Académique Documents
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1
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Deloitte’s www.iasplus.com website provides comprehensive
information about international financial reporting in general and
IASB activities in particular. Unique features include:
• Daily news about financial reporting globally.
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• Links to several hundred international accounting websites.
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• Complete history of adoption of IFRSs in Europe.
• Updates on national accounting standards development.
3
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ARC Accounting Regulatory Committee of the EC =
IASC FOUNDATION
CESR Committee of European Securities Regulators 19 Trustees. Appoint, Oversee, Raise Funds
EEA European Economic Area (3 non-EU countries)
EC European Commission
EFRAG European Financial Reporting Advisory Group BOARD 12 Full-time and Two Part-time Members
Set Technical Agenda. Approve Standards,
EITF Emerging Issues Task Force (of FASB) Exposure Drafts, Interpretations
EU European Union (25 countries)
INTERNATIONAL
FASB Financial Accounting Standards Board (US) STANDARDS ADVISORY
FINANCIAL REPORTING
COUNCIL 50 Members
INTERPRETATIONS
GAAP Generally Accepted Accounting Principle(s) COMMITTEE 12 Members
IAS International Accounting Standard ADVISORY GROUPS Appoints
For Major Agenda Projects Reports to
IASB International Accounting Standards Board
Advises
IASC International Accounting Standards Committee
IASCF IASC Foundation (parent body of the IASB) mêçéçëÉÇ=`Ü~åÖÉë=íç=f^p_=píêìÅíìêÉ
IFAC International Federation of Accountants In November 2004, the IASC Foundation trustees proposed several
changes to the IASB structure, including:
IFRIC International Financial Reporting Interpretations
Committee of the IASB • expand the number of trustees from 19 to 22;
IFRS International Financial Reporting Standard • retain the current provision for two part-time IASB members;
• ease the required mix of backgrounds on the IASB. The current
IOSCO International Organization of Securities Commissions
minimums of five practising auditors, three preparers, three
SAC Standards Advisory Council (advisory to the IASB) users, and one academician would be changed to “an
appropriate mix of practical experience among auditors,
SEC Securities and Exchange Commission (US) preparers, users, and academics”, including at least one IASB
member who has recent experience in each of those fields.
SIC Standing Interpretations Committee of the IASC, and
interpretations issued by that committee • give trustees the right to comment on and make suggestions
about the IASB's agenda, but not authority to decide the
agenda; and
• increase the vote for exposure drafts, standards, and
interpretations from a simple majority to nine out of 14 IASB
members.
5
f^p_=`çåí~Åí=fåÑçêã~íáçå f^p_=`ÜêçåçäçÖó
International Accounting Standards Board 1973 Agreement to establish IASC signed by representatives of
30 Cannon Street, London EC4M 6XH, United Kingdom the professional accountancy bodies in Australia, Canada,
General Enquiries: France, Germany, Japan, Mexico, Netherlands, United
Kingdom/Ireland, and United States.
• Telephone: +44-20-7246-6410 Steering committees appointed for IASC’s first three
• Fax: +44-20-7246-6411 projects.
• General Email: iasb@iasb.org
• Office Hours: Monday-Friday 08:30-18:00 London time 1975 First final IAS published: IAS 1 (1975), Disclosure of
• Website: www.iasb.org Accounting Policies, and IAS 2 (1975), Valuation and
Presentation of Inventories in the Context of the Historical
Publications Department Orders and Enquiries: Cost System.
Sir David Tweedie IASB Chairman dtweedie@iasb.org 1989 European Accounting Federation (FEE) supports
international harmonisation and greater European
Thomas E. Jones IASB Vice Chairman tjones@iasb.org involvement in IASC. IFAC adopts a public sector guideline
to require government business enterprises to follow IAS.
Kevin Stevenson Director of Technical kstevenson@iasb.org
Activities 1994 Establishment of IASC Advisory Council approved, with
Wayne S. Upton Director of Research wupton@iasb.org responsibilities for oversight and finances.
Paul Pacter Director of ppacter@iasb.org 1995 European Commission supports the agreement between
Standards for SMEs IASC and International Organization of Securities
Commissions (IOSCO) to complete core standards and
concludes that IAS should be followed by European Union
multinationals.
1996 US SEC announces its support of the IASC’s objective to
develop, as expeditiously as possible, accounting standards
that could be used for preparing financial statements used
in cross-border offerings.
1997 Standing Interpretations Committee (SIC) is formed. 12
voting members. Mission to develop interpretations of IAS
for final approval by the IASC.
Strategy Working Party is formed to make
recommendations regarding the future structure and
operation of IASC.
1998 IFAC/IASC membership expands to 140 accountancy bodies
in 101 countries.
IASC completes the core standards with approval of IAS 39.
7
1999 G7 Finance Ministers and IMF urge support for IAS to rëÉ=çÑ=fcopë=^êçìåÇ=íÜÉ=tçêäÇ=
“strengthen the international financial architecture”.
=
IASC Board unanimously approves restructuring into 14- rëÉ=çÑ=fcopë=Ñçê=açãÉëíáÅ=oÉéçêíáåÖ==
member board (12 full-time) under an independent board
of trustees. _ó=iáëíÉÇ=`çãé~åáÉë=~ë=çÑ=OMMR=
2000 IOSCO recommends that its members allow multinational Country IFRSs Not IFRSs Required for Required for
issuers to use IASC standards in cross-border offerings and Permitted Permitted Some All Domestic
listings. Domestic Listed
Listed Companies
Ad hoc nominating committee is formed, chaired by US Companies
SEC Chairman Arthur Levitt, to nominate the Trustees who
Albania No stock exchange. Companies use Albanian GAAP.
will oversee the new IASB structure.
Argentina X
IASC member bodies approve IASC’s restructuring and a
Armenia X
new IASC Constitution.
Aruba X
Nominating Committee announces initial Trustees. Austria X
Trustees name Sir David Tweedie (chairman of the UK Australia X
Accounting Standards Board) as the first Chairman of the Bahamas X
restructured International Accounting Standards Board.
Bahrain Banks
2001 Members and new name of IASB announced. IASC Barbados X
Foundation formed. On 1 April 2001, the new IASB Bangladesh X
assumes its standard-setting responsibilities from the IASC. Belgium X X
Existing IAS and SIC adopted by IASB. Benin X
IASB moves into its new offices at 30 Cannon St., London. Bermuda X
IASB meets with chairs of its eight liaison national Bolivia X
accounting standard-setting bodies to begin coordinating Botswana X
agendas and setting out convergence goals. Brazil X
2002 SIC is renamed as the International Financial Reporting Brunei X
Interpretations Committee (IFRIC) with a mandate not only Darussalam
to interpret existing IASs and IFRSs but also to provide Bulgaria X
timely guidance on matters not addressed in an IAS or IFRS. Burkina Faso X
Europe requires IFRSs for listed companies starting 2005. Cambodia X
IASB and FASB issue joint agreement on convergence. Cayman Is. X
Canada X
2003 First final IFRS and first IFRIC draft Interpretation published. Chile X
Improvements project completed – major revisions to 14 China X
IASs. Cote D’Ivoire X
2004 Extensive discussions about IAS 39 in Europe, leading to EC Colombia X Proposed
endorsement with two sections of IAS 39 ‘carved out’. Costa Rica X
Croatia X
Webcasting of IASB meetings begins.
Cyprus X
First IASB discussion paper and first final IFRIC
Czech X
Interpretation.
Republic
IFRSs 2 through 6 are published. Denmark X
9
Country IFRSs Not IFRSs Required for Required for Country IFRSs Not IFRSs Required for Required for
Permitted Permitted Some All Domestic Permitted Permitted Some All Domestic
Domestic Listed Domestic Listed
Listed Companies Listed Companies
Companies Companies
Dominica X Latvia X
Dominican X Lebanon X
Republic Liechtenstein X
Ecuador X Lesotho X
Egypt X Lithuania X
El Salvador X Luxembourg X
Estonia X Macedonia X
Finland X Malawi X
Fiji X Mali X
France X Malta X
Germany X Malaysia X
Georgia X Mauritius X
Ghana X Mexico X
Greece X Moldova X
Guam No stock exchange. Companies use US GAAP. Myanmar X
Guatemala X Namibia X
Guyana X Netherlands X
Haiti X NL Antilles X
Honduras X Nepal X
Hong Kong X New Zealand 2007
Hungary X Niger X
Iceland X Norway X
India X Oman X
Indonesia X Pakistan X
Ireland X Panama X
Israel X Papua New X
Italy X Guinea
Jamaica X Peru X
Japan X Philippines X
Jordan X Poland X
Kazakhstan Banks Portugal X
Kenya X Romania All large
Korea (South) X companies
Kuwait X Russian X Phasing in
Kyrgyzstan X Federation 2004-7
Laos X Saudi Arabia X
11
Country IFRSs Not IFRSs Required for Required for
Permitted Permitted Some All Domestic rëÉ=çÑ=fcopë=áå=bìêçéÉ
Domestic Listed European Accounting Regulation Takes Effect in 2005
Listed Companies
Companies Listed companies. To implement a “financial reporting strategy”
Singapore X adopted by the European Commission in June 2000, the European
Slovenia X Union in 2002 approved an Accounting Regulation requiring all EU
Slovak X listed companies (about 9,000 companies in total) to follow IFRSs in
Republic their consolidated financial statements starting in 2005. In two limited
cases, member States may exempt certain companies temporarily
South Africa X
from the IFRS requirement – but only until 2007: (1) companies that
Spain X are listed both in the EU and on a non-EU exchange and that currently
Sri Lanka X use US GAAP as their primary accounting standards and (2)
Sweden X companies that have only publicly traded debt securities. Non-EU
Syria X companies listed on EU exchanges can continue to use their national
Swaziland X GAAPs until 2007. The IFRS requirement applies not only in the 25 EU
Switzerland X countries but also in the 3 European Economic Area countries. Most
Taiwan X large companies in Switzerland (not an EU or EEA member) already
use IFRS.
