 9);
Embedded derivatives (IAS 39/IFRS 9); and
Government loans.
Certain reconciliations from previous GAAP to IFRS are also required.
4 Presentation of financial statements IAS 1

The objective of financial statements is to provide information that is useful in
making economic decisions. IAS 1s objective is to ensure comparability of
presentation of that information with the entitys financial statements of previous
periods and with the financial statements of other entities.
Financial statements are prepared on a going concern basis unless management
intends either to liquidate the entity or to cease trading, or has no realistic
alternative but to do so. Management prepares its financial statements, except for
cash flow information, under the accrual basis of accounting.
There is no prescribed format for the financial statements but there are minimum
presentation and disclosure requirements. The implementation guidance to IAS 1
contains illustrative examples of acceptable formats.
Financial statements disclose corresponding information for the preceding period
(comparatives), unless a standard or interpretation permits or requires otherwise.
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Statement of financial position (balance sheet)

The statement of financial position presents an entitys financial position at a
specific point in time. Subject to meeting certain minimum presentation and
disclosure requirements, management uses its judgement regarding the form of
presentation, such as whether to use a vertical or a horizontal format, which
sub-classifications to present and which information to disclose on the face of the
statement or in the notes.
The following items, as a minimum, are presented on the face of the balance sheet:
Assets property, plant and equipment; investment property; intangible
assets; financial assets; investments accounted for using the equity method;
biological assets; deferred tax assets; current tax assets; inventories; trade and
other receivables; and cash and cash equivalents.
Equity issued capital and reserves attributable to the parents owners; and
non-controlling interest.
Liabilities deferred tax liabilities; current tax liabilities; financial liabilities;
provisions; and trade and other payables.
Assets and liabilities held for sale the total of assets classified as held for sale
and assets included in disposal groups classified as held for sale; and liabilities
included in disposal groups classified as held for sale in accordance with IFRS 5.
Current and non-current assets and current and non-current liabilities are
presented as separate classifications in the statement, unless presentation based
on liquidity provides information that is reliable and more relevant.
Statement of comprehensive income
The statement of comprehensive income presents an entitys performance over a
specific period. An entity presents profit or loss, total other comprehensive
income and comprehensive income for the period. [IAS 1 para 81A].
Entities have a choice of presenting the statement of comprehensive in a single
statement or as two statements. The statement of comprehensive income under
the single-statement approach includes all items of income and expense and
includes each component of other comprehensive income classified by nature.
Under the two statement approach, all components of profit or loss are presented
in an income statement. The income statement is followed immediately by a
statement of comprehensive income, which begins with the total profit or loss for
the period and displays all components of other comprehensive income.
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Items to be presented in statement of comprehensive income

The following items of profit and loss are, as a minimum, presented in the
statement of comprehensive income:
Revenue, Presenting separately interest revenue calculated using the effective
interest method.*
Gains and losses arising from the derecognition of financial assets measured at
amortised cost.
Finance costs.
Impairment losses (including reversals of impairment losses or impairment
gains) determined in accordance with Section 5.5 of IFRS 9.
Share of the profit and loss of associates and joint ventures accounted for using
the equity method.
If a financial asset is reclassified out of the amortised cost measurement category
so that it is measured at fair value through profit or loss, any gain arising from a
difference between the previous amortised cost of the financial asset and its fair
value at the reclassification date (as defined in IFRS 9).
If a financial asset is reclassified out of the fair value through other comprehensive
income measurement category so that it is measured at fair value through profit
or loss, any cumulative gain or loss previously recognised in other comprehensive
income that is reclassified to profit or loss.
Tax expense
A single amount for the total of discontinued operations. This comprises the total of:
the post-tax profit or loss of discontinued operations; and
the post-tax gain or loss recognised on the measurement to fair value less
costs to sell or on the disposal of the assets or disposal group(s) constituting
the discontinued operation.
[IAS 1 para 82].
* The text in italics is added by IFRS 9. IFRS 9 is effective for accounting periods beginning on or
after 1 January 2018.
Additional line items or sub-headings are presented in this statement when such
presentation is relevant to an understanding of the entitys financial performance.
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Material items
The nature and amount of items of income and expense are disclosed separately
where they are material. Disclosure may be in the statement or in the notes. Such
income/expenses might include restructuring costs; write-downs of inventories
or property, plant and equipment; litigation settlements; and gains or losses on
disposals of non-current assets.
Other comprehensive income
An entity shall present items of other comprehensive income grouped into those
that will be reclassified subsequently to profit or loss and those that will not be
reclassified. An entity shall disclose reclassification adjustments relating to
components of other comprehensive income. The IAS 1 amendments clarify that
the entitys share of items of comprehensive income of associates and joint
ventures is presented separately, analysed into those items that will not be
reclassified subsequently to profit or loss and those that will be so reclassified
when specific conditions are met.
An entity presents each component of other comprehensive income in the
statement either (i) net of its related tax effects, or (ii) before its related tax
effects, with the aggregate tax effect of these components shown separately.
Statement of changes in equity
The following items are presented in the statement of changes in equity:
Total comprehensive income for the period, showing separately the total
amounts attributable to the parents owners and to non-controlling interest.
For each component of equity, the effects of retrospective application or
retrospective restatement recognised in accordance with IAS 8.
For each component of equity, a reconciliation between the carrying amount at
the beginning and the end of the period, separately disclosing changes
resulting from:
profit or loss;
other comprehensive income; and
transactions with owners in their capacity as owners, showing separately
contributions by and distributions to owners and changes in ownership
interests in subsidiaries that do not result in a loss of control.
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The amounts of dividends recognised as distributions to owners during the

period, and the related amount of dividends per share, shall be disclosed.
Statement of cash flows
Cash flow statements are addressed in a separate summary dealing with the
requirements of IAS 7.
Notes to the financial statements
The notes are an integral part of the financial statements. Notes provide
information additional to the amounts disclosed in the primary statements.
They also include significant accounting policies, critical accounting estimates
and judgements, disclosures on capital and puttable financial instruments
classified as equity.
5 Accounting policies, accounting estimates and errors IAS 8

An entity follows the accounting policies required by IFRS that are relevant to the
particular circumstances of the entity. Sometimes standards offer a policy choice;
there are other situations where no guidance is given by IFRSs. In these
situations, management should select appropriate accounting policies.
Management uses judgement in developing and applying an accounting policy
that results in information that is relevant and reliable. Reliable information
demonstrates the following qualities: faithful representation, substance over
form, neutrality, prudence and completeness. If there is no IFRS standard or
interpretation that is specifically applicable, management considers the
applicability of the requirements in IFRS on similar and related issues, and then
the definitions, recognition criteria and measurement concepts for assets,
liabilities, income and expenses in the Framework. Management can also
consider the most recent pronouncements of other standard-setting bodies, other
accounting literature and accepted industry practices, where these do not conflict
with IFRS.
Accounting policies are applied consistently to similar transactions and events
(unless a standard permits or requires otherwise).
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Changes in accounting policies

Changes in accounting policies made on adoption of a new standard are
accounted for in accordance with the transition provisions (if any) within that
standard. If a change in policy upon initial application of a new standard does not
include specific transition provisions, or it is a voluntary change in policy, it
should be accounted for retrospectively (that is, by restating all comparative
figures presented) unless this is impracticable.
Issues of new/revised standards not yet effective
Standards are normally published in advance of the required implementation
date. In the intervening period, where a new/revised standard that is relevant to
an entity has been issued but is not yet effective, management discloses this fact.
It also provides the known or reasonably estimable information relevant to
assessing the impact that the application of the standard might have on the
entitys financial statements in the period of initial recognition.
Changes in accounting estimates
An entity recognises prospectively changes in accounting estimates by including
the effects in profit or loss in the period that is affected (the period of the change
and future periods), except where the change in estimate gives rise to changes in
assets, liabilities or equity. In this case, it is recognised by adjusting the carrying
amount of the related asset, liability or equity in the period of the change.
Errors
Errors might arise from mistakes (mathematical or application of accounting
policies), oversights or misinterpretation of facts, and fraud.
Errors that are discovered in a subsequent period are prior-period errors.
Material prior-period errors are adjusted retrospectively (that is, by restating
comparative figures) unless this is impracticable (that is, it cannot be done, after
making every reasonable effort to do so).
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6 Fair value IFRS 13

IFRS 13 defines fair value as 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. [IFRS 13 App A]. The key principle is that fair value is the exit
price from the perspective of market participants who hold the asset or owe the
liability at the measurement date. It is based on the perspective of market
participants rather than the entity itself, so fair value is not affected by an entitys
intentions towards the asset, liability or equity item that is being fair valued.
A fair value measurement requires management to determine four things: the
particular asset or liability that is the subject of the measurement (consistent with
its unit of account); the highest and best use for a non-financial asset; the principal
(or most advantageous) market; and the valuation technique. [IFRS 13 para B2].
IFRS 13 addresses how to measure fair value but does not stipulate when fair value
can or should be used.
7.1 Financial instruments Introduction, objectives and scope

IAS32, IAS 39, IFRS 7 and IFRS 9
Accounting for Financial instruments are addressed in four standards:
IFRS 7 which deals with disclosures;
IAS 32 which deals with distinguishing debt from equity and with netting;
IAS 39 which contains requirements for recognition and measurement; and
IFRS 9, Financial instruments (effective date 1 January 2018), which will
ultimately replace IAS 39.
The objective of the four standards is to establish requirements for all aspects of
accounting for financial instruments, including distinguishing debt from equity,
netting, recognition, derecognition, measurement, hedge accounting and disclosure.
The standards scope is broad. The standards cover all types of financial
instrument, including receivables, payables, investments in bonds and shares,
borrowings and derivatives. They also apply to certain contracts to buy or sell
non-financial assets (such as commodities) that can be net-settled in cash or
another financial instrument.
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In addition, requirements for fair value measurement and disclosures are covered
by IFRS 13.
7.2 Nature and characteristics of financial instruments

Financial instruments include a wide range of assets and liabilities, such as trade
debtors, trade creditors, loans, finance lease receivables and derivatives. They are
recognised and measured according to IAS 39/IFRS 9s requirements and are
disclosed in accordance with IFRS 7 and, for fair value disclosures, IFRS 13.
Financial instruments represent contractual rights or obligations to receive or pay
cash or other financial assets. Non-financial items have a more indirect,
non-contractual relationship to future cash flows.
A financial asset is cash; a contractual right to receive cash or another financial
asset; a contractual right to exchange financial assets or liabilities with another
entity under conditions that are potentially favourable; or an equity instrument of
another entity.
A financial liability is a contractual obligation to deliver cash or another financial
asset; or to exchange financial instruments with another entity under conditions
that are potentially unfavourable.
An equity instrument is any contract that evidences a residual interest in the
entitys assets after deducting all of its liabilities. IAS 32 provides guidance for an
issuer on distinguishing between a financial liability and equity.
A derivative is a financial instrument that derives its value from an underlying price
or index; requires little or no initial net investment; and is settled at a future date.
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7.3 Embedded derivatives in host contracts

Some financial instruments and other contracts combine a derivative and a
non-derivative host contract in a single contract. The derivative part of the contract
is referred to as an embedded derivative. Its effect is that some of the contracts
cash flows vary in a similar way to a stand-alone derivative. For example, the principal
amount of a bond may vary with changes in a stock market index. In this case, the
embedded derivative is an equity derivative on the relevant stock market index.
Embedded derivatives that are not closely related to the host contract are
separated and accounted for as stand-alone derivatives (that is, measured at fair
value, with changes in fair value recognised in profit or loss). An embedded
derivative is not closely related if its economic characteristics and risks are
different from those of the rest of the contract. IAS 39 sets out many examples to
help determine when this test is (and is not) met.
Analysing contracts for potential embedded derivatives is one of the more
challenging aspects of IAS 39.
7.4 Classification of financial instruments

The way that financial instruments are classified under IAS 39 drives how they are
subsequently measured and where changes in measurement are accounted for.
Under IAS 39 financial instruments accounting there are four classes of financial
assets: fair value through profit or loss, held to maturity, loans and receivables
andavailable for sale. The factors to take into account when classifying financial
assets include:
Are the cash flows arising from the instrument fixed or determinable? Does the
instrument have a maturity date?
Are the assets held for trading? Does management intend to hold the
instruments to maturity?
Is the instrument a derivative or, does it contain an embedded derivative?
Is the instrument quoted on an active market?
Has management designated the instrument into a particular classification
atinception?
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Financial liabilities are at fair value through profit or loss if they are designated at
initial recognition as such (subject to various conditions), if they are held for
trading or if they are derivatives (except for a derivative that is a financial
guarantee contract or a designated and effective hedging instrument). They are
otherwise classified as other financial liabilities.
Financial assets and liabilities are measured either at fair value or at amortised
cost, depending on their classification. Changes are taken to either the income
statement or to other comprehensive income.
Reclassification of financial assets from one category to another is permitted under
limited circumstances. Various disclosures are required where a reclassification has
been made. Derivatives and assets designated as at fair value through profit or loss
under the fair value option are not eligible for this reclassification.
7.5 Financial liabilities and equity

