for Accounting Professionals

IFRS INTRODUCTION

www.accountingreform.ru

IFRS Introduction

1 PREFACE
These workbooks are an update of those originally written by the project
team of the European Union funded project Accounting Reform II, in the
Russian Federation.
In 2006 and 2007, the workbooks were updated by the project team of the
European Union funded project, Implementation of Accounting Reform in the
Russian Federation, in cooperation with the Ministry of Finance and the
Ministry of Agriculture.

The copyright of the material contained in each workbook belongs to the

European Union and according to their policy may be used free of charge for
any non-commercial purpose.
The project team would like to express thanks to those who have contributed
their time and thoughts to the content of the workbooks. In particular:
The European Union Delegation, Moscow
The Ministry of Finance and Ministry of Agriculture, Russian Federation

The workbooks cover various concepts of IFRS based accounting. They are
intended to be practical self-instruction aids that professional accountants
can use to upgrade their knowledge, understanding and skills.
Each workbook is a self-standing short course of study is designed for a
approximately of three hours of study.
The members of the project team were contributed by PwC Moscow and
FBK Moscow, ACCA London and Agriconsult Rome. Although the
workbooks are part of a series, each one is independent of the others.
A basic knowledge of accounting is assumed but if any additional knowledge
is required this is mentioned at the beginning of the section.
Each workbook is a combination of, Information, and Self Test Questions
and Answers.
Further Reading References and links to useful Web Sites are also included.
The IFRS series includes a workbook on transformation, covering the
production of IFRS financial statements from RAS based data.
The volumes within each series are described in detail and available for
download from the project web site.