Tajikistan X
Tanzania X Unlisted companies. Member States may extend the IFRS
Thailand X requirement to non-listed companies and to company-only
Togo X statements. The tentative plans of the 28 EU/EEA countries regarding
Trinidad and X the use of IFRSs in the consolidated financial statements of unlisted
Tobago companies are as follows:
Tunisia X
IFRSs Required Cyprus, Malta, Slovakia
Turkey X
Uganda X IFRSs Permitted Austria, Belgium, Czech Republic, Denmark,
Ukraine X Estonia, Finland, France, Germany, Greece,
United Arab Banks Iceland, Italy, Ireland, Lithuania,
Emirates Luxembourg, Netherlands, Norway,
Portugal, Slovenia, Spain, Sweden, United
United X
Kingdom
Kingdom
United States X IFRSs Prohibited Latvia, Lithuania, Poland
Uruguay X
Uzbekistan X Endorsement of IFRSs for Use in Europe
Venezuela 2006 Under the EU Accounting Regulation, IFRSs must be endorsed for use
Vietnam X in Europe. The endorsement process involves the following steps:
Yugoslavia X
• EU translates the IFRSs into all European languages;
Zambia X
Zimbabwe X • the private-sector European Financial Reporting Advisory Group
(EFRAG) gives its views to the EC;
• the EC’s Accounting Regulatory Committee makes an
endorsement recommendation; and
• the 25-member European Commission formally votes to
endorse.
By the end of 2004, the EC had voted to endorse all IASs, IFRSs 1
through 5, and all Interpretations then in existence – but with two
13
carve-outs from IAS 39 Financial Instruments: Recognition and • joint staffing of all major projects;
Measurement. The carve-outs (1) prohibit use of the IAS 39 fair value
• short-term convergence projects;
option as it applies to liabilities, and (2) allow use of fair value hedge
accounting for interest rate hedges of core deposits on a portfolio • convergence inventory of every single difference with a plan to
eliminate as many as possible; and
basis.
• coordination of the activities of their respective interpretative
Enforcement of IFRSs in Europe bodies – EITF and IFRIC.
European securities markets are regulated by individual member rëÉ=çÑ=fcopë=áå=`~å~Ç~
states, subject to certain regulations adopted at the EU level. EU-wide
regulations include: Currently, domestic Canadian companies listed in the United States
are allowed to use US GAAP for domestic reporting, but not IFRSs. All
• Standards adopted by the Committee of European Securities other Canadian companies must use Canadian GAAP. Foreign issuers
Regulators, a consortium of national regulators. Standard No. 1, in Canada are permitted to use IFRSs or a limited group of non-
Enforcement of Standards on Financial Information in Europe, Canadian national GAAPs. The Canadian Institute of Chartered
sets out 21 high level principles that EU member states should Accountants has invited comments on whether it should continue to
adopt in enforcing IFRS. Proposed Standard No. 2, Coordination develop a separate Canadian GAAP or whether Canadian companies
of Enforcement Activities, proposes guidelines for implementing should be permitted or required to use IFRSs or US GAAP.
Standard No. 1.
• Proposed new Directive on Statutory Audit of Annual Accounts rëÉ=çÑ=fcopë=áå=^ëá~Jm~ÅáÑáÅ=`çìåíêáÉë
and Consolidated Accounts. The new Directive would replace
Asia-Pacific countries are taking a variety of approaches toward
the current 8th Directive and amend the 4th and 7th Directives.
convergence of GAAP for domestic companies with IFRS.
Among other things, the proposal would adopt International
Standards on Auditing throughout the EU. Requirement for IFRSs in Place of National GAAP
• Proposed amendments to EU directives that establish the Only Bangladesh requires IFRSs for domestic listed companies.
collective responsibility of board members for a company’s All National Standards Are Virtually Word-for-Word IFRSs
financial statements.
Australia, Hong Kong, and New Zealand are taking this approach.
rëÉ=çÑ=fcopë=áå=íÜÉ=råáíÉÇ=pí~íÉë Effective dates and transitions may differ from IFRSs. Australia and
New Zealand have eliminated some accounting policy options and
SEC Recognition of IFRSs
added some disclosures and guidance. Philippines has adopted word-
Of the approximately 13,000 companies whose securities are for-word all IASs that were effective in 2003 but has not yet adopted
registered with the US Securities and Exchange Commission, 1,200 the improvements or new IFRSs issued in 2003-2004.
are non-US companies. If these foreign companies submit IFRS or local Most National Standards Are Word-for-Word IFRSs
GAAP financial statements rather than US GAAP, a reconciliation of
earnings and net assets to US GAAP figures is required. Prior to 2005, Singapore has adopted most IFRSs word for word but has modified
there were about 50 IFRS filers with the SEC. Another 350 European several including IASs 2, 16, 17, 28, 31, and 40.
companies listed in the United States are expected to switch to IFRSs Some National Standards Are Close to Word-for-Word IFRSs
in their SEC filings in 2005. SEC staff have said that they will examine
those 2005 filings with a view toward eliminating the reconciliation India, Malaysia, Pakistan, Sri Lanka, and Thailand have adopted
requirement for foreign IFRS filers by the end of the decade, or selected IFRSs quite closely, but significant differences exist in other
possibly earlier. national standards, and there are time lags in adopting new or
amended IFRSs.
IASB-FASB Convergence
IFRSs Are Looked to in Developing National GAAP
In October 2002, the IASB and US Financial Accounting Standards
This is done to varying degrees in China, Indonesia, Japan, Korea,
Board embarked on a joint programme to converge US and
Taiwan, and Vietnam, but significant differences exist.
international accounting standards to the maximum extent possible.
Activities that are part of that programme include: Some Domestic Listed Companies May Use IFRSs
• twice-yearly joint meetings; This is true in China, Hong Kong, Laos, and Myanmar.
• aligned agendas;
15
jÉãÄÉêë=çÑ=íÜÉ=f^p_= James J. Leisenring. Liaison to the US standard setter. Jim Leisenring
has worked on issues related to accounting standard setting over the
Sir David Tweedie, Chairman. Sir David served as the first full-time last three decades, as the Vice Chairman and most recently as Director
Chairman of the UK Accounting Standards Board from 1990-2000. of International Activities of the FASB in his home country. While at
Before that, he was national technical partner for KPMG and was a FASB, Mr. Leisenring served for several years as FASB’s observer at
professor of accounting in his native Scotland. He has worked on meetings of the former IASC Board. Term expires 30 June 2005.
international standard setting issues both as the first Chairman of the
G4+1 and as a member of the IASC. Term expires 30 June 2006. Warren McGregor. Liaison to the Australian and New Zealand
standard setters. Mr. McGregor developed an intimate knowledge of
Thomas E. Jones, Vice-Chairman. As the former Principal Financial standard setting issues with his work over 20 years at the Australian
Officer of Citicorp and Chairman of the IASC Board, Tom Jones brings Accounting Research Foundation, where he ultimately became the
extensive experience in standard setting and the preparation of Chief Executive Officer. Term expires 30 June 2006.
financial accounts for financial institutions. A British citizen, Mr. Jones
has worked in Europe and the US. Term expires 30 June 2009. Patricia O’Malley. Liaison to the Canadian standard setter. Ms.
O’Malley was the first full-time Chair of the Accounting Standards
Mary E. Barth. As a part-time Board member, Mary Barth, a US Board of Canada. She has worked on issues related to global standard
citizen, retains her position as Senior Associate Dean of the Graduate setting since 1983 and brings vast experience on work with financial
School of Business at Stanford University. Professor Barth was instruments. Before joining the Canadian Board, Ms. O’Malley was a
previously a partner at Arthur Andersen. Term expires 30 June 2009. Technical Partner at KPMG in Canada. Term expires 30 June 2007.
