Tag Archives: ifrs

Heads up – Standards change over time (Especially prior to 2011!)

A great issue was brought up in the comments on an earlier post  – Do you need to be concerned about outdated standards in older cases? The answer is yes, you should be aware.

This is particularly applicable to tax which changes on a yearly basis but it’s also worth noting that IFRS/ASPE are still sort-of new in Canada. Prior to 2011 Canada still used Canadian GAAP and GAAS which were more internationalized in 2011. This means that older simulations (particularly 2009 and 2010) could reference outdated treatment or outdated standards in the solutions.

The good news is that a “consortium made up of members from each of the four provincial CA professional programs” reissued of the previous years UFE simulations and solutions so be sure to grab those off of the candidates portals of your Institutes if you’ll be going back that far. I should have mentioned this before.

Aside from this major change in standards, the UFE reports are not updated when tax rates or accounting/audit standards change over time so it’s up to you to recognize when somethings out of date. Before you start worrying needlessly, the good news is that this is not something you need to worry about a lot since most of the standards examined are stable. If you wrote SOA, it was the exact same situation.

On a related note, for 2013, your institute should have made you aware of the technical update which can be found here if you’ve forgotten about it which talks about changes from the published version of the Competency Map.

IFRS 8 – Operating Segments UFE Study Guide

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

You can find a printer-friendly study sheet in PDF format by clicking here!


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 10 – Consolidated Financial Statements UFE Study Guide

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

You can find a printer-friendly study sheet in PDF format by clicking here!


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

You can find a printer-friendly study sheet in PDF format by clicking here!


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.

New IFRSs to be examinable for the 2013 CKE and 2013 UFE

Just thought I’d post a word about some new stuff that is examinable for the 2013 CKE and UFE at Level A. In case you missed (or didn’t bother reading) this update from the ICAO outlines the changes and their examinability.

I’ll be putting up some guides for these new IFRSs starting tomorrow.

Here is the breakdown:

New IFRSs that can be tested at the 2013 CKE (and UFE)

IFRS 10 Consolidated Financial Statements (New)
IFRS 11 Joint Arrangements (New)
IFRS 12 Disclosure of Interests in Other Entities (New)
IFRS 13 Fair Value Measurement (New)

Post 2013 IFRS

As mentioned in the ICAO’s note, IFRS 7 and IFRS 9 may be tested as well as the old standard such as IAS 39. You could get a situation where the answer would be the same under both standards or where they specifically ask you to answer using one standard. This was something we have a lot of in 2010 because of the transition to IFRS. The good news, if I remember right, is that they took it easy on us at the CKE. But not so much on the SOA so it could go either way. Good idea to know the differences therefore.

Revised Standards fully testable on the 2013 CKE (and UFE)

IAS 16 Property, Plant and Equipment (Amended)
IAS 19 Employee Benefits (Revised)
IAS 27 Separate Financial Statements (Revised)
IAS 28 Investments in Associates and Joint Ventures (Revised)
IAS 32 Financial Instruments: Presentation (Amended)
IAS 34 Interim Financial Reporting (Amended)

 

IFRS 3 – Business combinations UFE Study Guide

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

You can find a printer-friendly study sheet in PDF format by clicking here!


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

You can find a printer-friendly study sheet in PDF format by clicking here!


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

You can find a printer-friendly study sheet in PDF format by clicking here!


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

You can find a printer-friendly study sheet in PDF format by clicking here!


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

IAS 18 – Revenue UFE Study Guide

Revenue (IFRS)
Last Updated: October 1, 2012

You can find a printer-friendly study sheet in PDF format by clicking here!


Revenue is covered under

  • IFRS – IAS 18 (Revenue); and
  • ASPE – Section 3400 (Revenue)

Determine first whether the entity is a public entity required to use IFRS or private entity opting to use IFRS. Private entities opting to use ASPE should use the ASPE guidance. This standard covers the sale of goods and the rendering of services by an entity but does not apply to construction contracts nor extraction of mineral ores.


Under IFRS (IAS 18)

Definition

  • Revenue is the cash coming into the business from its ordinary business activity such as sale of goods or provision of services.
  • Revenue collected on behalf of another party (sales tax for example) is not an economic benefit for the entity and is excluded from Revenue.

 Measurement

  • Revenue is measured at fair value of consideration received or receivable on the date of the transaction. (IFRS 13 covers Fair Value)
  • When similar goods or services are swapped, this is not considered a transaction which generates revenue.
  • In transactions that have deferred receivable amounts and constitute a financing transaction, the time value of money should be considered and all future receipts are discounted using an imputed interest rate.
    • The imputed rate is the more determinable of the prevailing rate of a similar instrument; or
    • an interest rate that discounts the instrument to the current cash price of the good or service.

Identification of the Transaction

Recognition criteria are usually applied to individual transactions but there are many cases when there are separately identifiable components of a single transaction. This is sometimes referred to as multiple-deliverable transactions. When this occurs (use judgment) then the recognition criteria should be applied to each individual component. An example of this is the sale of software where there is also an identifiable amount of separate servicing for a given amount of time.

Sale of Goods

Revenue Recognition Criteria (All must be met):

  • significant risks and rewards have been transferred
    • Consider: performance warranties, consignment sales, installation still required, buyer can rescind the contract and seller is unsure about probability of return. All these might indicate risks remain.
    • Insignificant risks such as return options for unsatisfied customers should still be recognized if an estimate of returns can be made.
  • managerial involvement and control over the good sold has ceased
  • the amount of revenue is measurable
  • it is probably that the economic benefits will flow to the entity
    • When it’s uncertain that you will collect from an entity after revenue is recognized this is treated as a bad debt expense not a reduction in revenue.
  • the entity’s costs relevant to the transaction can be measured reliably, this is the matching principle and may result in deferred revenue liability.

Rendering of Services

Revenue for services is recognized by reference to the stage of completion (percentage of completion method). The following conditions must all be met:

  • the amount of revenue is reliably measurable
  • it is probable that the economic benefits will flow to the entity
    • When it’s uncertain that you will collect from an entity after revenue is recognized this is treated as a bad debt expense not a reduction in revenue.
  • the stage of completion on the reporting period can be measured reliably
    • A variety of ways can be used to measure the stage of completion including surveys of work performed, services performed / total services, or the proportion of costs to-date / total expected costs. Ignore progress payments.
    • When services are performed in an indeterminate amount of acts then usually it’s recognized straight-line over the specified period unless one act is more significant than any other act in which case recognition is postponed until that act is complete.
    • When the outcome of rendering services cannot be reliably measured then revenue shall be recognized only to the extent of the expenses recognized are recoverable. If recoverability of these expenses is not likely than no revenue should be recognized.
  • the entity’s costs relevant to the transaction can be measured reliably

Interest, Royalties and Dividends

Interest, Royalties and Dividends shall be recognized when it’s probable that the economic benefits will flow to the entity and the amount of revenue is measurable.

Revenue is recognized for each as follows:

  • Interest: Effective interest method (IAS 39 and AG5-AG8)
  • Royalties: Accrual basis based on the substance of the agreement
  • Dividends: When the right to receive the payment is established

Please report errors, omissions or suggestions to technical@ufeblog.com

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