Contact
e-mail
victoria.Stepanova.ru.pwc.com
Tel.
+ 7 495 967 6047

web
www.accountingreform.ru
Fax.
+ 7 495 967 6001

Moscow, Russia, April 2006

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IFRS Introduction

IFRS Introduction

CONTENTS
1 PREFACE.......................................................................................................................................................................................................................................... 2
An Introduction to IFRS ....................................................................................................................................................................................................................... 6
1.1 Scope........................................................................................................................................................................................................................................... 6
2 Grouping of IFRS............................................................................................................................................................................................................................... 7
2.1 Introductory Standards................................................................................................................................................................................................................. 7
2.2 Foundation Standards ................................................................................................................................................................................................................ 7
2.3 Property, Plant and Equipment Standards................................................................................................................................................................................... 7
2.4 Special Case 1 Standards........................................................................................................................................................................................................... 7
2.5 Remuneration Standards............................................................................................................................................................................................................. 7
2.6 Listed Company Standards.......................................................................................................................................................................................................... 7
2.7 Special Case 2 Standards........................................................................................................................................................................................................... 7
2.8 Disclosure Standards................................................................................................................................................................................................................... 7
2.9 Banking Standards ...................................................................................................................................................................................................................... 7
2.10 Industry Specific Standards...................................................................................................................................................................................................... 7
2.11 Consolidation Standards........................................................................................................................................................................................................... 8
2.12 Additional Publications from sources other than IASB.............................................................................................................................................................. 8
3 Overview of the Standards................................................................................................................................................................................................................. 8
3.1 Introductory Group...................................................................................................................................................................................................................... 8
IFRS Framework for the Preparation and Presentation of Financial Statements........................................................................................................................ 8
IAS 1: Presentation of Financial Statements.............................................................................................................................................................................. 8
IAS 7: Cash Flow Statements .................................................................................................................................................................................................... 8
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors................................................................................................................................. 9
3.2 Foundation Group........................................................................................................................................................................................................................ 9
IAS 18: Revenue......................................................................................................................................................................................................................... 9
IAS 2: Inventories....................................................................................................................................................................................................................... 9
IAS 37: Provisions, Contingent Liabilities and Contingent Assets............................................................................................................................................ 10
IAS 12: Income Taxes.............................................................................................................................................................................................................. 10
3.3 Property, Plant and Equipment Group....................................................................................................................................................................................... 10
IAS 16: Property, Plant and Equipment.................................................................................................................................................................................... 10
IAS 36: Impairment of Assets................................................................................................................................................................................................... 10
IAS 40: Investment Property..................................................................................................................................................................................................... 10
IAS 17: Leases......................................................................................................................................................................................................................... 11
IAS 38: Intangible Assets.......................................................................................................................................................................................................... 11
IAS 11: Construction Contracts................................................................................................................................................................................................ 11
IAS 23: Borrowing Costs........................................................................................................................................................................................................... 11
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance.......................................................................................................... 12
4 Special Case 1 Group...................................................................................................................................................................................................................... 12
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IFRS Introduction
IAS 21: The Effects of Changes in Foreign Exchange Rates................................................................................................................................................... 12
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations................................................................................................................................. 12
5 Remuneration Group........................................................................................................................................................................................................................ 12
IAS 19: Employee Benefits....................................................................................................................................................................................................... 12
IAS 26: Accounting and Reporting by Retirement Benefit Plans.............................................................................................................................................. 12
IFRS 2: Share-based Payment................................................................................................................................................................................................. 13
6 Listed Company Group..................................................................................................................................................................................................................... 13
IAS 14: Segment Reporting...................................................................................................................................................................................................... 13
IAS 34: Interim Financial Reporting.......................................................................................................................................................................................... 13
IAS 33: Earnings per Share...................................................................................................................................................................................................... 13
7 Special Case 2 Group ..................................................................................................................................................................................................................... 13
IAS 29: Financial Reporting in Hyperinflationary Economies.................................................................................................................................................... 13
IFRS 1: First-time Adoption of International Financial Reporting Standards............................................................................................................................. 14
8 Disclosure Group.............................................................................................................................................................................................................................. 14
IAS 24: Related Party Disclosure. ............................................................................................................................................................................................ 14
IAS 10: Events after the Balance Sheet Date........................................................................................................................................................................... 14
9 Banks Group.................................................................................................................................................................................................................................... 14
IFRS 7: Disclosure in the Financial Statements of Banks and Similar Financial Institutions..................................................................................................... 14
IAS 32: Financial Instruments: Disclosure and Presentation.................................................................................................................................................... 15
IAS 39: Financial Instruments: Recognition and Measurement................................................................................................................................................ 15
10 Industry Specific Group.................................................................................................................................................................................................................. 15
IAS 41: Agriculture.................................................................................................................................................................................................................... 15
IFRS 4: Insurance Contracts.................................................................................................................................................................................................... 15
IFRS 6. Exploration for and evaluation of mineral resources.................................................................................................................................................... 15
11 Consolidation Standards................................................................................................................................................................................................................ 16
IFRS 3: Business Combinations............................................................................................................................................................................................... 16
12 Additional Publications................................................................................................................................................................................................................... 16
12.1 Illustrative................................................................................................................................................................................................................................ 16
Illustrative Corporate Financial Statements ............................................................................................................................................................................. 16
IFRS Disclosure Checklist ....................................................................................................................................................................................................... 17
12.2 Transformation........................................................................................................................................................................................................................ 17
RAS to IFRS Transformation................................................................................................................................................................................................... 17
12.3 Case Studies........................................................................................................................................................................................................................... 17
IFRS Case Studies.................................................................................................................................................................................................................. 17
Issues and Solutions for the Pharmaceutical Industry.............................................................................................................................................................. 18

IFRS Introduction

AN INTRODUCTION TO IFRS
1.1 SCOPE
These notes are an unofficial guide to IFRS and complement the series,
IFRS Workbooks for Accounting Professionals. The main objective is to help
you navigate the IFRS standards by grouping them by theme.
The secondary purpose is to highlight how our publications can assist in
learning IFRS. For each Standard there is a workbook, comprising text,
examples, multiple-choice questions and answers.
The architecture of IFRS must be taken as a whole. Financial statements
prepared under IFRS must use all of the applicable standards to be IFRS
compliant.
IFRS can be grouped by theme rather than date of publication as published
by IASB.
The themes chosen recognise that some standards, such as Impairment
interact with a range of other standards.
Our website www.accountingreform.ru contains workbooks and training
materials on each standard. In accordance with EU policy, they are free for
download and use for any non-commercial purpose.