The classification of a financial instrument by the issuer as either a liability (debt)
or equity can have a significant impact on an entitys gearing (debt-to-equity
ratio) and reported earnings. It could also affect the entitys debt covenants.
The critical feature of a liability is that under the terms of the instrument, the
issuer is or can be required to deliver either cash or another financial asset to the
holder; it cannot avoid this obligation. For example, a debenture under which the
issuer is required to make interest payments and redeem the debenture for cash is
a financial liability.
An instrument is classified as equity when it represents a residual interest in the
issuers assets after deducting all its liabilities; or, put another way, when the
issuer has no obligation under the terms of the instrument to deliver cash or other
financial assets to another entity. Ordinary shares or common stock where all the
payments are at the discretion of the issuer are examples of equity of the issuer.
In addition, the following types of financial instrument are accounted for as
equity, provided they have particular features and meet specific conditions:
Puttable financial instruments (for example, some shares issued by co-operative
entities and some partnership interests).
Instruments or components of instruments that impose on the entity an obligation
to deliver to another party a pro rata share of the net assets of theentity only
on liquidation (for example, some shares issued by limited lifeentities).
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The classification of the financial instrument as either debt or equity is based on

the substance of the contractual arrangement of the instrument rather than its
legal form. This means, for example, that a redeemable preference share, which is
economically the same as a bond, is accounted for in the same way as a bond. The
redeemable preference share is therefore treated as a liability rather than equity,
even though legally it is a share of the issuer.
Other instruments may not be as straightforward. An analysis of the terms of
each instrument in light of the detailed classification requirements is necessary,
particularly as some financial instruments contain both liability and equity
features. Such instruments, for example, bonds that are convertible into a fixed
number of equity shares, are accounted for as separate liability and equity (being
the option to convert if all the criteria for equity are met) components.
The treatment of interest, dividends, losses and gains in the income statement
follows the classification of the related instrument. If a preference share is
classified as a liability, its coupon is shown as interest. However, the discretionary
coupon on an instrument that is treated as equity is shown as a distribution
within equity.
7.6 Recognition and derecognition

Recognition
Recognition for financial assets and financial liabilities tend to be straightforward.
An entity recognises a financial asset or a financial liability at the time it becomes a
party to a contract.
Derecognition
Derecognition is the term used for ceasing to recognise a financial asset or financial
liability on an entitys statement of financial position. These rules are more complex.
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Assets
An entity that holds a financial asset may raise finance using the asset as security
for the finance, or as the primary source of cash flows from which to repay the
finance. The derecognition requirements of IAS 39 determine whether the
transaction is a sale of the financial assets (and therefore the entity ceases to
recognise the assets) or whether finance has been secured on the assets (and the
entity recognises a liability for any proceeds received). This evaluation might be
straightforward. For example, it is clear with little or no analysis that a financial
asset is derecognised in an unconditional transfer of it to an unconsolidated third
party, with no risks and rewards of the asset being retained.
Conversely, derecognition is not allowed where an asset has been transferred, but
substantially all the risks and rewards of the asset have been retained through
the terms of the agreement. However, the analysis may be more complex in other
cases. Securitisation and debt factoring are examples of more complex transactions
where derecognition will need careful consideration.
Liabilities
An entity may only cease to recognise (derecognise) a financial liability when it is
extinguished that is, when the obligation is discharged, cancelled or expired, or
when the debtor is legally released from the liability by law or by the creditor
agreeing to such a release.
7.7 Measurement of financial assets and liabilities

All financial assets and financial liabilities are measured initially at fair value
under IAS 39 (plus transaction costs, for financial assets and liabilities not at fair
value through profit or loss). The fair value of a financial instrument is normally
the transaction price that is, the fair value of the consideration given or
received. However, in some circumstances, the transaction price may not be
indicative of fair value. However, IFRS permits departure from the transaction
price only if fair value is evidenced by a quoted price in an active market for an
identical asset or liability (that is, a Level 1 input) or based on a valuation
technique that uses only data from observable markets.
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The measurement of financial instruments after initial recognition depends on

their initial classification. Loans and receivables and held-to-maturity
investments are measured at amortised cost. The amortised cost of a financial
asset or financial liability is measured using the effective interest method.
Available-for-sale financial assets are measured at fair value, with changes in fair
value recognised in other comprehensive income. For available-for-sale debt
instruments, interest is recognised in income using the effective interest
method. Dividends on available-for-sale equity securities are recognised in profit
or loss as the holder becomes entitled to them.
Derivatives (including separated embedded derivatives) are measured at fair
value. All fair value gains and losses are recognised in profit or loss except where
the derivatives qualify as hedging instruments in cash flow hedges or net
investment hedges.
Financial liabilities are measured at amortised cost using the effective interest
method unless they are classified at fair value through profit or loss. There are
some exceptions such as loan commitments and financial guarantee contracts.
Financial liabilities are measured at amortised cost using the effective interest
method unless they are classified at fair value through profit or loss.
Financial assets and financial liabilities that are designated as hedged items may
require further adjustments under the hedge accounting requirements. See the
hedge Accounting topic home page on inform.pwc.com.
In rare circumstances, unquoted equity instruments whose fair values cannot be
measured reliably, or derivatives linked to and that must be settled by the
delivery of such unquoted equity instruments that cannot be measured reliably,
are measured at cost.
All financial assets are subject to review for impairment, except those measured
at fair value through profit or loss. Where there is objective evidence that such a
financial asset may be impaired, the impairment loss is calculated and recognised
in profit or loss.
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7.8 Hedge accounting under IAS 39

Hedging is the process of using a financial instrument (usually a derivative) to
mitigate all or some of the risk of a hedged item. Hedge accounting changes the
timing of recognition of gains and losses on either the hedged item or the hedging
instrument so that both are recognised in profit or loss in the same accounting
period in order to record the economic substance of the combination of the
hedged item and instrument.
To qualify for hedge accounting, an entity must (a) formally designate and
document a hedge relationship between a qualifying hedging instrument and a
qualifying hedged item at the inception of the hedge; and (b) both at inception
and on an ongoing basis, demonstrate that the hedge is highly effective.
There are three types of hedge relationships:
Fair value hedge a hedge of the exposure to changes in the fair value of a
recognised asset or liability, or a firm commitment.
Cash flow hedge a hedge of the exposure to variability in cash flows of a recognised
asset or liability, a firm commitment or a highly probable forecast transaction.
Net investment hedge a hedge of the foreign currency risk on a net
investment in a foreign operation.
For a fair value hedge, the hedged item is adjusted for the gain or loss attributable
to the hedged risk. That element is included in the income statement where it will
offset the gain or loss on the hedging instrument.
For an effective cash flow hedge, gains and losses on the hedging instrument are
initially included in other comprehensive income. The amount included in other
comprehensive income is the lower of the fair value change of the hedging
instrument and that of the hedged item. Where the hedging instrument has a fair
value change greater than the hedged item, the excess is recorded within the
profit or loss as ineffectiveness. Gains or losses deferred in other comprehensive
income are reclassified to profit or loss when the hedged item affects the income
statement. If the hedged item is the forecast acquisition of a non-financial asset or
liability, the entity may choose an accounting policy of adjusting the carrying
amount of the non-financial asset or liability for the hedging gain or loss at initial
recognition, or leaving the hedging gains or losses in equity and reclassifying
them to profit and loss when the hedged item affect profit or loss.
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Hedges of a net investment in a foreign operation are accounted for similarly to

cash flow hedges.
7.9 Presentation and disclosure

There have been significant developments in risk management concepts and
practices in recent years. New techniques have evolved for measuring and
managing exposures to risks arising from financial instruments. This, coupled
with the significant volatility experienced in the financial markets, has increased
the need for more relevant information and greater transparency about an
entitys exposures arising from financial instruments and how those risks are
managed. Financial statement users and other investors need such information to
make more informed judgements about risks that entities run from the use of
financial instruments and their associated returns.
IFRS 7 sets out disclosure requirements that are intended to enable users to
evaluate the significance of financial instruments for an entitys financial position
and performance, and to understand the nature and extent of risks arising from
those financial instruments to which the entity is exposed. These risks include
credit risk, liquidity risk and market risk. IFRS 7 and going forward IFRS 13
require disclosure of a three-level hierarchy for fair value measurement and
requires some specific quantitative disclosures for financial instruments at the
lowest level in the hierarchy.
The disclosure requirements do not just apply to banks and financial institutions.
All entities that have financial instruments are affected even simple instruments
such as borrowings, accounts payable and receivable, cash and investments.
7.10 IFRS 9
The publication of IFRS 9 in July 2014 is the culmination of the IASBs efforts to replace
IAS 39. IFRS 9 was released in phases from 2009 to 2014. The final standard was issued
in July 2014, with a proposed mandatory effective date of periods beginning on or after
1 January 2018. IFRS 9 has not yet been endorsed for use in the EU, but endorsement is
expected by the end of 2016. Early application of IFRS 9 will be permitted. The Board
also amended the transitional provisions to provide relief from restating comparative
information and introduced new disclosures to help users of financial statements
understand the effect of moving to the IFRS 9 classification and measurement model.
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Classification and measurement

IFRS 9 replaces the multiple classification and measurement models for financial
assets in IAS 39 with a single model that has three classification categories:
amortised cost, fair value through OCI and fair value through profit and loss.
Classification under IFRS 9 is driven by the entitys business model for managing
the financial assets and whether the contractual characteristics of the financial
assets represent solely payments of principal and interest. However, at initial
recognition an entity may irrevocably designate a financial asset as measured at
fair value through profit and loss if doing so eliminates or significantly reduces an
accounting mismatch.
The new standard removes the requirement to separate embedded derivatives from
financial asset hosts. It requires a hybrid contract to be classified in its entirety at
either amortised cost or fair value if the contractual cash flows do not represent
solely payments of principal and interest. IFRS 9 prohibits reclassifications except
in rare circumstances when the entitys business model changes. There is specific
guidance for contractually linked instruments that leverage credit risk, which is
often the case with investment tranches in a securitisation.
IFRS 9s classification principles indicate that all equity investments should be
measured at fair value through profit and loss. However, an entity has the ability
to make an irrevocable election, on an instrument-by-instrument basis, to present
changes in fair value in other comprehensive income (OCI) rather than profit or
loss, as long as the instrument is not held for trading. IFRS 9 removes the cost
exemption for unquoted equities and derivatives on unquoted equities, but
provides guidance on when cost may be an appropriate estimate of fair value.
The classification and measurement of financial liabilities under IFRS 9 remains
the same as in IAS 39 except where an entity has chosen to measure a financial
liability at fair value through profit or loss. For such liabilities, changes in fair
value related to changes in own credit risk are presented separately in OCI.
Amounts in OCI relating to own credit are not recycled to the income statement
even when the liability is derecognised and the amounts are realised. However,
the standard does allow transfers within equity. Entities are still required to
separate derivatives embedded in financial liabilities where they are not closely
related to the host contract.
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Impairment
The impairment rules of IFRS 9 introduce a new, forward looking, expected
credit loss (ECL) impairment model which will generally result in earlier
recognition of losses compared to IAS 39. These changes are likely to have a
significant impact on entities that have significant financial assets, in particular
financial institutions.
The new impairment model introduces a three stage approach. Stage 1 includes
financial instruments that have not had a significant increase in credit risk since
initial recognition or that have low credit risk at the reporting date. For these
assets, 12-month expected credit losses (that is, expected losses arising from the
risk of default in the next 12 months) are recognised and interest revenue is
calculated on the gross carrying amount of the asset (that is, without deduction
for credit allowance). Stage 2 includes financial instruments that have had a
significant increase in credit risk since initial recognition (unless they have low
credit risk at the reporting date) but are not credit-impaired. For these assets,
lifetime ECL (that is, expected losses arising from the risk of default over the life
of the financial instrument) are recognised, and interest revenue is still
calculated on the gross carrying amount of the asset. Stage 3 consists of financial
assets that are credit-impaired, which is when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset have
occurred. For these assets, lifetime ECL are also recognised, but interest revenue
is calculated on the net carrying amount (that is, net of the ECL allowance).
In many cases, application of the new requirements will require significant judgement
in particular when assessing whether there has been a significant increase in credit
risk (triggering a move from stage 1 to stage 2 and a consequential increase from
12month ECL to lifetime ECL) and in estimating ECL including the effect of forward
looking information. IFRS 9 also introduces significant new disclosure requirements.
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Hedging
The hedging rules of IFRS 9 better aligns hedge accounting with managements
risk management strategies. Also, some of the prohibitions and rules in IAS 39
are removed or changed, making hedge accounting easier or less costly to achieve
for many hedges. For instance, IAS 39s 80-125% bright line test is replaced with
a requirement for there to be an economic relationship between the hedged item
and hedging instrument and no imbalance between their weighting that would
create ineffectiveness. Risk components can be designated for non-financial
hedged items provided the risk component is separately identifiable and reliably
measurable and there will be less income statement volatility for entities using
options or forwards for hedging. Both of these changes will likely result in more
hedges qualifying for hedge accounting than under IAS 39. See chapter 46 of the
IFRS Manual of Accounting for further details.
IFRS 9 provides an accounting policy choice: entities can either continue to apply
the hedge accounting requirements of IAS 39 until the macro hedging project is
finalised, or they can apply IFRS 9 (with the scope exception only for fair value
macro hedges of interest rate risk).
This accounting policy choice will apply to all hedge accounting and cannot be
made on a hedge-by-hedge basis.
8F
oreign currencies and hyper-inflationary economies
IAS 21 and IAS 29
Many entities do business with overseas suppliers or customers, or have overseas
operations. This gives rise to two main accounting issues:
Some transactions (for example, those with overseas suppliers or customers) may
be denominated in foreign currencies. These transactions are expressed in the
entitys own currency (functional currency) for financial reporting purposes.
A parent entity may have foreign operations such as overseas subsidiaries, branches
or associates. The functional currency of these foreign operations may be different
to the parent entitys functional currency and therefore the accounting records may
be maintained in different currencies. Because it is not possible to combine
transactions measured in different currencies, the foreign operations results and
financial position are translated into a single currency, namely that in which the
groups consolidated financial statements are reported (presentation currency).
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The methods required for each of the above circumstances are summarisedbelow.
Expressing foreign currency transactions in the entitys functional currency
A foreign currency transaction is expressed in an entitys functional currency using the
exchange rate at the transaction date. Foreign currency balances representing cash or
amounts to be received or paid in cash (monetary items) are retranslated at the end of
the reporting period using the exchange rate on that date. Exchange differences on such
monetary items are recognised as income or expense for the period. Non-monetary
balances that are not re-measured at fair value and are denominated in a foreign
currency are expressed in the functional currency using the exchange rate at the
transaction date. Where a non-monetary item is re-measured at fair value in the financial
statements, the exchange rate at the date when fair value was determined is used.
Translating functional currency financial statements into a presentation currency
Assets and liabilities are translated from the functional currency to the
presentation currency at the closing rate at the end of the reporting period. The
income statement is translated at exchange rates at the dates of the transactions
or at the average rate if that approximates the actual rates. All resulting exchange
differences are recognised in other comprehensive income.
The financial statements of a foreign operation that has the currency of a
hyper-inflationary economy as its functional currency are first restated in
accordance with IAS 29. All components are then translated to the presentation
currency at the closing rate at the end of the reporting period.
9 Insurance contracts IFRS 4

