INTERNATIONAL FINANCIAL REPORTING STANDARDS DESK REFERENCE Overview, Guide, and Dictionary phần 5 pot

MAIN REQUIREMENTSIAS 34 defines the minimum content of an interim financial report as a densed balance sheet, condensed income statement, condensed statementshowing changes in equity, co

MAIN REQUIREMENTS

IAS 34 defines the minimum content of an interim financial report as a densed balance sheet, condensed income statement, condensed statementshowing changes in equity, condensed cash flow statement, and selected ex-planatory notes The standard also prescribes the principles for recognitionand measurement in financial statements presented for an interim period.The periods and items to be covered by the interim financial statements are

con-as follows:

• Balance sheet as of the end of the current interim period and a tive balance sheet as of the end of the immediately preceding financialyear

compara-• Income statements for the current interim period and cumulatively forthe current financial year to date, with comparative income statementsfor the comparable interim periods (current and year-to-date) of the im-mediately preceding financial year

• Statement showing changes in equity cumulatively for the current cial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year

finan-• Cash flow statement cumulatively for the current financial year to date,with a comparative statement for the comparable year-to-date period ofthe immediate, preceding financial year

The interim financial reports should present each of the headings and thesubtotals as illustrated in the most recent annual financial statements and theexplanatory notes as required by IAS 34 Additional line items should be in-cluded if their omission would make the interim financial information mis-leading If the annual financial statements were consolidated (group)statements, the interim statements should be group statements as well

An enterprise should use the same accounting policy throughout the cial year, with the same policies for interim reporting and annual financialstatements The exceptions are accounting policy changes made after the date

finan-of the most recent annual financial statements and which would be rated in the next annual financial statements If a decision is made to change apolicy mid-year, the change is implemented retrospectively, and previously re-ported interim data is restated

incorpo-The notes to the interim financial statements are essentially an update.They include disclosures about changes in accounting policies, seasonal orcyclical nature of the entity’s operations, changes in estimates, changes in out-standing debt or equity, dividends, segment revenue and result, events occur-ring after balance sheet date, acquisition or disposal of subsidiaries and

long-term investments, restructurings, discontinuing operations, and changes

in contingent liabilities or contingent assets

The standard provides guidance for applying the basic recognition andmeasurement principles at interim and the main points are as follows:

• Revenues received seasonally, cyclically or occasionally within a cial year should not be anticipated or deferred at the interim date if thispractice is not used at the financial year-end

• If this practice is used, costs that are incurred unevenly during a cial year should be anticipated or deferred at the end of the financialyear

finan-• Income tax expenses should be recognized based on the best estimate ofthe weighted average annual income tax rate expected for the full finan-cial year

MAIN DISCLOSURES

• A condensed balance sheet

• A condensed income statement

• A condensed statement of changes in equity

• A condensed cash flow statement

• Selected explanatory notes

EXAMPLES OF RELATED NATIONAL STANDARDS

IAS 36 Impairment of AssetsISSUED OR LAST REVISED

PROBLEM AND PURPOSE

There is the risk that an entity may be showing an asset at a carrying valuethat is greater than its recoverable amount in the balance sheet The recover-able amount is the greater of the asset’s net selling price and its value in use.Without this information, users can be misled about the financial strength ofthe entity and its financial performance IAS 36 describes the procedures to befollowed to ensure that an asset is not carried at greater than its recoverableamount The standard also explains the accounting treatment for impairmentloss Entities may find that the requirement to write off impairment losses inthe financial period they occur has a significant negative effect on earningsand associated performance ratios

• Assets arising from construction contracts (IAS 11)

• Deferred tax assets (IAS 12)

• Assets arising from employee benefits (IAS 19)

• Financial assets (IAS 39)

• Investment property carried at fair value (IAS 40)

• Certain agricultural assets carried at fair value (IAS 41)

• Insurance contract assets (IFRS 4)

