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IAS 8 – Accounting policies, changes in accounting estimates and errors

Accounting policies, changes in accounting estimates and errors (IAS 8)
Last Updated: October 30, 2013

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Selection and Application of Accounting Policies

  • If an IFRS specifically applies to a transaction the specific IFRS must be applied.
  • In the absence of specific guidance, management must use judgment which results in:
    • Relevant to the economic decision-making needs of users; and
    • Reliable, in that the financial statements:
      • Represent faithfully the financial position, performance and cash flows;
      • Reflect the economic substance of transactions and not just legal form;
      • Are free from bias;
      • Are prudent; and
      • Are complete in all material respects.

In the above judgments, management should refer to the following sources:

  1. IFRSs dealing with similar and related issues
  2. The definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.
  3. Could also consider the most recent pronouncements of other standard-setting bodies which use a similar conceptual framework or other accounting literature/accepted industry practices.

Other Notes

  • Entities should be consistent in their application of accounting policies for similar transactions.

 

Changes in Accounting Policies

Change in accounting policies is only permitted if:

  • Required by an IFRS; or
  • Results in equally reliable statements and more relevant information.

Changes in accounting policies must be applied retrospectively unless specific guidance is provided. The opening balance of each affected component of equity for the earliest prior period presented and other comparative amounts should be adjusted as if the policy was always in place.

Disclosures highlights: should include the nature of the change, reason for the change and amounts of the adjustment for each line item affected.

Changes in Accounting Estimates

The nature of accounting will result in occasional changes to accounting estimates, this is not the same as changes in accounting policies. When in doubt, IFRS requires you to assume it is a change in accounting estimate.

  • The effects of a change in accounting estimate shall be recognized prospectively by including it in profit or loss in:
    • The period of the change, if the change affects that period only; or
    • The period of the change and future periods, if the change affects both.
    • If the change in accounting estimate increases or decreases assets and liabilities, or equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.

 

Errors

On occasion, there may be errors discovered in the financial statements from prior periods. Errors mean that the financial statements do not comply with IFRSs, contain either material errors or immaterial errors made intentionally. This differs from a change in estimates.

Errors are required to be corrected retrospectively in the first set of financial statements authorised for issue after their error discovery by:

  • Restating the comparative amounts of the prior period(s) in which the error exists; or
  • If the error occurred prior to the earliest prior period presented, a restatement of the opening balances of assets, liabilities and equity for the earliest prior period presented.

Disclosure highlights: should include the nature of the error, the amount of correction for each line item and the amount of the correction for the earliest prior period.

Summary

Type of Change Type of Adjustment
Change in Accounting Policy Retrospective Adjustment
Change in Accounting Estimate Prospective Adjustment
Correction of an Error Retrospective Adjustment

 

IFRS 8 – Operating Segments UFE Study Guide

Operating Segments (IFRS 8)
Last Updated: November 14, 2012

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This IFRS applies to the financial statements for entities whose debt or equity is publicly traded or is in the process of becoming public. This also applies to subsidiaries with parents that meet the above criteria. Segment information must be separately reported.

What is an operating segment?

A component of an entity which meets all these criteria:

  • Engages in activities which earn revenue or incur expenses including with other internal components. Start-up activities yet to earn revenue are included.
  • Whose operating results are regularly reviewed by chief decision makers (often CEO or COO) about resource allocation.
  • For which discrete financial information is available.

Not every division of an entity is necessarily a segment. A corporate HQ or some functional departments who do not earn revenue or only earn incidental revenue would not be considered segments.

Reportable Segments

Quantitative Thresholds

Separate information must be reported if the following thresholds are met:

  • reported revenue, including external sales and intersegment sales or transfers ≥ 10% of total internal and external revenue for all segments
  • absolute amount of profit or loss≥ 10% of
    • combined reported profit of all operating segments that did not report a loss; and
    • the combined reported loss of all operating segments that reported a loss.
  • Assets are ≥ 10% of the combined assets in all operating segments
  • If management believes that a segment which does not meet the above thresholds should still be reported then it is permitted.
  • For operating segments that do not meet the quantitative threshold, entities may combine them based on the aggregation criteria.