Insurance contracts are contracts where an entity accepts significant insurance
risk from another party (the policyholder) by agreeing to compensate the
policyholder if the insured event adversely affects the policyholder. The risk
transferred in the contract must be insurance risk, which is any risk except for
financial risk.
IFRS 4 applies to all issuers of insurance contracts whether or not the entity is
legally an insurance company. It does not apply to accounting for insurance
contracts by policyholders.
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IFRS 4 is an interim standard pending completion of Phase II of the IASBs project

on insurance contracts. It allows entities to continue with their existing
accounting policies for insurance contracts if those policies meet certain
minimum criteria. One of the minimum criteria is that the amount of the
insurance liability is subject to a liability adequacy test. This test considers
current estimates of all contractual and related cash flows. If the liability
adequacy test identifies that the insurance liability is inadequate, the entire
deficiency is recognised in the income statement.
Accounting policies modelled on IAS 37 are appropriate in cases where the issuer
is not an insurance company and where there is no specific local GAAP for
insurance contracts (or the local GAAP is only directed at insurance companies).
Disclosure is particularly important for information relating to insurance contracts,
as entities can continue to use local GAAP accounting policies for measurement.
IFRS 4 has two main principles for disclosure. Entities should disclose:
Information that identifies and explains the amounts in its financial statements
arising from insurance contracts.
Information that enables users of its financial statements to evaluate the
nature and extent of risks arising from insurance contracts.
10 Revenue and construction contracts IAS 18, IFRS 15, IAS 11

and IAS 20
Revenue is measured at the fair value of the consideration received or receivable.
When the substance of a single transaction indicates that it includes separately
identifiable components, revenue is allocated to these components generally by
reference to their fair values. It is recognised for each component separately by
applying the recognition criteria below. For example, when a product is sold with
a subsequent service, revenue is allocated initially to the product component and
the service component; it is recognised separately thereafter when the criteria for
revenue recognition are met for each component.
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Revenue IAS 18
Revenue arising from the sale of goods is recognised when an entity transfers the
significant risks and rewards of ownership and gives up managerial involvement
usually associated with ownership or control, if it is probable that economic
benefits will flow to the entity and the amount of revenue and costs can be
measured reliably.
Revenue from the rendering of services is recognised when the outcome of the
transaction can be estimated reliably. This is done by reference to the stage of
completion of the transaction at the balance sheet date, using requirements
similar to those for construction contracts. The outcome of a transaction can be
estimated reliably when: the amount of revenue can be measured reliably; it is
probable that economic benefits will flow to the entity; the stage of completion
can be measured reliably; and the costs incurred and costs to complete can be
reliably measured.
Examples of transactions where the entity retains significant risks and rewards of
ownership and revenue is not recognised are when:
the entity retains an obligation for unsatisfactory performance not covered by
normal warranty provisions;
the buyer has the power to rescind the purchase for a reason specified in the
sales contract and the entity is uncertain about the probability of return; and
when the goods are shipped subject to installation and that installation is a
significant part of the contract.
Interest income is recognised using the effective interest rate method. Royalties
are recognised on an accruals basis in accordance with the substance of the
relevant agreement. Dividends are recognised when the shareholders right to
receive payment is established.
IFRIC 13 clarifies the accounting for award credits granted to customers when
they purchase goods or services, for example under frequent flyer or supermarket
loyalty schemes. The fair value of the consideration received or receivable in
respect of the initial sale is allocated between the award credits and the other
components of the sale.
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IFRIC 18 clarifies the accounting for arrangements where an item of property,

plant and equipment is transferred by a customer in return for connection to a
network and/or ongoing access to goods or services. IFRIC 18 will be most
relevant to the utility industry, but it may also apply to other transactions, such as
when a customer transfers ownership of property, plant and equipment as part of
an outsourcing agreement.
Revenue IFRS 15
In May 2014, the IASB and FASB issued their converged standard on revenue
recognition IFRS 15 and ASC 606. The standard contains principles that an
entity will apply to determine the measurement of revenue and timing of when it
is recognised. The underlying principle is that an entity will recognise revenue to
depict the transfer of goods or services to customers at an amount that the entity
expects to be entitled to in exchange for those goods or services. The standard
could significantly change how many entities recognise revenue, especially those
that currently apply industry-specific guidance. The standard will also result in a
significant increase in the volume of disclosures related to revenue recognition.
Under IFRS, revenue is recognised based on the satisfaction of performance
obligations. In applying IFRS, entities would follow this five-step process:
1. Identify the contract with a customer.
2. Identify the separate performance obligations in the contract.
3. Determine the transaction price.
4. A llocate the transaction price to the separate performance obligations
5. Recognise revenue when (or as) each performance obligation is satisfied.
1. Identify the contract with a customer
The model starts with identifying the contract with the customer and whether an
entity should combine, for accounting purposes, two or more contracts, to
properly reflect the economics of the underlying transaction. An entity will need
to conclude that it is probable, at the inception of the contract, that the entity
will collect the consideration to which it will ultimately be entitled in exchange
for the goods or services that are transferred to the customer in order for a
contract to be in the scope of the revenue standard.
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The term probable has a different meaning under IFRS (where it means more
likely than not that is, greater than 50% likelihood) and US GAAP (where it is
generally interpreted as 75-80% likelihood). This could result in a difference in
the accounting for a contract if there is a likelihood of non-payment at inception.
However, the boards decided that there would not be a significant practical effect
of the different meaning of the same term because the population of transactions
that would fail to meet the criterion in paragraph 9(e) of IFRS 15 would be small.
Two or more contracts (including contracts with related parties of the customers)
should be combined if the contracts are entered into at or near the same time and
the contracts are negotiated with a single commercial objective, the amount of
consideration in one contract depends on the other contract, or the goods or
services in the contracts are interrelated. A contract modification is treated as a
separate contract only if it results in the addition of a separate performance
obligation and the price reflects the stand-alone selling price (that is, the price the
good or service would be sold for if sold on a stand-alone basis) of the additional
performance obligation. The modification is otherwise accounted for as an
adjustment to the original contract either through a cumulative catch-up
adjustment to revenue or a prospective adjustment to revenue when future
performance obligations are satisfied, depending on whether the remaining
goods and services are distinct. While aspects of this model are similar to IAS 11/
IAS 18, careful consideration will be needed to ensure the model is applied to the
appropriate unit of account.
2. Identify the separate performance obligations in the contract
An entity will be required to identify all performance obligations in a contract.
Performance obligations are promises to transfer goods or services to a customer
and are similar to what we know today as elements or deliverables.
Performance obligations might be explicitly stated in the contract but might also
arise in other ways. Legal or statutory requirements to deliver a good or perform
a service might create performance obligations even though such obligations are
not explicit in the contract. A performance obligation may also be created
through customary business practices, such as an entitys practice of providing
customer support, or by published policies or specific company statements. This
could result in an increased number of performance obligations within an
arrangement, possibly changing the timing of revenue recognition.
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An entity accounts for each promised good or service as a separate performance

obligation if the good or service is distinct. Such a good or service is distinct if
both of the following criteria are met:
a. t he customer can benefit from the good or service either on its own or together
with other resources that are readily available to the customer (that is, the
good or service is capable of being distinct); and
b. t he entitys promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract (that is, the promise to transfer
the good or service is distinct within the context of the contract).
Sales-type incentives such as free products or customer loyalty programmes, for
example, are currently recognised as marketing expense under US GAAP in some
circumstances. These incentives might be performance obligations under IFRS
15; if so, revenue will be deferred until such obligations are satisfied, such as
when a customer redeems loyalty points. Other potential changes in this area
include accounting for return rights, licences, and options.
3. Determine the transaction price
Once an entity identifies the performance obligations in a contract, the
obligations will be measured by reference to the transaction price. The
transaction price reflects the amount of consideration that an entity expects
to be entitled to in exchange for goods or services transferred. The amount of
expected consideration captures: (1) variable consideration if it is highly
probable (IFRS) or probable (US GAAP) that the amount will not result in a
significant revenue reversal if estimates change, (2) an assessment of time value
of money (as a practical expedient, an entity need not make this assessment
when the period between payment and the transfer of goods or services is
less than one year), (3) non-cash consideration, generally at fair value, and
(4) less any consideration paid to customers.
Variable consideration is measured using either a probability weighted or most
likely amount approach; whichever is most predictive of the final outcome.
Inclusion of variable consideration in the initial measurement of the transaction
price might result in a significant change in the timing of revenue recognition.
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Such consideration is recognised as the entity satisfies its related performance

obligations, provided (1) the entity has relevant experience with similar
performance obligations (or other valid evidence) that allows it to estimate the
cumulative amount of revenue for a satisfied performance obligation, and (2)
based on that experience, the entity does not expect a significant reversal in
future periods in the cumulative amount of revenue recognised for that
performance obligation. Revenue may, therefore, be recognised earlier than
under IAS 11/IAS 18 if an entity meets the conditions to include variable
consideration in the transaction price. Judgement will be needed to assess
whether the entity has predictive experience about the outcome of a contract. The
following indicators might suggest the entitys experience is not predictive of the
outcome of a contract: (1) the amount of consideration is highly susceptible to
factors outside the influence of the entity, (2) the uncertainty about the amount
of consideration is not expected to be resolved for a long period of time, (3) the
entitys experience with similar types of contracts is limited, and (4) the contract
has a large number and broad range of possible consideration amounts.
4. Allocate the transaction price to the separate performance obligations
For contracts with multiple performance obligations (deliverables), the
performance obligations should be separately accounted for to the extent that the
pattern of transfer of goods and services is different. Once an entity identifies and
determines whether to separately account for all the performance obligations in a
contract, the transaction price is allocated to these separate performance
obligations based on relative stand-alone selling prices.
The best evidence of stand-alone selling price is the observable price of a good or
service when the entity sells that good or service separately. The selling price is
estimated if a stand-alone selling price is not available. Some possible estimation
methods include:
(1) cost plus a reasonable margin or (2) evaluation of stand-alone sales prices of
the same or similar products, if available. If the stand-alone selling price is highly
variable or uncertain, entities may use a residual approach to aid in estimating
the stand-alone selling price (that is, total transaction price less the standalone
selling prices of other goods or services in the contract). An entity may also
allocate discounts and variable amounts entirely to one (or more) performance
obligations if certain conditions are met.
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5. Recognise revenue when each performance obligation is satisfied