ASSETS HELD FOR SALE (IFRS 5) MAIN REQUIREMENTS

At each balance sheet date, assets should be reviewed for indications of ble impairment; that is, its carrying amount may be in excess of the greater ofits net selling price and its value in use Indications include factors such asmarket value decline, obsolescence, and physical damage If there is an indica-tion that an asset may be impaired, then the asset’s recoverable amount must

possi-be calculated Annually, irrespective of any indication of impairment, an tity must review intangible assets that have an indefinite useful life, those notyet available for use, and goodwill acquired in a business combination Thoseimpairment tests may be carried out at any time during the annual period, butthe test must be carried out at the same time each year

en-If the asset is revalued in accordance with another standard, for example,IAS 16, the impairment loss is then treated as a revaluation decrease in accor-dance with that other standard

Where there are indications that an asset may be impaired, the recoverableamount of an asset must be measured This is the higher of the asset’s net sell-ing price (fair value less its selling costs) and its value in use The calculation

of value in use involves an estimate of future cash flows that the entity expects

to derive from the asset, which are then discounted to present values Any pairment loss should be recognized where the recoverable amount is belowthe carrying amount The loss is treated as an expense in the income state-ment

im-The discount rate to be applied for measuring value in use should be thepre-tax rate based on the current market assessments of the time value ofmoney and the risk that is specific to the asset If future cash flows have al-ready been adjusted for asset risk, these should not be included in the dis-count rate

If it is not possible to use a market-determined rate, the entity may use ther its own weighted average cost of capital, or its incremental borrowingrate, or other market borrowing rates that are appropriate

ei-Wherever possible, recoverable amounts should be determined for vidual assets Where it is impossible to determine the recoverable amount for

indi-an individual asset, the recoverable amount for the asset’s cash-generatingunit (CGU) should be identified and used The CGU is the smallest identifi-

able group of assets that generate cash inflows from continuing use, and thatare largely independent of the cash inflows from other assets or groups of assets.

Acquired goodwill requires specific accounting treatment and should be located to each of the CGUs or groups of CGUs that are expected to derivebenefit If the recoverable amount of the unit exceeds the carrying amount ofthe unit, the unit and the goodwill allocated to that unit is not impaired Butwhere the carrying amount exceeds the recoverable amount, the entity mustrecognize an impairment loss An impairment loss for a cash-generating unit

al-is allocated to reduce the carrying amount of the assets of the unit in the lowing order:

fol-The loss is first charged against the goodwill allocated to the CGU;

If the goodwill is insufficient to absorb the loss, then the loss will be located over other assets in proportion to the carrying amount of eachasset

al-An impairment loss recognized in prior periods is reversed if there is achange in the estimates used to determine the asset’s recoverable amountsince the last impairment loss was recognized In this case, the carryingamount of the asset is increased to its recoverable amount, but not exceedingthe carrying amount of the asset that would have been determined had noimpairment loss been recognized in prior years Goodwill impairment mustnot be reversed

ILLUSTRATIVE EXAMPLE: IMPAIRMENT OF A CGU

A cash generation-unit to which goodwill has been allocated contains threemachines with carrying values as follows:

An annual impairment review assesses the recoverable amount of the CGU

at $25,000 The impairment loss of $13,000 is to be charged to the incomestatement First, the amount of the allocated goodwill is written off The re-

mainder of the impairment loss of $5,000 will be allocated proportionally tothe three machines, reducing their carrying values to the following:

• Impairment losses by the class of asset and primary segments

• Allocation of goodwill to CGUs

EXAMPLES OF RELATED NATIONAL STANDARDS

Canada: CICA Handbook 3063

IAS 37 Provisions, Contingent Liabilities,

and Contingent AssetsISSUED OR LAST REVISED

July 1998

EFFECTIVE DATE

Financial statements covering periods beginning on or after July 1, 1999

PROBLEM AND PURPOSE

There have been examples where provisions have been used by entities to nipulate the trend of their earnings figure, thus misleading investors Simi-larly, the non-reporting of the presence of contingent liabilities and assetsmeans that users do not have a full understanding of the financial perfor-mance and position of the entity and of circumstances that could affect its fu-ture The standard establishes recognition and measurement principles for allprovisions, contingent liabilities, and contingent assets, and it requires disclo-sures to assist users to understand their nature, timing, and amount The ap-pendices to IAS 37 include a decision tree and examples to assist recognition