Aggregation Criteria

Segments may be aggregated if they exhibit similar long-term financial performance and have similar economic characteristics. Two or more similar segments may be aggregated if they have similar:

  • nature of the products and services
  • nature of the production processes
  • types or class of customers
  • distribution methods used
  • regulatory environment

Additional Information

  • If the total external revenue reported by all operating segments ≤ 75% of the entities revenue, additional operating segments shall be identified as reportable segments, even if above criteria are not met until at least 75% of all segment revenue is included in reportable segments.
  • Information about all other activities or segments shall be reported as ‘all other segments’
  • If a new operating segment is identified in the current period, comparatives must be provided, even if this wasn’t reported previously.
  • An entity should use judgment when reporting more than 10 segments as the information may become too detailed.

Disclosure Requirements

Fairly detailed disclosure required. Some high-level requirements:

  • Factors used to identify reportable segments
  • Types of products and services of each segment
  • Information about segment profit or loss (internal+external), assets/liabilities, income tax expense, amortization, interest revenue and expense, material non-cash items
  • Reconciliation of segment amounts to entity-wide amounts

Examples of Segments Needing Disclosure

  • Information about major product or service lines
  • Information about geographical areas
  • Information about major customers

IFRS 11 – Joint Arrangements UFE Study Guide

Joint Arrangements (IFRS 11)
Last Updated: November 12, 2012

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Note: This IFRS applies beginning January 1, 2013. It is examinable on the 2013 CKE and UFE.

This IFRS establishes principles for reporting by entities that have jointly controlled interests.

Joint Arrangements

A joint arrangement is an arrangement where two or more parties have control. Criteria:

  • Two or more parties are bound by a contractual arrangement – usually in writing but could be statutory
    • If in a separate vehicle, this would usually be incorporated somewhere in the charter or by-laws of the vehicle.
    • Terms set out: purpose of the activity, duration of the agreement, how board of directors are appointed, the decision making process, capital and other contributions required, how profits, losses, expenses are shared.

Joint Control: Contractually agreed sharing of control which exists when decisions about relevant activities requires the unanimous consent of all parties sharing control. This arrangement can include other parties who participate but do not control. At least two must control jointly.

It must next be determined whether the joint arrangement is a joint operation or a joint venture.

Joint Operation: Parties have the joint control of the arrangement having rights to the assets, and obligations for the liabilities, relating to the arrangement.

Joint Venture: Parties have the joint control of the arrangement having rights to the net assets of the arrangement.

Financial Statements

Joint Operation

Recognize, in relation to the entities interest in a joint operation:

  • Assets, including its share of any assets held jointly
  • Liabilities, including the share incurred jointly
  • Revenue from the sale of its share of the output arising from the joint operation
  • Share of the revenue from the sale of the output by the joint operation
  • Expenses, including its share of any expenses incurred jointly

Account for each of these using the applicable IFRSs.

Additional Sale or Contribution of Assets: Recognize gains and losses only to the extent of the other parties’ interest in the joint operation.

Purchase of Assets from Joint Operation: Do not recognize gains or losses until this asset is sold to an third party.

Parties participating but not having joint control of a joint operation but having rights to the assets and obligations for the liabilities shall account using this same method above. If no rights to assets or obligations for liabilities then use other applicable IFRSs.

 

Joint Ventures

Recognize interest in the joint venture as an investment and accounting for that investment using the equity method in accordance with IAS 28 – Investments in Associates and Joint Ventures.

IFRS 10 – Consolidated Financial Statements UFE Study Guide

Consolidated Financial Statements (IFRS 10)
Last Updated: November 8, 2012

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Note: This IFRS applies beginning January 1, 2013. It is examinable on the 2013 CKE and UFE.

This IFRS establishes principles for the presentation and preparation of consolidated financial statements. This IFRS broadly requires that:

  • Parent entities with subsidiaries (subs) present consolidated financial statements.
  • Control be established as the basis of consolidation.
  • How to apply the principle of control to determine whether the parent controls the sub.
  • Sets out the accounting requirements for the preparation of consolidated financial statements.

