1

IFRS 1 — First-time Adoption of International Financial Reporting Standards

Quick Article Links

Overview
IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the proce-
dures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing
its general purpose financial statements. The IFRS grants limited exemptions from the general
requirement to comply with each IFRS effective at the end of its first IFRS reporting period.
A restructured version of IFRS 1 was issued in November 2008 and applies if an entity's first
IFRS financial statements are for a period beginning on or after 1 July 2009.
History of IFRS 1

Date Development Comments

September Project added to IASB agenda History of the project

2001

31 July Exposure Draft ED 1 First-time Appli- Comment deadline 31 October

2002 cation of IFRSs published 2002

June 2003 IFRS 1 First-time Adoption of Effective for the first IFRS
IFRSs issued financial statements for a period
beginning on or after 1 January
2004

30 June Amended by Amendments to IFRS 1 A minor amendment to clarify

2005 First-time Adoption of International
Financial Reporting Standards and
IFRS 6 Exploration for and Evaluation
of Mineral Resources (more informa-
tion)
that the exemption in relation to
IFRS 6 applies to the recogni-
tion and measurement require-
ments of IFRS 6, as well as the
disclosure requirements.

22 May Amended by Amendments to IFRS 1 Effective for annual periods

2008 and IAS 27 — Cost of an Investment in beginning on or after 1 January
a Subsidiary, Jointly Controlled Entity 2009
or Associate

24 Restructured version of IFRS 1 issued Effective if an entity's first IFRS

November financial statements are for a
2008 period beginning on or after 1
July 2009

1
 2

23 July Amended by Additional Exemptions for Effective for annual periods

2009 First-time Adopters (Amendments to beginning on or after 1 January
IFRS 1) (oil and gas assets, leases). 2010
Click for more information.

29 January Amended by Limited Exemption from Effective for or annual periods

2010 Comparative IFRS 7 Disclosures for beginning on or after 1 July
First-time Adopters (Amendment to 2010
IFRS 1). Click for more information

6 May Amended by Improvements to Effective for annual periods

2010 IFRSs (accounting policies changes, beginning on or after 1 July
revaluation basis as deemed cost, rate 2011
regulation)

20 Amended by Severe Hyperinflation and Effective for annual periods

December Removal of Fixed Dates for First-time beginning on
2010 Adopters (Amendment to IFRS 1). Click or after 1 July 2011
for more information

13 March Amended by Government Loans Effective for annual periods

2012 (Amendments to IFRS 1). Click beginning on or after 1 January
for more information 2013

17 May Amended by Annual Improvements Effective for annual periods

2012 2009-2011 Cycle (repeat application, beginning on or after 1 January
borrowing costs). Click for more infor- 2013
mation

12 Amended by Annual Improvements to Amendment to basis for conclu-

December IFRSs 2011–2013 Cycle (meaning of sions only
2013 effective IFRSs). Click for more infor-
mation

8 Amended by Annual Improvements to Effective for annual periods

December IFRS Standards 2014–2016 beginning on or after 1 January
2016 Cycle (Deletion of short-term exemp- 2018
tions for first-time adopters). Click
for more information
Note: The above summary does not include details of consequential amendments made as the result of other projects.

Related Interpretations
o IFRS 1 supersedes SIC-8 First-time Application of IASs as the Primary Basis of Accounting

2
 3

Amendments under consideration

o None

Deloitte Guide to IFRS 1 (November 2009)

In November 2009, Deloitte's IFRS Global Office published a revised Guide to IFRS 1
First-time Adoption of International Financial Reporting Standards. The guide was
first published in 2004 with the aim of providing first-time adopters with helpful
insights for the application of IFRS 1. This second edition has the same objective. We
have updated the content to reflect the lessons learned from the first major wave of
IFRS adoption in 2005, as well as for the changes to IFRS 1 since 2004. We have
structured the guide to provide users with an accessible reference manual:
o An executive summary explains the most important features of IFRS 1;

o Section 2 provides an overview of the requirements of the Standard;

o Sections 3 and 4 cover the specific exceptions and exemptions from IFRS 1's
general principle of retrospective application of IFRSs, focusing on key imple-
mentation issues;
o Section 5 addresses other components of financial statements where implementa-
tion issues frequently arise in practice;
o Section 6 sets out Q&As dealing with specific fact patterns that users may
encounter in practice; and
o Section 7 discusses some of the practical implementation decisions faced by first-
time adopters.
Click to Download Deloitte's Guide to IFRS 1 (PDF 435k)

Summary of IFRS 1

Objective
IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the proce-
dures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing
its general purpose financial statements.
Note: An entity that conducts rate-regulated activities and has recognised amounts in its previous GAAP financial statements that
meet the definition of 'regulatory deferral account balances' (sometimes referred to 'regulatory assets' and 'regulatory liabilities')
can optionally apply IFRS 14 Regulatory Deferral Accounts in addition to IFRS 1. An entity that elects to apply IFRS 14 in its
first IFRS financial statements must continue to apply it in subsequent financial statements.

Definition of first-time adoption

3
 4

A first-time adopter is an entity that, for the first time, makes an explicit and unreserved
statement that its general purpose financial statements comply with IFRSs. [IFRS 1.3]
An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial state-
ments for internal management use, as long as those IFRS financial statements were not made
available to owners or external parties such as investors or creditors. If a set of IFRS financial
statements was, for any reason, made available to owners or external parties in the preceding
year, then the entity will already be considered to be on IFRSs, and IFRS 1 does not apply.
[IFRS 1.3]
An entity can also be a first-time adopter if, in the preceding year, its financial statements: [IFRS
1.3]
o asserted compliance with some but not all IFRSs, or

o included only a reconciliation of selected figures from previous GAAP to IFRSs. (Previous
GAAP means the GAAP that an entity followed immediately before adopting to IFRSs.)
However, an entity is not a first-time adopter if, in the preceding year, its financial statements
asserted:
o Compliance with IFRSs even if the auditor's report contained a qualification with respect to
conformity with IFRSs.
o Compliance with both previous GAAP and IFRSs.
An entity that applied IFRSs in a previous reporting period, but whose most recent previous
annual financial statements did not contain an explicit and unreserved statement of compliance
with IFRSs can choose to:
o apply the requirements of IFRS 1 (including the various permitted exemptions to full retro-
spective application), or
o retrospectively apply IFRSs in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, as if it never stopped applying IFRSs. [IFRS 1.4A]
Overview for an entity that adopts IFRSs for the first time in its annual financial state-
ments for the year ended 31 December 2014

Accounting policies
Select accounting policies based on IFRSs effective at 31 December 2014.
IFRS reporting periods
Prepare at least 2014 and 2013 financial statements and the opening statement of financial
position (as of 1 January 2013 or beginning of the first period for which full comparative
financial statements are presented, if earlier) by applying the IFRSs effective at 31 December
2014. [IFRS 1.7]
o Since IAS 1 requires that at least one year of comparative prior period financial information

4
 5

be presented, the opening statement of financial position will be 1 January 2013 if not
earlier. This would mean that an entity's first financial statements should include at least:
[IFRS 1.21]
o three statements of financial position
o two statements of profit or loss and other comprehensive income
o two separate statements of profit or loss (if presented)
o two statements of cash flows
o two statements of changes in equity, and
o related notes, including comparative information
o If a 31 December 2014 adopter reports selected financial data (but not full financial state-
ments) on an IFRS basis for periods prior to 2013, in addition to full financial statements for
2014 and 2013, that does not change the fact that its opening IFRS statement of financial
position is as of 1 January 2013.

Adjustments required to move from previous GAAP to IFRSs at the time of first-time
adoption
Derecognition of some previous GAAP assets and liabilities
The entity should eliminate previous-GAAP assets and liabilities from the opening statement of
financial position if they do not qualify for recognition under IFRSs. [IFRS 1.10(b)] For
example:
o IAS 38 does not permit recognition of expenditure on any of the following as an intangible
asset:
o research
o start-up, pre-operating, and pre-opening costs
o training
o advertising and promotion
o moving and relocation
If the entity's previous GAAP had recognised these as assets, they are eliminated in the
opening IFRS statement of financial position
o If the entity's previous GAAP had allowed accrual of liabilities for "general reserves", re-
structurings, future operating losses, or major overhauls that do not meet the conditions for

5
 6

recognition as a provision under IAS 37, these are eliminated in the opening IFRS statement
of financial position
o If the entity's previous GAAP had allowed recognition of contingent assets as defined in IAS
37.10, these are eliminated in the opening IFRS statement of financial position
Recognition of some assets and liabilities not recognised under previous GAAP
Conversely, the entity should recognise all assets and liabilities that are required to be recognised
by IFRS even if they were never recognised under previous GAAP. [IFRS 1.10(a)] For example:
o IAS 39 requires recognition of all derivative financial assets and liabilities, including
embedded derivatives. These were not recognised under many local GAAPs.
o IAS 19 requires an employer to recognise a liability when an employee has provided service
in exchange for benefits to be paid in the future. These are not just post-employment
benefits (e.g., pension plans) but also obligations for medical and life insurance, vacations,
termination benefits, and deferred compensation. In the case of 'over-funded' defined benefit
plans, this would be a plan asset.
o IAS 37 requires recognition of provisions as liabilities. Examples could include an entity's
obligations for restructurings, onerous contracts, decommissioning, remediation, site restora-
tion, warranties, guarantees, and litigation.
o Deferred tax assets and liabilities would be recognised in conformity with IAS 12.
Reclassification
The entity should reclassify previous-GAAP opening statement of financial position items into
the appropriate IFRS classification. [IFRS 1.10(c)] Examples:
o IAS 10 does not permit classifying dividends declared or proposed after the statement of
financial position date as a liability at the statement of financial position date. If such
liability was recognised under previous GAAP it would be reversed in the opening IFRS
statement of financial position.
o If the entity's previous GAAP had allowed treasury stock (an entity's own shares that it had
purchased) to be reported as an asset, it would be reclassified as a component of equity
under IFRS.
o Items classified as identifiable intangible assets in a business combination accounted for
under the previous GAAP may be required to be reclassified as goodwill under IFRS
3 because they do not meet the definition of an intangible asset under IAS 38. The converse
may also be true in some cases.
o IAS 32 has principles for classifying items as financial liabilities or equity. Thus mandato-
rily redeemable preferred shares that may have been classified as equity under previous