Revenue should be recognised when a promised good or service is transferred to
the customer. This occurs when the customer obtains control of that good or
service. Control can transfer at a point in time or continuously over time.
Determining when control transfers will require significant judgement. An entity
satisfies a performance obligation over time if: (1) the customer is receiving and
consuming the benefits of the entitys performance as the entity performs (that is,
another entity would not need to substantially re-perform the work completed to
date); (2) the entitys performance creates or enhances an asset that the customer
controls as the asset is created or enhanced; or (3) the entitys performance does
not create an asset with an alternative use to the entity, the entity has a right to
payment for performance completed to date that includes compensation for a
reasonable profit margin, and it expects to fulfil the contract. A good or service
not satisfied over time is satisfied at a point in time. Indicators to consider in
determining when the customer obtains control of a promised asset include:
(1)the customer has an unconditional obligation to pay, (2) the customer has
legal title, (3) the customer has physical possession, (4) the customer has the risks
and rewards of ownership of the good, and (5) the customer has accepted the
asset. These indicators are not a checklist, nor are they all-inclusive. All relevant
factors should be considered to determine whether the customer has obtained
control of a good.
If control is transferred continuously over time, an entity may use output methods
(for example, units delivered) or input methods (for example, costs incurred or
passage of time) to measure the amount of revenue to be recognised. The method
that best depicts the transfer of goods or services to the customer should be applied
consistently throughout the contract and to similar contracts with customers.
Contract cost guidance
IFRS 15 also includes guidance related to contract costs. Costs relating to satisfied
performance obligations and costs related to inefficiencies should be expensed as
incurred. Incremental costs of obtaining a contract (for example, a sales commission)
should be recognised as an asset if they are expected to be recovered.
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An entity can expense the cost of obtaining a contract if the amortisation period
would be less than one year. Entities should evaluate whether direct costs incurred in
fulfilling a contract are in the scope of other standards (for example, inventory,
intangibles, or property, plant and equipment). If so, the entity should account for
such costs in accordance with those standards. If not, the entity should capitalise
those costs only if the costs relate directly to a contract, relate to future performance,
and are expected to be recovered under a contract. An example of such costs may be
certain mobilisation, design, or testing costs. These costs would then be amortised as
control of the goods or services to which the asset relates is transferred to the customer.
The amortisation period may extend beyond the length of the contract when the
economic benefit will be received over a longer period. An example might include
set-up costs related to contracts likely to be renewed.
Licensing
IFRS 15 includes specific implementation guidance on accounting for licences of IP.
The first step is to determine whether the licence is distinct or combined with other
goods or services. The revenue recognition pattern for distinct licences is based on
whether the licence is a right to access IP (revenue recognised over time) or a right
to use IP (revenue recognised at a point in time). For licences that are bundled with
other goods or services, management will apply judgement to assess the nature of
the combined item and determine whether the combined performance obligation is
satisfied at a point in time or over time. In addition, the revenue standard includes
an exception to variable consideration guidance for the recognition of sales- or
usage-based royalties promised in exchange for a licence of IP.
Principal versus agent considerations
When an arrangement involves two or more unrelated parties that contribute to
providing a specified good or service to a customer, management will need to
determine whether the entity has promised to provide the specified good or
service itself (as a principal) or to arrange for those specified goods or services to
be provided by another party (as an agent). Determining whether an entity is the
principal or an agent is not a policy choice. IFRS 15 includes indicators that an
entity controls a specified good or service before it is transferred to the customer
to help entities apply the concept of control to the principal versus agent
assessment. The assessment should be made separately for each specified good or
service. An entity could be the principal for some goods or services and an agent
for others in contracts with multiple distinct goods or services.
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Summary observations and anticipated timing

The above commentary is not all-inclusive. The effect of IFRS 15 is extensive, and
all industries may be affected. Some will see pervasive changes as the new model
will replace all existing IFRS and US GAAP revenue recognition guidance,
including industry-specific guidance with limited exceptions (for example, certain
guidance on rate-regulated activities in US GAAP). Under US GAAP, the revenue
standard will be effective (1) for public entities, for annual reporting periods, and
interim periods therein, beginning after 15 December 2017 and (2) for non-public
entities, for annual reporting periods beginning after 15 December 2018, and for
interim periods within annual periods beginning after 15 December 2018. Under
IFRS, the final standard will be effective for the first interim period within annual
reporting periods beginning on or after 1 January 2018.
Entities should continue to evaluate how the model might affect current business
activities, including contract negotiations, key metrics (including debt covenants and
compensation arrangements), budgeting, controls and processes, information
technology requirements, and accounting. IFRS 15 will permit an entity to either
apply it retrospectively in accordance with IAS 8 or modified retrospectively (that is,
including the cumulative effect at initial application date in opening retained
earnings (or other equity components, as appropriate)).IFRS 15 also provide certain
practical expedients that an entity could elect to apply to simplify transition.
Construction contracts IAS 11
A construction contract is a contract specifically negotiated for the construction of
an asset, or combination of assets, including contracts for the rendering of services
directly related to the construction of the asset (such as project managers and
architects services). Such contracts are typically fixed-price or cost-plus contracts.
Revenue and expenses on construction contracts are recognised using the
percentage-of-completion method. This means that revenue, expenses and
therefore profit are recognised gradually as contract activity occurs.
When the outcome of the contract cannot be estimated reliably, revenue is recognised
only to the extent of costs incurred that it is probable will be recovered; contract costs
are recognised as an expense as incurred. When it is probable that total contract
costs will exceed total contract revenue, the expected loss is recognised as an
expense immediately.
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IFRIC 15 clarifies which standard (IAS 18 or IAS 11) should be applied to

particulartransactions.
Government grants IAS 20
Government grants are recognised when there is reasonable assurance that the entity
will comply with the conditions related to them and that the grants will be received.
Grants related to income are recognised in profit or loss over the periods
necessary to match them with the related costs that they are intended to
compensate. They are either offset against the related expense or presented as
separate income. The timing of such recognition in profit or loss will depend on
the fulfilment of any conditions or obligations attaching to the grant.
Grants related to assets are either offset against the carrying amount of the
relevant asset or presented as deferred income in the balance sheet. Profit or loss
will be affected either by a reduced depreciation charge or by deferred income
being recognised as income systematically over the useful life of the related asset.
11 Segment reporting IFRS 8

Segment guidance requires an entity to disclose information that enables users of
the financial statements to evaluate the nature and financial effects of the
business activities and the economic environments through the eyes of
management (management approach).
Though many entities manage their business using some level of segmented
data, the disclosure requirements are limited to (a) entities with listed or quoted
equity or debt instruments and (b) entities that are in the process of obtaining a
listing or quotation of debt or equity instruments in a public market. To the extent
an entity not meeting either of these criteria chooses to disclose segmented data
in financial statements, the information can only be referred to as segment
information if it complies with the segment guidance described below.
The identification of an entitys operating segments is the core determinant for the
level of information included in the segment disclosures. Operating segments are
components of an entity, identified based on the breakout of information contained
in the internal reports that are regularly used by the entitys chief operating
decision-maker (CODM) to allocate resources and to assess performance.
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Reportable segments are individual operating segments or a group of operating

segments for which segment information must be separately reported (that is,
disclosed). Aggregation of one or more operating segments into a single
reportable segment is permitted (but not required) where certain conditions are
met, the principal condition being that the operating segments should have
similar economic characteristics (for example. profit margin, spreads, sales
growth rates, etc.). Whether multiple operating segments can be aggregated into
a single reportable segment is a matter of significant judgement.
For each segment disclosed, entities are required to provide a measure of profit or
loss in the format viewed by the CODM, as well as a measure of assets and
liabilities if such amounts are regularly provided to the CODM. Other segment
disclosures include the revenue from customers for each group of similar
products and services, revenue by geography and dependence on major
customers. Additional detailed disclosures of performance and resources are
required if the CODM reviews these amounts. A reconciliation of the total amount
disclosed for all segments to the primary financial statements is required for
revenue, profit and loss, and other material items reviewed by the CODM.
12 Employee benefits IAS 19

The accounting for employee benefits, for pensions in particular, is complex. The
liabilities in defined benefit pension plans are frequently material. They are
long-term and difficult to measure, and this gives rise to difficulty in measuring
the cost attributable to each year.
Employee benefits are all forms of consideration given or promised by an entity in
exchange for services rendered by its employees. These benefits include salary-related
benefits (such as wages, profit-sharing, bonuses and compensated absences, such as
paid holiday and long-service leave), termination benefits (such as severance and
redundancy pay) and post-employment benefits (such as retirement benefit plans).
IAS 19 is relevant for all employee benefits except for those to which IFRS 2 applies.
Post-employment benefits include pensions, post-employment life insurance and
medical care. Pensions are provided to employees either through defined
contribution plans or defined benefit plans.
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Recognition and measurement for short-term benefits is relatively

straightforward, because actuarial assumptions are not required and the
obligations are not discounted. However, long-term benefits, particularly
post-employment benefits, give rise to more complicated measurement issues.
Defined contribution plans
Accounting for defined contribution plans is straightforward: the cost of
definedcontribution plans is the contribution payable by the employer for that
accounting period.
Defined benefit plans
Accounting for defined benefit plans is complex because actuarial assumptions
and valuation methods are required to measure the balance sheet obligation and
the expense. The expense recognised generally differs from the contributions
made in the period.
Subject to certain conditions, the net amount recognised on the balance sheet is
the difference between the defined benefit obligation and the plan assets.
To calculate the defined benefit obligation, estimates (actuarial assumptions)
regarding demographic variables (such as employee turnover and mortality) and
financial variables (such as future increases in salaries and medical costs) are
made and included in a valuation model. The resulting benefit obligation is then
discounted to a present value. This normally requires the expertise of an actuary.
Where defined benefit plans are funded, the plan assets are measured at fair
value. Where no market price is available, the fair value of plan assets is
estimated, for example, by discounting expected future cash flows using a
discount rate that reflects both the risk associated with the plan assets and the
maturity of those assets. Plan assets are tightly defined, and only assets that meet
a strict definition may be offset against the plans defined benefit obligations,
resulting in a net surplus or net deficit that is shown on the balance sheet.
At each balance sheet date the plan assets and the defined benefit obligation are
re-measured. The income statement reflects the change in the surplus or deficit
except for the following; contributions to the plan and benefits paid by the plan,
along with business combinations and re-measurement gains and losses.
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Re-measurement gains and losses comprise actuarial gains and losses, return on
plan assets (excluding amounts included in net interest on the net defined benefit
liability or asset) and any change in the effect of the asset ceiling (excluding
amounts included in net interest on the net defined benefit liability or asset).
Re-measurements are recognised in other comprehensive income.
The amount of pension expense (income) to be recognised in profit or loss is
comprised of the following individual components unless they are required or
permitted to be included in the costs of an asset:
service costs (the present value of the benefits earned by active employees); and
net interest costs (the unwinding of the discount on the defined benefit
obligation and a theoretical return on plan assets).
Service costs comprises the current service costs, which is the increase in the
present value of the defined benefit obligation resulting from employee services
in the current period, past-service costs (as defined below and including any
gain or loss on curtailment) and any gain or loss on settlement.
Net interest on the net defined benefit liability (asset) is defined as the change
during the period in the net defined benefit liability (asset) that arises from the
passage of time. [IAS 19 para 8]. The net interest cost can be viewed as
comprising theoretical interest income on plan assets, interest cost on the defined
benefit obligation (that is, representing the unwinding of the discount on the plan
obligation) and interest on the effect of the asset ceiling. [IAS 19 para 124].
Net interest on the net defined benefit liability (asset) is calculated by multiplying
the net defined benefit liability (asset) by the discount rate, both as determined at
the start of the annual reporting period, taking account of any changes in the net
defined benefit liability (asset) during the period as a result of contribution and
benefit payments. [IAS 19 para 123]. The discount rate applicable to any financial
year is an appropriate high quality corporate bond rate (or government bond rate
if appropriate) in the currency in which the liabilities are denominated. Net
interest on the net defined benefit liability (asset) can be viewed as effectively
including theoretical interest income on plan assets.
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Past-service costs are defined as a change in the present value of the defined benefit
obligation for employee services in prior periods, resulting from a plan amendment
(the introduction or withdrawal of, or changes to, a defined benefit plan) or a
curtailment (a significant reduction by the entity in the number of employees
covered by a plan). Past-service costs need to be recognised as an expense generally
when a plan amendment or curtailment occurs. Settlement gains or losses are
recognised in the income statement when the settlement occurs.
IFRIC 14, IAS 19 The limit on a defined benefit asset, minimum funding
requirements and their interaction, provides guidance on assessing the amount
that can be recognised as an asset when plan assets exceed the defined benefit
obligation creating a net surplus. It also explains how the pension asset or liability
may be affected by a statutory or contractual minimum funding requirement.
13 Share-based payment IFRS 2

