Northern Ireland Civil Service Accounting Standards Review

1
Northern Ireland Civil ServiceAccounting
Standards Review

• The Pavilion, Stormont Estate, Belfast
• Presenter
• Robert J Kirk
• Professor of Financial Reporting

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(No Transcript)
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(No Transcript)
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More information

• www.iasb.org.uk
• www.iasplus.com.uk
• www.asb.org.uk
• www.company reporting.com.uk

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FRS 6 Acquisitions and Mergers

• Background
• Examination of the differences between
  Mergers and Acquisitions - by example
• Use of vendor placing and vendor rights
• FRS 6
• Definition of a merger
• Criteria to investigate - 5
• Disclosure

6
Mergers v Acquisitions - Example

• FACTS
• Public Body A transfers Function X to Public Body
  B
• Function X has fixed assets of 50 represented by
  a general fund balance of 30 and a revaluation
  reserve of 20
• The fair value of Function Xs assets is 60

7
Example of Merger v Acquisition Accounting

• Pre Acquisition Merger
• Public Body A
• General Fund 100
  70 70
• Revaluation Reserve 50
  30 30
• 
  150 100
  100
• Fixed assets
  150 100 100
• Public Body B
• General Fund
  150 150 180
• Revaluation reserve 50
  110 70
  
  200
  260 250
• Fixed assets
  200 260 250
• Reduced through a loss on disposal of fixed
  assets of 50 offset by a transfer of realised
  revaluation reserve of 20

8
Advantages of Merger Accounting

• No revaluation of acquiree net assets
• No loss on disposal of assets where transfer is
  for nil consideration

9
Vendor Placing

• Vendor Placing

B Shares
Company A
Merchant Bank
2
A Shares
A Shares
B Shares
1
3
Cash
Cash
Institutional Market
Company B
10
Vendor Rights
Company A
A Shares (Rights issue)
3
Cash
Merchant Bank
A Shares
B Shares
1
A Shares
Company B
2
Cash
11
Merger Accounting Public Sector

• Reform of Public Administration (RPA)
• DAO 13-05 Machinery of Government Changes
• Government is deemed to be one
• single control body
• Merger accounting applicable
• Transfers out of central government

12
FRS 12 Provisions, Contingent Liabilities and
Contingent Assets

• Background
• Objective
• Definitions
• Scope
• Provisions Other Liabilities
• Relationship between Provisions and
• Contingent Liabilities

13
FRS 12 Provisions, Contingent Assets and
Contingent Liabilities

• Recognition
• Present obligation
• Probable transfer of benefits
• Reliable estimate
• Measurement
• Reimbursements
• Changes and Uses of Provisions
• Disclosure and Tax Implications

14
Application Notes

• Application
• Future operating losses
• Provisions should not be recognised for future
  operating losses
• Future operating losses do not meet the general
  definition of a liability and the general
  recognition criteria for provisions

15
Application Notes

• Application
• Onerous contracts
• This is a contract in which the unavoidable costs
  of meeting the applications under it exceed the
  economic benefits expected to be received from it
  
• The present obligation under onerous contracts
  should be recognised and measured as a provision

16
Application Notes

• Application
• Restructuring (Definition)
• Sale or termination of a line of business
• Closure of business locations in a country or
  region
• Relocation of business activities from one
  country or region to another
• Changes in the management structure
• Fundamental reorganisations that have a material
  effect on the nature and focus of operations

17
Proposed FRS 12 (Revised )Non Financial
Liabilities

• Objective
• Scope
• Definitions
• Non financial liability
• Constructive and legal obligations
• Recognition
• Satisfying the definition of a liability
• Contingencies
• Reliable measurement

18
Proposed FRS 12 (Revised)

• Measurement
• Amount rationally pay to settle
• Risks and uncertainties
• Present value
• Future events
• Subsequent measurement
• Reimbursements
• Application of the Recognition and Measurement
  Requirements
• Disclosure
• Date of Effectance and transitional arrangements