ma-SCOPE

IAS 37 prescribes the recognition criteria, measurement bases, and disclosuresthat are applied to provisions, contingent liabilities and contingent assets Thestandard also applies to financial instruments carried at amortized cost and tonon-policy-related liabilities of an insurance company

EXCLUSIONS

• Financial instruments carried at fair value

• Non-onerous executory contracts

• Policy liabilities of insurance companies

• Contingent liabilities assumed in a business combination under IFRS 3

• Construction contracts under IAS 11

• Income taxes under IAS 12

• Leases under IAS 17

• Employee benefits under IAS 19

• Insurance contracts under IFRS 4

• Payment is probable in order to settle the obligation

• The amount can be estimated reliably

Entities should not make provisions for future operating losses The amountrecognized as a provision should be the best estimate of the expenditure re-quired to settle the present obligation at the balance sheet date An entityshould assess the risks and uncertainties that may operate in reaching a best es-timate, and any material future cash flows should be discounted to present val-ues Examples of provisions include warranty obligations, a retailer’s policy onrefunds to customers, and obligations to clean up contaminated land

An annual review of provisions should be conducted, and if the provisionsare no longer required, they should be reversed to income A provision can

be applied only to the expenditure for which the provision was originallyrecognized

Where there is no realistic alternative for an entity other than to settle anobligation, the standard refers to this as a constructive obligation, and a pro-vision must be made This would include those circumstances where pastpractice leads third parties to reasonably assume that the entity will settle theobligation (for instance, a sale or return policy)

A constructive obligation to restructuring can be made only for the sale ortermination of a line of business, closure of business locations, changes inmanagement structure, or fundamental reorganizations of the entity Theremust be evidence of the planned restructuring and expectations by third par-ties that this will be implemented Restructuring provisions should includeonly the direct expenditures caused by the restructuring, not costs for ongoingactivities

There is an important distinction between provisions and contingent ities The latter must not be recognized in the financial statements as liabili-ties, but should be disclosed unless the possibility of an outflow of resources isremote A contingent liability can take two forms It can be a possible obliga-tion (not a present obligation) that arises from past events, but confirmation

liabil-is required to determine whether it liabil-is a present obligation Alternatively, itmay be a present obligation, but it is uncertain whether the obligation will besettled, or it cannot be measured reliably

A contingent asset is a possible asset where confirmation is required to tablish whether it is an asset An example is a legal claim that an entity is pur-suing, but it is uncertain whether the claim will be successful Contingentassets should not be recognized, but are disclosed when an inflow of eco-nomic benefits is probable

es-ILLUSTRATIVE EXAMPLE: THE BEST ESTIMATE OF A PROVISION

An entity manufactures products carrying a 12-month warranty It is mated that 95% of the products will have no defects within the 12 months It

esti-is expected that 4% will require minor repairs and 1% major repairs If allnormal production in the year required minor repairs, the cost is estimated at

$50,000 If all normal production in the year required major repairs, the cost

• Reconciliations for each class of provision

• Possible obligations (contingent liabilities) are disclosed but not nized

recog-• Contingent assets are not recognized but are disclosed when inflows ofeconomic benefits are probable

EXAMPLES OF RELATED NATIONAL STANDARDS

March 2004

EFFECTIVE DATE

Applied to intangible assets acquired in business combinations after March

31, 2004 and to all other intangible assets for periods beginning on or afterMarch 31, 2004

PROBLEM AND PURPOSE

The increasing importance of intangible assets has led to a variety of tices, with some countries ignoring them completely, while entities in otheraccounting regimes have included brands, publishing titles, and other similarintangible assets on the balance sheet There have also been a variety of ap-proaches to the question of amortization, with some accounting regimes spec-ifying different periods of time for amortization and others requiring none.IAS 38 requires an entity to recognize an intangible asset only if it meets cer-tain specified criteria It also specifies how to measure the carrying amount ofintangible assets IAS 38 should be read in conjunction with IAS 36 Impair-ment of Assets

• It is identifiable and controlled by the entity.