This IFRS is separate from IFRS 3 – Business Combinations which sets up the initial business combination transaction.

A parent shall present consolidated financial statements, unless the following conditions are met:

  • It is a wholly or partially owned sub of another entity and all its owners, including those not entitled to vote, do not object to the parent not presenting consolidated financial statements.
  • Its debt or equity instruments are not traded in a public market.
  • It is filing to issue equity in a public market.
  • One of its parents produce consolidated financial statements which are available for public use.
  • Post-employee benefit plans or other long-term benefit plans must follow IAS 19 – Employee Benefits.

Control

A parent must determine if it has control over a sub. This is broadly defined as when the parent is exposed to or has the right to variable returns from the sub and has the power to affect those returns.

Power

  • Can direct the relevant activities which affect the parent’s return from the sub
  • Power arises from rights, for example voting rights but cases may vary
  • Even without exercising voting rights, the parent is considered to have the ability to direct relevant activities
  • If two parents have different abilities to direct relevant activities, the parent who has the ability that most significantly affects the returns of sub has the control over the sub.
  • Even if other entities have significant influence or can participate in relevant activities, the parent is still considered to have power. However, a parent that holds only protective rights does not have power over the sub. Protective rights are activities which apply in exceptional circumstances and prevent a sub from making fundamental changes in its activities. (i.e. sub can’t change it’s business)

Returns

  • A parent is exposed to variable returns when the returns of the sub to the parent can vary based on performance. No positive, neutral or negative return is guaranteed.
  • Only one parent can be considered to have control over a sub.

If more than one parent control the same sub collectively, and they must act together in order to meet these criteria then other IFRSs would be more appropriate to use (IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures, or IFRS 9 Financial Instruments)

Accounting Requirements

Consolidation begins from the date the parent obtains control and ends when the parent loses control. Uniform accounting policies for like transactions and other events shall be used.

  • Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of the subsidiaries.
  • Offset or eliminate the carrying amount of the parent’s investment in each sub and the parent’s portion of equity of each sub.
  • Eliminate intercompany transactions. Consider IAS 12 Income Taxes

Non-controlling interests

  • Non-controlling interest shall be presented separately on the consolidated statement of financial position within equity. Changes to controlling stake also go to equity.
  • Profit or loss both regular and other comprehensive income should be allocated between parent and non-controlling interest proportionately.

Loss of Control

  • Derecognize:
    • Assets and liabilities of the former sub including goodwill and non-controlling interest
  • Recognize:
    • Fair value of any consideration received in the loss of control
    • Any investment retained at its fair value when control was lost
  • Reclassify to profit or loss / or directly to retained earnings (if required by other IFRSs):
    • Amounts recognized in other comprehensive income
    • Any remaining difference is gain or loss attributable to the parent

IFRS 7 – Financial Instruments: Disclosures UFE Study Guide

Financial Instruments: Disclosures (IFRS 7)
Last Updated: November 7, 2012

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This is an extremely extensive section and this guide is only a summary. Disclosure is not typically heavily tested on the UFE.

This IFRS covers disclosures required for financial instruments. The broad purpose of these disclosures is to enable users to evaluate:

  • The significance of financial instrument’s impact on the financial statements
  • The extent to which the entity is exposed to risks from financial instrument and how these risks are managed.

IAS 32 – Financial Instruments: Presentations and IAS 39 – Financial Instruments: Recognition and Measurement should be used in conjunction with this section.

This section should be applied by all entities to all types of financial instruments except the following:

  • Subsidiaries, associates or joint ventures (Use IFRS 10, IAS 27, IAS 29)
  • Employer’s obligation to employee benefit plans (IAS 19)
  • Share-based payments (IFRS 2)

Significance of financial instruments for financial position and performance

Enable users to evaluate the significance of financial instruments on position and performance.