IFRS 2 applies to all share-based payment transactions in which goods or services
are received as part of a share-based payment arrangement. A share-based
payment arrangement is defined as:
an agreement between the entity (or another group entity or any shareholder of any
group entity) and another party (including an employee) that entitles the other
party to receive:
(a) cash or other assets of the entity for amounts that are based on the price (or
value) of equity instruments (including shares or share options) of the entity or
another group entity; or
(b) equity instruments (including shares or share options) of the entity or another
group entity.
The most common application is to employee share schemes, such as share option
schemes. However, entities sometimes also pay for other expenses such as
professional fees, and for the purchase of assets by means of share-based payment.
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The accounting treatment under IFRS 2 is based on the fair value of the instruments.
Both the valuation of and the accounting for awards can be difficult, due to the complex
models that need to be used to calculate the fair value of options, and also due to the
variety and complexity of schemes. In addition, the standard requires extensive
disclosures. The result generally is reduced reported profits, especially in entities that
use share-based payment extensively as part of their remuneration strategy.
All transactions involving share-based payments are recognised as expenses or
assets over any vesting period.
Equity-settled share-based payment transactions are measured at the grant date
fair value for employee services; and, for non-employee transactions, at the fair
value of the goods or services received at the date on which the entity recognises
the goods or services. If the fair value of the goods or services cannot be estimated
reliably such as employee services and circumstances in which the goods or
services cannot be specifically identified the entity uses the fair value of the
equity instruments granted. Additionally, management needs to consider if there
are any unidentifiable goods or services received or to be received by the entity, as
these also have to be recognised and measured in accordance with IFRS 2.
Equity-settled share-based payment transactions are not re-measured once the
grant date fair value has been determined.
The treatment is different for cash-settled share-based payment transactions:
cash-settled awards are measured at the fair value (as defined in IFRS 2 and not as
defined in IFRS 13) of the liability. The liability is re-measured at each balance
sheet date and at the date of settlement, with changes in fair value recognised in
the income statement, cash-settled awards are measured at the fair value of the
liability. The liability is re-measured at each balance sheet date and at the date of
settlement, with changes in fair value recognised in the income statement.
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14 Taxation IAS 12
IAS 12 only deals with taxes on income, comprising current tax and deferred tax.
Current tax expense for a period is based on the taxable and deductible amounts that
will be shown on the tax return for the current year. An entity recognises a liability in
the balance sheet in respect of current tax expense for the current and prior periods
to the extent unpaid. It recognises an asset if current tax has been overpaid.
Current tax assets and liabilities for the current and prior periods are measured
at the amount expected to be paid to (recovered from) the taxation authorities,
using the tax rates and tax laws that have been enacted or substantively enacted
by the balance sheet date.
Tax payable based on taxable profit seldom matches the tax expense that might be
expected based on pre-tax accounting profit. Tax laws and financial accounting
standards recognise and measure income, expenditure, assets and liabilities in
different ways.
Deferred tax accounting seeks to deal with this mismatch. It is based on the
temporary differences between the tax base of an asset or liability and its
carrying amount in the financial statements. For example, an asset is revalued
upwards but not sold, the revaluation creates a temporary difference (if the
carrying amount of the asset in the financial statements is greater than the tax
base of the asset), and the tax consequence is a deferred tax liability.
Deferred tax is provided in full for all temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial
statements, except when the temporary difference arises from:
initial recognition of goodwill (for deferred tax liabilities only);
initial recognition of an asset or liability in a transaction that is not a business
combination and that affects neither accounting profit nor taxable profit; and
investments in subsidiaries, branches, associates and joint ventures, but only
where certain criteria apply.
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Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or substantively enacted by the balance
sheet date. The discounting of deferred tax assets and liabilities is not permitted.
Generally, the measurement of deferred tax liabilities and deferred tax assets
reflects the tax consequences that would follow from the manner in which the
entity expects, at the balance sheet date, to recover or settle the carrying amount
of its assets and liabilities. The carrying amount of a non-depreciable asset (e.g.,
land) can only be recovered through sale. For other assets, the manner in which
management expects to recover the asset (that is, through use or through sale or
through a combination of both) is considered at each balance sheet date. An
exception has been introduced for investment property measured using the fair
value model in IAS 40, with a rebuttable presumption that such investment
property is recovered entirely through sale.
Management only recognises a deferred tax asset for deductible temporary
differences to the extent that it is probable that taxable profit will be available
against which the deductible temporary difference can be utilised. This also
applies to deferred tax assets for unused tax losses carried forward.
Current and deferred tax is recognised in profit or loss for the period, unless the
tax arises from a business combination or a transaction or event that is
recognised outside profit or loss, either in other comprehensive income or directly
in equity in the same or different period. The tax consequences that accompany,
for example, a change in tax rates or tax laws, a reassessment of the recoverability
of deferred tax assets or a change in the expected manner of recovery of an asset
are recognised in profit or loss, except to the extent that they relate to items
previously charged or credited outside profit or loss.
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15 Earnings per share IAS 33

Earnings per share (EPS) is a ratio that is widely used by financial analysts,
investors and others to gauge an entitys profitability and to value its shares. EPS is
normally calculated in the context of ordinary shares of the entity. Earnings
attributable to ordinary shareholders are therefore determined by deducting from
net income the earnings attributable to holders of more senior equity instruments.
An entity whose ordinary shares are listed on a recognised stock exchange or is
otherwise publicly traded is required to disclose both basic and diluted EPS with
equal prominence in its separate or individual financial statements, or in its
consolidated financial statements if it is a parent. Furthermore, entities that file
or are in the process of filing financial statements with a securities commission or
other regulatory body for the purposes of issuing ordinary shares (that is, not a
private placement) are also required to comply with the standard.
Basic EPS is calculated by dividing the profit or loss for the period attributable to
the equity holders of the parent by the weighted average number of ordinary
shares outstanding (including adjustments for bonus and rights issues).
Diluted EPS is calculated by adjusting the profit or loss and the weighted average
number of ordinary shares by taking into account the conversion of any dilutive
potential ordinary shares. Potential ordinary shares are those financial
instruments and contracts that may result in issuing ordinary shares such as
convertible bonds and options (including employee share options).
Basic and diluted EPS for both continuing and total operations are presented with
equal prominence in the statement of comprehensive income or in the separate
income statement where one is presented for each class of ordinary shares.
Separate EPS figures for discontinued operations are disclosed in the same
statements or in the notes.
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16 Intangible assets IAS 38
An intangible asset is an identifiable non-monetary asset without physical
substance. The identifiable criterion is met when the intangible asset is separable
(that is, when it can be sold, transferred or licensed), or where it arises from
contractual or other legal rights.
Separately acquired intangible assets
Separately acquired intangible assets are recognised initially at cost. Cost
comprises the purchase price, including import duties and non-refundable
purchase taxes and any directly attributable costs of preparing the asset for its
intended use. The purchase price of a separately acquired intangible asset
incorporates assumptions about the probable economic future benefits that may
be generated by the asset.
Internally generated intangible assets
The process of generating an intangible asset is divided into a research phase and
a development phase. No intangible assets arising from the research phase may
be recognised. Intangible assets arising from the development phase are
recognised when the entity can demonstrate:
its technical feasibility;
its intention to complete the developments;
its ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits (for
example, the existence of a market for the output of the intangible asset or for
the intangible asset itself);
the availability of resources to complete the development; and
its ability to measure the attributable expenditure reliably.
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Any expenditure written off during the research or development phase cannot
subsequently be capitalised if the project meets the criteria for recognition at a
later date.
The costs relating to many internally generated intangible items cannot be
capitalised and are expensed as incurred. This includes research, start-up and
advertising costs. Expenditure on internally generated brands, mastheads, customer
lists, publishing titles and goodwill are not recognised as intangible assets.
Intangible assets acquired in a business combination
If an intangible asset is acquired in a business combination, both the probability
and measurement criterion are always considered to be met. An intangible asset
will therefore always be recognised, regardless of whether it has been previously
recognised in the acquirees financial statements.
Subsequent measurement
Intangible assets are amortised unless they have an indefinite useful life.
Amortisation is carried out on a systematic basis over the useful life of the
intangible asset. An intangible asset has an indefinite useful life when, based on
an analysis of all the relevant factors, there is no foreseeable limit to the period
over which the asset is expected to generate net cash inflows for the entity.
Intangible assets with finite useful lives are considered for impairment when
there is an indication that the asset has been impaired. Intangible assets with
indefinite useful lives and intangible assets not yet in use are tested annually for
impairment and whenever there is an indication of impairment.
17 Property, plant and equipment IAS 16

Property, plant and equipment (PPE) is recognised when the cost of an asset can
be reliably measured and it is probable that the entity will obtain future economic
benefits from the asset.
PPE is measured initially at cost. Cost includes the fair value of the consideration
given to acquire the asset (net of discounts and rebates) and any directly
attributable cost of bringing the asset to working condition for its intended use
(inclusive of import duties and non-refundable purchase taxes).
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Directly attributable costs include the cost of site preparation, delivery,

installation costs, relevant professional fees and the estimated cost of
dismantling and removing the asset and restoring the site (to the extent that such
a cost is recognised as a provision). Classes of PPE are carried at historical cost
less accumulated depreciation and any accumulated impairment losses (the cost
model), or at a revalued amount less any accumulated depreciation and
subsequent accumulated impairment losses (the revaluation model). The
depreciable amount of PPE (being the gross carrying value less the estimated
residual value) is depreciated on a systematic basis over its useful life.
Subsequent expenditure relating to an item of PPE is capitalised if it meets the
recognition criteria.
PPE may comprise parts with different useful lives. Depreciation is calculated
based on each individual parts life. In case of replacement of one part, the new
part is capitalised to the extent that it meets the recognition criteria of an asset,
and the carrying amount of the parts replaced is derecognised.
The cost of a major inspection or overhaul of an item occurring at regular
intervals over the useful life of the item is capitalised to the extent that it meets
the recognition criteria of an asset. The carrying amounts of the parts replaced
are derecognised.
IFRIC 18 clarifies the accounting for arrangements where an item of PPE that is
provided by the customer is used to provide an ongoing service.
Borrowing costs
Under IAS 23 entities do not have a policy choice to capitalise or expense
borrowing costs incurred that are directly attributable to the acquisition,
production or construction of a qualifying asset. IAS 23 revised requires
borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset to be capitalised.
18 Investment property IAS 40

Certain properties are classified as investment properties for financial reporting
purposes in accordance with IAS 40. The characteristics of these properties differ
significantly from owner-occupied properties. It is the current value of such properties
and changes to those values that are relevant to users of financial statements.
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Investment property is property (land or a building, or part of a building or both)

held by an entity to earn rentals and/or for capital appreciation. This category
includes such property in the course of construction or development. Any other
properties are accounted for as property, plant and equipment (PPE) or inventory
in accordance with:
IAS 16, if they are held for use in the production or supply of goods or services; or
IAS 2, as inventory, if they are held for sale in the ordinary course of business.
Investment property is initially measured at cost. Subsequent to initial
measurement, management may subsequently measure investment properties at
fair value or at cost. This is an accounting policy choice. The policy chosen is
applied consistently to all the investment properties that the entity owns.
Investment properties in the course of construction or development are measured
at fair value if this can be reliably measured, when the fair value option is chosen.
Otherwise they are measured at cost.
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. Guidance on fair value measurement is given in IFRS 13. Changes in fair
value are recognised in profit or loss in the period in which they arise.
The cost model requires investment properties to be carried at cost less
accumulated depreciation and any accumulated impairment losses; the fair value
of these properties is disclosed in the notes.
19 Impairment of assets IAS 36

Nearly all current and non-current assets are subject to an impairment test to
ensure that they are not overstated on balance sheets.
The basic principle of impairment is that an asset may not be carried on the
balance sheet above its recoverable amount. Recoverable amount is the higher of
the assets fair value less costs of disposal and its value in use. Fair value less costs
of disposal is the price that would be received to sell an asset in an orderly
transaction between market participants at the measurement date, less costs of
disposal. Guidance on fair valuing is given in IFRS 13. Value in use requires
management to estimate the future pre-tax cash flows to be derived from the
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asset and discount them using a pre-tax market rate that reflects current
assessments of the time value of money and the risks specific to the asset.
All assets subject to the impairment guidance are tested for impairment when
there is an indication that the asset may be impaired. Assets that are note
amortised, such as goodwill, indefinite lived intangible assets and intangible
assets that are not yet available for use, are also tested for impairment annually
even if there is no impairment indicator.
Both external indicators (for example, significant adverse changes in the
technological, market, economic or legal environment or increases in market
interest rates) and internal indicators (for example, evidence of obsolescence or
physical damage of an asset or evidence from internal reporting that the
economic performance of an asset is, or will be, worse than expected) are
considered, when considering whether an asset is impaired.
An asset seldom generates cash flows independently of other assets. Most assets
are tested for impairment in groups of assets described as cash-generating units
(CGUs). A CGU is the smallest identifiable group of assets that generates inflows
that are largely independent from the cash flows from other CGUs.
The carrying value of an asset is compared to the recoverable amount. An asset or
CGU is impaired when its carrying amount exceeds its recoverable amount. Any
impairment is allocated to the asset or assets of the CGU, with the impairment
loss recognised in profit or loss.
Goodwill acquired in a business combination is allocated to the acquirers CGUs
or groups of CGUs that are expected to benefit from the synergies of the business
combination. However, the largest group of CGUs permitted for goodwill
impairment testing is an operating segment before aggregation.
20 Lease accounting IAS 17 and IFRS 16

