IFRS Study

Notes
Presented by:
Obisike Francis Emezi
 IAS 1 Presentation of
financial statements
Learning objectives:
• The objectives of international accounting standards
governing presentation of financial statements,
• Describe the structure and the content of
statements of financial position, income statements
and statements of comprehensive income including
continuing operations
• Usefulness of disclosures regarding information
contained in a financial statement.
 Highlights of IAS 1
The standard discusses the:
• Significance of profit or loss measurement,
• How items are presented in finance statements,
• How to identify a financial statement from other
contents of an annual report,
• The issues surrounding the period covered by the
financial statements, and
• The need for financial statements to be produced
in a timely manner to enable its usefulness.
 Statement of financial
position
IAS 1 provides for the following:
• Suggested format for presentation of statement of
financial position,
• Minimum contents to be shown on the face of the
SOFP,
• Factors to consider in determining whether
additional disclosures are required,
• Items that may be shown on the face of the SOFP or
in the notes,
• The current and non current distinction.
 Minimum contents on the
face of SOFP
LIABILTIES & EQUITY
• Trade and other payables
• Provisions
• Financial liabilities
• Current tax liabilities and
(assets),
• Deferred tax liabilities and
(assets),
• Liabilities included in
disposal groups under IFRS 5
• Non-controlling interests
• Issued capital and reserves
ASSETS
• Property, plant and
equipment
• Investment property
• Intangible assets,
• Financial assets,
• Investments accounted for
using the equity method
• Biological assets
• Inventories
• Trade and other receivables
• Cash and cash equivalents
• Assets classified as held for
sale.
The need for additional
disclosures
Nature, liquidity and materiality of assets

Function within the entity, and

Nature, amounts and timing of liabilities.

 Sub-classifications of
items
• Can be done on the face of SOFP or in the notes,
• Classification will depend (1) upon the nature of
the entity's operations (2) requirements of IFRS and
(3) size, nature and function of item,
• Discretionary classifications abound in PPE,
provisions, receivables and payables, inventory and
equity and reserves etc.,
• Specific disclosures abound in share capital and
reserves.
 Current/non current
distinctions
Current assets

An asset expected to be
realized in, or is held for
sale or consumption in, the All other
normal course of the
entity's operating cycle; or assets are
is held primarily for trading
purposes or for the short- classified as

Non current assets

term and expected to be
realized within twelve non-current
months of the end of the
reporting period; or is cash
or a cash equivalent asset
assets.
which is not restricted in its
use.
 Current/non current
Current liability distinction

A liability which is expected

to be settled in the normal
course of the entity's
operating cycle; or is held
All other
liabilities are

Non current liabilities

primarily for the purpose of
trading; or is due to be settled
within twelve months after
the end of the reporting
classified as
period; or the entity does not
have an unconditional right to
non-current
defer settlement of the
liability for at least twelve
liabilities
months after the end of the
reporting period.
 Non current financial
liability
To be settled after 12 but
payable on demand as a
result of a breach
Reclassifications
To be settled within 12
months
Classify as CL even if
creditor has agreed not to
demand payment after
reporting period
Classify a NCL if lender
has agreed a grace period
of up to 12 months and
can not demand payment
Classify as CL even if
rescheduling is done after
reporting period
Statement of profit or loss
& OCI
IAS 1 provides for the following:
• Format of presentation of SPLOCI,
• Minimum disclosures in the face of SPLOCI, and
• Items to be disclosed on the face of SPLOCI or in
the notes.
 Format of SPLOCI
• Single format starting from revenue from continuing
operations to total comprehensive income, or
• Double format separately showing profit or loss
statement and other comprehensive income
statement but beginning with profit/(loss) for the
year brought forward from the profit or loss
statement in the OCI.
 Minimum disclosures in
the face of SPLOCI
• Revenue
• Finance costs
• Share of profits and losses of associates and joint ventures
accounted for using the equity method
• Pre-tax gain or loss recognised on the disposal of assets or
settlement of liabilities attributable to discontinued operations
• Tax expense
• Profit or loss
• Allocations of profit or loss for the period to non-controlling
interest & owners of the parent
Note that income and expense items can only be offset when it is
permitted or required by an IFRS, or gains, losses and related
expenses arise from the same or similar transactions and they are
immaterial.
 face of SPLOCI or in the
notes
• Further sub-classifications can be made in the notes
regarding the nature or function of items of income
and expenses contained in the financial
statements.
 Statement of changes in
equity
• IAS 1 provides for the following:
• Meaning of SOCIE,
• Uses of SOCIE, and
• Format of SOCIE
 Meaning of SOCIE
A component of a financial statement which provides
information on the movement between the opening
balance of components of equity and their closing
balances as a result of transactions amongst equity
participants as owners of the entity including the
impacts of correction of prior period error and
retrospective application of a change in accounting
policy or adoption of a new IFRS which has an impact
on retained earnings or OCE.
 Notes to the financial
statements
• The contents of the notes amplify the contents of the
SOFP, SOPLOCI, SOCIE and CFs,
• The notes provides information about (1) accounting
policies and measurement basis adopted, (2) discloses
required by IFRS not contained elsewhere in the GPFS,
and (3) additional disclosures necessary for the
understanding of the financial statement not contained
elsewhere in the GPFS,
• Disclosures are made systematically and cross
referenced to the financial statements,and
• IAS 1 provides the order in which the notes should be
structured.
THE
END
 IAS 2 - Inventories
• Learning Objectives:
• Objectives of IAS 2,
• The scope of IAS 2,
• The meaning of inventory,
• Determining the cost of inventory,
• Measurement of inventory,
• The net realizable value of inventory, and
• Disclosure requirements for inventory
 Objectives of IAS 2
• Promote faithful presentation of financial
statements, and
• To achieve comparability of financial statements of
an entity with itself over time and with other entities.
 Scope of IAS 2
The standard covers all forms of inventory except:
• Inventory held as work in progress in a Construction
contract covered by IFRS 15,
• Inventory of financial assets covered by IAS 32 and
IFRS 9, and
• Inventory of biological assets covered by IAS 41.
 Meaning of inventory
Assets held by a reporting entity for:
• sale under normal course of business as finished
products, or
• in the process of production for resale, or
• as raw materials yet to be converted to finished
goods.
 Cost of inventory