On the Statement of Financial Position, disclose:

  • Carrying amounts of:
    • Financial assets at fair value through profit or loss
    • Items: Held-to-maturity, held-for-trading, loans and receivables, available-for-sale assets
    • Financial liabilities at fair value through profit or loss
    • Financial liabilities measured at amortized cost.
  • For loans or receivables designated at fair value through profit or loss:
    • Maximum credit risk exposure and any amount that is mitigated
    • Amount of change to the loan due to credit risk
  • Offsetting financial assets and liabilities:
    • Gross amounts of assets and liabilities
    • Amounts that are set off, the net amounts presented on the f/s.
  • Collateral:
    • Carrying amount of financial assets it has pledged as collateral for liabilities or contingent liabilities and the terms and conditions.
    • When holding collateral, the fair value of held collateral, fair value of any which the entity sold and whether they must return it, and the terms and conditions.
  • Defaults and breaches (Loans payable):
    • Details of any defaults during the period, carrying amount of the loan in default, whether the default was remedied.

Statement of comprehensive income

Disclose:

  • Net gains or losses
  • Total interest income and total interest cost (effective interest method) for financial assets or liabilities which are not at fair value through profit or loss
  • Fee income and expense from financial assets or liabilities that are not at fair value through profit or loss as well as trust and fiduciary activities (holding or investing assets on behalf of)
  • Interest income on impaired financial assets
  • Impairment loss for each class of financial asset.

Other Disclosures

Numerous other disclosures are required in the summary of significant accounting policies. These include significant disclosures regarding hedge accounting (Level C topic). Although examinable, it is unlikely that disclosure of this will be heavily tested on the UFE.

Nature and extent of risks arising from financial instruments

Entity must disclose information about the nature and extent of risks related to financial instruments.

  • Qualitative: Exposure to risk and how it arises, objectives and policies in managing and measuring this risk, any changes to these methods.
  • Quantitative: Summary quantitative data about exposure to risk based on internal information provided to key management personnel.
  • Credit risk (risk that a borrower will not make payments), by class of financial instrument:
    • Maximum exposure to credit risk without considering collateral held
    • Description of the collateral held and information about the credit quality.
  • Liquidity risk (risk that a security cannot be traded easily/quickly):
    • Maturity analysis for non-derivative and derivative financial liabilities and how it manages the liquidity risk.
  • Market risk (risk of losses in positions):
    • Sensitivity analysis for each type of market risk exposure and the methods and assumptions used.

IFRS 5 – Non-current assets held for sale and discontinued operations UFE Study Guide

Non-current assets held for sale and discontinued operations (IFRS 5)
Last Updated: November 5, 2012 (Level A)

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This IFRS applies to assets or asset disposal groups which are held for sale and with the presentation and disclosure of discontinued operations.

Individual assets must be non-current assets. Asset disposal groups are groups of assets, possibly with directly associated liabilities in a single transaction. This may be a group of cash-generating units, a single cash-generating unit or part of a cash-generating unit. The asset disposal group may include any assets and liabilities including current ones and must be measured by this IFRS.

Classification of non-current assets as held for sale or held for distribution to owners

The conditions below should be met before the end of reporting period, if it’s after the reporting period but before the authorization date then disclosure is only necessary. A non-current asset or disposal group shall be classified as held for sale (or distribution to owners) if:

  • Its carrying amount will be recovered through the sale
    • Must be available for immediate sale in current condition and the sale must be highly probable
      • Management must have a plan to sell
      • Active program to locate a buyer with the plan having been initiated
      • Asset must be actively marketed for sale at a reasonable price
      • The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification
        • Certain events which occur out of the entities control may prolong this
  • When an asset or disposal group is acquired exclusively for disposal the entity must classify it as an asset held for sale as long as the one-year condition above is met.

Measurement of assets held for sale

Measured at the lower of:

  • Carrying amount
  • Fair value less costs to sell (or distribute to owners)

Cost to sell = The incremental costs directly attributable to the disposal of an asset excluding financing and income tax expense.

When the sale is expected to occur beyond a year, the present value must be calculated with the operations impact going to financing cost.

Recognition of impairment losses and reversals:

  • Recognize impairment loss for any initial or subsequent write-down to fair value less costs to sell
  • Recognize gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized.
  • Do not amortize assets held for sale. Interest and other expenses related to the liabilities shall continue to be recognized.