Hans-Georg Bruns. Liaison to the German standard setter. Mr. Bruns John T. Smith. As a part-time member of the Board, Mr. Smith
has served as the Chief Accounting Officer for Daimler Chrysler and continues to be a partner at Deloitte & Touche (USA). He was a
has been head of a principal working group of his home country’s member of the FASB’s Emerging Issues Task Force, Derivatives
German Accounting Standards Committee. He was responsible for Implementation Group, and Financial Instruments Task Force. He
addressing the accounting issues related to the Daimler Chrysler served on the IASC Task Force on Financial Instruments and chaired
merger. Term expires 30 June 2006. the IASC’s IAS 39 Implementation Guidance Committee. He was a
Anthony T. Cope. Mr. Cope, a British citizen, joined the US Financial member of the IASC, SIC, and IFRIC. Term expires 30 June 2007.
Accounting Standards Board (FASB) in 1993. Prior to that, he worked Geoffrey Whittington. Liaison to the UK standard setter. Mr.
as a financial analyst in the United States for 30 years. As a member Whittington was the PricewaterhouseCoopers Professor of Financial
of the IASC Strategy Working Party, he was closely involved with the Accounting at Cambridge University. Previously he was a member of
IASC’s restructuring, and served as FASB’s observer at IASC Board the UK Monopolies and Merger Commission and a member of the UK
meetings for the IASC’s last five years. Term expires 30 June 2007. Accounting Standards Board in his native England. Term expires 30
Jan Engstrom. Jan Engstrom, a Swedish citizen, held senior financial June 2006.
and operating positions with the Volvo Group, including serving on Tatsumi Yamada. Liaison to the Japanese standard setter. Tatsumi
the management board and as Chief Financial Officer. He also was Yamada was a partner at ChuoAoyama Audit Corporation (a member
Chief Executive Officer of Volvo Bus Corporation. Term expires 30 firm of PricewaterhouseCoopers) in Tokyo. He brings extensive
June 2009. experience with international standard setting as a Japanese member
Robert P. Garnett. Mr. Garnett was the Executive Vice President of of the former IASC Board between 1996 and 2000. Term expires 30
Finance for Anglo American plc, a South African company listed on June 2006.
the London Stock Exchange. He has worked as a preparer and analyst
of financial statements in his native South Africa. Term expires 30 IASB members are appointed for terms of up to five years
June 2005. renewable once. At least five members must have
Gilbert Gelard. Liaison to the French standard setter. Having been a backgrounds as auditors, three as financial statement
partner at KPMG in his native France, Gilbert Gelard has extensive preparers, three as users of financial statements, and one as
experience with French industry. Mr. Gelard speaks eight languages an academician. There is no prescribed geographical mix.
and has been a member of the French standard-setting body (CNC). Twelve serve full time and two serve part time.
He also was a member of the former IASC Board. Term expires 30
June 2005.
17
bÑÑÉÅíáîÉ=a~íÉë=çÑ=oÉÅÉåí=mêçåçìåÅÉãÉåíë pìãã~êáÉë=çÑ=`ìêêÉåí=pí~åÇ~êÇë
New or Revised IFRS Effective Date* On pages 20-63 we summarise the provisions of all International
Financial Reporting Standards issued through mid-December 2004
IFRS 1 First-time Adoption of First IFRS financial statements and effective for 2005. These summaries are intended as general
International Financial Reporting for a period beginning on or information and are not a substitute for reading the entire standard.
Standards after 1 January 2004
− Management may also consider the most Disclosures about the date when the financial
recent pronouncements of other standard- statements were authorised for issue and about
setting bodies that use a similar conceptual events after the balance sheet date.
framework to develop accounting Summary • Events after the balance sheet date are those
standards, other accounting literature, and events, both favourable and unfavourable,
accepted industry practices. that occur between the balance sheet date
• Apply accounting policies consistently to and the date when the financial statements
similar transactions. are authorised for issue.
• Make a change in accounting policy only if it • Adjusting events – adjust the financial
is required by a standard or interpretation or statements to reflect those events that
results in more relevant and reliable provide evidence of conditions that existed at
information. balance sheet date (such as resolution of a
court case after balance sheet date).
• If a change in accounting policy is required by
a standard or interpretation, follow that • Non-adjusting events – do not adjust the
pronouncement’s transition requirements. If financial statements to reflect events that
23
arose after the balance sheet date (such as a to the extent that contract costs incurred are
decline in market prices after year end, which expected to be recovered, and contract costs
does not change the valuation of investments should be expensed as incurred.
at balance sheet date). • If it is probable that total contract costs will
• Dividends proposed or declared on equity exceed total contract revenue, the expected
instruments after the balance sheet date loss should be recognised immediately.
should not be recognised as a liability at the
balance sheet date. Disclosure is required. Interpretations None.
29
payments and the fair value of the asset. Arrangements that depend on a specific asset or
− Depreciation policy – as for owned assets. convey the right to control a specific asset
generally are leases under IAS 17.
− Finance lease payment – apportioned
between interest and reduction in liability.
• Finance leases – Lessor’s Accounting: f^p=NU=oÉîÉåìÉ=EêÉîáëÉÇ=NVVPF
− Recognise as a receivable at an amount
equal to the net investment in the lease. Effective Date Periods beginning on or after 1 January 1995.
− Recognise finance income based on a Objective To prescribe the accounting treatment for revenue
pattern reflecting a constant periodic rate arising from certain types of transactions and
of return on the lessor’s net investment. events.
• Operating leases – Lessee’s Accounting: Summary • Revenue should be measured at the fair value
− Recognise lease payments as an expense in of the consideration received/receivable.
the income statement on a straight-line
• Recognition:
basis over the lease term, unless another
systematic basis is more representative of − From sale of goods: When significant risks
the pattern of benefit. and rewards have been transferred to
buyer, loss of effective control by seller, and
• Operating leases – Lessor’s Accounting: amount can be reliably measured.
− Assets held for operating leases should be − From sale of services: Percentage of
presented in the lessor’s balance sheet completion method.
according to the nature of the asset.
− For interest, royalties, and dividends:
− Lease income should be recognised on a Recognised when it is probable that
straight-line basis over the lease term, economic benefits will flow to the entity:
unless another systematic basis is more
representative of the pattern of benefit. Interest – on a time proportion basis,
taking into account the effective yield on
• Lessors must spread initial direct costs over the asset.
the lease term (immediate expensing
prohibited). Royalties – on an accrual basis in
accordance with the substance of the
• Accounting for sale and leaseback agreement.
transactions depends on whether these are
Dividends – when shareholder’s right to
essentially finance or operating leases.
receive payment is established.
Interpretations SIC 15, Operating Leases – Incentives • Disclosure requirements include revenue
Lease incentives (such as rent-free periods) should recognition accounting policies.
be recognised by both the lessor and the lessee
as a reduction of rental income and expense, Interpretations SIC 31, Revenue – Barter Transactions Involving
respectively, over the lease term. Advertising Services
Recognise revenue from barter transactions
SIC 27, Evaluating the Substance of
involving advertising services only if substantial
Transactions Involving the Legal Form of a
revenue is also received from non-barter
Lease
transactions.
If a series of transactions involves the legal form
of a lease and can only be understood with
reference to the series as a whole, then the series f^p=NV=bãéäçóÉÉ=_ÉåÉÑáíë=EêÉîáëÉÇ=OMMMF
should be accounted for as a single transaction.
IFRIC 4, Determining Whether an Effective Date Periods beginning on or after 1 January 1999.
Arrangement Contains a Lease Certain revisions effective on or after 1 January
31
2001; other revisions effective for periods ending insurance policies.
31 May 2002. • Long-term employee benefits should be
Objective To prescribe the accounting and disclosure for recognised and measured the same way as
employee benefits, including short-term benefits post-employment benefits under a defined
(wages, annual leave, sick leave, annual profit- benefit plan. However, unlike defined benefit
sharing, bonuses, and non-monetary benefits); plans, the deferral of actuarial gains or losses
pensions; post-employment life insurance and and past service costs is prohibited.
medical benefits; and other long-term employee • Termination benefits should be recognised
benefits (long-service leave, disability, deferred when the entity is demonstrably committed to
compensation, and long-term profit-sharing and the termination of one or more employees
bonuses). before the normal retirement date or to
provide termination benefits as a result of an
Summary • Underlying principle: the cost of providing
offer made to encourage voluntary
employee benefits should be recognised in the
redundancy.
period in which the benefit is earned by the
employee, rather than when it is paid or • Equity compensation benefits are covered by
payable. IFRS 2, not IAS 19.
• Short-term employee benefits (payable within Interpretations None.