Conversion
Purchase cost cost (fixed & Other costs
variable costs)
Measuring inventory cost
Cost of
inventory

Non
Interchangeable
interchangeable
items
items

Specific
FIFO WAVCO
Identification
Estimating inventory
value

Standard cost Retail method

for production for homogenous
plant items
Carrying amount of
inventory

Lower Cost
of:

NRV
Disclosure Requirements
• Accounting policy with respect to inventory
valuation,
• Measurement bases for inventory valuation,
• Amount of inventory on hand and a reconciliation
with the opening figure,
• Amount of any write down,
• Reversal of any write to NRV in the previous
accounting period,
• Classification of inventory into finished goods, raw
materials and work in progress, and
• Amount of inventory expensed in the period.
THE
END
IAS 8- Accounting Policies, Changes in Accounting Estimates and Errors

Learning Objectives:
• The meaning of accounting policies,
• Selecting an accounting policy,
• Changes in accounting policy,
• Disclosure requirement for a change in accounting
policy,
• Meaning of change in accounting estimate,
• Treatment of changes in accounting estimate,
• Disclosure requirements for changes in accounting
estimate,
• Meaning of prior period errors,
• Accounting treatment of prior period errors, and
• Disclosure requirements for prior period errors
 Accounting Policies
The basis and assumptions applied by management
in producing the financial statement of a reporting
entity,
Accounting policies involve decisions taken by
management in:
• Recognising,
• Selecting measurement basis for, and
• Presenting assets, liabilities, income, expenses and
changes to equity.
 policy

Yes? Use the

requirements of the
IFRS
Applicable IFRS
exists?
Selecting No? Use judgment
accounting
policy?
Yes. Consider
standards for similar
Using judgment?
items or the
Framework,
 Treatment of change in
accounting policy
• Be consistent. Only make a change if required by
an IFRS or when the change enables a more
reliable and relevant presentation,
• The impact of the change is applied retrospectively
through retained earnings in the SOCIE.
 Examples of changes in
accounting policy
• A change in inventory valuation model,
• A change in account head in which an item was
previously recognised,
• A change from expensing of borrowing cost to
capitalization,
• A change in measurement of PPE from cost model to
revaluation model and vice versa,
• A change from measuring investment property from
cost model to fair value model and vice versa,
• A change from treating grant related assets as
deduction from cost to setting up a deferred income
etc.
 Change in a/c policy-
disclosures
• The title of the standard / interpretation that caused the
change.
• Nature of the change in policy.
• Description of the transitional provisions.
• For the current period and each prior period presented,
if practicable, disclose the change for each line item
affected.
• EPS – impact due to change in policy.
• Amount of the adjustment at the beginning of earliest
period presented.
• If retrospective application is impracticable, explain and
describe how the change in policy was applied.
 Estimates

An adjustment of:
• Carrying amount of an asset or liability, or
• The amount of the periodic consumption of an
asset.
A change in estimate is usually caused by the
emergence of information which was not known to
management at the period the estimate was made.
 Accounting Estimate

Recognise the change prospectively in profit or loss in:

• Period of change, if it only affects that period; or
• Period of change and future periods (if applicable).
 Accounting Estimates

• A change in depreciation method,

• A change in write down of inventory from cost to
NRV,
• A change in provisions for bad debts,
• A change in effective interest rate on borrowings,
• A change in the useful life of an asset or
depreciation rate,
• A change in the residual value of an asset,
• Changes in provisions other provision for bad debts,
 Estimate

• Nature and amount of change in an accounting

estimate (current year and future),
• Disclose the fact if the effect of future periods is not
disclosed because of impracticability.
 Errors

Omissions from and misstatements in, an entity’s

financial statements for one or more prior periods
arising from failure to use/misuse of reliable
information that:
• Was available when the financial statements for
that period were issued
• Could have been reasonably expected to be taken
into account in those financial statements.
 Examples of errors
• Mathematical mistakes,
• Mistakes in applying accounting policies,
• Oversights and misinterpretation of facts,
• Misstatement of facts due to fraud
 prior period errors

• Retrospectively restate comparative amounts for

prior periods in which error occurred, OR
• if the error occurred before that date – restate
opening balance of assets, liabilities and equity for
earliest period presented through the SOCIE unless it
is impracticable to do so.
 error

• Nature of the error.

• For each prior period presented, if practicable, the
amount of the correction:
– For each line item affected.
– For EPS
• Amount of the correction at the beginning of
earliest period presented
• If retrospective application is impracticable, explain
and describe how the error was corrected.
 IAS 10 – Events after the Reporting Period

Learning objectives:
• The objectives of IAS 10,
• The meaning and types of events after the reporting
period,
• The meaning and accounting treatment of adjusting
events,
• Specific examples of adjusting events,
• Link between going concern and adjusting events,
• The meaning and treatment of non-adjusting events,
• Specific examples of non-adjusting events, and
• Disclosure requirements.
 Objective of IAS 10
To prescribe adjustments and disclosures for events
after the Reporting Period.
 Meaning of events after reporting period

Events that occur between Such events could be those

the reporting date and the which give evidence of
date that the financial conditions which existed
statements are authorized before the end of the period
for issue and those which do not.
Events after the reporting
period
Adjusting Non adjusting
events events

Those events which

Events giving
evidences
evidence of conditions
circumstances not
existing before end of
existing before end of
reporting period
reporting period

Adjust profit or loss Only make disclosures

and asset, liability or in the explanatory
equity affected notes.
 Examples of events after reporting period
Adjusting events
• Settlement of ongoing court
case
• Bankruptcy of customer
included in receivables
balance
• Sale of inventory below NRV
• Determination of selling
price of assets sold before
year end,
• Discovery of fraud existing
in the yet to be concluded
accounts
Non adjusting events
• Biz combination or purchase of asset
after year end,
• Announcement of restructuring after
year end,
• Destruction of company asset after year
end,
• Provision of guarantee after year end,
• Changes in FV of assets after year end,
• Changes in FOREX rate after year end,
• Changes in interest rates after year end,
• Capital expenditure commitment after
year end,
• Dividend declared after year end.
 Going Concern
• An entity shall not prepare its financial statements
on a going concern basis if management
determines after the reporting date either that it
intends to liquidate the entity or to cease trading, or
that it has no realistic alternative but to do so.
• This could be triggered by an adjusting event.
 Disclosure requirements of IAS 10

• Date when the financial statements were

authorized for use and who gave that authorization,
• Whether the entity’s owners or others have the
power to amend the financial statements after
issue,
• The nature of non adjusting events, and an estimate
of its financial effect or a statement that such an
estimate cannot be made, and
• Information received after the reporting period
about conditions that existed at the end of the
reporting period.
THE END
 Assistance

Learning Outcomes:
• The meaning of government grants
• The different types of government grants,
• Accounting treatment of government grants,
• How to account for the repayment of government
grants, and
• The disclosure requirements in respect of
government grants.
 Meaning of government
grants
• Any form of government assistance whereby the
government transfers economic benefits to a
reporting entity as a result of present or past
compliance with certain conditions relating to the
operating activities of the reporting entity,
• This excludes govt. assistance regarding the effects
of changing prices, govt assistance creating a tax
break or govt patronage in the normal course of
business.
 Types of government
grant & treatment
Govt. grants

Non monetary
Capital grants Revenue grants
grants

Full recognition
Deduction from Deferred FV or nominal
or net
asset cost income value
recognition
Repayment of govt. grants
Grant used as •Increase BV of asset with amount repayable
deduction from •Create a provision for grant repayable
•Recognise all undercharged depreciation over the years.
asset cost