19
Provisions

• RPA Restructuring Costs
• Special circumstances re redundancies?
• Legal obligations when parliamentary
  approval/ministerial approval required
• Problems of faster closing and possible use of
  estimation techniques

20
FRS 21 Events After the Balance Sheet Date

• Introduction
• Objective
• Scope
• Definitions
• Adjusting Events
• Non Adjusting Events
• Date of Authorisation

21
FRS 21 Events After the Balance Sheet Date

• Recognition and Measurement
• Adjusting events
• Non Adjusting Events
• Dividends
• Disclosure
• Date of Authorisation
• Updating Disclosure about conditions at
  balance sheet date

22
FRS 15 Tangible Fixed Assets

• Objective
• Key Definitions
• Tangible Fixed Asset
• Depreciation
• Scope
• SSAP 19 Investment Properties

23
FRS 15 Tangible Fixed Assets

• Main changes
• - Initial measurement
• - New rules on revaluation
• - Non depreciation
• - Transitional

24
FRS 15 Tangible Fixed Assets

• Initial Measurement
• Cost
• Finance Costs
• Disclosure - Finance Costs
• Recoverable Amount - link FRS 11
• Subsequent Expenditure - link FRS 12

25
Adaptation for Public Sector

• Gains on revaluation credited to
• Grants in aid the revaluation reserve
• Donated assets the donated asset
• reserve
• Assets financed by grants government
• grants
  reserve
• Losses on revaluation debit relevant reserve up
  to previous gains and then operating statement

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Interpretations for Public Sector

• All tangible fixed assets at valuation
• No historic cost disclosure required
• Value at lower of replacement cost and
  recoverable amount (higher of NRV and value in
  use)
• No capitalisation of interest

27
FRS 15 Tangible Fixed Assets

• Valuation
• Class of Assets
• Frequency
• Valuation Basis
• Reporting gains and losses - disposal
• Reporting gains and losses - revaluation
• Disclosures

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Interpretations for Public Sector - Property

• Value of estates might include
• - Strict application of FRS 15
• - Quinquennial valuation supplemented
  by
• annual indexation and no interim
• valuation
• - Annual valuations or
• - Rolling programme of valuations

29
Interpretations for Public Sector - Property

• Must use RICS Red Book for valuing property
• If adopt DRC read RICS Valuation Paper No 10
• Normally value a modern equivalent asset Red
  Book
• Enhancements capitalised writedowns are
  impairments and charged to operating cost

30
Interpretations for Public Sector Non Property

• Can adopt DRC as proxy for current valuations
  where different not significant
• If not the case must adopt current values
• Must only change asset lives or capitalisation
  thresholds with permission of relevant authorities

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Interpretations for Public Sector
Infrastructure assets

• Part of an integrated network e.g. roads
• Road network at CRC adjusted to reflect its
  condition
• Full valuation every 5 years supplemented by
  annual condition surveys
• Surveys must cover significant and representative
  proportion of road network
• If steady state maintained no depreciation
• If deterioration/improvement value
  charged/credited to operating cost statement and
  NBV adjusted.
• Between full valuations value of network should
  be adjusted to reflect
• a) material movements in prices via
  indices
• b) any expenditure on new schemes
  increase capacity
• c) detrunkings treated as disposals of
  assets for nil
• consideration

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FRS 15 Tangible Fixed Assets

• Depreciation
• Nil Depreciation policy
• Depreciable amount
• Useful Economic Life
• Renewals Accounting
• Disclosures

33
FRS 15 Tangible Fixed assets

• Date of Effectance
• Transitional Arrangements
• No need to go back to Original Cost
• Withdrawal of SSAP 12
• Compliance With IASs

34
FRED 29 Property, Plant and Equipment

• Objective
• Scope
• Definitions
• Recognition
• Initial Measurement
• Components of Cost
• Exchanges of assets

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FRED 29 Property, Plant and Equipment Borrowing
Costs

• Introduction
• Main Changes between FRS 15 and FRED 29
• Main Changes to Borrowing Costs
• Remaining differences IFRSs and FRSs