12 months) should be recognised as an
expense in the period in which the employee
renders the service. f^p=OM=^ÅÅçìåíáåÖ=Ñçê=dçîÉêåãÉåí=dê~åíë=~åÇ=aáëÅäçëìêÉ=çÑ=
• Profit-sharing and bonus payments are to be dçîÉêåãÉåí=^ëëáëí~åÅÉ
recognised only when the entity has a
constructive obligation to pay them and the Effective Date Periods beginning on or after 1 January 1984.
costs can be reliably estimated.
Objective To prescribe the accounting for, and disclosure of,
• Post-employment benefit plans (such as government grants and other forms of
pensions and health care) are categorised as government assistance.
either defined contribution plans or defined
benefit plans. Summary • Recognise government grants only when there
is reasonable assurance that the entity will
• Under defined contribution plans, expenses
comply with the conditions attached to the
are recognised in the period the contribution
grants, and the grants will be received. Non-
is payable.
monetary grants are usually recognised at fair
• Under defined benefit plans, a liability is value, though recognition at nominal value is
recognised in the balance sheet equal to the permitted.
net of:
• Apply the income approach systematically
− the present value of the defined benefit (recognise income over periods necessary to
obligation (the present value of expected match it with the related costs), and not the
future payments required to settle the capital approach (credited directly to
obligation resulting from employee service shareholders’ equity).
in the current and prior periods);
• Income-related grants may either be
− deferred actuarial gains and losses and presented as a credit in the income statement
deferred past service cost; and or deduction in reporting the related expense.
− the fair value of any plan assets at the • Asset-related grants may be presented as
balance sheet date. either deferred income in the balance sheet,
• Plan assets include assets held by a long-term or deducted in arriving at the carrying amount
employee benefit fund and qualifying of the asset.
33
• Repayment of a government grant is operation are recognised in the
accounted for as a change in accounting consolidated financial statements that
estimate with different treatment for income- include the foreign operation in a
and asset-related grants. separate component of equity; they will
be recognised in profit or loss on disposal
of the net investment.
Interpretations SIC 10, Government Assistance – No Specific • The results and financial position of an entity
Relation to Operating Activities whose functional currency is not the currency
Government assistance to entities that is aimed at of a hyperinflationary economy are translated
encouragement or long-term support of business into a different presentation currency using
activities either in certain regions or industry the following procedures:
sectors should be treated as a government grant − assets and liabilities for each balance sheet
under IAS 20. presented (including comparatives) are
translated at the closing rate at the date of
that balance sheet;
f^p=ON=qÜÉ=bÑÑÉÅíë=çÑ=`Ü~åÖÉë=áå=cçêÉáÖå=bñÅÜ~åÖÉ=o~íÉë=
− income and expenses for each income
EêÉîáëÉÇ=OMMPF statement (including comparatives) are
translated at exchange rates at the dates of
Effective Date Annual periods beginning on or after 1 January the transactions; and
2005.
− all resulting exchange differences are
Objective To prescribe the accounting treatment for an recognised as a separate component of
entity’s foreign currency transactions and foreign equity.
operations.
• Special rules for translating into a presentation
Summary • First, determine reporting entity’s functional currency the results and financial position of
currency. an entity whose functional currency is
hyperinflationary.
• Then translate all foreign currency items into
the functional currency: Interpretations SIC 7, Introduction of the Euro
− At date of transaction, record using the Explained how to apply IAS 21 when the Euro was
transaction-date exchange rate for initial first introduced.
recognition and measurement.
− At subsequent balance sheet dates:
f^p=OO=_ìëáåÉëë=`çãÄáå~íáçåë=EêÉîáëÉÇ=NVVUF
use closing rate for monetary items;
use transaction-date exchange rates for Effective Date Replaced by IFRS 3 in 2003, effective 1 April 2004.
non-monetary items carried at historical
cost; and
use valuation-date exchange rates for f^p=OP=_çêêçïáåÖ=`çëíë
non-monetary items that are carried at
fair value. Effective Date Periods beginning on or after 1 January 1995.
− Exchange differences arising on settlement Objective To prescribe the accounting treatment for
of monetary items and on translation of borrowing costs.
monetary items at a rate different than
when initially recognised are included in net Summary • Borrowing costs include interest, amortisation
profit or loss, with one exception: of discounts or premiums on borrowings, and
exchange differences arising on monetary amortisation of ancillary costs incurred in the
items that form part of the reporting arrangement of borrowings.
entity’s net investment in a foreign • Two accounting models are allowed:
35
− Expense model: Charge all borrowing costs − Related party transactions.
to expense when incurred.
− Management compensation.
− Capitalisation model: Capitalise borrowing
costs directly attributable to the acquisition • Examples of related party transactions that
or construction of a qualifying asset, but must be disclosed:
only when it is probable that these costs − Purchases or sales of goods.
will result in future economic benefits to − Purchases or sales of assets.
the entity, and the costs can be measured
reliably. All other borrowing costs that do − Rendering or receiving of services.
not satisfy the conditions for capitalisation − Leases.
are to be expensed when incurred. − Transfers of research and development.
• A qualifying asset is one that requires a − Transfers under licence agreements.
substantial period of time to make it ready for
its intended use or sale. Examples include − Transfers under finance arrangements
manufacturing plants, investment properties, (including loans and equity contributions).
and some inventories. − Provision of guarantees or collateral.
• If funds are borrowed generally and used for − Settlement of liabilities on behalf of the
the purpose of obtaining the qualifying asset, entity or by the entity on behalf of another
apply a capitalisation rate (weighted average party.
of borrowing costs applicable to the general Interpretations None.
outstanding borrowings during the period) to
expenditure incurred during the period, to
determine the amount of borrowing costs f^p=OS=^ÅÅçìåíáåÖ=~åÇ=oÉéçêíáåÖ=Äó=oÉíáêÉãÉåí=_ÉåÉÑáí=
eligible for capitalisation. mä~åë
• Disclosure includes the accounting policy
adopted for borrowing costs. Effective Date Periods beginning on or after 1 January 1998.
Interpretations None. Objective To specify the measurement and disclosure
principles for the financial reports of retirement
benefit plans.
f^p=OQ=oÉä~íÉÇ=m~êíó=aáëÅäçëìêÉë=EêÉîáëÉÇ=OMMPF=
Summary • Sets out the reporting requirements for both
Effective Date Annual periods beginning on or after 1 January defined contribution and defined benefit
2005. plans, including a statement of net assets
available for benefits and disclosure of the
Objective To ensure that financial statements draw attention actuarial present value of promised benefits
to the possibility that financial position and results (split between vested and non-vested).
of operations may have been affected by the
• Specifies the need for actuarial valuation of
existence of related parties.
the benefits for defined benefits and the use
Summary • Related parties are parties that control or have of fair values for plan investments.
significant influence on the reporting entity, Interpretations None.
including parent companies, subsidiaries, joint
ventures, owners and their families, key
management personnel, and post-
employment benefit plans.
• Requires disclosure of:
− Relationships involving control, even when
there have been no transactions.
37
f^p=OT=`çåëçäáÇ~íÉÇ=~åÇ=pÉé~ê~íÉ=cáå~åÅá~ä=pí~íÉãÉåíë= f^p=OU=fåîÉëíãÉåíë=áå=^ëëçÅá~íÉë=EêÉîáëÉÇ=OMMPF
EêÉîáëÉÇ=OMMPF
Effective Date Annual periods beginning on or after 1 January
Effective Date Annual periods beginning on or after 1 January 2005.
2005.
Objective To prescribe the investor’s accounting for
Objective To prescribe requirements for preparing and investments in associates over which it has
presenting consolidated financial statements for a significant influence.
group of entities under the control of a parent.
Summary • Applies to all investments in which investor
To prescribe how to account for investments in has significant influence unless investor is
subsidiaries, jointly controlled entities, and venture capital firm, mutual fund, or unit
associates in separate financial statements. trust, in which case IAS 39 must be followed.
Summary • A subsidiary is an entity controlled by another • Investor must use the equity method for all
entity, known as the parent. Control is the investments in associates over which it has
power to govern the operating and financial significant influence.
policies. • Rebuttable presumption of significant
• Consolidated financial statements are financial influence if investment held, directly and
statements of a group (parent and indirectly, is more than 20% of associate.
subsidiaries) presented as those of a single • Under the equity method, the investment is
economic entity. initially recorded at cost. It is subsequently
• Consolidated financial statements must adjusted by the investor’s share of the
include all subsidiaries. No exemption for investee’s post acquisition change in net
“temporary control” or “subsidiary that assets. Investor’s income statement reflects its
operates under severe long-term funds share of the investee’s post-acquisition profit
transfer restrictions”. or loss.
• All entities in the group must use the same • Associate’s accounting policies must be the
accounting policies. same as those of the investor.