IFRS Introduction

2 GROUPING OF IFRS

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

The standards are grouped into twelve themes as follows:

2.5 REMUNERATION STANDARDS

2.1 INTRODUCTORY STANDARDS
IFRS Framework for the Preparation and Presentation of Financial
Statements
Main Financial Statements and Accounting Policies
IAS 1: Presentation of Financial Statements
IAS 7: Cash Flow Statements
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors

2.2 FOUNDATION STANDARDS

IAS 18: Revenue
IAS 2: Inventories
IAS 37: Provisions, Contingent Liabilities and Contingent Assets
IAS 12: Income Taxes

2.3 PROPERTY, PLANT AND EQUIPMENT STANDARDS

IAS 16: Property, Plant and Equipment
IAS 36: Impairment of Assets
IAS 40: Investment Property
IAS 17: Leases
IAS 38: Intangible Assets
IAS 11: Construction Contracts
IAS 23: Borrowing Costs
IAS 20: Accounting for Government Grants and Disclosure of Government
Assistance

2.4 SPECIAL CASE 1 STANDARDS

IAS 21: The Effects of Changes in Foreign Exchange Rates

IAS 19: Employee Benefits

IAS 26: Accounting and Reporting by Retirement Benefit Plans
IFRS 2: Share-based Payment

2.6 LISTED COMPANY STANDARDS

IAS 14: Segment Reporting
IAS 34: Interim Financial Reporting
IAS 33: Earnings per Share

2.7 SPECIAL CASE 2 STANDARDS

IAS 29: Financial Reporting in Hyperinflationary Economies
IFRS 1: First-time Adoption of International Financial Reporting Standards

2.8 DISCLOSURE STANDARDS

IAS 24: Related Party Disclosure.
IAS 10: Events after the Balance Sheet Date

2.9 BANKING STANDARDS

IFRS 7: Disclosure in the Financial Statements of Banks and Similar
Financial Institutions
IAS 32: Financial Instruments: Disclosure and Presentation
IAS 39: Financial Instruments: Recognition and Measurement

2.10 INDUSTRY SPECIFIC STANDARDS

IAS 41: Agriculture
IFRS 4: Insurance Contracts
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IFRS Introduction
IFRS 6. Exploration for and evaluation of mineral resourses

(iii)
(iv)

2.11 CONSOLIDATION STANDARDS

It identifies that IFRS accounts are prepared using the accrual concept and
that financial statements are normally prepared on the assumption that an
undertaking is a going concern, and will continue in operation for the
foreseeable future.

IFRS 3: Business Combinations

IAS 27: Consolidated and Separate Financial Statements
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures

2.12 ADDITIONAL PUBLICATIONS

THAN IASB

FROM SOURCES OTHER

IAS 1: PRESENTATION OF FINANCIAL STATEMENTS

IAS 7: CASH FLOW STATEMENTS

As well as financial performance, financial statements also show the results
of managements stewardship of resources and must provide information on:
(i)
assets;
(ii)
liabilities;
(iii)
equity;
(iv)
income and expenses, including gains and losses;
(v)
other changes in equity; and
(vi)
cash flows.

3 OVERVIEW OF THE STANDARDS

3.1 INTRODUCTORY GROUP
FOR THE

PREPARATION

AND

PRESENTATION

OF

FINANCIAL

This framework document deals with:

(i)
(ii)

The Framework document is a comprehensive overview of the foundations of

IFRS, and is referred to by the IASB in its deliberations on new standards
and amendments to existing standards.
Main Financial Statements and Accounting Policies

Illustrative, Checklist
Illustrative Corporate Financial Statements 2004
IFRS Disclosure Checklist 2004
Transformation
RAS to IFRS Transformation
Case Studies
IFRS Case Studies
Issues and Solutions for the Pharmaceutical Industry

IFRS FRAMEWORK
STATEMENTS

the definition, recognition and measurement of the elements

from which financial statements are constructed; and
concepts of capital and capital maintenance.

the objective of financial statements;

the qualitative characteristics that determine the usefulness of
information in financial statements;

A complete set of financial statements comprises:

(i)
a balance sheet;
(ii)
an income statement;
(iii)
a statement of changes in equity showing either:
(iv)
all changes in equity, or
(v)
changes in equity (not normal buying and selling);
(vi)
a cash flow statement; and
(vii)
notes, comprising a summary of significant accounting policies,
and other explanatory notes.
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IFRS Introduction
IAS 1 AND IAS 7 cover the primary presentation issues of IFRS financial
statements and specify the information that needs to be included in those
statements.