Changes to a plan of sale

If the entity had previously classified the asset or disposal group as held for sale but the criteria are no longer met then it should cease classifying the asset as held for sale.

The asset shall be re-measured as the lower of:

  • Carrying amount before the asset or disposal group was classified as held for sale, adjusted for any amortization or revaluations that would have been recognized if the asset had not been classified held for sale originally. And
  • Recoverable amount at the date of the subsequent decision not to sell.

Presentation and Disclosure

A component of an entity is a distinct set of operations and cash flows that can be clearly measured separately from the rest of the entity for financial reporting purposes.

A discontinued operation is a component of an entity that has either been disposed of or is held for sale and meets the following conditions:

  • Represents a separate major business line or geographic area, or
  • Part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations, or
  • A subsidiary acquired solely with a view of resale.

Disclose:

  • Single amount on the Statement of Comprehensive Income which is:
    • Post tax profit or loss of discontinued operations
    • Post tax gain or loss recognized on the measurement to fair value less cost to sell or on the disposal of the assets or disposal groups constituting the discontinued operation.
  • A breakdown of the single amount into:
    • Revenue, expenses and pre-tax profit or loss of discontinued operations
    • Related income tax expenses (IAS 12)
    • Gain or loss recognized on the measurement to fair value less costs to sell or on the disposal of the assets or disposal groups constituting the discontinued operations.
    • Any related tax expenses as required by IAS 12.
  • Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be classified separately in discontinued operations.
  • When reclassifying from held for sale to not held for sale, the amounts previously recorded in discontinued operations shall be reclassified and included in income from continuing operations for all periods presented.
  • The entity shall show separately assets/liabilities of a disposal group or assets held for sale on the Balance Sheet and should not be presented as offsetting each other.

IFRS 3 – Business combinations UFE Study Guide

Business Combinations (IFRS 3)
Last Updated: December 7, 2013

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This IFRS applies when one business merges with or acquires another. This IFRS does not apply to joint ventures or acquisition of assets which do not constitute a business under common control.

Acquisition MethodBusiness combinations should be accounted for using the acquisition method.

1. Identify the acquirer

  • In each merger/acquisition, an acquirer must be identified.
    • Big picture: who has control/power over the other (voting rights, board of directors)
    • Exposure, or rights, to returns from the acquisition (exposure to both +/- returns)
    • Ability to use power over the acquisition to affect the amount of the returns

2. Determine the acquisition date – the date on which legal control is obtained unless a written agreement provides that control is obtained the day before the closing date.

3. Measure and recognize the assets acquired and liabilities assumed as well as any non-controlling interest in the acquiree that may exist

  • Assets acquired and liabilities assumed must meet the criteria for assets and liabilities.
  • Must be part of the same transaction (the merger/acquisition) and not as part of different transactions which may exist separately from a previous business relationship.
  • The acquisition may result in recognizing assets not previously recognized such as intangibles.
  • The assets acquired and liabilities assumed should be measured at their acquisition date fair values. With these exceptions:
    • Contingent liabilities – must be recognized if it is a present obligation which arises from a past event and its fair value can be measured reliably even if probability of occurrence is low. Subsequent accounting measures as the lesser of IAS 37 and the original amount.
    • Income taxes – In accordance with IAS 12 Income Taxes
    • Employee benefits – In accordance with IAS 19 Employee Benefits
    • Indemnification assets, Reacquired rights  – Not likely to be tested in my opinion
    • Share-based payment transactions – in accordance with IFRS 2
    • Assets held for sale – in accordance with IFRS 5

4. Recognize the difference as goodwill or a gain from a bargain purchase.

The purchase price must first be established and then goodwill is the excess of (a) over (b):

a)      Acquisition-date fair value of consideration transferred.

  • If not 100% acquisition then [acquisition-date FV] / [% acquired] in order to imply a 100% acquisition.

b)      The net acquisition-date amounts of assets acquired and liabilities assumed

Goodwill = FV of Consideration Transferred – The 100% Fair Value of acquired assets & liabilities.

Acquisition-related costs:

  • Should be expensed with the exception of costs to issue debt or equity securities which should be recognized in accordance with IAS 32 and IAS 39.