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FRED 29 Property, Plant and Equipment

• Replacing or Renewing a Component
• Subsequent Expenditure
• Measurement Subsequent to Initial Recognition
• Benchmark treatment
• Allowed alternative
• Depreciation

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FRED 29 Property, Plant and Equipment

• Recoverability of the Carrying Amount
• (Impairment Losses)
• Retirements and Disposals
• Disclosure
• Transitional Arrangements

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FRED 29 Borrowing Costs

• Objective
• Scope
• Definitions
• Benchmark Treatment

39
FRED 29 Borrowing Costs

• Allowed Alternative Treatment
• Recognition - eligible costs for
  capitalisation
• - excess carrying
  amount
• - commencement
• - suspension
• - cessation
• Disclosure

40
FRS 5 Reporting The Substance of Transactions

• Background
• Simple sale and sale under reservation of
  title
• Sale and repurchase agreement
• Objective
• Applicable to all transactions
• Other examples - Application Notes

41
Normal Sale v Sale on Consignment

• Normal Sale

• Consignment Stock

Goods
Goods
A
B
A
B
Legal Title
Legal Title
Asset
Asset??
Substance B controls the asset and should record
it
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Sale and repurchase of stock

• Legal Form
  Substance
• Dr Bank 100
  Dr Bank 100
• Cr Stock 100
  Cr Loan 100
• Sale of stocks
  Artificial sale treated as a loan
• Dr Stock 180
  Dr Profit and loss 8
• Cr Bank 180
  Cr Loan 8
• Repurchase of stocks
  Annual interest charge
• 
  Dr Loan 180
• 
  Cr Bank
  180
• 
  Repayment of loan

Sale
Transaction 1
Distiller
Distiller
Bank
Repurchase
Transaction 2
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FRS 5 Reporting The Substance of Transactions

• Determination of Substance
• Creation of asset/liability
• Allocation of risk
• General recognition criteria
• Sufficient evidence of existence of
  asset
• Measure with sufficient
  reliability
• Subsequent transactions
• Example - factoring of debts

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FRS 5 Reporting The Substance of Transactions

• Specific Statute or SSAP/FRS
• Linked presentation
• Disclosure
• Quasi Subsidiary

45
FRS 5 Substance Over FormPFI

• Features
• Analysis
• Basic principles
• Application of the principles
• Separation of contract
• Should SSAP 21 or FRS 5 be
  applied
• How to apply SSAP 21
• How to apply FRS 5

46
FRS 5 Substance Over FormPFI

• How To Apply PFI
• Demand Risk
• Presence of Third Party Revenues
• Who determines the nature of the
  property
• Penalties for underperformance
• Obsolescence
• Residual value risk

47
FRS 5 Substance over FormPFI

• Accounting Treatment
• Purchaser (Public Sector)
• Asset under control - asset and
  liability
• Asset under control of operator
  - expense
• Operator (Private Sector)
• Asset under control -
  property asset
• Asset under control of
  purchaser - debtor

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Amendment to FRS 5 Revenue Recognition (Nov 2003)

• Introduction
• Definitions
• Basic Principles - Overview
• Specific Guidance

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Amendment to FRS 5 Revenue Recognition (Nov 2003)

• Specific Guidance
• Long Term Contractual Arrangements
• Separation and Linking of Contractual
  Arrangements
• Bill and Hold Arrangements
• Sales and Rights of Return
• Presented of Turnover as Principal or Agent

50
FRS 25 Financial Instruments Disclosure and
Presentation

• Objective
• Scope
• Financial instruments (whether
  recognised or
• unrecognised) other than
• interests in subsidiaries, associates and joint
  ventures
• employer and plan obligations for post-employment
  benefits
• employer obligations under employee stock
  option/purchase plans and
• obligations arising under insurance contracts.

51
FRS 25 Overview

• Prescribes requirements for the presentation of
  on-balance-sheet (recognised) financial
  instruments.
• Requires disclosures about both recognised and
  unrecognised financial instruments to assist
  users in evaluating their impact on the amount,
  timing and certainty of future cash flows.