• Reporting dates of subsidiaries cannot be • Equity accounting is required in the separate
more than three months different from the financial statements of the investor even if
group reporting date. consolidated accounts are not required, for
example, because the investor has no
• Minority interest is reported in equity in the
subsidiaries. However, the investor does not
balance sheet and is not deducted in
apply the equity method when presenting
measuring the group’s profit or loss. However,
separate financial statements prepared in
group profit or loss is allocated between
accordance with IAS 27. Instead, the investor
minority and the parent’s shareholders on the
accounts for the investment either at cost or
face of the income statement.
as investments under IAS 39.
• In the parent’s separate financial statements:
• Requirement for impairment testing in
account for all of its investments in
accordance with IAS 36, Impairment of Assets.
subsidiaries either at cost or as investments
The impairment indicators in IAS 39 apply.
under IAS 39.
Interpretations None.
Interpretations SIC 12, Consolidation – Special Purpose Entities
An enterprise should consolidate a special purpose
entity (SPE) when, in substance, the enterprise f^p=OV=cáå~åÅá~ä=oÉéçêíáåÖ=áå=eóéÉêáåÑä~íáçå~êó=bÅçåçãáÉë
controls the SPE.
Effective Date Periods beginning on or after 1 January 1990.
39
Objective To prescribe specific standards for entities the structure or legal form of the JV activities.
reporting in the currency of a hyperinflationary Summary • Applies to all investments in which investor
economy, so that the financial information has joint control unless investor is venture
provided is meaningful. capital firm, mutual fund, or unit trust, in
Summary • The financial statements of an entity that which case IAS 39 must be followed.
reports in the currency of a hyperinflationary • The key characteristic of a JV is a contractual
economy should be stated in terms of the arrangement to share control. JVs may be
measuring unit current at the balance sheet classified as jointly controlled operations,
date. jointly controlled assets, or jointly controlled
• Comparative figures for prior period(s) should entities. Different recognition principles for
be restated into the same current measuring each type of JV:
unit. • Jointly controlled operations: Venturer
• Generally an economy is hyperinflationary recognises the assets it controls, and expenses
when there is 100% inflation over 3 years. and liabilities it incurs, and its share of income
earned, in both its separate and consolidated
Interpretations None. financial statements.
• Jointly controlled assets: Venturer recognises
its share of the joint assets, any liabilities that
f^p=PM=aáëÅäçëìêÉë=áå=cáå~åÅá~ä=pí~íÉãÉåíë=çÑ=_~åâë=~åÇ= it has incurred directly, and its share of any
páãáä~ê=fåëíáíìíáçåë liabilities incurred jointly with the other
venturers, income from the sale or use of its
Effective Date Periods beginning on or after 1 January 1991. share of the output of the joint venture, its
share of expenses incurred by the joint
Objective To prescribe appropriate presentation and
venture, and expenses incurred directly in
disclosure standards for banks and similar financial
respect of its interest in the joint venture.
institutions, as a supplement to the requirements
of other IFRSs. • Jointly controlled entities: Two accounting
policy choices are permitted:
Summary • Requires banks to classify items in the income
− Proportionate consolidation. Under this
statement and balance sheet by their nature,
method the venturer’s balance sheet
and to present assets in order of relative
includes its share of the assets that it
liquidity.
controls jointly and its share of the liabilities
• Identifies certain minimum income statement for which it is jointly responsible. Its income
and balance sheet line items for banks. statement includes its share of the income
• Disclosure requirements include concentration and expenses of the jointly controlled entity
of assets, liabilities, and off-balance items; − Equity method as described in IAS 28.
losses on loans and advances; contingencies;
asset pledges; and general banking risks. • In the venturer’s separate financial statements,
interests in joint ventures should be accounted
Interpretations None. for either at cost or as investments under IAS
39.
Interpretations SIC 13, Jointly Controlled Entities – Non-
f^p=PN=fåíÉêÉëíë=áå=gçáåí=sÉåíìêÉë=EêÉîáëÉÇ=OMMPF
Monetary Contributions by Venturers
Effective Date Annual periods beginning on or after 1 January Recognition of proportionate share of gains or
2005. losses on contributions of non-monetary assets is
generally appropriate.
Objective To prescribe the accounting treatment required
for interests in joint ventures (JVs), regardless of
41
deduction from equity, net of any related
f^p=PO=cáå~åÅá~ä=fåëíêìãÉåíëW=aáëÅäçëìêÉ=~åÇ=mêÉëÉåí~íáçå= income tax benefit.
EêÉîáëÉÇ=OMMPF • Disclosure requirements include:
Effective Date Annual periods beginning on or after 1 January − Risk management and hedging policies.
2005. − Hedge accounting policies and practices,
and gains and losses from hedges.
Objective To enhance users’ understanding of the
significance of on-balance sheet and off-balance − Terms and conditions of, and accounting
sheet financial instruments to an entity’s financial policies for, all financial instruments.
position, performance, and cash flows. − Information about exposure to interest rate
risk.
Summary • Issuer’s classification of an instrument either
as a liability or an equity instrument: − Information about exposure to credit risk.
− Based on substance, not form of the − Fair values of all financial assets and
instrument. financial liabilities, except those for which a
reliable measure of fair value is not
− Classification is made at the time of available.
issuance and is not subsequently altered.
− Information about derecognition, collateral,
− An instrument is a financial liability if the impairment, defaults and breaches, and
issuer may be obligated to deliver cash or reclassifications.
another financial asset or the holder has a
right to demand cash or another financial Interpretations IFRIC 2 Members' Shares in Co-operative
asset. An example is mandatorily Entities and Similar Instruments
redeemable preferred shares. These are liabilities unless the co-op has the legal
− An instrument that does not give rise to right not to redeem on demand.
such a contractual obligation is an equity
instrument. Useful DTT iGAAP 2005 Financial Instruments: IAS 32 and
Publication IAS 39 Explained
− Interest, dividends, gains, and losses
relating to an instrument classified as a Guidance on how to apply both of these complex
liability should be reported as income or standards, including illustrative examples, and
expense as appropriate. interpretations. Information at
www.iasplus.com/dttpubs/pubs.htm.
• At issuance, an issuer must classify separately
the debt and equity components of a single
compound instrument such as convertible f^p=PP=b~êåáåÖë=éÉê=pÜ~êÉ=EêÉîáëÉÇ=OMMPF
debt and debt issued with detachable rights or
warrants. Effective Date Annual periods beginning on or after 1 January
• A financial asset and a financial liability should 2005.
be offset and the net amount reported when,
and only when, an entity has a legally Objective To prescribe principles for determining and
enforceable right to set off the amounts, and presenting earnings per share (EPS) amounts in
intends either to settle on a net basis or order to improve performance comparisons
simultaneously. between different entities in the same period and
between different accounting periods for the
• Cost of treasury shares is deducted from same entity. Focus of IAS 33 is on the
equity, and resales of treasury shares are denominator of the EPS calculation.
equity transactions.
Summary • Applies to publicly traded entities, entities in
• Costs of issuing or reacquiring equity
the process of issuing such shares, and any
instruments (other than in a business
other entity voluntarily presenting EPS.
combination) are accounted for as a
43
• Present basic and diluted EPS on the face of
the income statement: f^p=PQ=fåíÉêáã=cáå~åÅá~ä=oÉéçêíáåÖ=
− For each class of ordinary shares. Effective Date Periods beginning on or after 1 January 1999.
− With equal prominence.
Objective To prescribe the minimum content of an interim
− For all periods presented. financial report (IFR) and the recognition and
• In consolidated financial statements, EPS measurement principles for an IFR.
reflects earnings attributable to the parent’s
shareholders. Summary • Applies only when the entity is required or
elects to publish an IFR in accordance with
• Dilution is a reduction in EPS or an increase in IFRSs.
loss per share on the assumption that
convertible instruments are converted, that • Local regulators (not IAS 34) mandate
options or warrants are exercised, or that − which entities should publish interim
ordinary shares are issued when specified financial reports;
conditions are met. − how frequently; and
• Basic EPS calculation: − how soon after the end of an interim
− Earnings numerator: Should be after period.
deduction of all expenses including tax and • An IFR is a complete or condensed set of
minority interests, and after deduction of financial statements for a period shorter than
preference dividends. an entity’s full financial year.
− Denominator: Weighted average number
• Minimum components of an IFR are a
of shares outstanding during the period.
condensed balance sheet, income statement,
• Diluted EPS calculation: statement of changes in equity, cash flow
− Earnings numerator: The net profit for the statement, and selected explanatory notes.
period attributable to ordinary shares is • Prescribes the comparative periods for which
increased by the after-tax amount of interim financial statements are required to be
dividends and interest recognised in the presented.
period in respect of the dilutive potential
• Materiality is based on interim financial data,
ordinary shares (such as options, warrants,
not forecasted annual amounts.
convertible securities, and contingent
insurance agreements), and adjusted for • The notes in an IFR should provide an
any other changes in income or expense explanation of events and transactions
that would result from the conversion of significant to understanding the changes since
the dilutive potential ordinary shares. the last annual financial statements.