• It is probable that there will be future economic benefits

• The cost can be measured reliably

Examples of possible intangible assets include computer software, rights, customer lists, import quotas, and franchises Goodwill arising from

copy-an acquisition does not fall within the scope of IAS 38 but is subject to theprovisions of IFRS 3

IAS 38 sets out specific criteria for the recognition of certain internally erated assets Those assets that should not be recognized as intangible assetsinclude internally generated goodwill, brands, and publishing titles Althoughthese particular intangibles should not be recognized if internally generated,they may meet the general recognition criteria if purchased by a third party Asimilar asset may, therefore, be recognized if purchased, but must be expensed

gen-if internally generated Although some may regard this dgen-iffering treatment asillogical, the reason for the provision is the uncertainty of measurement withinternally generated intangible assets Users need to be aware that some veryfamous brands and publishing titles will only appear on a balance sheet ifthey have been acquired externally This difference in treatment has a signifi-cant effect on accounting ratios, and most analysts will make adjustments intheir calculations to allow for this

Research cost is considered as an expense, but development cost that meetsspecified criteria may be recognized as an intangible asset.

After initial recognition, an intangible asset may be carried in the balancesheet at:

• Cost less any accumulated amortization and impairment losses

• A revalued amount (based on fair value) less any subsequent tion and any accumulated impairment losses, only if fair value can bedetermined by reference to an active market at the date of the revalua-tion The standard considers that active markets are expected to be un-common for intangible assets

amortiza-If an intangible asset does not meet the criteria for recognition as an asset,

it should be expensed in the financial period Expenditure that was initiallyrecognized as an expense cannot be included subsequently as part of the cost

of an intangible asset

Where revaluations are used, increases must be credited directly to therevaluation surplus within equity except to the extent that it reverses a revalu-ation decrease previously recognized in the income statement Any revalua-tion decrease is recognized in the income statement However, the decrease isdebited directly to the revaluation surplus in equity, to the extent of any creditbalance previously recognized in the revaluation surplus with respect to thatasset

Intangible assets have either an indefinite life with no foreseeable limit to theperiod in which benefits will be generated or a finite life with a limited period ofbenefits accruing With the former, the intangible asset must be tested for im-pairment annually With the latter, the depreciable amount will be amortized on

a systematic basis over its useful life Note that it is an indefinite life and not aninfinite life The IASB has the realistic view that in this mortal world all thingscome to an end, even if we are unable to predict when that will be

If an intangible asset is disposed of, the gain or loss is the difference tween the carrying amount and the net disposal proceeds The gain or loss isrecognized in the income statement

be-MAIN DISCLOSURES

• Useful life or amortization rate and amortization method

• Gross carrying amount and accumulated amortization and impairmentlosses

• Reconciliation of carrying amounts at the beginning and end of the riod

pe-• Basis for an intangible asset having an indefinite life

• Description and carrying amount of individual intangible assets, if theyare material

EXAMPLES OF RELATED NATIONAL STANDARDS

Canada: CICA Handbook 3062, 3450United Kingdom: FRS 10

United States: SFAS 142

IAS 39 Financial Instruments: Recognition and MeasurementISSUED OR LAST REVISED

December 2003

EFFECTIVE DATE

Periods beginning on or after January 1, 2005

PROBLEM AND PURPOSE

In 1988, the IASC and the Canadian Institute of Chartered Accountants(CICA) attempted to develop a standard that embraced the recognition, meas-urement, and disclosure of financial instruments After some controversy withthe proposals put forward, the project was split into two IAS 32 Financial In-struments, Disclosure, and Presentation, was approved in 1995 The prob-lems of recognition, derecognition, measurement, and hedge accounting wereput to one side but were later addressed in IAS 39 The standard sets out the

principles for recognizing, measuring, and disclosing information about cial instruments IAS 39 requires all financial assets and financial liabilities,including derivatives, to be recognized on the balance sheet The standardalso requires derivatives that are embedded in non-derivative contracts to beaccounted for separately at fair value through the income statement.