Bargain Purchase:

  • In cases where the amount in (b) exceeds the amount in (a) above then it is a bargain purchase which means that the acquirer is purchasing the net assets of the acquiree at a bargain. IFRS requires the reassessment of the amounts in (b) and if everything is correct post-reassessment then the gain is recognized in the income of the acquirer.

Business Combination in Stages:

  • When an acquisition occurs in stages, remeasure the previously acquired equity interest at its acquisition-date fair value and recognize the resulting gain or loss into income.

Measurement Period:

  • If the accounting for a business combination is not complete by the end of the reporting period, provisional amounts must be used for incomplete items on the financial statements.
  • During the measurement period which is a maximum of one-year, the acquirer shall retrospectively adjust the provisional amounts to reflect new information.

Disclosure

Disclosure requirements are considerable but unlikely to be tested extensively on the UFE.

Two main objectives:

1. Information that enables users to evaluate the nature and the financial effects of the business combination during the current period or after the end of the reporting period but before the financial statements are authorized.

  • Name and description of acquiree, acquisition date, percentage acquired, reasons, etc.

2. Information that enables users to evaluate the financial effects of adjustments recognized in the current period related to combinations that occurred in the current or previous period.

IFRS 2 – Share-based payment UFE Study Guide

Share-based payment (IFRS 2)
Last Updated: October 30, 2012

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When share-based payments (shares, options, etc.) in exchange for products or services occur, they have a potentially dilutive effect on earnings and therefore must be reflected on the financial statements.

This IFRS needs to be applied for all share-based payment transactions for products or services including settlements in equity, cash and in transactions when there is a choice of cash or equity settlement.

Exceptions for applying this section include:

  • In business combination when equity is exchanged for control (apply IFRS 3)
  • Joint ventures when equity is exchanged for a part of the venture (apply IFRS 11)

 

Recognition

  • Recognize the good or service received when received.
  • Recognize a corresponding increase in equity if received in an equity-settled share-based payment transaction. If acquired in a cash-settled share-based payment transaction recognize as a liability.
  • If the goods or services received in a share-based payment transactions don’t qualify for recognition as assets, for example, expenses incurred as part of research, recognize as an expense.

Equity-settled share-based payment transactions

  • Measure the value of the goods or service received, and the increased equity, at the fair value of the goods or services received, unless the fair value is not reliably measurable in which case measure by reference to the fair value of the equity investment on the date the entity receives the goods or service (market price or valuation technique if market price unavailable).
  • When granting payments to employees, typically you would measure at the fair value of the equity on the grant date.

Vesting:

  • When equity granted vests immediately for services received, recognize equity payment immediately.
  • When equity granted vests over time for services being received, recognize the service over the vesting period with a corresponding increase in equity.
  • When equity granted based on performance criteria for some future date, presume performance will occur and estimate based on most likely outcome.
  • After the vesting date, no subsequent adjustments to total equity are permitted. The entity may not reverse entries even if the equity is not exercised but may record a transfer within equity.

Modification of Equity Instruments:

  • Recognize, at a minimum, modifications measured at the grant date fair value of the equity instrument.
  • Recognize effects of modifications that increase the total fair value of the equity payment which benefits an employee.
  • If a grant of equity instruments is cancelled or settled during the vesting period the entity should recognize the entire amount immediately.
    • Any payment made to the employee on cancellation treated as a repurchase of equity to the extent that the payment exceeds the fair value of the equity on the repurchase date and any excess is an expense.
    • If any new equity instrument is issued it should be accounted in the same way as a modification of the original grant.

Cash-settled share-based payment transactions

Example: Employees may become entitled to a bonus cash payment based on the future share price of an entity.

  • Measure the goods or services received and the liability incurred at the fair value of the liability.
  • Remeasure the fair value of the liability at the end of each period and at the date of settlement.
  • Recognize changes to fair value in income.

Share-based payment transactions with cash alternatives

Not likely to be examined due to complexity. Big idea: when a compound instrument is granted (equity and/or debt portions/demands) then it should be measured as the difference between the fair value of the goods/services received and the fair value of the debt component at the date that the goods and services are received. For employees, first measure the debt component and then measure the fair value of the equity component.