− Denominator: Should be adjusted for the • Same accounting policies as annual.
number of shares that would be issued on
• Revenue and costs to be recognised when
the conversion of all of the dilutive they occur, not anticipated or deferred.
potential ordinary shares into ordinary
shares. • Change in accounting policy – restate
previously reported interim periods.
− Anti-dilutive potential ordinary shares are to
be excluded from the calculation.
Interpretations None
Interpretations None.
45
equivalent to those expected from the asset.
f^p=PR=aáëÅçåíáåìáåÖ=léÉê~íáçåë
• At each balance sheet date, review assets to
look for any indication that an asset may be
Effective Date Replaced by IFRS 5 in 2004, effective 2005. impaired. If impairment is indicated, calculate
recoverable amount.
47
Summary • Recognise a provision only when a past event f^p=PU=fåí~åÖáÄäÉ=^ëëÉíë=EêÉîáëÉÇ=OMMQF
has created a legal or constructive obligation,
an outflow of resources is probable, and the Effective Date 1 April 2004.
amount of the obligation can be estimated
reliably. Objective To prescribe the accounting treatment for
• Amount recognised as a provision is the best recognising, measuring, and disclosing all
estimate of settlement amount at balance intangible assets that are not dealt with
sheet date. specifically in another IFRS.
49
− Indefinite life: No foreseeable limit to the • All financial assets and financial liabilities,
period over which the asset is expected to Summary
including all derivatives and certain embedded
generate net cash inflows for the entity. derivatives, must be recognised on the
‘Indefinite’ does not mean ‘infinite’. balance sheet.
− Finite life: A limited period of benefit to the
• Financial instruments are initially measured at
entity.
fair value on date of acquisition or issuance.
• Intangible assets with indefinite useful lives Usually this is the same as cost, but sometimes
are not amortised but must be tested for an adjustment is required.
impairment at each reporting date. If
• An entity has an option of recognising normal
recoverable amount is lower than the carrying
purchases and sales of securities in the market
amount, an impairment loss is recognised. The
place consistently either at trade date or
assessment must also consider whether the
settlement date. If settlement date accounting
intangible continues to have an indefinite life.
is used, IAS 39 requires recognition of certain
• Generally, the cost (residual value is normally value changes between trade and settlement
zero) of an intangible asset with a finite useful dates.
life is amortised over that life. If the intangible
• For the purpose of measuring a financial asset
asset has a quoted market price in an active
subsequent to initial recognition, IAS 39
market, an accounting policy choice of a
classifies financial assets into four categories:
revaluation model is permitted. Under the
revaluation model, the asset is carried at 1. Loans and receivables not held for trading.
revalued amount, which is fair value at 2. Held-to-maturity (HTM) investments, such
revaluation date less subsequent depreciation. as debt securities and mandatorily
• Normally, subsequent expenditure on an redeemable preferred shares, that the entity
intangible asset after its purchase or intends and is able to hold to maturity. If an
completion is recognised as an expense. Only entity sells any HTM investments (other
rarely can the asset recognition criteria be than in exceptional circumstances), all of its
met. other HTM investments must be reclassified
as available-for-sale (category 4 below) for
Interpretations SIC 32, Intangible Assets – Web Site Costs the current and next two financial reporting
Certain initial infrastructure development and years.
graphic design costs incurred in web site 3. Financial assets measured at fair value
development may be capitalised. through profit and loss, which includes
IFRIC 3 Emission Rights those held for trading (short-term profit
taking) and any other financial asset that
Tradable emissions allowances are intangible the entity designates (the “fair value
assets under IAS 38. option”). Derivative assets are always in this
category unless they are designated as
hedging instruments.
f^p=PV=cáå~åÅá~ä=fåëíêìãÉåíëW=oÉÅçÖåáíáçå=~åÇ=jÉ~ëìêÉãÉåí=
4. Available-for-sale financial assets (AFS) – all
EêÉîáëÉÇ=OMMP=~åÇ=OMMQF financial assets that do not fall into one of
the other three categories. This includes all
Effective Date Annual periods beginning on or after 1 January investments in equity instruments that are
2005. not measured at fair value through profit
and loss. Additionally, an entity may
Objective To establish principles for recognising, designate any loans and receivables as AFS.
derecognising, and measuring financial assets and
financial liabilities. • Subsequent to initial recognition:
− All financial assets in categories 1 and 2
above are carried at amortised cost subject
51
to a test for impairment. • Hedge accounting (recognising the offsetting
− All financial assets in category 3 above are effects of fair value changes of both the
carried at fair value, with value changes hedging instrument and the hedged item in
recognised in profit or loss. the same period’s profit or loss) is permitted in
certain circumstances, provided that the
− All financial assets in category 4 above
hedging relationship is clearly defined,
(AFS) are measured at fair value in the
measurable, and actually effective. IAS 39
balance sheet, with value changes
provides for three types of hedges:
recognised in equity, subject to impairment
testing. If the fair value of an AFS asset − Fair value hedge: If an entity hedges a
cannot be measured reliably, the asset is change in fair value of a recognised asset or
carried at cost. liability or firm commitment, the change in
fair values of both the hedging instrument
• After acquisition, most financial liabilities are and the hedged item are recognised in
measured at original recorded amount less profit or loss when they occur.
principal repayments and amortisation. Three
categories of liabilities are measured at fair − Cash flow hedge: If an entity hedges
value with value changes recognised in profit changes in the future cash flows relating to
and loss: a recognised asset or liability or a probable
forecast transaction, then the change in fair
− derivative liabilities; value of the hedging instrument is
− liabilities held for trading (short sales); and recognised directly in equity until such time
− any liabilities that the entity designates, at as those future cash flows occur.
issuance, to be measured at fair value • A hedge of foreign currency risk in a firm
through profit and loss (the “fair value commitment may be accounted for as a fair
option”). value hedge or as a cash flow hedge.
• Fair value is the amount for which an asset • Hedge of a net investment in a foreign entity:
could be exchanged, or a liability settled, This is treated as a cash flow hedge.
between knowledgeable, willing parties in an
• The 2003 amendments to IAS 39 moved all of
arm's length transaction. The IAS 39 fair value
the disclosures that were in IAS 39 into IAS
hierarchy:
32.
− Best is quoted market price in an active
market. Interpretations None.
− Otherwise use a valuation technique that
makes maximum use of market inputs and IAS 39 During 1999-2000, an IASC committee developed
includes recent arm’s length market Guidance approximately 250 questions and answers on IAS
transactions, reference to the current fair 39. Approximately 100 of those were addressed in
value of another instrument that is the 2003 revisions to IAS 39. The remaining Q&As
substantially the same, discounted cash are included as part of the IASB’s annual bound
flow analysis, and option pricing models. volume of IFRSs.
• IAS 39 establishes conditions for determining
when control over a financial asset or liability
has been transferred to another party and, f^p=QM=fåîÉëíãÉåí=mêçéÉêíó=EêÉîáëÉÇ=OMMQF
therefore, it should be removed from the
balance sheet (derecognised). Derecognition is Effective Date Annual periods beginning on or after 1 January
not permitted to the extent to which the 2005.
transferor has continuing involvement in an
asset or a portion of an asset it has
Objective To prescribe the accounting treatment for
transferred.
investment property and related disclosures.
53
• Investment property is land or buildings held as investment property or not.
Summary
(whether by the owner or under a finance − Amounts recognised in profit and loss.
lease) to earn rentals or for capital
appreciation or both. Interpretations None.
• IAS 40 does not apply to owner-occupied
property or property that is being constructed
or developed for future use as investment
f^p=QN=^ÖêáÅìäíìêÉ=
property, or property held for sale in the
ordinary course of business. Effective Date Periods beginning on or after 1 January 2003.
• Permits an entity to choose either the fair
value model or cost model. Objective To prescribe accounting for agricultural activity –
the management of the biological transformation
− Fair value model: Investment property is
of biological assets (living plants and animals) into
measured at fair value, and changes in fair
agricultural produce.
value are recognised in the income
statement.
Summary • Measure all biological assets at fair value less
− Cost model: Investment property is expected point-of-sale costs at each balance
measured at depreciated cost less any sheet date, unless fair value cannot be
accumulated impairment losses. Fair value measured reliably.
of the investment property must still be
disclosed. • Measure agricultural produce at fair value at
the point of harvest less expected point-of-
• The chosen measurement model must be sale costs. Because harvested produce is a
applied to all of the entity’s investment marketable commodity, there is no
property. “measurement reliability” exception for
• If an entity uses the fair value model but, produce.
when a particular property is acquired, there is • Change in fair value of biological assets during
clear evidence that the entity will not be able a period is reported in net profit or loss.
to determine fair value on a continuing basis,
the cost model is used for that property – and • Exception to fair value model for biological
it must continue to be used until disposal of assets: if there is no active market at time of
the property. recognition in the financial statements, and no
other reliable measurement method, then
• Change from one model to the other is apply the cost model to the specific biological
permitted if it will result in a more appropriate asset only. The biological asset should be
presentation (highly unlikely for change from measured at depreciated cost less any
fair value to cost model). accumulated impairment losses.