52
FRS 25 Key Definitions

• Financial instrument
• contract that gives rise to both a financial
  asset of one enterprise and a financial liability
  or equity instrument of another enterprise.
• definition captures derivative instruments.
• Financial asset
• cash
• a contractual right to receive cash or another
  financial asset from another enterprise
• a contractual right to exchange financial
  instruments with another enterprise under
  potentially favourable condition or
• an equity instrument of another enterprise.

53
FRS 25 Key Definitions

• Financial liability
• any liability that is a contractual
  obligation
• to deliver cash or another financial asset to
  another enterprise or
• to exchange financial instruments with another
  enterprise under potentially unfavourable
  conditions.
• Equity instrument
• any contract that evidences a residual interest
  in the assets of an enterprise after deducting
  all of its liabilities.

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FRS 25 Presentation

• Presentation
• Classification of Instrument as Financial
  Liability or Equity
• On initial recognition,classify instrument (or
  component parts) in accordance with substance of
  contractual arrangement and definitions of
  financial liability and equity instrument.
• Classification continues until instrument removed
  from enterprises balance sheet.

55
FRS 25 Presentation

• Classification of Instrument as Financial
  Liability or Equity (cont.)
• Preferred share that provides for mandatory
  redemption for fixed or determinable amount at
  fixed or determinable date meets definition of
  financial liability.
• Redemption regarded as mandatory when issuer has
  little, if any, discretion to avoid (e.g.,
  instrument has contractually accelerating
  dividend that results in issuer being
  economically compelled to redeem).

56
FRS 25 Presentation

• Classification of Instrument as Financial
  Liability or Equity (cont.)
• Obligation that can be settled either by payment
  of financial assets or issuing of enterprises
  own equity instruments must be classified as
  financial liability where number of equity
  instruments required to settle obligation varies
  with changes in equity instruments fair value so
  that total fair value of equity instruments paid
  equals amount of contractual obligation.

57
FRS 25 Presentation

• Classification of Compound Instruments
• Classify component parts separately in accordance
  with substance of contractual arrangement and
  definitions of financial liability and equity
  instrument.
• E.g., debt instrument that provides holder an
  option to convert instrument into shares of
  issuer
• obligation to repay interest and principal
  financial liability and
• embedded call option granting holder right to
  convert to shares equity.

58
Convertible Loans

• Facts
• Entity issues 2,000 convertible loans at par with
  a 3 year life with a face value of 1,000 per
  bond. Total proceeds 2m. Interest is payable at
  6 in arrears. Can be convertible into 250
  ordinary shares at any time. Assume normal loan
  9
• Solution
• Present value of principal 2m discounted at 9
  
• and payable in 3 years
  1,544,367
• Present value of interest 120,000 payable
  annually
• for 3 years
  
  303,755
• Total liability
  
  1,848,122
• Equity component (bal. fig.)
  151,878
• 
  2,000,000

59
FRS 25 Presentation

• Treasury Shares
• Deducted from equity
• No gain or loss is recorded

60
FRS 25 Presentation

• Offsetting Financial Assets and Financial
  Liabilities
• Only offset and report net amount when
  enterprise
• has legally enforceable right to set off and
• intends either to settle on net basis or to
  realise asset and settle liability
  simultaneously.

61
FRS 25 Presentation

• Interest, Dividends, Losses and Gains
• Depends on classification of financial instrument
  that interest, dividends, losses or gains relate
  to.
• If relate to financial instrument or component
  part classified as financial liability, report
  interest, dividends, losses or gains in income
  statement.
• For distribution to holder of financial
  instrument classified as equity instrument,
  report directly in equity.

62
FRS 25 Disclosure

• General Disclosure Requirements
• Market risk
• Credit risk
• Liquidity risk
• Cash flow interest rate risk

63
FRS 25 Disclosure

• Interest Rate Risk
• For each class of financial asset and financial
  liability (recognised and unrecognised), disclose
  information about exposure to interest rate risk,
  including
• contractual repricing or maturity dates
  (whichever earlier) and
• where applicable, effective interest
  rates/yields.