Leasing IAS 17
A lease gives one party (the lessee) the right to use an asset over an agreed period
of time in return for payment to the lessor. Leasing is an important source of
medium and long-term financing; accounting for leases can have a significant
impact on lessees and lessors financial statements.
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Leases are classified as finance or operating leases at inception, depending on

whether substantially all the risks and rewards of ownership transfer to the
lessee. Under a finance lease, the lessee has substantially all of the risks and
reward of ownership. All other leases are operating leases. Leases of land and
buildings are considered separately under IFRS.
Under a finance lease, the lessee recognises an asset held under a finance lease
and a corresponding obligation to pay rentals. The lessee depreciates the asset.
The lessor recognises the leased asset as a receivable. The receivable is measured
at the net investment in the lease the minimum lease payments receivable,
discounted at the internal rate of return of the lease, plus the unguaranteed
residual that accrues to the lessor.
Under an operating lease, the lessee does not recognise an asset and lease
obligation. The lessor continues to recognise the leased asset and depreciates it.
The rentals paid are normally charged to the income statement of the lessee and
credited to that of the lessor on a straight-line basis.
Linked transactions with the legal form of a lease are accounted for on the basis
of their substance for example, a sale and leaseback where the seller is
committed to repurchase the asset may not be a lease in substance if the seller
retains the risks and rewards of ownership and substantially the same rights of
use as before the transaction.
Equally, some transactions that do not have the legal form of a lease are in
substance leases if they are dependent on a particular asset that the purchaser
can control physically or economically.
Leases IFRS 16
On 13 January 2016, the International Accounting Standards Board (IASB)
published IFRS 16, Leases, which replaces the current guidance in IAS 17. IFRS
16 defines a lease as a contract, or part of a contract, that conveys the right to use
an asset (the underlying asset) for a period of time in exchange for consideration.
Under IFRS 16 lessees have to recognise a lease liability reflecting future lease
payments and a right-of-use asset for almost all lease contracts. This is a
significant change compared to IAS 17 under which lessees were required to
make a distinction between a finance lease (on balance sheet) and an operating
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lease (off balance sheet). IFRS 16 contains an optional exemption for certain
short-term leases and leases of low-value assets; however, this exemption can
only be applied by lessees.
In the income statement lessees will have to present interest expense on the lease
liability and depreciation on the right-of-use asset. In the cash flow statement the
part of the lease payments that reflects interest on the lease liability can be
presented as an operating cash flow (if it is the entitys policy to present interest
payments as operating cash flows). Cash payments for the principal portion of the
lease liability are classified within financing activities. Payments for short-term
leases, for leases of low-value assets and variable lease payments not included in
the measurement of the lease liability are presented within operating activities.
As under IAS 17, the lessor has to classify leases as either finance or operating,
depending on whether substantially all of the risk and rewards incidental to
ownership of the underlying asset have been transferred. For a finance lease, the
lessor recognises a receivable at an amount equal to the net investment in the
lease which is the present value of the aggregate of lease payments receivable by
the lessor and any unguaranteed residual value. If the contract is classified as an
operating lease, the lessor continues to present the underlying assets.
For both, lessees and lessors IFRS 16 adds significant new, enhanced disclosure
requirements.
IFRS 16 is effective for annual reporting periods beginning on or after 1 January
2019. Earlier application is permitted, but only in conjunction with IFRS 15,
Revenue from contracts with customers. In order to facilitate transition, lessees
can choose a simplified approach that includes certain reliefs related to the
measurement of the right-of-use asset and the lease liability, rather than full
retrospective application; furthermore, the simplified approach does not require
a restatement of comparatives. In addition, as a practical expedient entities are
not required to reassess whether a contract is, or contains, a lease at the date of
initial application (that is, such contracts are grandfathered).
21 Inventories IAS 2
Inventories are initially recognised at the lower of cost and net realisable value
(NRV). Cost of inventories includes import duties, non-refundable taxes, transport
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and handling costs and any other directly attributable costs less trade discounts,
rebates and similar items. NRV is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and estimated selling expenses.
IAS 2 requires the cost for items that are not interchangeable or that have been
segregated for specific contracts to be determined on an individual-item basis.
The cost of other items of inventory used is assigned by using either the first-in,
first-out (FIFO) or weighted average cost formula. Last-in, first-out (LIFO) is not
permitted. An entity uses the same cost formula for all inventories that have a
similar nature and use to the entity. A different cost formula may be justified
where inventories have a different nature or use. The cost formula used is applied
on a consistent basis from period to period.
22 Provisions and contingencies IAS 37

A liability is a present obligation of the entity arising from past events, the
settlement of which is expected to result in an outflow from the entity of
resources embodying economic benefits. A provision is a liability of uncertain
timing or amount.
Recognition and initial measurement
A provision is recognised when: the entity has a present obligation as a result of
past events; it is probable (more likely than not) that a transfer of economic
benefits will be required to settle the obligation; and a reliable estimate of the
amount of the obligation can be made.
The amount recognised as a provision is the best estimate of the expenditure
required to settle the present obligation at the balance sheet date, measured at
the present value of the expected cash outflows where the effect of the time value
of money is material. Provisions are not recognised for future operating losses.
A present obligation arises from an obligating event and may take the form of
either a legal obligation or a constructive obligation. An obligating event leaves
the entity no realistic alternative to settling the obligation. If the entity can avoid
the future expenditure by its future actions, it has no present obligation, and no
provision is required. For example, an entity cannot recognise a provision based
solely on the intent to incur expenditure at some future date or the expectation of
future operating losses.
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An obligation does not have to be a legal obligation before a provision is recognised.

An entity may have an established pattern of past practice, published policies or a
sufficient specific current statement that indicates to other parties that it will accept
certain responsibilities and as a result has created a valid expectation on the part of
those other parties that it will discharge those responsibilities (that is, the entity has
a constructive obligation).
If an entity has an onerous contract (the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to be received under it),
the present obligation under the contract is recognised as a provision. Impairments of
any assets dedicated to the contract are recognised before making a provision.
Restructuring provisions
A restructuring provision is recognised only when the general recognition
criteria for provision are met. The obligation for a restructuring is often
constructive.
A constructive restructuring obligation arises only when there is: (a) a detailed
formal plan identifying the main features of the restructuring; and (b) a valid
expectation in those affected that the entity will carry out the restructuring by
starting to implement the plan or announcing its main features to those affected.
A restructuring plan does not create a present obligation at the balance sheet date
if it is announced after that date, even if it is announced before the financial
statements are approved. A sale or termination of a business might fall under the
definition of a restructuring. No obligation arises in respect of restructuring costs
associated with the sale of an operation until the entity is committed to the sale
(that is, there is a binding sale agreement).
Restructuring provision includes only the direct expenditures arising from the
restructuring, which are necessarily entailed by the restructuring and not those
associated with the entitys ongoing activities. Any expected gains on the sale of
assets are not considered in measuring a restructuring provision.
Reimbursements
Where some or all of the expenditure required to settle a provision is expected to
be reimbursed by another party, the reimbursement should be recognised only
when it is virtually certain that reimbursement will be received if the entity settles
the obligation. The entity typically remains liable for the entire obligation, and
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reimbursements are therefore presented separately as assets. The amount

recognised should not exceed the amount of the related provision. Expenses
relating to a provision can be presented net of the amount recognised for a
reimbursement in the income statement.
Subsequent measurement
Provisions should be re-assessed at the end of each reporting period and adjusted
to reflect current best estimates. This re-assessment should include the estimated
cash flows and the discount rate. The unwinding of the discount due to the
passage of time should be included as an element of borrowing costs in arriving
at profit or loss for the year.
Contingent liabilities
Contingent liabilities are possible obligations that arise from past events and
whose existence will be confirmed only on the occurrence or non-occurrence of
uncertain future events outside the entitys control, or present obligations arise
from past events but that are not recognised because: (a) it is not probable that an
outflow of economic benefits will be required to settle the obligation; or (b) the
amount cannot be measured reliably.
Contingent liabilities are not recognised, but are disclosed, unless the possibility
of an outflow is remote.
Contingent assets
Contingent assets are possible assets that arise from past events and whose existence
will be confirmed only on the occurrence or non-occurrence of uncertain future
events outside the entitys control. Contingent assets are not recognised.
Contingent assets are disclosed if the inflow of economic benefits is probable.
Levies
A public authority could impose a levy on entities based on measures such as gross
revenues for a specified period or on assets or liabilities at a specified date. IFRIC 21
addresses the accounting for such levies. The obligating event that gives rise to a
liability to pay a levy is the activity that triggers the payment of the levy, as identified
by the legislation.
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23 E
vents after the reporting period and financial
commitments IAS 10
It is not generally practicable for preparers to finalise financial statements
without a period of time elapsing between the balance sheet date and the date on
which the financial statements are authorised for issue. The question therefore
arises as to the extent to which events occurring between the balance sheet date
and the date of approval (that is, events after the reporting period) should be
reflected in the financial statements.
Events after the reporting period are either adjusting events or non-adjusting
events. Adjusting events provide further evidence of conditions that existed at the
balance sheet date for example, determining after the year end the
consideration for assets sold before the year end. Non-adjusting events relate to
conditions that arose after the balance sheet date for example, announcing a
plan to discontinue an operation after the year end.
The carrying amounts of assets and liabilities at the balance sheet date are adjusted
only for adjusting events or events that indicate that the going-concern assumption in
relation to the whole entity is not appropriate. Significant non-adjusting post-balancesheet events, such as the issue of shares or major business combinations, are disclosed.
Dividends proposed or declared after the balance sheet date but before the
financial statements have been authorised for issue are not recognised as a liability
at the balance sheet date. Details of these dividends are, however, disclosed.
An entity discloses the date on which the financial statements were authorised for issue
and the persons authorising the issue and, where necessary, the fact that the owners or
other persons have the ability to amend the financial statements after issue.
24 Share capital and reserves

Equity, along with assets and liabilities, is one of the three elements used to
portray an entitys financial position. Equity is defined in the IASBs Framework
as the residual interest in the entitys assets after deducting all its liabilities. The
term equity is often used to encompass an entitys equity instruments and
reserves. Equity is given various descriptions in the financial statements.
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Corporate entities may refer to it as owners equity, shareholders equity, capital

and reserves, shareholders funds and proprietorship. Equity includes various
components with different characteristics.
Determining what constitutes an equity instrument for the purpose of IFRS and
how it should be accounted for falls within the scope of the financial instrument
standard IAS 32.
Equity instruments (for example, issued, non-redeemable ordinary shares) are
generally recorded as the residual after recording the recognition or de-recognition
of assets or liabilities arising on the equity issue (the proceeds of issue) and after
deducting directly attributable transaction costs. Equity instruments are not
re-measured after initial recognition.
Reserves include retained earnings, together with reserves such as fair value
reserves, hedging reserves, asset revaluation reserves and foreign currency
translation reserves and other statutory reserves.
Treasury shares
Treasury shares are deducted from equity. No gain or loss is recognised in profit or
loss on the purchase, sale, issue or cancellation of an entitys own equity instruments.
Non-controlling interests
Non-controlling interests (previously termed minority interests) in consolidated
financial statements are presented as a component of equity, separately from the
parent shareholders equity.
Disclosures
IAS 1 requires various disclosures. These include the total issued share capital
and reserves, presentation of a statement of changes in equity, capital
management policies and dividend information.
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25 Consolidated financial statements IFRS 10 and IFRS 12
The principles concerning consolidated financial statements under IFRS are set
out in IFRS 10. IFRS 10 has a single definition of control.
IFRS 10s objective is to establish principles for presenting and preparing
consolidated financial statements when an entity controls one or more entities.
IFRS 10 sets out the requirements for when an entity should prepare consolidated
financial statements, defines the principles of control, explains how to apply the
principles of control and explains the accounting requirements for preparing
consolidated financial statements. [IFRS 10 para 2].
The key principle in the new standard is that control exists, and consolidation is
required, only if the investor possesses power over the investee, has exposure to
variable returns from its involvement with the investee and has the ability to use
its power over the investee to affect its returns.
IFRS 10 provides guidance on the following issues when determining who has control:
Assessment of the purpose and design of an investee.
Relevant activities and power to direct those.
Nature of rights whether substantive or merely protective in nature.
Assessment of voting rights and potential voting rights.
Whether an investor is a principal or an agent when exercising its controlling
power.
Relationships between investors and how they affect control.
Existence of power over specified assets only.
In difficult situations, the precise facts and circumstances will affect the analysis
under IFRS 10. IFRS 10 does not provide bright lines and requires consideration
of many factors, such as the existence of contractual arrangements and rights
held by other parties, in order to assess control.
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IFRS 10 does not contain any disclosure requirements; these are included within
IFRS 12. Reporting entities should plan for, and implement, the processes and
controls that will be required to gather the required information. This may
involve a preliminary consideration of IFRS 12 issues such as the level of
disaggregation required.
The IASB amended IFRS 10 in October 2012 (effective 1 January 2014 as
endorsed by the EU) to incorporate changes to how investment entities account
for entities they control. Entities that meet the definition of an investment entity
are exempt from consolidating underlying investees that they control; instead,
they are required to account for these subsidiaries at fair value through profit or
loss under IFRS 9 or IAS 39.
26 Separate financial statements IAS 27