Information that was available, and should have been taken into account, is
classified as an error.
Errors include

IAS 7 requires the disclosure of information on changes in cash and cash

equivalents by means of a cash flow statement.
This classifies cash flows into:
(i)
operating,
(ii)
investing and
(iii)
financing activities.

calculation error;
incorrect application of accounting policies;
oversights or misinterpretations;
fraud.

Retrospective application, is applying a new policy as if that policy had

always been applied.

Foreign currency cash flows are covered, as are Acquisitions and Disposals
of Subsidiaries and Other Business Units.

IAS 8: ACCOUNTING POLICIES, CHANGES

ERRORS

(i)
(ii)
(iii)
(iv)

IN

ACCOUNTING ESTIMATES

AND

Retrospective restatement is restating financial statements as if a priorperiod error had never occurred.
Retrospective application and restatement may be new to some of our
readers. Our workbook on IAS 8 provides guidance and examples.

An undertaking shall disclose in the summary of significant policies:

3.2 FOUNDATION GROUP

(i) the measurement bases used in the financial statements; and

(ii) the other policies used, that are relevant to an understanding of the
financial statements.

IAS 18: REVENUE

IAS 8 prescribes the criteria for selecting and changing accounting policies,
and disclosing the effects of estimates and errors.
Accounting policies are rules and practices applied in presenting financial
statements.
A change in accounting estimate is an adjustment of the carrying amount of
an asset or a liability or the consumption of an asset.
Changes in estimates result from new information, or new developments are
not corrections of errors.
Prior-period errors are omissions or misstatements in the financial
statements of prior-periods.

Revenue is income that is derived from ordinary activities of the firm. (See
also
IAS 17, 28, 39 & 41 which complement IAS 18 in respect of revenue.)
Income comprises revenue and gains.
The timing of recognition of revenue is a key issue of the standard.
Revenue will be recognised when it is probable that future economic benefits
will flow to the undertaking, and the benefits can be measured.
IAS 2: INVENTORIES
Inventories are:
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IFRS Introduction

(i)
(ii)

assets that are held for sale, or being prepared for sale,
materials to be used in the production process or provision of
services.

IAS 12 also covers:

(i)
Recognition of deferred tax assets arising from unused tax
losses, or unused tax credits,
(ii)
Presentation of income taxes, and
(iii)
Disclosure of information relating to income taxes.

In the case of the provision of services, inventories include the cost of

unbilled services, (similar to work in progress).
Valuation of inventory at cost, fair value and net realisable value are all
discussed in the workbook.

3.3 PROPERTY, PLANT AND EQUIPMENT GROUP

IAS 16: PROPERTY, PLANT

IAS 37: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

IAS 37 sets out recognition criteria and measurement bases for provisions,
contingent liabilities and contingent assets and specify the information to be
disclosed in the notes to the financial statements.

AND

EQUIPMENT

The main issues in accounting for property, plant and equipment are:
(i)
the recognition of the assets;
(ii)
the determination of their carrying amounts;
(iii)
the depreciation charges; and
(iv)
impairment losses to be recognised.

Provisions are used to provide for future liabilities that are uncertain.
Contingent assets are uncertain cash inflows that may be received.

IAS 36: IMPAIRMENT OF ASSETS

Contingent liabilities (e.g. guarantees and warranties) do not appear on

balance sheets, but need to be noted in financial statements to enable users
to have a complete picture of the undertakings financial position.

The objective of IAS 36 is to prescribe the procedures to ensure that assets

are carried at no more than their recoverable amount and the disclosures
that must be made.

IAS 12: INCOME TAXES

An asset is described as impaired when its carrying amount exceeds the

recoverable amount (amount to be recovered through use, or sale).
IAS 36 requires the recording of an impairment loss.

IAS 12 prescribes the accounting treatment for income taxes, and the tax
consequences of:
(i)
(ii)

Transactions of the current period;

The future liquidation of assets and liabilities.

If liquidation of those assets and liabilities will make future tax payments
larger or smaller, IAS 12 generally requires recording of a deferred tax
liability (or deferred tax asset).