64
FRS 25 Disclosure

• Interest Rate Risk (cont.)
• Format of disclosure (narrative, tables or both)
  should be governed by nature of enterprises
  business and extent of activity in financial
  instruments.
• Commentary in Standard provides guidance on
  information to include and possible approaches to
  presenting.

65
FRS 25 Disclosure

• Credit Risk
• For each class of financial asset (recognised and
  unrecognised), disclose information about
  exposure to credit risk, including
• maximum credit risk exposure, without taking
  account of any collateral, if other parties fail
  to perform and
• significant concentrations of credit risk.
• Commentary in Standard provides guidance on
  information to include.

66
FRS 25 Disclosure

• Fair Value
• For each class of financial asset and financial
  liability (recognised and unrecognised), disclose
  information about fair value.
• Includes disclosure of method of determining fair
  value and significant assumptions made.
• where not practicable to determine with
  sufficient reliability, disclose that fact and
  characteristics of instrument that would be
  pertinent to its fair value.
• Commentary in Standard provides guidance on
  determining fair value.

67
FRS 26 Financial Instruments Measurement

• Overview
• Establishes principles for recognising, measuring
  and disclosing information about financial assets
  and financial liabilities.
• A first step towards recognising all financial
  instruments, including derivatives, at their fair
  values.

68
FRS 26 Scope

• All financial instruments other than
• interests in subsidiaries, associates and joint
  ventures
• rights/obligations under leases
• employer assets/liabilities under employee
  benefit plans
• rights/obligations under insurance contracts
• enterprises own equity instruments
• contracts for contingent consideration in a
  business combination
• contracts requiring payment based on climatic,
  geological or other physical variables (but does
  apply to derivatives embedded in such contracts)
  and
• financial guarantee contracts that provide for
  payments if debtor fails to make payment when due.

69
FRS 26 Key Principles

• Four Categories of Financial Assets
• 1. Financial asset/liability at fair value
  through profit or loss
• i.e., held for purpose of generating profit from
  short-term fluctuation in price or dealers
  margin
• all derivatives deemed held for trading unless
  designated as hedges.
• 2. Held-to-maturity investment
• fixed or determinable payments and fixed
  maturity
• entity has positive intent and ability to hold to
  maturity (Standard contains requirements and
  guidance for assessing)
• excludes items falling into category 3.

70
FRS 26 Key Principles

• Four Categories of Financial Assets (cont.)
• 3. Loans and receivables originated by the
  enterprise
• created by providing money, goods or services
  directly to a debtor, other than those originated
  with intent to be sold immediately or in the
  short term (which should be classified as held
  for trading).
• 4. Available-for-sale
• instruments not falling within categories 1 to 3.
  

71
FRS 26 Key Principles

• Embedded Derivative
• Derivative component of a financial instrument
  that includes both a derivative and a host
  contract.
• Causes some or all of the cash flows of the
  combined instrument to vary in similar way to
  stand-alone derivative.

72
FRS 26 Key Principles

• Embedded Derivative (cont.)
• Commentary in Standard provides examples
• e.g., 1. an equity conversion option embedded
  in debt instrument (convertible
  note)
• 2. A credit derivative in a host debt
  instrument that allows 1 party (the beneficiary)
  to transfer the credit risk of an asset (which
  it may or may not own) to a guarantor who does
  not purchase the asset itself.

73
FRS 26 Measurement

• Initial Recognition
• Measure at cost (including transaction costs).
• Subsequent Measurement Financial Assets not
  Designated as Hedges
• Loans and receivables originated by the
  enterprise and held-to-maturity investments
• if fixed maturity measure at amortised cost
  using effective interest rate (i.e., rate that
  causes present value of future cash payments to
  equal current net carrying amount). Annual
  impairment test
• if no fixed maturity measure at cost. Annual
  impairment test.