6
 7

GAAP would be reclassified as liabilities in the opening IFRS statement of financial

position.
Note that IFRS 1 makes an exception from the "split-accounting" provisions of IAS 32. If
the liability component of a compound financial instrument is no longer outstanding at the
date of the opening IFRS statement of financial position, the entity is not required to reclas-
sify out of retained earnings and into other equity the original equity component of the
compound instrument.
o The reclassification principle would apply for the purpose of defining reportable segments
under IFRS 8.
o Some offsetting (netting) of assets and liabilities or of income and expense items that had
been acceptable under previous GAAP may no longer be acceptable under IFRS.
Measurement
The general measurement principle – there are several significant exceptions noted below – is to
apply effective IFRSs in measuring all recognised assets and liabilities. [IFRS 1.10(d)]
How to recognise adjustments required to move from previous GAAP to IFRSs
Adjustments required to move from previous GAAP to IFRSs at the date of transition should be
recognised directly in retained earnings or, if appropriate, another category of equity at the date
of transition to IFRSs. [IFRS 1.11]
Estimates
In preparing IFRS estimates at the date of transition to IFRSs retrospectively, the entity must use
the inputs and assumptions that had been used to determine previous GAAP estimates as of that
date (after adjustments to reflect any differences in accounting policies). The entity is not
permitted to use information that became available only after the previous GAAP estimates were
made except to correct an error. [IFRS 1.14]
Changes to disclosures
For many entities, new areas of disclosure will be added that were not requirements under the
previous GAAP (perhaps segment information, earnings per share, discontinuing operations,
contingencies and fair values of all financial instruments) and disclosures that had been required
under previous GAAP will be broadened (perhaps related party disclosures).
Disclosure of selected financial data for periods before the first IFRS statement of financial
position
If a first-time adopter wants to disclose selected financial information for periods before the date
of the opening IFRS statement of financial position, it is not required to conform that information
to IFRS. Conforming that earlier selected financial information to IFRSs is optional.[IFRS 1.22]

7
 8

If the entity elects to present the earlier selected financial information based on its previous
GAAP rather than IFRS, it must prominently label that earlier information as not complying with
IFRS and, further, it must disclose the nature of the main adjustments that would make that infor-
mation comply with IFRS. This latter disclosure is narrative and not necessarily quantified.[IFRS
1.22]
Disclosures in the financial statements of a first-time adopter
IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS
affected the entity's reported financial position, financial performance and cash flows. [IFRS
1.23] This includes:
1. reconciliations of equity reported under previous GAAP to equity under IFRS both (a) at
the date of transition to IFRSs and (b) the end of the last annual period reported under the
previous GAAP. [IFRS 1.24(a)] (For an entity adopting IFRSs for the first time in its 31
December 2014 financial statements, the reconciliations would be as of 1 January 2013
and 31 December 2013.)
2. reconciliations of total comprehensive income for the last annual period reported under
the previous GAAP to total comprehensive income under IFRSs for the same period
[IFRS 1.24(b)]
3. explanation of material adjustments that were made, in adopting IFRSs for the first time,
to the statement of financial position, statement of comprehensive income and statement
of cash flows (the latter if presented under previous GAAP) [IFRS 1.25]
4. if errors in previous GAAP financial statements were discovered in the course of transi-
tion to IFRSs, those must be separately disclosed [IFRS 1.26]
5. if the entity recognised or reversed any impairment losses in preparing its opening IFRS
statement of financial position, these must be disclosed [IFRS 1.24(c)]
6. appropriate explanations if the entity has elected to apply any of the specific recognition
and measurement exemptions permitted under IFRS 1 – for instance, if it used fair values
as deemed cost
Disclosures in interim financial reports
If an entity is going to adopt IFRSs for the first time in its annual financial statements for the
year ended 31 December 2014, certain disclosure are required in its interim financial statements
prior to the 31 December 2014 statements, but only if those interim financial statements purport
to comply with IAS 34 Interim Financial Reporting. Explanatory information and a reconcilia-
tion are required in the interim report that immediately precedes the first set of IFRS annual

8
 9

financial statements. The information includes reconciliations between IFRS and previous
GAAP. [IFRS 1.32]
Exceptions to the retrospective application of other IFRSs
Prior to 1 January 2010, there were three exceptions to the general principle of retrospective ap-
plication. On 23 July 2009, IFRS 1 was amended, effective 1 January 2010, to add two additional
exceptions with the goal of further simplifying the transition to IFRSs for first-time adopters.
The five exceptions are: [IFRS 1.Appendix B]
IAS 39 – Derecognition of financial instruments
A first-time adopter shall apply the derecognition requirements in IAS 39 prospectively for trans-
actions occurring on or after 1 January 2004. However, the entity may apply the derecognition
requirements retrospectively provided that the needed information was obtained at the time of
initially accounting for those transactions. [IFRS 1.B2-3]
IAS 39 – Hedge accounting
The general rule is that the entity shall not reflect in its opening IFRS statement of financial
position a hedging relationship of a type that does not qualify for hedge accounting in accor-
dance with IAS 39. However, if an entity designated a net position as a hedged item in accor-
dance with previous GAAP, it may designate an individual item within that net position as a
hedged item in accordance with IFRS, provided that it does so no later than the date of transition
to IFRSs. [IFRS 1.B5]
Note: Modified requirements apply when an entity applies IFRS 9 Financial Instruments (2013).
IAS 27 – Non-controlling interest
IFRS 1.B7 lists specific requirements of IFRS 10 Consolidated Financial Statementsthat shall be
applied prospectively.
Full-cost oil and gas assets
Entities using the full cost method may elect exemption from retrospective application of IFRSs
for oil and gas assets. Entities electing this exemption will use the carrying amount under its old
GAAP as the deemed cost of its oil and gas assets at the date of first-time adoption of IFRSs.
Determining whether an arrangement contains a lease
If a first-time adopter with a leasing contract made the same type of determination of whether an
arrangement contained a lease in accordance with previous GAAP as that required by IFRIC
4 Determining whether an Arrangement Contains a Lease, but at a date other than that required
by IFRIC 4, the amendments exempt the entity from having to apply IFRIC 4 when it adopts
IFRSs.

9
 10

Optional exemptions from the basic measurement principle in IFRS 1

There are some further optional exemptions to the general restatement and measurement princi-
ples set out above. The following exceptions are individually optional. They relate to:
o business combinations [IFRS 1.Appendix C]

o and a number of others [IFRS 1.Appendix D]:

o share-based payment transactions
o insurance contracts
o fair value, previous carrying amount, or revaluation as deemed cost
o leases
o cumulative translation differences
o investments in subsidiaries, jointly controlled entities, associates and joint ventures
o assets and liabilities of subsidiaries, associated and joint ventures
o compound financial instruments
o designation of previously recognised financial instruments
o fair value measurement of financial assets or financial liabilities at initial recognition
o decommissioning liabilities included in the cost of property, plant and equipment
o financial assets or intangible assets accounted for in accordance with IFRIC 12 Service
Concession Arrangements
o borrowing costs
o transfers of assets from customers
o extinguishing financial liabilities with equity instruments
o severe hyperinflation
o joint arrangements
o stripping costs in the production phase of a surface mine
Some, but not all, of them are described below.
Business combinations that occurred before opening statement of financial position date
IFRS 1 includes Appendix C explaining how a first-time adopter should account for business
combinations that occurred prior to transition to IFRS.
An entity may keep the original previous GAAP accounting, that is, not restate:
o previous mergers or goodwill written-off from reserves

10
 11

o the carrying amounts of assets and liabilities recognised at the date of acquisition or merger,
or
o how goodwill was initially determined (do not adjust the purchase price allocation on acqui-
sition)
However, should it wish to do so, an entity can elect to restate all business combinations starting
from a date it selects prior to the opening statement of financial position date.
In all cases, the entity must make an initial IAS 36 impairment test of any remaining goodwill in
the opening IFRS statement of financial position, after reclassifying, as appropriate, previous
GAAP intangibles to goodwill.
The exemption for business combinations also applies to acquisitions of investments in associ-
ates, interests in joint ventures and interests in a joint operation when the operation constitutes a
business.
Deemed cost
Assets carried at cost (e.g. property, plant and equipment) may be measured at their fair value at
the date of transition to IFRSs. Fair value becomes the 'deemed cost' going forward under the
IFRS cost model. Deemed cost is an amount used as a surrogate for cost or depreciated cost at a
given date. [IFRS 1.D6]
If, before the date of its first IFRS statement of financial position, the entity had revalued any of
these assets under its previous GAAP either to fair value or to a price-index-adjusted cost, that
previous GAAP revalued amount at the date of the revaluation can become the deemed cost of
the asset under IFRS. [IFRS 1.D6]
If, before the date of its first IFRS statement of financial position, the entity had made a one-time
revaluation of assets or liabilities to fair value because of a privatisation or initial public offering,
and the revalued amount became deemed cost under the previous GAAP, that amount would
continue to be deemed cost after the initial adoption of IFRS. [IFRS 1.D8]
This option applies to intangible assets only if an active market exists. [IFRS 1.D7]
If the carrying amount of property, plant and equipment or intangible assets that are used in rate-
regulated activities includes amounts under previous GAAP that do not qualify for capitalisation
in accordance with IFRSs, a first-time adopter may elect to use the previous GAAP carrying
amount of such items as deemed cost on the initial adoption of IFRSs. [IFRS 1.D8B]
Eligible entities subject to rate-regulation may also optionally apply IFRS 14Regulatory Deferral
Accounts on transition to IFRSs, and in subsequent financial statements.
IAS 19 – Employee benefits: actuarial gains and losses
An entity may elect to recognise all cumulative actuarial gains and losses for all defined benefit
plans at the opening IFRS statement of financial position date (that is, reset any corridor recog-