• Rights and obligations of leases under IAS 17 but with qualifications

• Employers’ rights and obligations of employee benefit plans under IAS19

• Financial instruments that meet the definition of an equity instrumentunder IAS 32

• Rights and obligations of insurance contracts under IFRS 4 but withqualifications

• Contracts for contingent consideration in a business combination underIFRS 3

• Loan commitments that cannot be settled net in cash or another cial instrument (with qualifications)

finan-• Contracts between a vendor and an acquirer in a business combination

to sell an acquiree at a future date

• Financial instruments, contracts and obligations of share-based paymenttransactions under IAS 2 but with qualifications

• Contracts to buy or sell non-financial items entered into and that tinue to be held for the purpose of the receipt or delivery of a non-financial item with respect to the entity’s expected purchase, sell,

con-or usage requirements

MAIN REQUIREMENTS

Financial assets or liabilities are recognized initially at fair value when the tity becomes a party to the instrument contract Examples of financial instru-ments are cash, leases, accounts receivable and payable, commercial paper,

en-and repurchase agreements Derecognition for a liability occurs when the bility is extinguished Derecognition for an asset occurs when the contractualrights to the cash flows expire, or substantially all the risks and rewards ofownership are transferred, or control is transferred but some of the risks andrewards are retained IAS 39 defines four categories of financial instruments:

lia-A financial asset (or liability) at fair value through profit and lossHeld-to-maturity investments

Loans and receivablesAvailable-for-sale financial assetsFinancial assets or liabilities at fair value should be remeasured at fairvalue at each balance sheet date Changes in fair value are recognized directly

in the income statements as part of the profit or loss for the period

Held-to-maturity financial instruments are non-derivative financial assetsand have fixed, or determinable, payments and a fixed maturity date Finan-cial assets that are held-to-maturity should be recognized initially at fairvalue, and subsequently measured at amortized cost using the effective inter-est method The effective interest rate is the rate that discounts estimated fu-ture cash payments or receipts over the expected life of the financialinstrument to its net carrying amount

Loans and receivables are non-derivative financial instruments that havefixed, or determinable, payments, no maturity date, and are not quoted on ac-tive markets Loans and receivables should be measured on the same basis asheld-to-maturity financial instruments

Available-for-sale financial instruments are either specifically designated assuch or because they do not fall under one of the other three classifications.They should be measured at fair value at each balance sheet date Any periodgains or losses arising from measuring at fair value should be recognized inequity On disposal of the financial instrument, cumulative gains and losseswill be reported in the income statement

An embedded derivative is a component of a combined financial instrumentthat also incorporates a non-derivative host contract An embedded derivativeshould not be separated from the host contract and accounted for as a deriva-tive unless its economic character and risks are dissimilar to the host contract,its terms meet the definition of a derivative, and it is measured at fair valuewith changes recognized in the income statement as part of profit or loss

An entity must assess the financial asset or group of assets at each balancesheet date to see whether there is any objective evidence of impairment Ifthere is evidence, a detailed impairment calculation must be carried out to de-termine whether an impairment loss should be recognized

Hedge accounting is where the related changes in the fair value of a cial asset and a financial liability are offset against each other There must be ahedged item and a hedging instrument Hedge accounting is allowed by IAS

finan-39 under certain circumstances and is classified into two general types ofhedging The standard lays down strict conditions and classifies hedge ac-counting into cash flow hedging where there is the possibility of changes incash flows and fair value hedging where there is a possibility of changes in fairvalue hedge There is also the hedge of a net investment in a foreign operationunder IAS 21