74
FRS 26 Measurement

• Subsequent Measurement Financial Assets not
  Designated as Hedges (cont.)
• Held for trading and available-for-sale
• if fair value can be reliably measured measure
  at fair value (without deduction of disposal
  costs)
• if no quoted market price in active market and
  fair value cannot be reliably measured
• if fixed maturity measure at amortised cost
  using effective interest rate. Annual impairment
  test
• if no fixed maturity measure at cost. Annual
  impairment test.

75
FRS 26 Measurement

• Subsequent Measurement Financial Assets not
  Designated as Hedges (cont.)
• If held-to-maturity investment changes status
  to held for trading or available-for-sale,
  remeasure to fair value.
• If reliable measure of fair value becomes
  available for held for trading or
  available-for-sale asset where such measure not
  previously available, remeasure to fair value.

76
FRS 26 Hedging

• Hedging designating a financial instrument as
  an offset, in whole or in part, to changes in
  fair value or cash flows of a hedged item.
• Financial instruments can, provided certain
  criteria met, be designated as hedges of
  recognised assets or liabilities firm
  commitments or forecasted transactions.
• Hedge accounting recognises symmetrically the
  offsetting effects on net profit/loss of changes
  in the fair values of the hedging instrument and
  the hedged item.

77
FRS 26 Hedging

• If hedged item is non-financial asset or
  liability, can only qualify for hedge accounting
  in respect of either foreign currency risks or
  all risks.
• Why? Difficulty in isolating cash flows or fair
  value changes attributable to specific risks
  other than foreign currency risk.

78
FRS 26 Hedging

• Hedge relationship qualifies for hedge accounting
  only when
• certain formal documentation is in place at
  inception
• hedge expected to be highly effective in
  offsetting changes in fair value or cash flows of
  hedged item, and hedge effectiveness can be
  reliably measured
• hedge must be assessed on ongoing basis and
  determined actually to have been highly effective
  during reporting period (Standard includes
  guidance for assessing hedge effectiveness) and
• for cash flow hedges of forecasted transaction,
  forecasted transaction must be highly probable
  and represent exposure to variations in cash
  flows that could ultimately affect net
  profit/loss.

79
FRS 26 Hedging

• 3 types of hedging relationships
• fair value hedge (hedge of exposure to changes in
  fair value of recognised assets or liabilities)
• cash flow hedge (hedge of exposure to cash flow
  variability of recognised assets or liabilities
  or forecasted transaction. Hedge of firm
  commitment to buy/sell asset at fixed price in
  enterprises reporting currency also treated as
  cash flow hedge) and
• hedge of net investment in foreign entity (see
  IAS 21).

80
FRS 29 Financial Instruments Disclosure

• Objective
• Scope
• Classes of Financial Assets and Financial
  Liabilities

81
FRS 29 Financial Instruments Disclosure

• Significance of Financial Instruments
• Balance Sheet
• Categories of Financial assets and
• liabilities
• Disclosure

82
FRS 29 Financial Instruments Disclosure

• Income Statement and Equity
• Items of income, expenses, gains or
• losses
• Other disclosures

83
FRS 29 Financial Instruments Disclosure

• Nature and Extent of Risks
• Qualitative
• Quantitative
• Effective Date ofImplementation

84
Implementation of FRS 25,26 and 29 in the Public
Sector RABIG Nov 2006

• Background not until 2007/08
• Technical issue trading funds PDC
• IAS 32 and 39 were being revised
• FRED 39 amended FRS 12
• Interpretations of FRS 25
• PDC is classified and presented as a
  form of financing in the
• bottom half of the balance sheet
  (with reserves) and
• Dividends on PDC are presented in the
  IE and as liabilities on
• balance sheet, where appropriate

85
Implementation of FRS 25,26 and 29 in the Public
Sector RABIG Nov 2006

• Designation options only exercised with consent
  of relevant authorities
• Reclassification also requires consent ensure
  consistency of approach

86
FREM Main Categories

• Investments in public bodies
• Investments outside dept boundary (PDC,
• Other equity, loans) at HC
• Other Investments
• Market value or basis determined by entity
  