11
 12

nised under previous GAAP to zero), even if it elects to use the IAS 19 corridor approach for
actuarial gains and losses that arise after first-time adoption of IFRS. If a first-time adopter uses
this exemption, it shall apply it to all plans. [IFRS 1.D10]
Note: This exemption is not available where IAS 19 Employee Benefits (2011) is applied. IAS 19 (2011) is effective for annual
reporting periods beginning on or after 1 January 2013.
IAS 21 – Accumulated translation reserves
An entity may elect to recognise all translation adjustments arising on the translation of the
financial statements of foreign entities in accumulated profits or losses at the opening IFRS
statement of financial position date (that is, reset the translation reserve included in equity under
previous GAAP to zero). If the entity elects this exemption, the gain or loss on subsequent
disposal of the foreign entity will be adjusted only by those accumulated translation adjustments
arising after the opening IFRS statement of financial position date. [IFRS 1.D13]
IAS 27 – Investments in separate financial statements
In May 2008, the IASB amended the standard to change the way the cost of an investment in the
separate financial statements is measured on first-time adoption of IFRSs. The amendments to
IFRS 1:
o allow first-time adopters to use a 'deemed cost' of either fair value or the carrying amount
under previous accounting practice to measure the initial cost of investments in subsidiaries,
jointly controlled entities and associates in the separate financial statements
o remove the definition of the cost method from IAS 27 and add a requirement to present
dividends as income in the separate financial statements of the investor
o require that, when a new parent is formed in a reorganisation, the new parent must measure
the cost of its investment in the previous parent at the carrying amount of its share of the
equity items of the previous parent at the date of the reorganisation
Assets and liabilities of subsidiaries, associates and joint ventures: different IFRS adoption
dates of investor and investee
If a subsidiary becomes a first-time adopter later than its parent, IFRS 1 permits a choice
between two measurement bases in the subsidiary's separate financial statements. In this case, a
subsidiary should measure its assets and liabilities as either: [IFRS 1.D16]
o the carrying amount that would be included in the parent's consolidated financial statements,
based on the parent's date of transition to IFRSs, if no adjustments were made for consolida-
tion procedures and for the effects of the business combination in which the parent acquired
the subsidiary or
o the carrying amounts required by IFRS 1 based on the subsidiary's date of transition to
IFRSs

12
 13

A similar election is available to an associate or joint venture that becomes a first-time adopter
later than an entity that has significant influence or joint control over it. [IFRS 1.D16]
If a parent becomes a first-time adopter later than its subsidiary, the parent should in its consoli-
dated financial statements, measure the assets and liabilities of the subsidiary at the same
carrying amount as in the separate financial statements of the subsidiary, after adjusting for con-
solidation adjustments and for the effects of the business combination in which the parent
acquired the subsidiary. The same approach applies in the case of associates and joint ventures.
[IFRS 1.D17]

IAS 1 — Presentation of Financial Statements

Quick Article Links

Overview
IAS 1 Presentation of Financial Statements sets out the overall requirements for financial state-
ments, including how they should be structured, the minimum requirements for their content and
overriding concepts such as going concern, the accrual basis of accounting and the current/non-
current distinction. The standard requires a complete set of financial statements to comprise a
statement of financial position, a statement of profit or loss and other comprehensive income, a
statement of changes in equity and a statement of cash flows.
IAS 1 was reissued in September 2007 and applies to annual periods beginning on or after 1
January 2009.

History of IAS 1

Date Development Comments

March 1974 Exposure Draft E1 Disclosure of Accounting

Policies

January 1975 IAS 1 Disclosure of Accounting Operative for periods

Policies issued beginning on or after 1
January 1975

June 1975 Exposure Draft E5 Information to Be

Disclosed in Financial Statements published

October 1976 IAS 5 Information to Be Disclosed in Operative for periods

Financial Statements issued beginning on or after 1
January 1975

July 1978 Exposure Draft E14 Current Assets and

Current Liabilitiespublished

November 1979 IAS 13 Presentation of Current Assets and Operative for periods

13
 14

Current Liabilities issued beginning on or after 1

January 1981

1994 IAS 1, IAS 5, and IAS 13 reformatted

July 1996 Exposure Draft E53 Presentation of

Financial Statementspublished

August 1997 IAS 1 Presentation of Financial State- Operative for periods

ments (1997) issued beginning on or after 1 July
(Supersedes IAS 1 (1975), IAS 5, and IAS 13 (1979)) 1998

18 December 2003 IAS 1 Presentation of Financial State- Effective for annual periods
ments (2003) issued beginning on or after 1
January 2005

18 August 2005 Amended by Amendment to IAS 1 — Capital Effective for annual periods
Disclosures beginning on or after 1
January 2007

16 March 2006 Exposure Draft Proposed Amendments to Comment deadline 17 July

IAS 1 – A Revised Presentationpublished 2006

22 June 2006 Exposure Draft Financial Instruments Comment deadline 23 October

Puttable at Fair Value and Obligations 2006
Arising on Liquidation published

6 September 2007 IAS 1 Presentation of Financial State- Effective for annual periods
ments (2007) issued beginning on or after 1
January 2009

14 February 2008 Amended by Puttable Financial Instruments Effective for annual reporting
and Obligations Arising on Liquidation periods beginning on or after
1 January 2009

22 May 2008 Amended by Annual Improvements to IFRSs Effective for annual reporting
2007 (classification of derivatives as current periods beginning on or after
or non-current) 1 January 2009

16 April 2009 Amended by Improvements to IFRSs Effective for annual periods

2009 (classification of liabilities as current) beginning on or after 1
January 2010

6 May 2010 Amended by Improvements to IFRSs Effective for annual periods

2010 (clarification of statement of changes in beginning on or after 1
equity) January 2011

27 May 2010 Exposure Draft ED/2010/5 Presentation of Comment deadline 30

Items of Other Comprehensive September 2010

14
 15

Incomepublished

16 June 2011 Amended by Presentation of Items of Other Effective for annual periods
Comprehensive Income beginning on or after 1 July
2012

17 May 2012 Amended by Annual Improvements 2009- Effective for annual periods
2011 Cycle (comparative information) beginning on or after 1
January 2013

18 December 2014 Amended by Disclosure Initiative (Amend- Effective for annual periods
ments to IAS 1)(project history) beginning on or after 1
January 2016

31 October 2018 Amended by Definition of Material (Amend- Effective for annual periods
ments to IAS 1 and IAS 8) beginning on or after 1
January 2020

Related Interpretations

o IAS 1 (2003) superseded SIC-18 Consistency - Alternative Methods

o IFRIC 17 Distributions of Non-cash Assets to Owners
o SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease
o SIC-29 Disclosure - Service Concession Arrangements

Amendments under consideration

o IAS 1 — Disclosures about going concern

o IAS 1 — Classification of liabilities
o Disclosure initiative — Principles of disclosure (research project)

Summary of IAS 1

Objective of IAS 1
The objective of IAS 1 (2007) is to prescribe the basis for presentation of general purpose
financial statements, to ensure comparability both with the entity's financial statements of
previous periods and with the financial statements of other entities. IAS 1 sets out the overall re-
quirements for the presentation of financial statements, guidelines for their structure and
minimum requirements for their content. [IAS 1.1] Standards for recognising, measuring, and
disclosing specific transactions are addressed in other Standards and Interpretations. [IAS 1.3]

Scope
IAS 1 applies to all general purpose financial statements that are prepared and presented in ac-
cordance with International Financial Reporting Standards (IFRSs). [IAS 1.2]
General purpose financial statements are those intended to serve users who are not in a
position to require financial reports tailored to their particular information needs. [IAS 1.7]

15
 16

Objective of financial statements

The objective of general purpose financial statements is to provide information about the
financial position, financial performance, and cash flows of an entity that is useful to a wide
range of users in making economic decisions. To meet that objective, financial statements
provide information about an entity's: [IAS 1.9]
o assets
o liabilities
o equity
o income and expenses, including gains and losses
o contributions by and distributions to owners (in their capacity as owners)
o cash flows.
That information, along with other information in the notes, assists users of financial statements
in predicting the entity's future cash flows and, in particular, their timing and certainty.

Components of financial statements

A complete set of financial statements includes: [IAS 1.10]
o a statement of financial position (balance sheet) at the end of the period
o a statement of profit or loss and other comprehensive income for the period (presented as a
single statement, or by presenting the profit or loss section in a separate statement of profit
or loss, immediately followed by a statement presenting comprehensive income beginning
with profit or loss)
o a statement of changes in equity for the period
o a statement of cash flows for the period
o notes, comprising a summary of significant accounting policies and other explanatory notes
o comparative information prescribed by the standard.
An entity may use titles for the statements other than those stated above. All financial state-
ments are required to be presented with equal prominence. [IAS 1.10]
When an entity applies an accounting policy retrospectively or makes a retrospective restate-
ment of items in its financial statements, or when it reclassifies items in its financial statements,
it must also present a statement of financial position (balance sheet) as at the beginning of the
earliest comparative period.
Reports that are presented outside of the financial statements – including financial reviews by
management, environmental reports, and value added statements – are outside the scope of
IFRSs. [IAS 1.14]

Fair presentation and compliance with IFRSs

The financial statements must "present fairly" the financial position, financial performance and
cash flows of an entity. Fair presentation requires the faithful representation of the effects of
transactions, other events, and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the Framework. The application of

16
 17

IFRSs, with additional disclosure when necessary, is presumed to result in financial statements
that achieve a fair presentation. [IAS 1.15]
IAS 1 requires an entity whose financial statements comply with IFRSs to make an explicit and
unreserved statement of such compliance in the notes. Financial statements cannot be
described as complying with IFRSs unless they comply with all the requirements of IFRSs
(which includes International Financial Reporting Standards, International Accounting
Standards, IFRIC Interpretations and SIC Interpretations). [IAS 1.16]
Inappropriate accounting policies are not rectified either by disclosure of the accounting policies
used or by notes or explanatory material. [IAS 1.18]
IAS 1 acknowledges that, in extremely rare circumstances, management may conclude that
compliance with an IFRS requirement would be so misleading that it would conflict with the
objective of financial statements set out in the Framework. In such a case, the entity is required
to depart from the IFRS requirement, with detailed disclosure of the nature, reasons, and impact
of the departure. [IAS 1.19-21]

Going concern
The Conceptual Framework notes that financial statements are normally prepared assuming the
entity is a going concern and will continue in operation for the foreseeable future. [Conceptual
Framework, paragraph 4.1]
IAS 1 requires management to make an assessment of an entity's ability to continue as a going
concern. If management has significant concerns about the entity's ability to continue as a
going concern, the uncertainties must be disclosed. If management concludes that the entity is
not a going concern, the financial statements should not be prepared on a going concern basis,
in which case IAS 1 requires a series of disclosures. [IAS 1.25]

Accrual basis of accounting

IAS 1 requires that an entity prepare its financial statements, except for cash flow information,
using the accrual basis of accounting. [IAS 1.27]

Consistency of presentation
The presentation and classification of items in the financial statements shall be retained from
one period to the next unless a change is justified either by a change in circumstances or a re-
quirement of a new IFRS. [IAS 1.45]

Materiality and aggregation

Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial information about a specific
reporting entity. [IAS 1.7]*
Each material class of similar items must be presented separately in the financial statements.
Dissimilar items may be aggregated only if they are individually immaterial. [IAS 1.29]
However, information should not be obscured by aggregating or by providing immaterial infor-
mation, materiality considerations apply to the all parts of the financial statements, and even
when a standard requires a specific disclosure, materiality considerations do apply. [IAS 1.30A-
31]
* Clarified by Definition of Material (Amendments to IAS 1 and IAS 8), effective 1 January 2020.