Disclosure

Entities should disclose information that allows users to understand the nature and extent of share-based payments that existed during the period.

  • A description of the share-based payment arrangements including terms and conditions
  • Number and weighted average exercise prices for:
    • Outstanding at the beginning of period,
    • Granted, forfeited, exercised, expired during the period,
    • Outstanding and exercisable at the end of the period,
    • Weighted average share price at the date of exercise or for the period if multiple exercises occurred.
    • For outstanding share options, the range of exercise prices and weighted average remaining contractual life.
  • How the fair value of goods/services received or the fair value of the equity instruments granted was determined.
  • Information that allows users to understand how share-based payments impacted the income statement and balance sheet.

IAS 10 – Events after the reporting period (Subsequent Events) UFE Study Guide

Events after the reporting period (IAS 10)
Last Updated: October 17, 2012

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IAS 10 – Events after the reporting period covers events that occur after the reporting period (date of financial statements) but before the financial statements are authorised for issue (authorisation date). This is also commonly known as subsequent events.

This standard also requires that if the entity is found not to be a going concern after the reporting period then the entity should not prepare its financial statements on a going concern basis.

Financial Statements are considered authorised usually when the board of directors approves them for issue, not when they are released to shareholders.

 

When Should an Entity Adjust its Financial Statements for Subsequent Events?

Two types of events can be identified.

1. Those that provide evidence of conditions that existed at the end of the reporting period. These are adjusting events and require the financial statements to be adjusted.

  • Settlement of court cases that confirms an obligation
  • Receipt of information regarding the impairment of an asset
  • Bankruptcy of a customer that occurs after the reporting period (A/R)
  • Sale of inventory after reporting period provides info on NRV
  • The determination of profit sharing or bonus program amounts
  • Fraud or error in the financial statements discovered

 

2. Those that provide information about conditions that arise after the reporting period. These are non-adjusting events and you may not adjust the financial statements.

  • Change in fair value of investments that occur after the reporting date
  • Dividends that the entity has declared after the reporting date are not a liability on the reporting date

 

Disclosures Necessary

  • Date that the financial statements are authorised for issue
  • Updates about conditions at the end of the reporting period
  • For non-adjusting events, when material:
    • The nature of the event
    • An estimate of the financial effect (or a statement that an estimate cannot be made)

IFRS 1 – First-time adoption of IFRS UFE Study Guide

First-time adoption of IFRS (IFRS 1)
Last Updated: October 16, 2012

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IFRS 1 applies to entities which are adopting IFRS for the first time.

The objective of IFRS 1 is to provide users high quality information which is:

  • transparent;
  • comparable across periods presented;
  • a suitable starting point for accounting in accordance with IFRS; and
  • can be generated at a cost which does not exceed its benefits.

Scope

When an entity is presenting its financial statements, for the first time, using IFRS it must be clearly stated with a statement in the financial statements. There are numerous disclosure requirements and exceptions available in this standard which is likely too specific to be tested on the UFE so focus on the big picture.

Recognition and Measurement

When an entity transitions to IFRS for the first time it must:

  • present an opening IFRS Statement of Financial Position;
  • comply with all IFRS accounting policies in its opening IFRS Statement of Financial Position and throughout all periods presented (retroactive restatements);
  • not apply different versions of IFRSs which are outdated; and
  • recognize adjustments from previous GAAP that result in changes in the IFRS statements directly into retained earnings. These transactions must occur prior to the IFRS adoption date.
  • Remain consistent at the date of transition with estimates made for the same date in accordance with previous GAAP after adjustments to reflect any difference in accounting policies unless the estimate was an error.
  • Information received after the transition date should be treated as a non-adjusting event in accordance with IAS 10 (Events after the Reporting Period) and should be reflected in profit or loss or other comprehensive income.

Presentation and Disclosure

Numerous requirements, notably including:

  • Comparative information for all statements
  • Previous GAAP information should be labelled clearly as such
  • How the transition from previous GAAP to IFRS impacted the financial statements including reconciliations

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