IAS 40: INVESTMENT PROPERTY

Investment property can be:
(i)
(i)
(ii)
(iii)

land, or
a building, or
part of a building, or
both land and building.
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IFRS Introduction

It is held by the owner (or by the lessee, under a finance lease) to earn rent,
or for capital appreciation, or both.
It does not include property:
(i)
(ii)
(iii)

for use in the production, supply of goods, services,

or for administrative purposes; or
for sale in the ordinary course of business.

IAS 38 includes additional recognition criteria for internally-generated

intangible assets.
After initial recognition, IAS 38 requires an intangible asset to be measured
at:
(i)
(ii)

cost, less any accumulated amortisation and any accumulated

impairment losses or
revalued amount, less any accumulated amortisation, and any
accumulated impairment losses.

IAS 17: LEASES

Leases involve the owner of an asset renting it to others for payment.
Short-term rental agreements are mostly accounted for as operating leases,
in the same way as rental payments are booked.
Long-term rentals (finance leases) have seen dramatic growth over the last
50 years.

IAS 11: CONSTRUCTION CONTRACTS

The start and finish of construction contracts often falls in to different
accounting periods.
Thus, the timing of recognition of contract revenue and contract costs are
key issues of the standard.

IAS 17 addresses this issue by accounting for finance leases in a similar

manner to the purchase of an asset, matched by a loan for the same
amount.
The asset appears on the balance sheet, even though the lessee does not
own it.

An effective internal financial budgeting and reporting system, which is kept

up-to-date at all times, is required to control construction contracts.

Operating leases are treated as expense items in the income statement.

Construction contracts include:

Regular reviews of costs and revisions of estimates are necessary

throughout the contract.

(i)
IAS 38: INTANGIBLE ASSETS
IAS 38 requires an undertaking to record an intangible asset only if:
(i)
(ii)

future benefits of the asset will flow to the undertaking and

the cost of the asset can be measured.

This requirement applies whether an intangible asset is acquired externally,

or generated internally.

(ii)

services related to the construction, such as project managers

and architects;
contracts for demolition, or restoration, of assets and the
restoration of the environment.

IAS 23: BORROWING COSTS

Generally, borrowing costs are immediately expensed.

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IFRS Introduction
An alternate treatment is allowed: the capitalisation of borrowing costs that
are directly attributable to the acquisition, construction or production of a
qualifying asset.
IAS 20: ACCOUNTING FOR GOVERNMENT GRANTS
GOVERNMENT ASSISTANCE

AND

DISCLOSURE

OF

The standard covers accounting and disclosure of government grants and

similar assistance that transfers resources to qualifying firms. The firms
qualify by past, or future, compliance with the grant conditions.
Grants exclude assistance that cannot be reasonably valued, and
transactions with government which are in the normal course of trade.
Such incentives as free technical assistance, marketing advice and the
provision of guarantees may not be easy to value.

(i)
(ii)

5 REMUNERATION GROUP
Providing guidance on remuneration, these standards are of specific interest
to those involved in private pension schemes and the use of shares and
share options to pay staff and others.
IAS 19: EMPLOYEE BENEFITS
IAS 19 identifies, and provides guidance on the accounting for, five
categories of staff benefits:
(i)

4 SPECIAL CASE 1 GROUP

IAS 21: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
Transactions in foreign currencies, investments and liabilities in foreign
currencies are covered, as are financial statements of foreign operations.

(ii)

The standard sets out how to recognise and record income, expenditure,
assets and liabilities denominated in a foreign currency and how gains and
losses are recognised.

(iii)

IFRS 5: NON-CURRENT ASSETS HELD

OPERATIONS

(iv)
(v)

FOR

SALE

AND

DISCONTINUED

the classification, measurement and presentation of assets held

for sale;
the classification and presentation of discontinued operations.

short-term staff benefits, such as salaries and social security

contributions, paid annual leave and paid sick leave, profitsharing and bonuses payable within twelve months and noncash benefits such as medical care, housing, cars and free or
subsidised goods or services for current staff.
post-employment benefits such as pensions, other retirement
benefits, post-employment life insurance and post-employment
medical care.
other long-term staff benefits, including long-service or
sabbatical leave, jubilee or other long-service benefits, long-term
disability benefits and, if they are payable twelve months or more
after the end of the period, profit-sharing, bonuses and deferred
compensation.
termination benefits.
equity compensation benefits.