Offsetting
Assets and liabilities, and income and expenses, may not be offset unless required or permitted
by an IFRS. [IAS 1.32]

17
 18

Comparative information
IAS 1 requires that comparative information to be disclosed in respect of the previous period for
all amounts reported in the financial statements, both on the face of the financial statements and
in the notes, unless another Standard requires otherwise. Comparative information is provided
for narrative and descriptive where it is relevant to understanding the financial statements of the
current period. [IAS 1.38]
An entity is required to present at least two of each of the following primary financial statements:
[IAS 1.38A]
o statement of financial position*
o statement of profit or loss and other comprehensive income
o separate statements of profit or loss (where presented)
o statement of cash flows
o statement of changes in equity
o related notes for each of the above items.
* A third statement of financial position is required to be presented if the entity retrospectively
applies an accounting policy, restates items, or reclassifies items, and those adjustments had a
material effect on the information in the statement of financial position at the beginning of the
comparative period. [IAS 1.40A]
Where comparative amounts are changed or reclassified, various disclosures are required. [IAS
1.41]

Structure and content of financial statements in general

IAS 1 requires an entity to clearly identify: [IAS 1.49-51]
o the financial statements, which must be distinguished from other information in a published
document
o each financial statement and the notes to the financial statements.
In addition, the following information must be displayed prominently, and repeated as
necessary: [IAS 1.51]

o the name of the reporting entity and any change in the name
o whether the financial statements are a group of entities or an individual entity
o information about the reporting period
o the presentation currency (as defined by IAS 21 The Effects of Changes in Foreign
Exchange Rates)
o the level of rounding used (e.g. thousands, millions).

Reporting period
There is a presumption that financial statements will be prepared at least annually. If the annual
reporting period changes and financial statements are prepared for a different period, the entity

18
 19

must disclose the reason for the change and state that amounts are not entirely comparable.
[IAS 1.36]

Statement of financial position (balance sheet)

Current and non-current classification
An entity must normally present a classified statement of financial position, separating current
and non-current assets and liabilities, unless presentation based on liquidity provides informa-
tion that is reliable. [IAS 1.60] In either case, if an asset (liability) category combines amounts
that will be received (settled) after 12 months with assets (liabilities) that will be received
(settled) within 12 months, note disclosure is required that separates the longer-term amounts
from the 12-month amounts. [IAS 1.61]
Current assets are assets that are: [IAS 1.66]
o expected to be realised in the entity's normal operating cycle
o held primarily for the purpose of trading
o expected to be realised within 12 months after the reporting period
o cash and cash equivalents (unless restricted).
All other assets are non-current. [IAS 1.66]
Current liabilitiesare those: [IAS 1.69]
o expected to be settled within the entity's normal operating cycle
o held for purpose of trading
o due to be settled within 12 months
o for which the entity does not have an unconditional right to defer settlement beyond 12
months (settlement by the issue of equity instruments does not impact classification).
Other liabilities are non-current.

When a long-term debt is expected to be refinanced under an existing loan facility, and the
entity has the discretion to do so, the debt is classified as non-current, even if the liability would
otherwise be due within 12 months. [IAS 1.73]
If a liability has become payable on demand because an entity has breached an undertaking
under a long-term loan agreement on or before the reporting date, the liability is current, even if
the lender has agreed, after the reporting date and before the authorisation of the financial
statements for issue, not to demand payment as a consequence of the breach. [IAS 1.74]
However, the liability is classified as non-current if the lender agreed by the reporting date to
provide a period of grace ending at least 12 months after the end of the reporting period, within
which the entity can rectify the breach and during which the lender cannot demand immediate
repayment. [IAS 1.75]
Line items
The line items to be included on the face of the statement of financial position are: [IAS 1.54]
(a) property, plant and equipment
(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets

19
 20

(g) inventories
(h) trade and other receivables
(i) cash and cash equivalents
(j) assets held for sale
(k) trade and other payables
(l) provisions
(m)financial liabilities (excluding amounts shown under (k) and (l))
(n) current tax liabilities and current tax assets, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests, presented within equity
(r) issued capital and reserves attributable to owners of the parent.
Additional line items, headings and subtotals may be needed to fairly present the entity's
financial position. [IAS 1.55]
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a
clear and understandable manner; be consistent from period to period; and not be displayed
with more prominence than the required subtotals and totals. [IAS 1.55A]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Further sub-classifications of line items presented are made in the statement or in the notes, for
example: [IAS 1.77-78]:
o classes of property, plant and equipment
o disaggregation of receivables
o disaggregation of inventories in accordance with IAS 2 Inventories
o disaggregation of provisions into employee benefits and other items
o classes of equity and reserves.
Format of statement
IAS 1 does not prescribe the format of the statement of financial position. Assets can be
presented current then non-current, or vice versa, and liabilities and equity can be presented
current then non-current then equity, or vice versa. A net asset presentation (assets minus liabil-
ities) is allowed. The long-term financing approach used in UK and elsewhere – fixed assets +
current assets - short term payables = long-term debt plus equity – is also acceptable.
Share capital and reserves
Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]
o numbers of shares authorised, issued and fully paid, and issued but not fully paid
o par value (or that shares do not have a par value)
o a reconciliation of the number of shares outstanding at the beginning and the end of the
period
o description of rights, preferences, and restrictions
o treasury shares, including shares held by subsidiaries and associates
o shares reserved for issuance under options and contracts
o a description of the nature and purpose of each reserve within equity.

20
 21

Additional disclosures are required in respect of entities without share capital and where an
entity has reclassified puttable financial instruments. [IAS 1.80-80A]

Statement of profit or loss and other comprehensive income

Concepts of profit or loss and comprehensive income
Profit or loss is defined as "the total of income less expenses, excluding the components of
other comprehensive income". Other comprehensive income is defined as comprising "items of
income and expense (including reclassification adjustments) that are not recognised in profit or
loss as required or permitted by other IFRSs". Total comprehensive income is defined as "the
change in equity during a period resulting from transactions and other events, other than those
changes resulting from transactions with owners in their capacity as owners". [IAS 1.7]

Comprehensive income = Profit + Other

for the period or loss comprehensive income

All items of income and expense recognised in a period must be included in profit or loss unless
a Standard or an Interpretation requires otherwise. [IAS 1.88] Some IFRSs require or permit that
some components to be excluded from profit or loss and instead to be included in other compre-
hensive income.
Examples of items recognised outside of profit or loss

o Changes in revaluation surplus where the revaluation method is used under IAS 16 Property, Plant
and Equipment and IAS 38 Intangible Assets
o Remeasurements of a net defined benefit liability or asset recognised in accordance
with IAS 19 Employee Benefits (2011)
o Exchange differences from translating functional currencies into presentation currency in accordance
with IAS 21 The Effects of Changes in Foreign Exchange Rates
o Gains and losses on remeasuring available-for-sale financial assets in accordance
with IAS 39 Financial Instruments: Recognition and Measurement
o The effective portion of gains and losses on hedging instruments in a cash flow hedge under IAS 39
or IFRS 9 Financial Instruments
o Gains and losses on remeasuring an investment in equity instruments where the entity has elected to
present them in other comprehensive income in accordance with IFRS 9
o The effects of changes in the credit risk of a financial liability designated as at fair value through
profit and loss under IFRS 9.

21
 22

In addition, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errorsrequires the
correction of errors and the effect of changes in accounting policies to be recognised outside
profit or loss for the current period. [IAS 1.89]
Choice in presentation and basic requirements
An entity has a choice of presenting:
o a single statement of profit or loss and other comprehensive income, with profit or loss and
other comprehensive income presented in two sections, or
o two statements:
o a separate statement of profit or loss
o a statement of comprehensive income, immediately following the statement of profit or
loss and beginning with profit or loss [IAS 1.10A]
The statement(s) must present: [IAS 1.81A]
o profit or loss
o total other comprehensive income
o comprehensive income for the period
o an allocation of profit or loss and comprehensive income for the period between non-con-
trolling interests and owners of the parent.
Profit or loss section or statement
The following minimum line items must be presented in the profit or loss section (or separate
statement of profit or loss, if presented): [IAS 1.82-82A]
o revenue
o gains and losses from the derecognition of financial assets measured at amortised cost
o finance costs
o share of the profit or loss of associates and joint ventures accounted for using the equity
method
o certain gains or losses associated with the reclassification of financial assets
o tax expense
o a single amount for the total of discontinued items
Expenses recognised in profit or loss should be analysed either by nature (raw materials,
staffing costs, depreciation, etc.) or by function (cost of sales, selling, administrative, etc). [IAS
1.99] If an entity categorises by function, then additional information on the nature of expenses
– at a minimum depreciation, amortisation and employee benefits expense – must be disclosed.
[IAS 1.104]
Other comprehensive income section
The other comprehensive income section is required to present line items which are classified
by their nature, and grouped between those items that will or will not be reclassified to profit and
loss in subsequent periods. [IAS 1.82A]

22
 23

An entity's share of OCI of equity-accounted associates and joint ventures is presented in

aggregate as single line items based on whether or not it will subsequently be reclassified to
profit or loss. [IAS 1.82A]*
* Clarified by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
When an entity presents subtotals, those subtotals shall be comprised of line items made up of
amounts recognised and measured in accordance with IFRS; be presented and labelled in a
clear and understandable manner; be consistent from period to period; not be displayed with
more prominence than the required subtotals and totals; and reconciled with the subtotals or
totals required in IFRS. [IAS 1.85A-85B]*
* Added by Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016.
Other requirements
Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85]
Items cannot be presented as 'extraordinary items' in the financial statements or in the notes.
[IAS 1.87]
Certain items must be disclosed separately either in the statement of comprehensive income or
in the notes, if material, including: [IAS 1.98]
o write-downs of inventories to net realisable value or of property, plant and equipment to re-
coverable amount, as well as reversals of such write-downs
o restructurings of the activities of an entity and reversals of any provisions for the costs of re-
structuring
o disposals of items of property, plant and equipment
o disposals of investments
o discontinuing operations
o litigation settlements
o other reversals of provisions

Statement of cash flows

Rather than setting out separate requirements for presentation of the statement of cash flows,
IAS 1.111 refers to IAS 7 Statement of Cash Flows.