IAS 27 deals with the accounting for investments in subsidiaries, joint ventures
and associates when an entity elects, or is required by local regulations, to
present separate financial statements. Each category of investments should be
accounted for either at cost, in accordance with IAS 39/IFRS 9 or using the equity
method in the separate financial statements.
27 Business combinations IFRS 3

A business combination is a transaction or event in which an entity (acquirer)
obtains control of one or more businesses (acquiree(s)). Under IFRS 10, an
investor controls an investee when the investor is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to
affect those returns through its power over the investee. A number of factors may
influence which entity has control, including: equity shareholding, control of the
board and control agreements. There is a presumption of control if an entity owns
more than 50% of the equity shareholding in another entity.
Business combinations occur in a variety of structures. IFRS 3 focuses on the
substance of the transaction, rather than the legal form. The overall result of a
series of transactions is considered if there are a number of transactions among
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the parties involved. For example, any transaction contingent on the completion
of another transaction may be considered linked. Judgement is required to
determine when transactions should be linked.
All business combinations, within IFRS 3s scope, are accounted for using the
acquisition method. The acquisition method views a business combination from
the perspective of the acquirer and can be summarised in the following steps:
Identify the acquirer.
Determine the acquisition date.
Recognise and measure the identifiable assets acquired, liabilities
assumed and any non-controlling interest in the acquiree.
Recognise and measure the consideration transferred for the acquiree.
Recognise and measure goodwill or a gain from a bargain purchase.
The acquirees identifiable assets (including intangible assets not previously
recognised), liabilities and contingent liabilities are generally recognised at their
fair value. Fair value is measured in accordance with IFRS 13. If the acquisition is
for less than 100% of the acquiree, there is a non-controlling interest. The
non-controlling interest represents the equity in a subsidiary that is not
attributable, directly or indirectly to the parent. The acquirer can elect to
measure the non-controlling interest at its fair value or at its proportionate share
of the identifiable net assets.
The consideration for the combination includes cash and cash equivalents and the
fair value of any non-cash consideration given. Any equity instruments issued as
part of the consideration are fair valued. If any of the consideration is deferred, it
is discounted to reflect its present value at the acquisition date, if the effect of
discounting is material. Consideration includes only those amounts paid to the
seller in exchange for control of the entity. Consideration excludes amounts paid
to settle pre-existing relationships, payments that are contingent on future
employee services and acquisition-related costs.
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A portion of the consideration may be contingent on the outcome of future events

or the acquired entitys performance (contingent consideration). Contingent
consideration is also recognised at its fair value at the date of acquisition. The
accounting for contingent consideration after the date of acquisition depends on
whether it is classified as a liability (re-measured to fair value each reporting
period through profit and loss) or as equity (no subsequent remeasurement). The
classification as either a liability or equity is determined with reference to the
guidance in IAS 32.
Goodwill is recognised for the future economic benefits arising from assets
acquired that are not individually identified and separately recognised. Goodwill
is the difference between the consideration transferred, the amount of any
non-controlling interest in the acquiree and the acquisition-date fair value of any
previous equity interest in the acquiree over the fair value of the identifiable net
assets acquired. If the non-controlling interest is measured at its fair value,
goodwill includes amounts attributable to the non-controlling interest. If the
non-controlling interest is measured at its proportionate share of identifiable net
assets, goodwill includes only amounts attributable to the controlling interest
that is the parent.
Goodwill is recognised as an asset and tested annually for impairment, or more
frequently if there is an indication of impairment.
In rare situations for example, a bargain purchase as a result of a distressed sale
it is possible that no goodwill will result from the transaction. Rather, a gain
will be recognised.
Business combinations excluded from IFRS 3s scope, for example those involving
businesses under common control, have a policy choice of either using the
acquisition accounting method outlined in IFRS 3 or using predecessor accounting.
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28 Disposal of subsidiaries, businesses and non-current assets

IFRS 5
IFRS 5 is relevant when any disposal occurs or is planned including distribution
of non-current assets to shareholders. The held-for-sale criteria in IFRS 5 apply to
non-current assets (or disposal groups) whose value will be recovered principally
through sale rather than through continuing use. The criteria do not apply to
assets that are being scrapped, wound down or abandoned.
IFRS 5 defines a disposal group as a group of assets to be disposed of, by sale or
otherwise, together as a group in a single transaction, and liabilities directly
associated with those assets that will be transferred in the transaction.
The non-current asset (or disposal group) is classified as held for sale if it is
available for immediate sale in its present condition and its sale is highly
probable. A sale is highly probable where: there is evidence of management
commitment; there is an active programme to locate a buyer and complete the
plan; the asset is actively marketed for sale at a reasonable price compared to its
fair value; the sale is expected to be completed within 12 months of the date of
classification; and actions required to complete the plan indicate that it is unlikely
that there will be significant changes to the plan or that it will be withdrawn.
A non-current asset (or disposal group) is classified as held for distribution to
owners when the entity is committed to such distribution (that is, the assets must
be available for immediate distribution in their present condition and the
distribution must be highly probable). For a distribution to be highly probable,
actions to complete the distribution should have been initiated and should be
expected to be completed within one year from the date of classification. Actions
required to complete the distribution should indicate that it is unlikely that
significant changes to the distribution will be made or that the distribution will
be withdrawn. The probability of shareholders approval (if required in the
jurisdiction) should be considered in the assessment of highly probable.
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Non-current assets (or disposal groups) classified as held for sale or as held for
distribution are:
measured at the lower of the carrying amount and fair value less costs
tosell;
not depreciated or amortised; and
presented separately in the balance sheet (assets and liabilities should not
beoffset).
A discontinued operation is a component of an entity that can be distinguished
operationally and financially for financial reporting purposes from the rest of the
entity and:
represents a separate major line of business or geographical area of operation;
is part of a single co-ordinated plan to dispose of a separate major line of
business or major geographical area of operation; or
is a subsidiary acquired exclusively with a view for resale.
An operation is classified as discontinued only at the date on which the operation
meets the criteria to be classified as held for sale or when the entity has disposed
of the operation. Although balance sheet information is neither restated nor
remeasured for discontinued operations, the statement of comprehensive income
information does have to be restated for the comparative period.
Discontinued operations are presented separately in the income statement and
the cash flow statement. There are additional disclosure requirements in relation
to discontinued operations.
The date of disposal of a subsidiary or disposal group is the date on which control
passes. The consolidated income statement includes the results of a subsidiary or
disposal group up to the date of disposal; the gain or loss on disposal is the
difference between (a) the carrying amount of the net assets plus any attributable
goodwill and amounts accumulated in other comprehensive income (for
example, foreign translation adjustments and available-for-sale reserves); and (b)
the proceeds of sale.
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29 Equity accounting IAS 28

IAS 28 requires that interests in such entities are accounted for using the equity
method of accounting. An associate is an entity in which the investor has
significant influence, but which is neither a subsidiary nor a joint venture of the
investor. Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but not to control or joint control those
policies. It is presumed to exist when the investor holds at least 20% of the
investees voting power. It is presumed not to exist when less than 20% is held.
These presumptions may be rebutted.
A revised version of IAS 28 was issued following the publication of IFRS 10,
IFRS 11, and IFRS 12 also includes the requirement to equity account interests in
joint ventures. A joint venture is a joint arrangement where the parties that have
joint control of the arrangement have rights to the arrangements net assets.
These revisions applied from 1 January 2013 (1 January 2014 for EU entities).
Associates and joint ventures are accounted for using the equity method unless:
they meet the criteria to be classified as held for sale under IFRS 5 or
the investment in associate or joint venture is held by:
(a) venture capital organisations; or
(b) mutual funds, unit trusts and similar entities including investment-linked
insurance funds.
This exemption from using the equity method is available if the investments are
designated as at fair value, with changes in fair value recognised in profit or loss or
classified as held for trading and accounted for in accordance with IAS 39/IFRS 9.
Under the equity method, the investment in the associate or joint venture is initially
carried at cost. It is increased or decreased to recognise the investors share of the
profit or loss of the associate or joint venture after the date of acquisition.
Investments in associates or joint ventures are classified as non-current assets
and presented as a single line item in the balance sheet (inclusive of any notional
goodwill arising on acquisition). Investments in associates or joint ventures are
tested for impairment in accordance with IAS 36 as single assets if there are
impairment indicators under IAS 39.
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If an investors share of its associates or joint ventures losses exceeds the

carrying amount of the investment, the carrying amount of the investment is
reduced to nil. Recognition of further losses are discontinued, unless the investor
has an obligation to fund the associate or joint venture or the investor has
guaranteed to support the associate or joint venture.
In the separate (non-consolidated) financial statements of the investor, the
investments in associates or joint venture are carried at cost at cost, in accordance
with IAS 39/IFRS 9 or using the equity method (under the 2014 amendment that
is now EU-endorsed).
30 Joint arrangements IFRS 11

A joint arrangement is a contractual arrangement where at least two parties
agree to share control over the activities of the arrangement. Unanimous consent
towards decisions about relevant activities between the parties sharing control is
a requirement in order to meet the definition of joint control.
Joint arrangements can be joint operations or joint ventures. The classification is
principle based and depends on the parties exposure in relation to the arrangement.
When the parties exposure to the arrangement only extends to the net assets of
the arrangement, the arrangement is a joint venture.
Joint operators have rights to assets and obligations for liabilities. Joint
operations are often not structured through separate vehicles.
When a joint arrangement is included in a separate vehicle, it can be either a joint
operation or a joint venture. In such cases, further analysis is required on the
legal form of the separate vehicle, the terms and conditions included in the
contractual agreement and sometimes, other facts and circumstances. This is
because in practice, the latter two can override the principles derived from the
legal form of the separate vehicle.
Joint operators account for their rights to assets and obligations for liabilities. Joint
ventures account for their interest by using the equity method of accounting.
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Other subjects
Other subjects
31 Related-party disclosures IAS 24
Under IAS 24, disclosures are required in respect of an entitys transactions with
related parties. Related parties include:
Parents.
Subsidiaries.
Fellow subsidiaries.
Associates of the entity and other members of the group.
Joint ventures of the entity and other members of the group.
Members of key management personnel of the entity or of a parent of the
entity (and close members of their families).
Persons with control, joint control or significant influence over the entity (and
close members of their families).
Post-employment benefit plans.
Entities (or any of their group members) providing key management personnel
services to the entity or its parent.
Finance providers are not related parties simply because of their normal dealings
with the entity.
Management discloses the name of the entitys parent and, if different, the
ultimate controlling party (which could be a person). Relationships between a
parent and its subsidiaries are disclosed irrespective of whether there have been
transactions with them.
Where there have been related party transactions during the period,
management discloses the nature of the relationship, as well as information
about the transactions and outstanding balances, including commitments,
necessary for users to understand the potential impact of the relationship on the
financial statements. Disclosure is made by category of related party and by major
type of transaction. Items of a similar nature may be disclosed in aggregate,
except when separate disclosure is necessary for an understanding of the effects
of related party transactions on the entitys financial statements.
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Other subjects
Management only discloses that related party transactions were made on terms
equivalent to those that prevail in arms length transactions if such terms can
besubstantiated.
An entity is exempt from the disclosure of transactions (and outstanding
balances) with a related party that is either a government that has control, joint
control or significant influence over the entity or is another entity that is under
the control, joint control or significant influence of the same government as the
entity. Where the entity applies the exemption, it discloses the name of the
government and the nature of its relationship with the entity. It also discloses the
nature and amount of each individually significant transaction and the
qualitative or quantitative extent of any collectively significant transactions.
32 Cash flow statements IAS 7

The statement of cash flows (cash flow statement) is one of the primary
statements in financial reporting (along with the statement of comprehensive
income, the balance sheet and the statement of changes in equity). It presents the
generation and use of cash and cash equivalents by category (operating,
investing and finance) over a specific period of time. It provides users with a basis
to assess the entitys ability to generate and utilise its cash.
Operating activities are the entitys revenue-producing activities. Investing
activities are the acquisition and disposal of long-term assets (including business
combinations) and investments that are not cash equivalents. Financing activities
are changes in equity and borrowings.
Management may present operating cash flows by using either the direct method
(gross cash receipts/payments) or the indirect method (adjusting net profit or loss
for non-operating and non-cash transactions, and for changes in working capital).
Cash flows from investing and financing activities are reported separately gross
(that is, gross cash receipts and gross cash payments) unless they meet certain
specified criteria capital.
The cash flows arising from dividends and interest receipts and payments are
classified on a consistent basis and are separately disclosed under the activity
appropriate to their nature. Cash flows relating to taxation on income are
classified and separately disclosed under operating activities unless they can be
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Other subjects
specifically attributed to investing or financing activities.