• A property interest held by a lessee under an • Quoted market price in active market
operating lease can qualify as investment generally represents the best measure of fair
property provided that the lessee uses the fair value of a biological asset or agricultural
value model of IAS 40. In this case, the lessee produce. If an active market does not exist,
accounts for the lease as if it were a finance IAS 41 provides guidance for choosing
lease. another measurement basis.
• Disclosures include: • Fair value measurement stops at harvest. IAS
− Method of determining fair value. 2, Inventories, applies after harvest.
− Extent of use of independent valuer in • Disclosures include:
determining fair value. − Description of an entity’s biological assets,
− Criteria that were used to classify property by broad category.
55
− Carrying amount of each category.
fcop=O=pÜ~êÉJÄ~ëÉÇ=m~óãÉåí
− Change in fair value during the period.
− Reconciliation of changes in the carrying
Effective Date Annual periods beginning on or after 1 January
amount of biological assets, showing
2005.
separately changes in value, purchases,
sales, harvesting.
Objective To prescribe the accounting for a transaction in
− Basis for determining fair value.
which an entity receives or acquires goods or
services either as consideration for its equity
Interpretations None.
instruments or by incurring liabilities for amounts
based on the price of the entity’s shares or other
equity instruments of the entity.
fcop=N=cáêëíJíáãÉ=^Ççéíáçå=çÑ=fåíÉêå~íáçå~ä=cáå~åÅá~ä=
oÉéçêíáåÖ=pí~åÇ~êÇë Summary • All share-based payment transactions must be
recognised in the financial statements, using a
Effective Date First IFRS financial statements for a period fair value measurement basis.
beginning on or after 1 January 2004. • An expense is recognised when the goods or
services received are consumed.
Objective To prescribe the procedures when an entity
• The same recognition and measurement
adopts IFRSs for the first time as the basis for
standards apply to both public and non-public
preparing its general-purpose financial statements.
companies.
• Overview for an entity that adopts IFRSs for • In principle, transactions in which goods or
Summary
the first time in its annual financial statements services are received as consideration for
for the year ended 31 December 2005: equity instruments of the entity should be
measured at the fair value of the goods or
• Select its accounting policies based on IFRSs in services received. Only if the fair value of the
force at 31 December 2005. goods or services cannot be measured reliably
• Prepare at least 2005 and 2004 financial would the fair value of the equity instruments
statements and restate retrospectively the granted be used.
opening balance sheet (first period for which • For transactions with employees and others
full comparative financial statements are providing similar services, the entity is required
presented) by applying the IFRSs in force at 31 to measure the fair value of the equity
December 2005. instruments granted, because it is typically not
− Since IAS 1 requires at least one year of possible to estimate reliably the fair value of
comparative prior period financial employee services received.
information, the opening balance sheet will
• For transactions measured at the fair value of
be 1 January 2004 if not earlier.
the equity instruments granted (such as
− If a 31 December 2005 adopter reports transactions with employees), fair value should
selected financial data (but not full financial be estimated at grant date.
statements) on an IFRS basis for periods
• For transactions measured at the fair value of
prior to 2004, in addition to full financial
the goods or services received, fair value
statements for 2004 and 2005, that does
should be estimated at the date of receipt of
not change the fact that its opening IFRS
those goods or services.
balance sheet is as of 1 January 2004.
• For goods or services measured by reference
Interpretations None to the fair value of the equity instruments
granted, IFRS 2 specifies that, in general,
vesting conditions, except market conditions,
57
are not taken into account when estimating
the fair value of the shares or options at the fcop=P=_ìëáåÉëë=`çãÄáå~íáçåë
relevant measurement date (as specified
above). Instead, vesting conditions are taken Effective Date Business combinations after 31 March 2004.
into account by adjusting the number of
equity instruments included in the
Objective To prescribe the financial reporting by an entity
measurement of the transaction amount so when it undertakes a business combination.
that, ultimately, the amount recognised for
goods or services received as consideration for
Summary • Purchase method is used for all business
the equity instruments granted is based on the
combinations. The uniting (pooling) of
number of equity instruments that eventually
interests method that was used under IAS 22
vest.
in certain circumstances is now prohibited.
• IFRS 2 requires the fair value of equity
• Goodwill and other intangible assets with
instruments granted to be based on market
indefinite lives are not amortised, but they
prices, if available, and to take into account
must be tested for impairment at least
the terms and conditions on which those
annually.
equity instruments were granted. In the
absence of market prices, fair value is • Goodwill is impaired if its carrying amount
estimated using a valuation model to estimate exceeds its implied value. Implied value is the
what the price of those equity instruments recoverable amount of the cash generating
would have been on the measurement date in unit (CGU) to which the goodwill has been
an arm’s length transaction between allocated and the current fair value of the
knowledgeable, willing parties. IFRS 2 does CGU’s identifiable net assets.
not specify which particular valuation model • If the acquirer’s interest in the net fair value of
should be used. the acquiree’s identifiable assets, liabilities,
• Disclosures include: and contingent liabilities exceeds the cost, the
excess (sometimes called negative goodwill) is
− the nature and extent of share-based
recognised as an immediate gain.
payment arrangements that existed during
the period; • Minority’s share of acquired assets is
− how the fair value of the goods or services measured at fair value.
received, or the fair value of the equity • Minority interest is reported within equity in
instruments granted, during the period was the balance sheet.
determined; and
− the effect of share-based payment Interpretations None.
transactions on the entity’s profit or loss for
the period and on its financial position.
fcop=Q=fåëìê~åÅÉ=`çåíê~Åíë
Interpretations None.
Effective Date Annual periods beginning on or after 1 January
2005.
61
cê~ãÉïçêâ=Ñçê=íÜÉ=mêÉé~ê~íáçå=~åÇ=mêÉëÉåí~íáçå=çÑ=cáå~åÅá~ä= `ìêêÉåí=f^p_=mêçàÉÅíë==
pí~íÉãÉåíë _ìëáåÉëë=`çãÄáå~íáçåë=Ó=mÜ~ëÉ=ff
Adoption Approved by the IASC Board in April 1989. Status. Phase II of IASB’s Business Combinations project has three
components:
Adopted by the IASB in April 2001.
• Issues related to the application of the purchase method.
Summary The Framework:
• Accounting for business combinations in which separate entities
• Defines the objective of financial statements. or operations of entities are brought together to form a joint
• Identifies the qualitative characteristics that venture, including consideration of “fresh start accounting”.
make information in financial statements
useful. • Issues that were excluded from Phase I, including business
combinations involving entities (or operations of entities) under
• Defines the basic elements of financial common control.
statements and the concepts for recognising
and measuring them in financial statements. The first component above (purchase method procedures) is a joint
project with FASB. Tentative decisions to date:
mÉêÑçêã~åÅÉ=oÉéçêíáåÖ=EoÉéçêíáåÖ=`çãéêÉÜÉåëáîÉ=fåÅçãÉF
Status. Key issues in this project include:
63
• Is there any role for the notion of realisation? as a result of the IASB’s improvements project; IFRS 3 on business
combinations and the related revisions to IAS 36 and IAS 38; and IFRS
• How best to accommodate the current mixed attribute model? 5 on asset disposals and discontinued operations. An exposure draft
Separate initial measurement from remeasurements? of limited revisions to IAS 19 was issued as part of convergence.
• Should the direct method be required in the cash flow What’s next? The IASB will publish proposed revisions to IAS 12, IAS
statement? 20, and IAS 37 with the goal of convergence. Ongoing convergence
activities between IASB and FASB include:
What’s next? A discussion paper is planned for late 2005.
• Twice-yearly joint meetings.
^ÅÅçìåíáåÖ=pí~åÇ~êÇë=Ñçê=pã~ää=~åÇ=jÉÇáìãJpáòÉÇ=båíáíáÉë • Aligned agendas.
Status. In June 2004 the Board published a discussion paper. The • Joint staffing of major projects.
major issues set out in the Discussion Paper are: • Short-term convergence projects.
• Should the IASB develop special financial reporting standards for • Convergence inventory of every single difference with a plan to
SMEs? address.
• What should be the objectives of a set of financial reporting • Coordination of activities of their interpretive bodies, IFRIC and
standards for SMEs? EITF.