IFRS 5 sets out requirements for the classification, measurement and

presentation of non-current assets held for sale.

IAS 26: ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS

IFRS 5 arises from the IASBs consideration of the U.S. based FASB
Statement No. 144 and addresses two areas:

IAS 26 should be applied in the reports of private retirement benefit (pension)

plans where such reports are prepared.
12

IFRS Introduction
IFRS 2: SHARE-BASED PAYMENT

IAS 34: INTERIM FINANCIAL REPORTING

IFRS 2 covers settlements made in an entitys own equity instruments or in

cash, if the amount payable depends on the price of the entitys shares (or
other equity instruments, such as options).

IAS 34:
(i)
(ii)

Estimates are required of the number of options, or other instruments,

expected to be exercised.
Such estimates are complex to calculate where performance criteria, such as
earnings targets, are involved. Specialist valuation skills are likely to be
required in order to determine the amounts to be reported in the financial
statements.

6 LISTED COMPANY GROUP

These three standards are compulsory only for companies listed on stock
exchanges, or mandatory under national accounting regulations. For other
companies these standards are recommended.

defines the minimum content of an interim financial report; and

identifies the recognition and measurement principles that
should be applied in an interim financial report.

The notes to interim financial reports include primarily an explanation of the

events, and changes, that are significant to an understanding of the changes
in financial position, and performance, since the last annual reporting date.
Virtually none of the notes to the annual financial statements are repeated, or
updated in the interim report.

IAS 33: EARNINGS PER SHARE

IAS 14: SEGMENT REPORTING

The objective of IAS 33 is to prescribe principles for the calculation and

presentation of earnings per share. This is to improve comparisons between
different undertakings in the same reporting period, and between different
reporting periods for the same undertaking.

IAS 14 establishes principles for reporting financial information by segment.

Segments are the different types of products, services, geographical areas of
operation.

Earnings per share (earnings / number of shares) as a measure of

performance has its limitations, as accounting policies for determining
earnings may differ.

Many undertakings provide groups of products, and services, or operate in

geographical areas that are subject to differing rates of profitability,
opportunities for growth, future prospects, and risks.

The focus of IAS 33 is on determining the number of shares used in the EPS
calculation, which may not be immediately clear (e.g. where options exist).

Segment information is relevant to assessing the risks, and returns, of a

diversified, or multinational, undertaking that may not be determinable from
the aggregated data.

7 SPECIAL CASE 2 GROUP

The principle of segment analysis e.g. by customer or customer industry is

applicable to all businesses.

IAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

IAS 29 is based on current purchasing power principles and requires that
financial statements, prepared in the currency of a hyperinflationary
13

IFRS Introduction
economy, be stated in terms of the value of money at the reporting balance
sheet date.

IFRS 10 details the post-balance-sheet events, when they should be

recognised and how they should be recorded and disclosed.

This straightforward requirement needs an understanding of complex

economic concepts, a thorough knowledge of the enterprises financial and
operating patterns and a detailed series of procedures to implement.

Post-balance-sheet events happen in the period starting immediately after

the balance sheet date and ending at the date of approval of the financial
statements by the shareholders.
There are 4 main types of material post-balance-sheet event in this period:

IFRS 1: FIRST-TIME ADOPTION

STANDARDS

OF

INTERNATIONAL FINANCIAL REPORTING

IFRS 1 sets out the requirements for first time adopters of IFRS. The
standard allows companies to avoid some of the need for reconstructing old
records, by providing exemptions from other standards.

8 DISCLOSURE GROUP
IAS 24: RELATED PARTY DISCLOSURE.
The standard will be applied in:
(i)
Identifying related party relationships and transactions;
(ii)
Identifying outstanding balances between an undertaking and
related parties;
(iii)
Identifying when the disclosures should be made; and
(iv)
Determining what disclosures should be made.

(i)
(ii)
(iii)
(iv)

Dividends declared in the period should be noted, but not shown

as a liability, at the balance sheet date.
If the company can no longer be considered a going-concern
during this period, the financial statements should not be
prepared on a going-concern basis.
Events that were unknown or unclear at the balance sheet date,
will cause the financial statements to be adjusted.
Conditions that arose after the balance sheet date should not
adjust the financial statements, but should be suitably noted.