• in agreement with relevant
  authority

87
FREM Main Categories

• Debtors, creditors and accruals
• Proposed adopt basis of subsequent
• measurement other than at amortised cost
• Provisions and contingent liabilities
• FRS 12 excludes financial instrument
  contracts,
• financial guarantee
  contracts
• FRS 26 initially fair value, subsequently
  at amortised cost other
• than being held for trading
• FReM proposes agree to subsequent
  measurement and to
• financial guarantees as
  insurance contracts

88
FREM Main Categories

• Hedges
• Need agreement of relevant authority on the
  
• use of FRS 26 Hedge based accounting
• Embedded Derivatives
• All entities need to consider whether any
• contracts need to be split (including
  leasing
• and PFI) and accounted for separately

89
FREM FRS 29

• Few departments have enough dealings to give rise
  to significant risks enough for FRS 29
  disclosure.
• Proposed FREM include an interpretation of FRS 29
  that draws attention to disclose only what is
  necessary for understanding the entitys
  financial position.

90
International Accounting Standards
91
International Financial Reporting Standards

• IFRSs
• IFRS 1 First Time Adoption of IFRSs
• IFRS 2 Share Based Payment
• IFRS 3 Business Combinations
• IFRS 5 Non Current Assets held for sale and
• Presentation of Discontinued
  Operations
• IFRS 4 Insurance Contracts
• IFRS 6 Evaluation for and Evaluation of Mineral
  Resources
• IFRS 7 Financial Instruments Disclosure

92
IAS 1 Presentation of Financial Statements

• Content
• Income Statement
• Balance Sheet
• Statement of Changes in Equity
• Cash Flow Statement

93
International Accounting Standards

• IAS 2 Inventories

94
IAS 2

• Similar to SSAP 9
• Lower of cost and NRV
• Reversal of writeoff
• Disclosure

95
International Accounting Standards

• IAS 7 Cash Flow Statements (rev 1992)

96
IAS 7

• Three main headings only
• Operating, Financing and Investing
• Cash equivalents
• No reconciliation to balance sheet

97
International Accounting Standards

• IAS 8 Accounting Policies, Changes in Accounting
  Estimates and Errors

98
IAS 8

• Changes in accounting policies
• Changes in accounting estimates
• Errors material NOT fundamental

99
International Accounting Standards

• IAS 11 Construction Contracts (rev 2003)

100
IAS 11

• Similar to SSAP 9
• Stage of completion method
• Variations, Claims and Incentive Payments
• Disclosure

101
International Accounting Standards

• IAS 12 Income Taxes

102
IAS 12

• Full Provision
• No discounting
• Include on revaluations and fair value exercises

103
International Accounting Standards

• IAS 14 Segment Reporting

104
IAS 14

• Primary segments 9 disclosures
• Secondary segments 3 disclosures

105
International Accounting Standards

• IAS 16 Property, Plant and Equipment

106
IAS 16

• Initial cost
• Revaluation fair value not EUV
• - no 3 or 5 year review
• Depreciation nil??

107
International Accounting Standards

• IAS 17 Leases

108
IAS 17

• Finance v Operating Lease
• Disclosure of operating lease

109
International Accounting Standards

• IAS 18 Revenue Recognition
• (rev 1993)

110
IAS 18

• Profit and loss orientated
• Need service provided or goods delivered
• Other types of income rental, interest and
  royalties

111
International Accounting Standards

• IAS 19 Employee Benefits

112
IAS 19

• Short term benefits
• Pension DC and DB
• DB Corridor approach
• Profit sharing
• Termination benefits

113
International Accounting Standards

• IAS 20 Accounting for Government Grants and
  Disclosure of Government Assistance

114
IAS 20

• Revenue based grants
• Capital based grants
• Neutral net of cost and deferred income
• Disclosure of government assistance

115
IAS 21 Effects of Changes in Foreign Exchange
Rates

• Functional currency
• Presentation currency
• Transaction accounting
• Translation accounting
• Assets and liabilities CR
• Income statement AR
• Exchange differences - recycled