Statement of changes in equity

IAS 1 requires an entity to present a separate statement of changes in equity. The statement
must show: [IAS 1.106]
o total comprehensive income for the period, showing separately amounts attributable to
owners of the parent and to non-controlling interests
o the effects of any retrospective application of accounting policies or restatements made in
accordance with IAS 8, separately for each component of other comprehensive income
o reconciliations between the carrying amounts at the beginning and the end of the period for
each component of equity, separately disclosing:
o profit or loss

23
 24

o other comprehensive income*

o transactions with owners, showing separately contributions by and distributions to
owners and changes in ownership interests in subsidiaries that do not result in a loss of
control
* An analysis of other comprehensive income by item is required to be presented either in the
statement or in the notes. [IAS 1.106A]
The following amounts may also be presented on the face of the statement of changes in equity,
or they may be presented in the notes: [IAS 1.107]
o amount of dividends recognised as distributions
o the related amount per share.

Notes to the financial statements

The notes must: [IAS 1.112]
o present information about the basis of preparation of the financial statements and the
specific accounting policies used
o disclose any information required by IFRSs that is not presented elsewhere in the financial
statements and
o provide additional information that is not presented elsewhere in the financial statements
but is relevant to an understanding of any of them
Notes are presented in a systematic manner and cross-referenced from the face of the financial
statements to the relevant note. [IAS 1.113]
IAS 1.114 suggests that the notes should normally be presented in the following order:*
o a statement of compliance with IFRSs
o a summary of significant accounting policies applied, including: [IAS 1.117]
o the measurement basis (or bases) used in preparing the financial statements
o the other accounting policies used that are relevant to an understanding of the financial
statements
o supporting information for items presented on the face of the statement of financial position
(balance sheet), statement(s) of profit or loss and other comprehensive income, statement
of changes in equity and statement of cash flows, in the order in which each statement and
each line item is presented
o other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management objectives and
policies (see IFRS 7 Financial Instruments: Disclosures)

24
 25

* Disclosure Initiative (Amendments to IAS 1), effective 1 January 2016, clarifies this order just to be an example of how
notes can be ordered and adds additional examples of possible ways of ordering the notes to clarify that understandability
and comparability should be considered when determining the order of the notes.

Other disclosures
Judgements and key assumptions
An entity must disclose, in the summary of significant accounting policies or other notes, the
judgements, apart from those involving estimations, that management has made in the process
of applying the entity's accounting policies that have the most significant effect on the amounts
recognised in the financial statements. [IAS 1.122]
Examples cited in IAS 1.123 include management's judgements in determining:
o when substantially all the significant risks and rewards of ownership of financial assets and
lease assets are transferred to other entities
o whether, in substance, particular sales of goods are financing arrangements and therefore
do not give rise to revenue.
An entity must also disclose, in the notes, information about the key assumptions concerning
the future, and other key sources of estimation uncertainty at the end of the reporting period,
that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year. [IAS 1.125] These disclosures do not involve disclos-
ing budgets or forecasts. [IAS 1.130]
Dividends
In addition to the distributions information in the statement of changes in equity (see above), the
following must be disclosed in the notes: [IAS 1.137]
o the amount of dividends proposed or declared before the financial statements were autho-
rised for issue but which were not recognised as a distribution to owners during the period,
and the related amount per share
o the amount of any cumulative preference dividends not recognised.
Capital disclosures
An entity discloses information about its objectives, policies and processes for managing capital.
[IAS 1.134] To comply with this, the disclosures include: [IAS 1.135]
o qualitative information about the entity's objectives, policies and processes for managing
capital, including>
o description of capital it manages
o nature of external capital requirements, if any
o how it is meeting its objectives
o quantitative data about what the entity regards as capital
o changes from one period to another
o whether the entity has complied with any external capital requirements and
o if it has not complied, the consequences of such non-compliance.
Puttable financial instruments

25
 26

IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument
that is classified as an equity instrument:
o summary quantitative data about the amount classified as equity
o the entity's objectives, policies and processes for managing its obligation to repurchase or
redeem the instruments when required to do so by the instrument holders, including any
changes from the previous period
o the expected cash outflow on redemption or repurchase of that class of financial instru-
ments and
o information about how the expected cash outflow on redemption or repurchase was deter-
mined.
Other information
The following other note disclosures are required by IAS 1 if not disclosed elsewhere in informa-
tion published with the financial statements: [IAS 1.138]
o domicile and legal form of the entity
o country of incorporation
o address of registered office or principal place of business
o description of the entity's operations and principal activities
o if it is part of a group, the name of its parent and the ultimate parent of the group
o if it is a limited life entity, information regarding the length of the life

Terminology
The 2007 comprehensive revision to IAS 1 introduced some new terminology. Consequential
amendments were made at that time to all of the other existing IFRSs, and the new terminology
has been used in subsequent IFRSs including amendments. IAS 1.8 states: "Although this
Standard uses the terms 'other comprehensive income', 'profit or loss' and 'total comprehensive
income', an entity may use other terms to describe the totals as long as the meaning is clear.
For example, an entity may use the term 'net income' to describe profit or loss." Also, IAS
1.57(b) states: "The descriptions used and the ordering of items or aggregation of similar items
may be amended according to the nature of the entity and its transactions, to provide informa-
tion that is relevant to an understanding of the entity's financial position."
Term before 2007 revision of IAS 1 Term as amended by IAS 1 (2007)

balance sheet statement of financial position

cash flow statement statement of cash flows

income statement statement of comprehensive income (income statement is

retained in case of a two-statement approach)

recognised in the income statement recognised in profit or loss

26
 27

recognised [directly] in equity (only for recognised in other comprehensive income

OCI components)

recognised [directly] in equity (for recog- recognised outside profit or loss (either in OCI or equity)
nition both in OCI and equity)

removed from equity and recognised in reclassified from equity to profit or loss as a reclassifica-
profit or loss ('recycling') tion adjustment

Standard or/and Interpretation IFRSs

on the face of in

equity holders owners (exception for 'ordinary equity holders')

balance sheet date end of the reporting period

reporting date end of the reporting period

after the balance sheet date after the reporting period

IAS 24 — Related Party Disclosures

Quick Article Links

Overview
IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding
balances with an entity's related parties. The standard defines various classes of entities and
people as related parties and sets out the disclosures required in respect of those parties,
including the compensation of key management personnel.
IAS 24 was reissued in November 2009 and applies to annual periods beginning on or after 1
January 2011.

History of IAS 24

Date Development Comments

March 1983 Exposure Draft E25 Disclosure of Related

Party Transactions

July 1984 IAS 24 Related Party Disclosuresissued Effective 1 January 1986

1994 IAS 24 was reformatted

18 December 2003 IAS 24 Related Party Disclosures Effective for annual periods
beginning on or after 1
January 2005

27
 28

22 February 2007 Exposure Draft State-controlled Entities and Comment deadline 25 May
the Definition of a Related Party published 2007

11 December 2008 Exposure Draft Relationships with the State Comment deadline 13
(Proposed amendments to IAS 24) published March 2009

4 November 2009 IAS 24 Related Party Disclosuresissued Effective for annual periods
beginning on or after 1
January 2011

12 December 2013 Amended by Annual Improvements to IFRSs Effective for annual periods
2010–2012 Cycle (entities providing key man- beginning on or after 1 July
agement personnel services) 2014

Related Interpretations

o None

Amendments under consideration by the IASB

o None

Summary of IAS 24

Objective of IAS 24
The objective of IAS 24 is to ensure that an entity's financial statements contain the disclosures
necessary to draw attention to the possibility that its financial position and profit or loss may
have been affected by the existence of related parties and by transactions and outstanding
balances with such parties.

Who are related parties?

A related party is a person or entity that is related to the entity that is preparing its financial
statements (referred to as the 'reporting entity') [IAS 24.9].
o (a) A person or a close member of that person's family is related to a reporting entity if that
person:
o (i) has control or joint control over the reporting entity;
o (ii) has significant influence over the reporting entity; or
o (iii) is a member of the key management personnel of the reporting entity or of a parent
of the reporting entity.
o (b) An entity is related to a reporting entity if any of the following conditions applies:
o (i) The entity and the reporting entity are members of the same group (which means
that each parent, subsidiary and fellow subsidiary is related to the others).

28
 29

o (ii) One entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member).
o (iii) Both entities are joint ventures of the same third party.
o (iv) One entity is a joint venture of a third entity and the other entity is an associate of
the third entity.
o (v) The entity is a post-employment defined benefit plan for the benefit of employees of
either the reporting entity or an entity related to the reporting entity. If the reporting
entity is itself such a plan, the sponsoring employers are also related to the reporting
entity.
o (vi) The entity is controlled or jointly controlled by a person identified in (a).
o (vii) A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity).
o (viii) The entity, or any member of a group of which it is a part, provides key manage-
ment personnel services to the reporting entity or to the parent of the reporting entity*.
* Requirement added by Annual Improvements to IFRSs 2010–2012 Cycle, effective for annual periods beginning on or after
1 July 2014.
The following are deemed not to be related: [IAS 24.11]
o two entities simply because they have a director or key manager in common
o two venturers who share joint control over a joint venture
o providers of finance, trade unions, public utilities, and departments and agencies of a gov-
ernment that does not control, jointly control or significantly influence the reporting entity,
simply by virtue of their normal dealings with an entity (even though they may affect the
freedom of action of an entity or participate in its decision-making process)
o a single customer, supplier, franchiser, distributor, or general agent with whom an entity
transacts a significant volume of business merely by virtue of the resulting economic depen-
dence

What are related party transactions?

A related party transaction is a transfer of resources, services, or obligations between related
parties, regardless of whether a price is charged. [IAS 24.9]

Disclosure
Relationships between parents and subsidiaries. Regardless of whether there have been
transactions between a parent and a subsidiary, an entity must disclose the name of its parent
and, if different, the ultimate controlling party. If neither the entity's parent nor the ultimate con-
trolling party produces financial statements available for public use, the name of the next most
senior parent that does so must also be disclosed. [IAS 24.16]

29
 30

Management compensation. Disclose key management personnel compensation in total and

for each of the following categories: [IAS 24.17]
o short-term employee benefits
o post-employment benefits
o other long-term benefits
o termination benefits
o share-based payment benefits
Key management personnel are those persons having authority and responsibility for planning,
directing, and controlling the activities of the entity, directly or indirectly, including any directors
(whether executive or otherwise) of the entity. [IAS 24.9]
If an entity obtains key management personnel services from a management entity, the entity is
not required to disclose the compensation paid or payable by the management entity to the
management entity’s employees or directors. Instead the entity discloses the amounts incurred
by the entity for the provision of key management personnel services that are provided by the
separate management entity*. [IAS 24.17A, 18A]
* These requirements were introduced by Annual Improvements to IFRSs 2010–2012 Cycle, effective for annual periods
beginning on or after 1 July 2014.