9 BANKS GROUP
Whilst IFRS 7 relates only to Banks and similar financial institutions, IAS 32
and IAS 39 must be applied to financial instruments in any company
reporting under IFRS.
Financial instruments are used extensively in banking but only to a limited
extent in enterprises.

Related party relationships are a normal feature of business throughout the

world. The related party relationships can have an impact on the profit, or
loss, of an undertaking.

IFRS 7: DISCLOSURE IN
FINANCIAL INSTITUTIONS

Transactions with related may be made on different terms or prices, than

would have been made with unrelated parties.

IFRS 7 requires banks to provide disclosures in their financial statements

that enable users to evaluate:
(i)

IAS 10: EVENTS AFTER

THE

BALANCE SHEET DATE

(ii)

THE

FINANCIAL STATEMENTS

OF

BANKS

AND

SIMILAR

the significance of financial instruments for the banks financial

position and performance; and
the nature and extent of risks arising from financial instruments
to which the bank is exposed during the period and at the
reporting date, and
14

IFRS Introduction
(iii)

how the entity manages those risks.

There are specified minimum disclosures on credit risk, liquidity risk and
market risk.
IAS 32: FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION
IAS 39: FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
These two standards are primarily used by financial institutions and specify
disclosure, presentation, recognition and measurement of financial
instruments.
Our approach to these 2 complex, comprehensive standards is to provide
4 detailed workbooks on different stages of accounting for financial
instruments:
Initial Recognition.
De-recognition.
Subsequent Recognition.
Hedge Accounting.

(iii)
(iv)
(v)

cropping,
cultivation,
aquaculture (including fish farming).

In each case, living animals and plants perform a biological transformation

that takes place in a managed environment. Management is the key issue
that differentiates agricultural activity from other activities such as sea fishing
or harvesting virgin forest neither of which are classified as agricultural
activities.
The extent of change in the biological asset can be measured in a wide
variety of ways, ripeness, dimensions, fat content etc.
Biological transformation results in:
(i)
(ii)

Change in the asset through an increase or decrease in quantity,

or quality.
Additional assets may result from procreation or agricultural
produce (cereals, legumes, beef, milk).

IFRS 4: INSURANCE CONTRACTS

IFRS 4 specifies the financial reporting for insurance contracts for issuers of
such contracts.

10 INDUSTRY SPECIFIC GROUP

IAS 41: AGRICULTURE
IAS 41 should be applied to the following agricultural activities:
(i)
(ii)
(iii)

biological assets;
agricultural produce at the point of harvest; and
certain government grants.

Agricultural activity includes:

(i)
(ii)

In particular, IFRS 4 requires:

(i)
(ii)

certain improvements to accounting,

disclosure that identifies and explains the amounts in an
insurers financial statements, Particularly in relation to:
a. amounts arising from insurance contracts and timing;
b. uncertainty of cash flows.

IFRS 6. EXPLORATION

FOR AND EVALUATION OF MINERAL RESOURCES

livestock,
forestry,
15

IFRS Introduction
IFRS 6 is an interim solution, pending development of a comprehensive
solution to help companies deal with the IAS 16 and IAS 38 scope
exclusions.

IFRS 3 requires the acquirees identifiable assets, liabilities and contingent

liabilities to be measured initially at their fair values, at the acquisition date.
Any minority interest in the acquiree is the minoritys proportion of the net fair
values.

11 CONSOLIDATION STANDARDS
IFRS 3: BUSINESS COMBINATIONS
IFRS 3 is the latest standard relating to consolidated accounts.
It made a number of important changes to previous practice, outlined below,
but must be read in conjunction with IAS 27, 28 and 31.
Accounting
Business combinations within the scope of IFRS 3 are accounted for using
the purchase method.