The conditions that must be met under IAS 39 before hedge accounting isapplied are as follows:

• There is formal designation and documentation of a hedge at inception

• The hedge is expected to be highly effective For instance, the hedginginstrument is expected to almost fully offset changes in fair value or cashflows of the hedged item that are attributable to the hedged risk

• Any forecast transaction being hedged is highly probable

• Hedge effectiveness is reliably measurable For instance, the fair value orcash flows of the hedged item and the fair value of the hedging instru-ment can be reliably measured

• The hedge must be assessed on an ongoing basis and be highly effective.With cash flow hedging, the fair value movements on the part of the hedgethat is effective are recognized in equity until such time as the hedged item af-fects profit or loss in the income statement Any ineffective part of the fairvalue movement is recognized in the income statement With fair value hedg-ing, the fair value movements on the hedging instrument and the correspond-ing fair value movements on the hedged item are recognized in the incomestatement

All derivative contracts with an external counterparty may be designated ashedging instruments except for some written options External non-derivativefinancial asset or liability may not be designated as a hedging instrument ex-cept as a hedge of foreign currency risk

MAIN DISCLOSURES

All disclosure requirements as stated in IAS 32

IAS 40 Investment PropertyISSUED OR LAST REVISED

December 2003

EFFECTIVE DATE

Financial statements covering periods beginning on or after January 1, 2005

PROBLEM AND PURPOSE

There is a clear distinction between a property that is acquired for use by anentity in its own operation and one that is acquired for investment purposes.Appropriate accounting treatment and disclosures are required, so that theuser can gain a better understanding of the financial statements IAS 40 ad-dresses these issues

• Owner-occupied property (IAS 16)

• Property leased to another entity under a finance lease

MAIN REQUIREMENTS

Investment property should be recognized as an asset when it is probable thatthe future economic benefits that are associated with the property will flow tothe enterprise and that the cost of the property can be reliably measured Theinitial measurement should be at cost, including transactions costs but exclud-ing start-up costs, abnormal waste, or initial operating losses incurred beforethe planned level of occupancy

Subsequently, investment property may be carried either at:

• Fair value: This is the amount where the property could be exchangedbetween knowledgeable and willing parties in an arm’s length transac-tion Gains or losses arising from changes in the fair value of the invest-ment property must be included in net profit or loss for the period inwhich it arises

• Cost less accumulated depreciation and any accumulated impairmentlosses as prescribed by IAS 16

The selected measurement method must be adopted for all the entity’s vestment property The decision on which model to be used must be takencarefully as there can be a substantial impact on the income statement Trans-fers to, or from, the investment property classification can take place onlywhen there is a change in use supported by evidence An investment propertysold without development should not be reclassified

in-On disposal or permanent withdrawal from use, a property should bederecognized The gain or loss on derecognition should be calculated as thedifference between the net disposal proceeds and the carrying amount of theasset The gain or losses should be recognized in the income statement

MAIN DISCLOSURES

• Whether fair value or cost method used

• Methods and assumptions in determining fair value

• Useful life or depreciation rate, and the depreciation method for the costmethod

• Gross carrying amounts and accumulated depreciation

• Whether property interests under operating leases are deemed ment property, if fair value model is used

invest-• Whether a qualified independent valuer has been used

• Details of revenue and direct operating expense

EXAMPLES OF RELATED NATIONAL STANDARDS

United Kingdom: SSAP 19

IAS 41 AgricultureISSUED OR LAST REVISED

December 2000

EFFECTIVE DATE

Periods beginning on or after January 1, 2003

PROBLEM AND PURPOSE

Agricultural activity, particularly in some countries and regions, is a significantpart of the economy This standard sets out the accounting treatment, financialstatement presentation, and disclosures for agricultural activity The standardcontains the presumption that a biological asset can be measured reliably byusing fair value

SCOPE

Activities concerned with the transformation of biological assets (that is, ing plants and animals) into agricultural produce