116
International Accounting Standards

• IAS 23 Borrowing Costs

117
IAS 23

• Benchmark no capitalisation
• Allowed Alternative capitalise but rules on
  commencement, suspension and cessation

118
International Accounting Standards

• IAS 24 Related Party Disclosures (December 2003)

119
IAS 24

• Broader definition key managers
• New definition of close members of family
• No names of individuals
• Exemption of subsidiaries 100

120
International Accounting Standards

• IAS 26 Accounting and Reporting by Retirement
  plans

121
IAS 26

• Contents of Pension Scheme Accounts
• Trustees Report
• Income Statement
• Balance Sheet

122
International Accounting Standards

• IAS 27 Consolidated and Separate Financial
  Statements

123
IAS 27

• Definition of subsidiary control
• Exclusion of subsidiaries
• Consolidation procedures

124
International Accounting Standards

• IAS 28 Accounting for Investments in Associates

125
IAS 28

• Significant Influence
• Equity Accounting

126
International Accounting Standards

• IAS 29 Financial Reporting in Hyperinflationary
  Economies

127
IAS 29

• Must translate after applying CPP accounting to
  initial financial statement
• Then translate at closing rate

128
International Accounting Standards

• IAS 31 Interests in Joint Ventures

129
IAS 31

• Joint control
• Benchmark proportionate consolidation
• Allowed alternative equity accounting

130
International Accounting Standards

• IAS 33 Earnings Per Share

131
IAS 33

• Basic EPS
• Diluted EPS
• Discontinued Operations
• No alternative EPS on face of income statement

132
International Accounting Standards

• IAS 34 Interim Financial Statements

133
IAS 34

• Content
• Income Statement
• Balance Sheet
• SORIE
• Cash Flow Statement
• Key notes

134
International Accounting Standards

• IAS 36 Impairment of Assets

135
IAS 36

• More robust test based on recoverable amount
  (higher of NRV and NPV)
• Based on CGUs
• Minority interests
• Common assets

136
International Accounting Standards

• IAS 37 Provisions, Contingent Liabilities and
  Contingent Assets

137
IAS 37

• Provisions
• Legal or constructive obligation
• Probable
• Reliable estimate
• Contingent Liability possible, disclose
• Contingent asset probable, disclose

138
International Accounting Standards

• IAS 38 Intangible Assets

139
IAS 38

• Wide range of intangible assets
• Avoid goodwill impairment test
• Development must be capitalised
• Website development in intangible assets

140
International Accounting Standards

• IAS 40 Investment Property

141
IAS 40

• Cost or revaluation model
• Revaluation model credit income NOT reserves

142
International Accounting Standards

• IAS 41 Agriculture

143
IAS 41

• Fair value reporting
• Split gain between price change and growth change

144
International Financial Reporting Standards

• IFRS 1 First Time adoption of IFRSs

145
IFRS 1

• Transitional rules
• Exemptions mergers, foreign currency
  differences etc.

146
International Financial Reporting Standards
IFRS 2 Share Based Payment
147
IFRS 2

• Fair value charge
• Option pricing model at date of grant
• Equity, cash and hybrid examples

148
International Financial Reporting Standards

• IFRS 3 Business Combinations
• (March 2004)

149
IFRS 3

• Death of merger accounting
• Abolition of goodwill amortisation
• Annual impairment test
• New intangible assets - amortisation

150
International Financial Reporting Standards

• IFRS 4 Insurance Contracts

151
IFRS 4

• Insurance contracts
• Content of insurance accounts

152
International Financial Reporting Standards

• IFRS 5 Non Current Assets Held
• For Sale and Presentation
• of Discontinued Operations (March
  2004)

153
IFRS 5

• Non current assets reclassified as current assets
• Presentation of discontinued operations at foot
  of income statement

154
International Financial Reporting Standards

• IFRS 6 Insurance Contracts

155
IFRS 6

• Exploration and Evaluation of Mineral Resources
• Status quo for exploration companies

156
IFRS 7

• Financial Instruments - Disclosure