• For which entities would IASB Standards for SMEs be intended? Ideally, convergence means not only the same answers, but also the
• If IASB Standards for SMEs do not address a particular same words. FASB is considering whether to adopt the IASB “black
accounting recognition or measurement issue confronting an letter/grey letter” approach.
entity, how should that entity resolve the issue?
• May an entity using IASB Standards for SMEs elect to follow a fåëìê~åÅÉ=`çåíê~Åíë=mÜ~ëÉ=ff
treatment permitted in an IFRS that differs from the treatment in
Status. The insurance contracts project was carried forward from the
the related IASB Standard for SMEs?
former IASC. It is a comprehensive project addressing all issues on
• How should the Board approach the development of IASB accounting for insurance contracts. However, in May 2002, the IASB
Standards for SMEs? To what extent should the foundation of agreed to split the project into two phases, so that some components
SME standards be the concepts and principles and related can be put in place by 2005 without delaying the rest of the project.
mandatory guidance in IFRSs?
Phase I. This phase involved issuance of an interim standard to
• If IASB Standards for SMEs are built on the concepts and provide guidance on how existing IFRSs should be applied to
principles and related mandatory guidance in full IFRSs, what insurance contracts. Phase I was completed with the issuance of IFRS
should be the basis for modifying those concepts and principles 4 Insurance Contracts, described elsewhere in this booklet.
for SMEs? Phase II. This phase is taking a fresh look at accounting for insurance
• In what format should IASB Standards for SMEs be published? contracts. In January 2003, the Board suspended work on Phase II
pending completion of Phase I. Work on Phase II resumed in
The Board received around 120 responses. September 2004 with appointment of a new Working Group on
What’s next? An exposure draft of proposed standards is likely in Insurance. In announcing the working group, the Board noted that its
2005. predecessor had published an Issues Paper and a Draft Statement of
Principles, and the IASB itself has discussed the project at many Board
meetings. The Board said that it will “regard the past work as a useful
pÜçêíJqÉêã=`çåîÉêÖÉåÅÉ=mêçàÉÅíW=fcop=~åÇ=rp=d^^m resource, but will not feel bound by it. The only restrictions on a fresh
look are the IASB’s Framework and the general principles established
Status. The objective of this project is to eliminate a variety of
in the IASB’s existing standards.”
differences between International Financial Reporting Standards and
US GAAP. The project, which is being done jointly by FASB and IASB, What’s next? The next step in the Phase II project will be for the
grew out of an agreement reached by the two Boards in September IASB to publish a discussion paper.
2002. From the IASB side, some aspects of this project have been
completed, including many of the changes to IASs in December 2003
65
cáå~åÅá~ä=fåëíêìãÉåíëW=aáëÅäçëìêÉ `çåëçäáÇ~íáçåI=fåÅäìÇáåÖ=péÉÅá~ä=mìêéçëÉ=båíáíáÉë
Status. In July 2004, the IASB issued ED 7 Financial Instruments: Status. The objective of this project is to reconfirm the basis on which
Disclosure. Proposed disclosures include: an entity should consolidate its investments and to provide more
rigorous guidance around the concept of “control” including applying
• Disclosure of the significance of financial instruments for an that concept to “special purpose entities”. The Board’s most recent
entity’s financial position and performance (this would thinking on the definition of control is as follows:
incorporate many of the requirements currently in IAS 32).
• Ability to set strategy and direct financing and operating policy.
• Qualitative and quantitative disclosures about exposure to risks • Ability to access benefits.
arising from financial instruments and management’s objectives,
• Ability to use power to maintain, increase, protect benefits.
policies, and processes for managing those risks.
What’s next? The project is likely to lead to revisions of IAS 27. IASB
• Credit enhancements and the fair value of and other information has not yet established a timetable.
about collateral received.
• Disclosures about interest rate risk, which would include both cìêíÜÉê=iáãáíÉÇ=^ãÉåÇãÉåíë=íç=f^p=PV
cash flow interest rate risk and fair value interest rate risk.
Sensitivity analyses for interest rate and foreign exchange rate Status. In addition to the significant changes to IAS 39 made in
risks would be required. December 2003 and March 2004, the IASB has proposed limited
amendments to IAS 39 relating to:
• Disclosures about market risk, including information about asset
• The Fair Value Option.
quality and the liquidity of the markets in which a financial asset
• Transition and Initial Recognition of Financial Assets and
might be disposed.
Financial Liabilities.
• Disclosures about other risks, sometimes called residual value • Cash Flow Hedge Accounting of Forecast Intragroup
risks, that underlie financial instruments and that are not Transactions.
captured by the other disclosures. • Financial Guarantee Contracts and Credit Insurance.
• Details about an entity’s own equity, including the entity’s What’s next? Final revisions on the first two of the above proposals
objectives, policies, and processes for managing capital. were approved in December 2004, for issuance in early 2005. Final
revisions on the last two are expected in first quarter 2005. Effective
What’s next? A final standard is expected in 2005. Proposed dates for all would be 2005 except for the limited amendment on
effective date is annual periods beginning on or after 1 January 2007, forecast transactions, which would be effective in 2006.
with early application encouraged.
f^p_Ûë=^ÅíáîÉ=oÉëÉ~êÅÜ=qçéáÅë
iá~ÄáäáíáÉë=~åÇ=oÉîÉåìÉ=oÉÅçÖåáíáçå
These are likely to become active agenda projects soon:
Status. This is a joint project with FASB. Regarding revenue, the
Boards have tentatively agreed that two criteria must be met to • Definitions of elements of financial statements.
recognise revenue: • Extractive industries.
• Financial instruments.
• An increase in assets or decrease in liabilities unrelated to a • Intangibles.
change in owners’ investment. • Joint ventures.
• The increase/decrease in assets or liabilities can be reliably • Leases.
measured. • Management discussion and analysis.
• Measurement objective.
What’s next? The project is likely to lead to revisions of both the
IASB Framework and IAS 18, Revenue. An exposure draft is expected Our www.iasplus.com website has the latest information about
in 2005. the IASB’s and IFRIC’s agenda projects, including summaries of
decisions reached at each IASB and IFRIC meeting.
67
fåíÉêéêÉí~íáçåë= aÉäçáííÉ=fcop=ÉJiÉ~êåáåÖ
pf`=fåíÉêéêÉí~íáçåë Deloitte is pleased to make available, in the
public interest and without charge, our e-
The following Interpretations, issued by the Standing Interpretations
learning training materials for IFRSs.
Committee (SIC) from 1997-2001, remain in effect. All other SIC
Modules are available for virtually all
Interpretations were superseded when the improvements to IASs were
IASs/IFRSs – in the case of IASs 32 and 39
adopted in December 2003:
there are three modules.
• SIC 7 Introduction of the Euro Each module involves downloading a 4mb
• SIC 10 Government Assistance - No Specific Relation to to 6mb zip file and extracting the enclosed
Operating Activities files and directory structure into a directory
• SIC 12 Consolidation - Special Purpose Entities on your computer.
• SIC 13 Jointly Controlled Entities - Non-Monetary Contributions
Before downloading, you will be asked to
by Venturers
read and accept a disclaimer notice. The e-
• SIC 15 Operating Leases - Incentives learning modules may be used and
• SIC 21 Income Taxes - Recovery of Revalued Non-Depreciable distributed freely by those registering with
Assets the site, without alteration from the original
• SIC 25 Income Taxes - Changes in the Tax Status of an Enterprise form and subject to the terms of the
or its Shareholders Deloitte copyright over the material.
• SIC 27 Evaluating the Substance of Transactions in the Legal
To download, go to www.iasplus.com and
Form of a Lease
click on the light bulb icon on the home
• SIC 29 Disclosure - Service Concession Arrangements
page.
• SIC 31 Revenue - Barter Transactions Involving Advertising
Services
• SIC 32 Intangible Assets - Website Costs
fcof`=fåíÉêéêÉí~íáçåë
The following Interpretations have been issued by the International
Financial Reporting Interpretations Committee (IFRIC):
• IFRIC 1 Changes in Existing Decommissioning, Restoration and
Similar Liabilities
• IFRIC 2 Members’ Shares in Co-operative Entities and Similar
Instruments
• IFRIC 3 Emission Rights
• IFRIC 4 Determining Whether an Arrangement Contains a Lease
• IFRIC 5 Rights to Interests Arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds
Interpretations of IASs and IFRSs are developed by the International
Financial Reporting Interpretations Committee (IFRIC), which
replaced the Standing Interpretations Committee (SIC) in 2002.
Interpretations are part of IASB’s authoritative literature. Therefore,
financial statements may not be described as complying with
International Accounting Standards unless they comply with all the
requirements of each applicable Standard and each applicable
Interpretation.
69
tÉÄëáíÉ=^ÇÇêÉëëÉë= pìÄëÅêáÄÉ=íç=lìê=f^p=mäìë=kÉïëäÉííÉê=
Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu publishes IAS Plus, a quarterly newsletter
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71
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73