Related party transactions. If there have been transactions between related parties, disclose
the nature of the related party relationship as well as information about the transactions and out-
standing balances necessary for an understanding of the potential effect of the relationship on
the financial statements. These disclosure would be made separately for each category of
related parties and would include: [IAS 24.18-19]
o the amount of the transactions
o the amount of outstanding balances, including terms and conditions and guarantees
o provisions for doubtful debts related to the amount of outstanding balances
o expense recognised during the period in respect of bad or doubtful debts due from related
parties

Examples of the kinds of transactions that are disclosed if they are with a related
party

o purchases or sales of goods

o purchases or sales of property and other assets
o rendering or receiving of services
o leases
o transfers of research and development
o transfers under licence agreements

30
 31

o transfers under finance arrangements (including loans and equity contributions in

cash or in kind)
o provision of guarantees or collateral
o commitments to do something if a particular event occurs or does not occur in the
future, including executory contracts (recognised and unrecognised)
o settlement of liabilities on behalf of the entity or by the entity on behalf of another
party

A statement that related party transactions were made on terms equivalent to those that prevail
in arm's length transactions should be made only if such terms can be substantiated. [IAS
24.21]

IFRS 5 — Non-current Assets Held for Sale and Discontinued

Operations
Quick Article Links

Overview
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations outlines how to account
for non-current assets held for sale (or for distribution to owners). In general terms, assets (or
disposal groups) held for sale are not depreciated, are measured at the lower of carrying
amount and fair value less costs to sell, and are presented separately in the statement of
financial position. Specific disclosures are also required for discontinued operations and
disposals of non-current assets.
IFRS 5 was issued in March 2004 and applies to annual periods beginning on or after 1 January
2005.

History of IFRS 5

Date Development Comments

September 2002 Project added to IASB agenda History of the project

24 July 2003 Exposure Draft ED 4 Disposal of Non-current Comment deadline 24

Assets and Presentation of Discontinued Opera- October 2003
tionspublished

31 March 2004 IFRS 5 Non-current Assets Held for Sale and Dis- Effective for annual
periods beginning on or

31
 32

continued Operations issued after 1 January 2005

22 May 2008 Amended by Improvements to IFRSs 2007 (sale Effective for annual
of a controlling interest in the subsidiary) periods beginning on or
after 1 July 2009

27 November 2008 Consequential amendments from IFRIC 17 Dis- Effective for annual
tributions of Non-cash Assets to Owners (assets periods beginning on or
held for distribution to owners) after 1 July 2009

16 April 2009 Amended by Improvements to IFRSs 2009 (dis- Effective for annual
closure requirements in other standards) periods beginning on or
after 1 January 2010

25 September Amended by Improvements to IFRSs Effective for annual

2014 2014 (changes in methods of disposal) periods beginning on or
after 1 January 2016

Related Interpretations

o None

Amendments under consideration

o Convergence — Assets held for sale and discontinued operations

Summary of IFRS 5

Background
IFRS 5 achieves substantial convergence with the requirements of US SFAS 144 Accounting for
the Impairment or Disposal of Long-Lived Assets with respect to the timing of the classification
of operations as discontinued operations and the presentation of such operations. With respect
to long-lived assets that are not being disposed of, the impairment recognition and measure-
ment standards in SFAS 144 are significantly different from those in IAS 36 Impairment of
Assets. However those differences were not addressed in the short-term IASB-FASB conver-
gence project.
Key provisions of IFRS 5 relating to assets held for sale
Held-for-sale classification
In general, the following conditions must be met for an asset (or 'disposal group') to be classified
as held for sale: [IFRS 5.6-8]

32
 33

o management is committed to a plan to sell

o the asset is available for immediate sale
o an active programme to locate a buyer is initiated
o the sale is highly probable, within 12 months of classification as held for sale (subject to
limited exceptions)
o the asset is being actively marketed for sale at a sales price reasonable in relation to its fair
value
o actions required to complete the plan indicate that it is unlikely that plan will be significantly
changed or withdrawn
The assets need to be disposed of through sale. Therefore, operations that are expected to be
wound down or abandoned would not meet the definition (but may be classified as discontinued
once abandoned). [IFRS 5.13]
An entity that is committed to a sale involving loss of control of a subsidiary that qualifies for
held-for-sale classification under IFRS 5 classifies all of the assets and liabilities of that sub-
sidiary as held for sale, even if the entity will retain a non-controlling interest in its former sub-
sidiary after the sale. [IFRS 5.8A]
Held for distribution to owners classification
The classification, presentation and measurement requirements of IFRS 5 also apply to a non-
current asset (or disposal group) that is classified as held for distribution to owners. [IFRS 5.5A
and IFRIC 17] The entity must be committed to the distribution, the assets must be available for
immediate distribution and the distribution must be highly probable. [IFRS 5.12A]
Disposal group concept
A 'disposal group' is a group of assets, possibly with some associated liabilities, which an entity
intends to dispose of in a single transaction. The measurement basis required for non-current
assets classified as held for sale is applied to the group as a whole, and any resulting impair-
ment loss reduces the carrying amount of the non-current assets in the disposal group in the
order of allocation required by IAS 36. [IFRS 5.4]
Measurement
The following principles apply:
o At the time of classification as held for sale. Immediately before the initial classification of
the asset as held for sale, the carrying amount of the asset will be measured in accordance
with applicable IFRSs. Resulting adjustments are also recognised in accordance with ap-
plicable IFRSs. [IFRS 5.18]
o After classification as held for sale. Non-current assets or disposal groups that are classified
as held for sale are measured at the lower of carrying amount and fair value less costs to
sell (fair value less costs to distribute in the case of assets classified as held for distribution
to owners). [IFRS 5.15-15A]
o Impairment.Impairment must be considered both at the time of classification as held for sale
and subsequently:

33
 34

o At the time of classification as held for sale. Immediately prior to classifying an asset or
disposal group as held for sale, impairment is measured and recognised in accordance
with the applicable IFRSs (generally IAS 16 Property, Plant and Equipment, IAS 36 Im-
pairment of Assets, IAS 38 Intangible Assets, and IAS 39 Financial Instruments: Recog-
nition and Measurement/IFRS 9 Financial Instruments). Any impairment loss is recog-
nised in profit or loss unless the asset had been measured at revalued amount under
IAS 16 or IAS 38, in which case the impairment is treated as a revaluation decrease.
o After classification as held for sale. Calculate any impairment loss based on the differ-
ence between the adjusted carrying amounts of the asset/disposal group and fair value
less costs to sell. Any impairment loss that arises by using the measurement principles
in IFRS 5 must be recognised in profit or loss [IFRS 5.20], even for assets previously
carried at revalued amounts. This is supported by IFRS 5 BC.47 and BC.48, which
indicate the inconsistency with IAS 36.
o Assets carried at fair value prior to initial classification. For such assets, the requirement to
deduct costs to sell from fair value may result in an immediate charge to profit or loss.
o Subsequent increases in fair value. A gain for any subsequent increase in fair value less
costs to sell of an asset can be recognised in the profit or loss to the extent that it is not in
excess of the cumulative impairment loss that has been recognised in accordance with
IFRS 5 or previously in accordance with IAS 36. [IFRS 5.21-22]
o No depreciation. Non-current assets or disposal groups that are classified as held for sale
are not depreciated. [IFRS 5.25]
The measurement provisions of IFRS 5 do not apply to deferred tax assets, assets arising from
employee benefits, financial assets within the scope of IFRS 9 Financial Instruments, non-cur-
rent assets measured at fair value in accordance with IAS 41 Agriculture, and contractual rights
under insurance contracts. [IFRS 5.5]
Presentation
Assets classified as held for sale, and the assets and liabilities included within a disposal group
classified as held for sale, must be presented separately on the face of the statement of
financial position. [IFRS 5.38]
Disclosures
IFRS 5 requires the following disclosures about assets (or disposal groups) that are held for
sale: [IFRS 5.41]
o description of the non-current asset or disposal group
o description of facts and circumstances of the sale (disposal) and the expected timing
o impairment losses and reversals, if any, and where in the statement of comprehensive
income they are recognised

34
 35

o if applicable, the reportable segment in which the non-current asset (or disposal group) is
presented in accordance with IFRS 8 Operating Segments

Disclosures in other IFRSs do not apply to assets held for sale (or discontinued operations,
discussed below) unless those other IFRSs require specific disclosures in respect of such
assets, or in respect of certain measurement disclosures where assets and liabilities are outside
the scope of the measurement requirements of IFRS 5. [IFRS 5.5B]

Key provisions of IFRS 5 relating to discontinued operations

Classification as discontinuing
A discontinued operation is a component of an entity that either has been disposed of or is clas-
sified as held for sale, and: [IFRS 5.32]
o represents either a separate major line of business or a geographical area of operations
o is part of a single co-ordinated plan to dispose of a separate major line of business or geo-
graphical area of operations, or
o is a subsidiary acquired exclusively with a view to resale and the disposal involves loss of
control.
IFRS 5 prohibits the retroactive classification as a discontinued operation, when the discontin-
ued criteria are met after the end of the reporting period. [IFRS 5.12]
Disclosure in the statement of comprehensive income
The sum of the post-tax profit or loss of the discontinued operation and the post-tax gain or loss
recognised on the measurement to fair value less cost to sell or fair value adjustments on the
disposal of the assets (or disposal group) is presented as a single amount on the face of the
statement of comprehensive income. If the entity presents profit or loss in a separate statement,
a section identified as relating to discontinued operations is presented in that separate
statement. [IFRS 5.33-33A].
Detailed disclosure of revenue, expenses, pre-tax profit or loss and related income taxes is
required either in the notes or in the statement of comprehensive income in a section distinct
from continuing operations. [IFRS 5.33] Such detailed disclosures must cover both the current
and all prior periods presented in the financial statements. [IFRS 5.34]
Cash flow information
The net cash flows attributable to the operating, investing, and financing activities of a discontin-
ued operation is separately presented on the face of the cash flow statement or disclosed in the
notes. [IFRS 5.33]
Disclosures
The following additional disclosures are required:
o adjustments made in the current period to amounts disclosed as a discontinued operation in
prior periods must be separately disclosed [IFRS 5.35]
o if an entity ceases to classify a component as held for sale, the results of that component
previously presented in discontinued operations must be reclassified and included in
income from continuing operations for all periods presented [IFRS 5.36]

35
 36

Special edition of IAS Plus Newsletter on IFRS 5

Click to download a Special Global Edition of our IAS Plus Newsletter (PDF 56k) devoted to
IFRS 5.