Goodwill
IFRS 3 requires goodwill to be measured after initial recognition at cost, less
any accumulated impairment losses.
Goodwill is not amortised, but must be tested for impairment annually, or
more frequently.
Negative goodwill
IFRS 3 requires that negative goodwill must be expensed by the acquirer
immediately.
IAS 27: Consolidated and Separate Financial Statements
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures

The acquirer records the acquirees identifiable assets, liabilities and

contingent liabilities at their fair values at the acquisition date and also
records goodwill, which is subsequently tested for impairment.
Assets acquired and assumed:
Recognition
If there is an existing restructuring liability per IAS37, it is included in the
goodwill calculation.
If fair values can be measured reliably, the acquirer must record separately
the acquirees contingent liabilities, at the acquisition date, as part of
allocating the cost of a business combination.
If the contingent liabilities cannot be measured, they are not included in the
allocation of cost.
Measurement

12 ADDITIONAL PUBLICATIONS
12.1 ILLUSTRATIVE
ILLUSTRATIVE CORPORATE FINANCIAL STATEMENTS
This publication provides an illustrative set of consolidated financial
statements, prepared in accordance with IFRS, for a fictional manufacturing,
wholesale and retail entity (Footsy & Co Group). It provides a full set of
financial statements, including notes, and references.
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IFRS Introduction
The workbook has been designed around a series of the most common
adjustments covering the main aspects of transformation.
IFRS DISCLOSURE CHECKLIST
Structure of the publication:
Section A Disclosures for consideration by all entities
Section B Disclosures required by all entities but only in certain situations
Section C Industry-specific disclosures
Section D Additional disclosures required by listed companies
Section E Additional disclosures required by banks and similar financial
institutions
Section F Additional disclosures required by entities that issue insurance
contracts
Section G Additional disclosures required for retirement benefit plans
Section H Suggested disclosures for financial review outside the financial
statements
Section I Disclosures for interim financial reports
Format of Disclosure Checklist
The Disclosure Checklist is presented in a format designed to facilitate the
collection and review of disclosures for each component of the financial
statements.
All disclosures have been grouped by subject, where appropriate.
Additional notes and explanations in the checklist are shown in italics.

These are presented in the form of 17 separate companies each of which

requires 2/5 adjustments. Each company uses the same opening,
unadjusted, RAS based trial balance which is then adjusted in accordance
with the 2/5 entries required.
Adjustments from all of the seventeen companies are brought together in a
summary that reflects all of the adjustment made in the individual companies.

12.3 CASE STUDIES

IFRS CASE STUDIES
The 20 case studies have been designed to cover a wide range of
circumstances but at the same time recognise the conditions and problems
specific to the type of industry and business.
They include examples of:
(i)
(ii)

12.2 TRANSFORMATION
RAS

TO

IFRS TRANSFORMATION

The purpose of this workbook is to examine the process and adjustments

necessary to transform a trial balance based on Russian Accounting
Standards (RAS) into a set of IFRS financial statements comprising Income
Statement and Balance Sheet.

Re-categorisation the Russian chart of accounts into an IFRS

compatible format;
Identifying and outlining the reclassification and adjustments
required to bring the Russian numbers into IFRS compatible
values. This included the formalisation of detailed list of
differences and practical application issues.

Case 20 reviews some of the problem issues identified and makes

observations on the future direction of implementation of IFRS for Russian
Companies.
Various types of case study were created including:
(i)

Illustrative or Descriptive Case Studies The objective of these

case studies is to make the IFRS concept familiar to those who
17

IFRS Introduction
not familiar with them, and to give the participants a common
language.
(ii)

Pilot Case Studies These case studies simulate all or parts of

the implementation of IFRS. They assist in the real process of
planning, timetabling and implementing itself, as well as
identifying questions, problems and missing information.

(iii)

Cumulative Case Studies. - These studies combine information

or issues from various enterprises and past studies to allow
general truths to be established.

(iv)

Critical Incident Case Studies These case studies examine

selected issues or procedures, which impact the implementation
of IFRS. They help to identify and find solution for issues, which
arise during the conversion or implementation process.

(v)

Enterprise Specific Case Studies These studies examine IFRS

issues in specific industries, for example mining or construction.

(vi)

Implementation of Change Case Studies These case studies

examine the management, of the implementation process.

ISSUES AND SOLUTIONS FOR THE PHARMACEUTICAL INDUSTRY

This publication covers 35 IFRS issues met in the Pharmaceutical Industry,
plus issues of business combinations. The presentation of each issue is the
background of the issue, relevant guidance and the solution.

18