Grant set up as •Derecognise unamortized deferred income

•Create a provision for grant repayable
deferred income

Non monetary •Create a provision for grant repayable,

•Derecognise asset or income recognised
grant
 Disclosure requirements
• The accounting policies with respect to government
grants,
• The nature and amount of grants recognized and
other forms of government assistance received,
and
• Any unfulfilled conditions in respect of a grant.
THE
END
 IAS 33- Earnings per
share
Learning objectives:
• The objectives of IAS 33
• The scope of IAS 33
• Earnings determination,
• Computation of BEPS under different scenario,
• Diluted EPS
• Significance of the EPS statistics.
 Objectives of IAS 33
• To promote comparability of finance performance
between an entity over time and among entities
over time or at a point in time.
• Achieved by recommending how to compute the
denominator of the EPS formula.
 Scope of IAS 33
• Entities with quoted equities,
• Entities in the process of quotation, or
• Unquoted entities wishing to disclose the EPS
statistics.
 Earnings determination
• Includes all income and expenses from continuing
operations less taxes and minority interests,
• Excludes income and dividends to preference
shareholders, and
• Excludes cumulative preference dividends whether
declared or not,
 Basic EPS formula
Basic EPS = Net profit /(loss) attributable to ordinary shareholders
Weighted average number of ordinary shares outstanding during the period
Computation of BEPS
BEPS

Issues Issues with

Issue at full
without cash cash flows but
market price
flows a discount

Theoretical
ex-rights price
 Diluted EPS

1. DEPS involving
convertible debts
1. DEPS involving options
2. Consider anti or warrants
dilution
2. Consider shares issued
without/below MV
 Significance of EPS
statistics
pros cons

•Stock market •Focuses only on

indicator denominator
•Trend analysis •Based on historic
•ESOP scheme data
facilitator •Can promote
•Relative performance earnings
measure manipulation
THE END
 IAS 23 Borrowing Costs
Topic outline
• Meaning of borrowing costs
• Qualifying assets,
• Recognition of borrowing costs,
• Measurement of borrowing costs, and
• Disclosure requirements
 Meaning of borrowing
costs
Borrowing costs are interest and other costs incured in
connection with the borrowing of funds. The costs
include:
• interest calculated using the effective interest rate
method as described in IFRS 9,
• finance charges in respect of finance leases as set
out in IFRS 16; and,
• exchange differences arising from foreign currency
borrowings to the extent that they are regarded as
an adjustment to interest cost.
 Qualifying assets
Those assets that require a substantial time to bring to
their intended use or saleable condition, for example:
• inventories requiring a substantial period to bring
them to a saleable condition; and
• manufacturing plants, power generation facilities,
and investment properties.
 Accounting Treatment

Recognition
criteria
Recognition Commencement
Suspension
Accounting for
Cessation
borrowing
costs
Specific or
Measurement general
borrowing?
 Recognition criteria
Borrowing costs that are directly attributable to the
acquisition, construction, or production of a qualifying
asset should be capitalized when:
• it is probable that they will result in future economic
benefits to the entity; and
• the costs can be measured reliably
• Other borrowing costs are recognized as an
expense in the period in which they are incurred.
 Recognition (con’t)
Capitalization commences when all of the following
conditions have been met:
• expenditures on a qualifying asset are being
incurred;
• borrowing costs are being incurred; and
• activities necessary to prepare the asset for its
intended sale or use are in progress.
 Recognition (con’t)
Capitalization should be suspended during extended
periods in which the active development of the asset is
interrupted.
Capitalization should not cease:
• when all of the components required before any part of
the asset can be sold or used are not yet completed;
• for brief interruptions in activities;
• during periods when substantial technical and
administrative work is being carried out; or
• for delays that are inherent in the asset acquisition
process (for example, wines that need long periods of
maturity).
 Recognition (con’t)
Capitalization should cease when:
• the asset is materially ready for its intended use or
sale; or
• construction is completed in part and the
completed part can be used independently.
 Measurement
• If funds are specifically borrowed to obtain a particular
asset, the amount of borrowing costs qualifying for
capitalization is the actual costs incurred during the
period, less income earned on temporary investment of
those borrowings.
• If funds are borrowed generally and used to obtain an
asset, the amount of borrowing costs to be capitalized
should be determined by applying the weighted
average of the borrowing costs to the expenditure on
that asset. The amount capitalized during a period
should not exceed the amount of borrowing costs
incurred during that period.
• When the carrying value of an asset, inclusive of
capitalized interest, exceeds the net realizable value,
the asset should be written down to the net realizable
value.
 Disclosure

The following should be disclosed:

• the amount of borrowing costs capitalized during
the period; and,
• the capitalization rate used to determine the
amount of borrowing costs capitalized.
Thank You