IAS 34 — Interim Financial Reporting

Quick Article Links

Overview
IAS 34 Interim Financial Reporting applies when an entity prepares an interim financial report,
without mandating when an entity should prepare such a report. Permitting less information to
be reported than in annual financial statements (on the basis of providing an update to those
financial statements), the standard outlines the recognition, measurement and disclosure re-
quirements for interim reports.
IAS 34 was issued in June 1998 and is operative for periods beginning on or after 1 January
1999.

History of IAS 34

Date Development Comments

August 1997 Exposure Draft E57 Interim Financial

Reporting published

June 1999 IAS 34 Interim Financial Reporting issued Operative for financial state-
ments covering periods
beginning on or after 1 January
1999

6 May 2010 Amended by Improvements to IFRSs Effective for annual periods

2010 (significant transactions and events) beginning on or after 1 January
2011

17 May 2012 Amended by Annual Improvements 2009- Effective for annual periods
2011 Cycle(segment information) beginning on or after 1 January
2013

25 September Amended by Improvements to IFRSs Effective for annual periods

2014 2014 (disclosure of information 'elsewhere in beginning on or after 1 January
the interim financial report') 2016

Related Interpretations

o IFRIC 10 Interim Financial Reporting and Impairment

Amendments under consideration

36
 37

o None

Summary of IAS 34

Deloitte's publication Interim Financial Reporting: A Guide to IAS

34(2009 edition) provides an overview of IAS 34, application guidance and
examples, a model interim financial report, and an IAS 34 compliance
checklist. Contents:
o 1. Introduction and scope
o 2. Content of an interim financial report
o 3. Condensed or complete interim financial statements
o 4. Selected explanatory notes
o 5. Accounting policies for interim reporting
o 6. General principles for recognition and measurement
o 7. Applying the recognition and measurement principles
o 8. Impairment of assets
o 9. Measuring interim income tax expense
o 10. Earnings per share
o 11. First-time adoption of IFRSs
o Model interim financial report
o IAS 34 compliance checklist
Click to Download the Deloitte Guide to IAS 34 (PDF 1,205k, March 2009,
76 pages).

Objective of IAS 34
The objective of IAS 34 is to prescribe the minimum content of an interim financial report and to
prescribe the principles for recognition and measurement in financial statements presented for
an interim period.

Key definitions
Interim period: a financial reporting period shorter than a full financial year (most typically a
quarter or half-year). [IAS 34.4]
Interim financial report: a financial report that contains either a complete or condensed set of
financial statements for an interim period. [IAS 34.4]

Matters left to local regulators

IAS 34 specifies the content of an interim financial report that is described as conforming to
International Financial Reporting Standards. However, IAS 34 does not mandate:
o which entities should publish interim financial reports,

37
 38

o how frequently, or
o how soon after the end of an interim period.
Such matters will be decided by national governments, securities regulators, stock exchanges,
and accountancy bodies. [IAS 34.1]
However, the Standard encourages publicly-traded entities to provide interim financial reports
that conform to the recognition, measurement, and disclosure principles set out in IAS 34, at
least as of the end of the first half of their financial year, such reports to be made available not
later than 60 days after the end of the interim period. [IAS 34.1]

Minimum content of an interim financial report

The minimum components specified for an interim financial report are: [IAS 34.8]
o a condensed balance sheet (statement of financial position)
o either (a) a condensed statement of comprehensive income or (b) a condensed statement
of comprehensive income and a condensed income statement
o a condensed statement of changes in equity
o a condensed statement of cash flows
o selected explanatory notes
If a complete set of financial statements is published in the interim report, those financial state-
ments should be in full compliance with IFRSs. [IAS 34.9]
If the financial statements are condensed, they should include, at a minimum, each of the
headings and sub-totals included in the most recent annual financial statements and the ex-
planatory notes required by IAS 34. Additional line-items or notes should be included if their
omission would make the interim financial information misleading. [IAS 34.10]
If the annual financial statements were consolidated (group) statements, the interim statements
should be group statements as well. [IAS 34.14]
The periods to be covered by the interim financial statements are as follows: [IAS 34.20]
o balance sheet (statement of financial position) as of the end of the current interim period
and a comparative balance sheet as of the end of the immediately preceding financial year
o statement of comprehensive income (and income statement, if presented) for the current
interim period and cumulatively for the current financial year to date, with comparative state-
ments for the comparable interim periods (current and year-to-date) of the immediately
preceding financial year
o statement of changes in equity cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year
o statement of cash flows cumulatively for the current financial year to date, with a compara-
tive statement for the comparable year-to-date period of the immediately preceding financial
year

38
 39

If the company's business is highly seasonal, IAS 34 encourages disclosure of financial informa-
tion for the latest 12 months, and comparative information for the prior 12-month period, in
addition to the interim period financial statements. [IAS 34.21]

Note disclosures
The explanatory notes required are designed to provide an explanation of events and transac-
tions that are significant to an understanding of the changes in financial position and perfor-
mance of the entity since the last annual reporting date. IAS 34 states a presumption that
anyone who reads an entity's interim report will also have access to its most recent annual
report. Consequently, IAS 34 avoids repeating annual disclosures in interim condensed reports.
[IAS 34.15]

Examples of specific disclosure requirements of IAS 34

Examples of events and transactions for which disclosures are required if they are significant [IAS
34.15A-15B]
o write-down of inventories
o recognition or reversal of an impairment loss
o reversal of provision for the costs of restructuring
o acquisitions and disposals of property, plant and equipment
o commitments for the purchase of property, plant and equipment
o litigation settlements
o corrections of prior period errors
o changes in business or economic circumstances affecting the fair value of financial assets and liabili-
ties
o unremedied loan defaults and breaches of loan agreements
o transfers between levels of the 'fair value hierarchy' or changes in the classification of financial assets
o changes in contingent liabilities and contingent assets.
Examples of other disclosures required [IAS 34.16A]
o changes in accounting policies
o explanation of any seasonality or cyclicality of interim operations
o unusual items affecting assets, liabilities, equity, net income or cash flows
o changes in estimates
o issues, repurchases and repayment of debt and equity securities
o dividends paid
o particular segment information (where IFRS 8 Operating Segmentsapplies to the entity)

39
 40

o events after the end of the reporting period

o changes in the composition of the entity, such as business combinations, obtaining or losing control
of subsidiaries, restructurings and discontinued operations
o disclosures about the fair value of financial instruments

Accounting policies
The same accounting policies should be applied for interim reporting as are applied in the
entity's annual financial statements, except for accounting policy changes made after the date of
the most recent annual financial statements that are to be reflected in the next annual financial
statements. [IAS 34.28]
A key provision of IAS 34 is that an entity should use the same accounting policy throughout a
single financial year. If a decision is made to change a policy mid-year, the change is imple-
mented retrospectively, and previously reported interim data is restated. [IAS 34.43]

Measurement
Measurements for interim reporting purposes should be made on a year-to-date basis, so that
the frequency of the entity's reporting does not affect the measurement of its annual results.
[IAS 34.28]
Several important measurement points:
o Revenues that are received seasonally, cyclically or occasionally within a financial year
should not be anticipated or deferred as of the interim date, if anticipation or deferral would
not be appropriate at the end of the financial year. [IAS 34.37]
o Costs that are incurred unevenly during a financial year should be anticipated or deferred
for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that
type of cost at the end of the financial year. [IAS 34.39]
o Income tax expense should be recognised based on the best estimate of the weighted
average annual effective income tax rate expected for the full financial year. [IAS 34
Appendix B12]
An appendix to IAS 34 provides guidance for applying the basic recognition and measurement
principles at interim dates to various types of asset, liability, income, and expense.

Materiality
In deciding how to recognise, measure, classify, or disclose an item for interim financial
reporting purposes, materiality is to be assessed in relation to the interim period financial data,
not forecast annual data. [IAS 34.23]

Disclosure in annual financial statements

If an estimate of an amount reported in an interim period is changed significantly during the
financial interim period in the financial year but a separate financial report is not published for
that period, the nature and amount of that change must be disclosed in the notes to the annual
financial statements. [IAS 34.26]

40
 41

IAS 8 — Accounting Policies, Changes in Accounting Estimates and

Errors
Quick Article Links

Overview
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting
and applying accounting policies, accounting for changes in estimates and reflecting corrections
of prior period errors.
The standard requires compliance with any specific IFRS applying to a transaction, event or
condition, and provides guidance on developing accounting policies for other items that result in
relevant and reliable information. Changes in accounting policies and corrections of errors are
generally retrospectively accounted for, whereas changes in accounting estimates are generally
accounted for on a prospective basis.
IAS 8 was reissued in December 2005 and applies to annual periods beginning on or after 1
January 2005.

History of IAS 8

October 1976 Exposure Draft E8 The Treatment in the Income Statement of Unusual Items and
Changes in Accounting Estimates and Accounting Policies

February 1978 IAS 8 Unusual and Prior Period Items and Changes in Accounting Policies

July 1992 Exposure Draft E46 Extraordinary Items, Fundamental Errors and Changes in
Accounting Policies

December 1993 IAS 8 (1993) Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies(revised as part of the 'Comparability of Financial
Statements' project)

1 January 1995 Effective date of IAS 8 (1993)

18 December 2003 Revised version of IAS 8 issued by the IASB

1 January 2005 Effective date of IAS 8 (2003)

31 October 2018 Amended by Definition of Material (Amendments to IAS 1 and IAS 8)

1 January 2020 Effective date of October 2018 amendments

Related Interpretations

o IAS 8(2003) supersedes SIC-2 Consistency - Capitalisation of Borrowing Costs

o IAS 8(2003) supersedes SIC-18 Consistency - Alternative Methods.

Amendments under consideration by the IASB

41
 42

o IAS 8 — Accounting policy changes

o Disclosure initiative – Principles of disclosure
o Disclosure initiative — Changes in accounting policies and estimates

Summary of IAS 8

Key definitions [IAS 8.5]

o Accounting policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements.
o A change in accounting estimate is an adjustment of the carrying amount of an asset or
liability, or related expense, resulting from reassessing the expected future benefits and
obligations associated with that asset or liability.
o International Financial Reporting Standards are standards and interpretations adopted
by the International Accounting Standards Board (IASB). They comprise:
o International Financial Reporting Standards (IFRSs)
o International Accounting Standards (IASs)
o Interpretations developed by the International Financial Reporting Interpretations
Committee (IFRIC) or the former Standing Interpretations Committee (SIC) and
approved by the IASB.
o Materiality. Information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose financial state-
ments make on the basis of those financial statements, which provide financial information
about a specific reporting entity.*
o Prior period errors are omissions from, and misstatements in, an entity's financial state-
ments for one or more prior periods arising from a failure to use, or misuse of, reliable infor-
mation that was available and could reasonably be expected to have been obtained and
taken into account in preparing those statements. Such errors result from mathematical
mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts,
and fraud.
* Clarified by Definition of Material (Amendments to IAS 1 and IAS 8), effective 1 January 2020.