The total that summarises the effect of the operating, investing and financing cash
flows is the movement in the balance of cash and cash equivalents for the period.
Separate disclosure is made of significant non-cash transactions (such as the
issue of equity for the acquisition of a subsidiary or the acquisition of an asset
through a finance lease). Non-cash transactions include impairment losses/
reversals; depreciation; amortisation; fair value gains/losses; and income
statement charges for provisions.
33 Interim financial reporting IAS 34

There is no IFRS requirement for an entity to publish interim financial
statements. However, a number of countries either require or recommend their
publication, in particular for public companies.
Entities may either prepare full IFRS financial statements (conforming to the
requirements of IAS 1) or condensed financial statements. Condensed reporting
is the more common approach. Condensed financial statements include a
condensed statement of financial position (balance sheet), a condensed statement
or statements of profit or loss and other comprehensive income (income
statement and statement of other comprehensive income, if presented
separately), a condensed statement of cash flows, a condensed statement of
changes in equity and selected explanatory notes.
An entity generally uses the same accounting policies for recognising and
measuring assets, liabilities, revenues, expenses and gains and losses at interim
dates as those to be used in the current year annual financial statements.
There are special measurement requirements for certain costs that can only be
determined on an annual basis (for example, items such as tax that is calculated
based on an estimated full-year effective rate), and the use of estimates in the
interim financial statements. An impairment loss recognised in a previous
interim period in respect of goodwill, or an investment in either an equity
instrument or a financial asset carried at cost, is not reversed.
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Other subjects
As a minimum, current period and comparative figures (condensed or complete)

are disclosed as follows:
Statement of financial position (balance sheet) as of the current interim
period end with comparatives for the immediately preceding year end.
Statement of profit or loss and other comprehensive income (or, if presented
separately, income statement and statement of other comprehensive income)
current interim period, financial year to date and comparatives for the same
preceding periods (interim and year to date).
Cash flow statement and statement of changes in equity financial year to date
with comparatives for the same year to date period of the preceding year.
Explanatory notes.
IAS 34 sets out criteria to determine what information should be disclosed in the
interim financial statements. These include:
materiality to the overall interim financial statements;
unusual or irregular items;
changes since previous reporting periods that have a significant effect on the
interim financial statements (of the current or previous reporting financial
year); and
relevance to the understanding of estimates used in the interim financial
statements.
The overriding objective is to ensure that an interim financial report includes all
information that is relevant to understanding an entitys financial position and
performance during the interim period.
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Other subjects
34 Service concession arrangements SIC 29 and IFRIC 12

There is no specific IFRS that applies to public-to-private service concession
arrangements for delivery of public services. IFRIC 12 interprets various
standards in setting out the accounting requirements for service concession
arrangements while SIC 29 contains disclosure requirements.
IFRIC 12 applies to public-to-private service concession arrangements in which
the public sector body (the grantor) controls and/or regulates the services
provided with the infrastructure by the private sector entity (the operator).
The concession arrangement also addresses to whom the operator should provide
the services and at what price. The grantor controls any significant residual
interest in the infrastructure.
As the infrastructure is controlled by the grantor, the operator does not recognise
the infrastructure as its property, plant and equipment; nor does the operator
recognise a finance lease receivable for leasing the public service infrastructure
to the grantor, regardless of the extent to which the operator bears the risk and
rewards incidental to ownership of the assets.
The operator recognises a financial asset to the extent that it has an unconditional
contractual right to receive cash irrespective of the usage of the infrastructure.
The operator recognises an intangible asset to the extent that it receives a right
(a licence) to charge users of the public service.
Under both the financial asset and the intangible asset models, the operator
accounts for revenue and costs relating to construction or upgrade services in
accordance with IAS 11. The operator recognises revenue and costs relating to
operation services in accordance with IAS 18. Where the operator is applying IFRS
15, it recognises, and measures, revenue for the services that it performs, in
accordance with IFRS 15. Any contractual obligation to maintain or restore
infrastructure, except for upgrade services, is recognised in accordance with IAS 37.
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35 Agriculture IAS 41
Agricultural activity is defined as the management of biological transformation
and harvest of biological assets (living animals and plants) for sale or for
conversion into agricultural produce (harvested product of biological assets) or
into additional biological assets.
Biological assets that meet the definition of bearer plants are measured either at
cost or revalued amounts, less accumulated depreciation and impairment losses
under IAS 16.
All other biological assets, including produce growing on a bearer plant are
usually measured at fair value less costs to sell, with the change in the carrying
amount reported as part of profit or loss from operating activities. Agricultural
produce harvested from an entitys biological assets is measured at fair value less
costs to sell at the point of harvest.
The fair value is measured in terms of IFRS 13.
One of the most significant changes with regard to the fair value measurement of
biological assets as a result of the introduction of IFRS 13 is the market to which
the entity should look when measuring fair value. Before IFRS 13, IAS 41
required the use of entity-specific measures when measuring fair value. IFRS 13
looks to the principal market for the asset. The fair value measurement should
represent the price in that market (whether that price is directly observable or
estimated using another valuation technique), even if the price in a different
market is potentially more advantageous at the measurement date. [IFRS 13 para
18]. In the absence of a principal market, the entity should use the price in the
most advantageous market for the relevant asset.
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36 Extractive industries IFRS 6 (extractive industries)

IFRS 6 addresses the financial reporting for the exploration for and evaluation of
mineral resources. It does not address other aspects of accounting by entities
engaged in the exploration for and evaluation of mineral reserves (such as
activities before an entity has acquired the legal right to explore or after the
technical feasibility and commercial viability to extract resources have been
demonstrated). Activities outside the scope of IFRS 6 are accounted for according
to the applicable standards (such as IAS 16, IAS 37 and IAS 38).
The accounting policy adopted for the recognition of exploration and evaluation
assets should result in information that is relevant and reliable. As a concession,
certain further rules of IAS 8 need not be applied. This permits companies in the
extractive sector to continue, for the time being, to apply policies that were
followed under national GAAP that would not comply with the requirements of
IFRS. The accounting policy may be changed only if the change makes the
financial statements more relevant and no less reliable, or more reliable and no
less relevant in other words, if the new accounting policy takes it closer to the
requirements in the IASBs Framework.
Exploration and evaluation assets are initially measured at cost. They are
classified as tangible or intangible assets, according to the nature of the assets
acquired. Management applies that classification consistently. After
recognition, management applies either the cost model or the revaluation
model to the exploration and evaluation assets, based on IAS 16 or IAS 38,
according to nature of the assets. As soon as technical feasibility and
commercial viability are determined, the assets are no longer classified as
exploration and evaluation assets.
The exploration and evaluation assets are tested for impairment when facts and
circumstances suggest that the carrying amounts may not be recovered. The
assets are also tested for impairment before reclassification out of exploration
and evaluation. The impairment is measured, presented and disclosed according
to IAS 36, except that exploration and evaluation assets are allocated to
cash-generating units or groups of cash-generating units either of which must be
no larger than a segment.
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Management discloses the accounting policy adopted, as well as the amount of

assets, liabilities, income and expense and investing cash flows arising from the
exploration and evaluation of mineral resources.
IFRIC 20, Stripping costs in the production phase of a surface mine, applies to waste
removal costs incurred in surface mining activity during the production phase.
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Index
Index by standard and interpretation

Standards Page
IFRS 1
First-time adoption of International Financial Reporting Standards
IFRS 2
Share-based payment
40
IFRS 3
Business combinations
58
IFRS 4
Insurance contracts
26
IFRS 5
Non-current assets held for sale and discontinued operations
61
IFRS 6
Extractive industries
71
IFRS 7
Financial instruments: Disclosures
14
IFRS 8
Operating segments
36
IFRS 9
Financial instruments
14
IFRS 10 Consolidated financial statements
57
IFRS 11
Joint arrangements
64
IFRS 12
Disclosure of interests in other entities
57
IFRS 13
Fair value measurement
14
IFRS 15
Revenue from contracts with customers
27
IFRS 16
Leases IFRS 16
49
IAS 1
Presentation of financial statements
IAS 2
Inventories
51
IAS 7
Cash flow statements
66
IAS 8
Accounting policies, changes in accounting estimates and errors
12
IAS 10
Events after the balance sheet date
55
IAS 11
Construction contracts
27
IAS 12
Income taxes
42
IAS 16
Property, plant and equipment
49
IAS 17
Leases
49
IAS 18
Revenue
27
IAS 19
Employee benefits
37
IAS 20
Accounting for government grants and disclosure of government assistance
27
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Index
IAS 21
The effects of changes in foreign exchange rates
25
IAS 23
Borrowing costs
47
IAS 24
Related-party disclosures
65
IAS 27
58
IAS 28
Investment in associates
63
IAS 29
Financial reporting in hyperinflationary economies
25
IAS 32
Financial instruments: presentation
14
IAS 33
Earnings per share
44
IAS 34
Interim financial reporting
67
IAS 36
Impairment of assets
48
IAS 37
Provisions, contingent liabilities and contingent assets
52
IAS 38
Intangible assets
45
IAS 39
Financial instruments: Recognition and measurement
14
IAS 40
Investment property
47
IAS 41
Agriculture
70
Interpretations
IFRIC 12 Service concession arrangements
69
IFRIC 13 Customer loyalty programmes
28
IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements

and their interaction
40
IFRIC 15 Agreements for the construction of real estate
36
IFRIC 18 Transfer of assets from customers
29
IFRIC 20 Stripping costs in the production phase of a surface mine
72
IFRIC 21 Levies
54
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This publication has been prepared for general guidance on matters of interest only, and does not constitute
professional advice. You should not act upon the information contained in this publication without obtaining
specific professional advice. No representation or warranty (express or implied) is given as to the accuracy
or completeness of the information contained in this publication, and, to the extent permitted by law,
PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability,
responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance
on the information contained in this publication or for any decision based on it.
2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to the UK member
firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see
www.pwc.com/structure for further details.
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Accounting rules and principles

Accounting principles and applicability of IFRS

First-time adoption of IFRS IFRS 1

Presentation of financial statements IAS 1

Accounting policies, accounting estimates and errors IAS 8

Fair value IFRS 13

7.1 Financial instruments Introduction, objectives and scope

Nature and characteristics of financial instruments

Embedded derivatives in host contracts

Classification of financial instruments

Financial liabilities and equity

Recognition and derecognition

Measurement of financial assets and liabilities

Hedge accounting under IAS 39

Presentation and disclosure

Foreign currencies and hyper-inflationary economies IAS 21 and IAS 29

Insurance contracts IFRS 4

10 Revenue and construction contracts IAS 18, IFRS 15, IAS 11

Segment reporting IFRS 8

Employee benefits IAS 19

Share-based payment IFRS 2

Earnings per share IAS 33

Balance sheet and related notes

Intangible assets IAS 38

Property, plant and equipment IAS 16

Investment property IAS 40

Impairment of assets IAS 36

Lease accounting IAS 17 and IFRS 16

Provisions and contingencies IAS 37

Events after the reporting period and financial commitments IAS 10

Share capital and reserves

Consolidated and separate financial statements

Consolidated financial statements IFRS 10 and IFRS 12

Separate financial statements IAS 27

Business combinations IFRS 3

28 Disposal of subsidiaries, businesses and non-current

Equity accounting IAS 28

Joint arrangements IFRS 11

Related-party disclosures IAS 24

Cash flow statements IAS 7

Interim financial reporting IAS 34

Service concession arrangements SIC 29 and IFRIC 12

Extractive industries IFRS 6 (extractive industries)

Index by standard and interpretation

Accounting rules and principles

Accounting rules and principles

Accounting rules and principles

3 First-time adoption of IFRS IFRS 1

Accounting rules and principles

The optional exemptions relate to:

Accounting rules and principles

The exceptions cover areas in which retrospective application of the IFRS

4 Presentation of financial statements IAS 1

Accounting rules and principles

Statement of financial position (balance sheet)

Accounting rules and principles

10 Revenue and construction contracts IAS 18, IFRS 15, IAS 11

28 Disposal of subsidiaries, businesses and non-current

7.1 Financial instruments Introduction, objectives and scope

10 Revenue and construction contracts IAS 18, IFRS 15, IAS 11