Selection and application of accounting policies

When a Standard or an Interpretation specifically applies to a transaction, other event or
condition, the accounting policy or policies applied to that item must be determined by applying
the Standard or Interpretation and considering any relevant Implementation Guidance issued by
the IASB for the Standard or Interpretation. [IAS 8.7]
In the absence of a Standard or an Interpretation that specifically applies to a transaction, other
event or condition, management must use its judgement in developing and applying an
accounting policy that results in information that is relevant and reliable. [IAS 8.10]. In making

42
 43

that judgement, management must refer to, and consider the applicability of, the following
sources in descending order:
o the requirements and guidance in IASB standards and interpretations dealing with similar
and related issues; and
o the definitions, recognition criteria and measurement concepts for assets, liabilities, income
and expenses in the Framework. [IAS 8.11]
Management may also consider the most recent pronouncements of other standard-setting
bodies that use a similar conceptual framework to develop accounting standards, other
accounting literature and accepted industry practices, to the extent that these do not conflict
with the sources in paragraph 11. [IAS 8.12]

Consistency of accounting policies

An entity shall select and apply its accounting policies consistently for similar transactions, other
events and conditions, unless a Standard or an Interpretation specifically requires or permits
categorisation of items for which different policies may be appropriate. If a Standard or an Inter-
pretation requires or permits such categorisation, an appropriate accounting policy shall be
selected and applied consistently to each category. [IAS 8.13]

Changes in accounting policies

An entity is permitted to change an accounting policy only if the change:
o is required by a standard or interpretation; or
o results in the financial statements providing reliable and more relevant information about the
effects of transactions, other events or conditions on the entity's financial position, financial
performance, or cash flows. [IAS 8.14]
Note that changes in accounting policies do not include applying an accounting policy to a kind
of transaction or event that did not occur previously or were immaterial. [IAS 8.16]
If a change in accounting policy is required by a new IASB standard or interpretation, the
change is accounted for as required by that new pronouncement or, if the new pronouncement
does not include specific transition provisions, then the change in accounting policy is applied
retrospectively. [IAS 8.19]
Retrospective application means adjusting the opening balance of each affected component of
equity for the earliest prior period presented and the other comparative amounts disclosed for
each prior period presented as if the new accounting policy had always been applied. [IAS 8.22]
o However, if it is impracticable to determine either the period-specific effects or the cumula-
tive effect of the change for one or more prior periods presented, the entity shall apply the
new accounting policy to the carrying amounts of assets and liabilities as at the beginning of
the earliest period for which retrospective application is practicable, which may be the
current period, and shall make a corresponding adjustment to the opening balance of each
affected component of equity for that period. [IAS 8.24]
o Also, if it is impracticable to determine the cumulative effect, at the beginning of the current
period, of applying a new accounting policy to all prior periods, the entity shall adjust the

43
 44

comparative information to apply the new accounting policy prospectively from the earliest
date practicable. [IAS 8.25]

Disclosures relating to changes in accounting policies

Disclosures relating to changes in accounting policy caused by a new standard or interpretation
include: [IAS 8.28]
o the title of the standard or interpretation causing the change
o the nature of the change in accounting policy
o a description of the transitional provisions, including those that might have an effect on
future periods
o for the current period and each prior period presented, to the extent practicable, the amount
of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
o the amount of the adjustment relating to periods before those presented, to the extent prac-
ticable
o if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
Disclosures relating to voluntary changes in accounting policy include: [IAS 8.29]
o the nature of the change in accounting policy
o the reasons why applying the new accounting policy provides reliable and more relevant in-
formation
o for the current period and each prior period presented, to the extent practicable, the amount
of the adjustment:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
o the amount of the adjustment relating to periods before those presented, to the extent prac-
ticable
o if retrospective application is impracticable, an explanation and description of how the
change in accounting policy was applied.
Financial statements of subsequent periods need not repeat these disclosures.
If an entity has not applied a new standard or interpretation that has been issued but is not yet
effective, the entity must disclose that fact and any and known or reasonably estimable informa-
tion relevant to assessing the possible impact that the new pronouncement will have in the year
it is applied. [IAS 8.30]

44
 45

Changes in accounting estimates

The effect of a change in an accounting estimate shall be recognised prospectively by including
it in profit or loss in: [IAS 8.36]
o the period of the change, if the change affects that period only, or
o the period of the change and future periods, if the change affects both.
However, to the extent that a change in an accounting estimate gives rise to changes in assets
and liabilities, or relates to an item of equity, it is recognised by adjusting the carrying amount of
the related asset, liability, or equity item in the period of the change. [IAS 8.37]

Disclosures relating to changes in accounting estimates

Disclose:
o the nature and amount of a change in an accounting estimate that has an effect in the
current period or is expected to have an effect in future periods
o if the amount of the effect in future periods is not disclosed because estimating it is impracti-
cable, an entity shall disclose that fact. [IAS 8.39-40]

Errors
The general principle in IAS 8 is that an entity must correct all material prior period errors retro-
spectively in the first set of financial statements authorised for issue after their discovery by:
[IAS 8.42]
o restating the comparative amounts for the prior period(s) presented in which the error
occurred; or
o if the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and equity for the earliest prior period presented.
However, if it is impracticable to determine the period-specific effects of an error on comparative
information for one or more prior periods presented, the entity must restate the opening
balances of assets, liabilities, and equity for the earliest period for which retrospective restate-
ment is practicable (which may be the current period). [IAS 8.44]
Further, if it is impracticable to determine the cumulative effect, at the beginning of the current
period, of an error on all prior periods, the entity must restate the comparative information to
correct the error prospectively from the earliest date practicable. [IAS 8.45]

Disclosures relating to prior period errors

Disclosures relating to prior period errors include: [IAS 8.49]
o the nature of the prior period error
o for each prior period presented, to the extent practicable, the amount of the correction:
o for each financial statement line item affected, and
o for basic and diluted earnings per share (only if the entity is applying IAS 33)
o the amount of the correction at the beginning of the earliest prior period presented

45
 46

o if retrospective restatement is impracticable, an explanation and description of how the error

has been corrected.
Financial statements of subsequent periods need not repeat these disclosures.

IAS 10 — Events After the Reporting Period

Quick Article Links

Overview

IAS 10 Events After The Reporting Period contains requirements for when events after the end of the
reporting period should be adjusted in the financial statements. Adjusting events are those providing
evidence of conditions existing at the end of the reporting period, whereas non-adjusting events are in-
dicative of conditions arising after the reporting period (the latter being disclosed where material).
IAS 10 was reissued in December 2003 and applies to annual periods beginning on or after 1 January
2005.

History of IAS 10

July 1977 Exposure Draft E10 Contingencies and Events Occurring After the Balance Sheet
Date

October 1978 IAS 10 Contingencies and Events Occurring After the Balance Sheet
Date effective 1 January 1980

1994 IAS 10 (1978) was reformatted

August 1997 Exposure Draft E59 Provisions, Contingent Liabilities and Contingent Assets

September 1998 IAS 37 Provisions, Contingent Liabilities and Contingent Assets

1 July 1999 Effective date of IAS 37, which superseded those portions of IAS 10 (1978)
dealing with contingencies

November 1998 Exposure Draft E63 Events After the Balance Sheet Date

May 1999 IAS 10 (1999) Events After the Balance Sheet Datesuperseded those portions of
IAS 10 (1978) dealing with events after the balance sheet date

1 January 2000 Effective date of IAS 10 (1999)

18 December 2003 Revised version of IAS 10 issued by the IASB

1 January 2005 Effective date of IAS 10 (Revised 2003)

46
 47

6 September 2007 Retitled Events after the Reporting Period as a consequential amendment
resulting from revisions to IAS 1

Related Interpretations

o None

Summary of IAS 10

Key definitions
Event after the reporting period: An event, which could be favourable or unfavourable, that occurs
between the end of the reporting period and the date that the financial statements are authorised for issue.
[IAS 10.3]
Adjusting event: An event after the reporting period that provides further evidence of conditions that
existed at the end of the reporting period, including an event that indicates that the going concern assump-
tion in relation to the whole or part of the enterprise is not appropriate. [IAS 10.3]
Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after
the end of the reporting period. [IAS 10.3]

Accounting
o Adjust financial statements for adjusting events - events after the balance sheet date that provide
further evidence of conditions that existed at the end of the reporting period, including events that
indicate that the going concern assumption in relation to the whole or part of the enterprise is not ap-
propriate. [IAS 10.8]
o Do not adjust for non-adjusting events - events or conditions that arose after the end of the reporting
period. [IAS 10.10]
o If an entity declares dividends after the reporting period, the entity shall not recognise those
dividends as a liability at the end of the reporting period. That is a non-adjusting event. [IAS 10.12]

Going concern issues arising after end of the reporting period

An entity shall not prepare its financial statements on a going concern basis if management determines
after the end of the reporting period either that it intends to liquidate the entity or to cease trading, or that
it has no realistic alternative but to do so. [IAS 10.14]

Disclosure
Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect
the ability of users to make proper evaluations and decisions. The required disclosure is (a) the nature of

47
 48

the event and (b) an estimate of its financial effect or a statement that a reasonable estimate of the effect
cannot be made. [IAS 10.21]
A company should update disclosures that relate to conditions that existed at the end of the reporting
period to reflect any new information that it receives after the reporting period about those conditions.
[IAS 10.19]
Companies must disclose the date when the financial statements were authorised for issue and who gave
that authorisation. If the enterprise's owners or others have the power to amend the financial statements
after issuance, the enterprise must disclose that fact. [IAS 10.17]

Quick links

 Deloitte e-learning on IAS 10

 IAS 10 — Items not added to the agenda

Related news

 ESMA issues statement disclosures related to sovereign debt

29 Jul 2011
 IASB issues improvements to 20 IFRSs
22 May 2008
 IASB publishes 13 revised IAS
19 Dec 2003
 IASB publishes 'Improvements' exposure draft
15 May 2002
 All Related

Related Publications


 Deloitte e-learning — IAS 10
23 Jun 2010


 IAS Plus newsletter — Improvements to IFRSs 2008
26 May 2008
 All Related

Related Projects

48
 49

 Annual improvements — 2006-2008 cycle

 IAS 27 — Non-cash distributions
 Improvements to existing International Accounting Standards (2001-2003)

49