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IAS 1 PRESENTATION OF FINANCIAL STATEMENTS HISTORY OF IAS 1 March 1974 January 1975 June 1975 October 1976 July

1978 November 1979 1994 July 1996 August 1997 1 July 1998 18 December 2003 1 January 2005 18 August 2005 16 March 2006 Exposure Draft E1 Disclosure of Accounting Policies IAS 1 Disclosure of Accounting Policies E5 Information to Be Disclosed in Financial Statements IAS 5 Information to Be Disclosed in Financial Statements E14 Current Assets and Current Liabilities IAS 13 Presentation of Current Assets and Current Liabilities IAS 1, IAS 5, and IAS 13 were reformatted E53 Presentation of Financial Statements IAS 1 (1997) Presentation of Financial Statements superseded IAS 1 (1975), IAS 5, and IAS 13 (1979) Effective date of IAS 1 (1997) Revised version of IAS 1 (2003) issued by the IASB Effective date of IAS 1 (2003) IAS 1 amended to add disclosures about capital Click for Summary of the Amendments. Click for IASB Press Release (PDF 57k). Exposure Draft of Proposed Amendments to IAS 1 Presentation of Financial StatementsA Revised Presentation

1 January 2007 6 September 2007 1 January 2009 22 June 2006 14 February 2008 1 January 2009 22 May 2008 1 January 2009 16 April 2009 1 January 2010 6 May 2010 27 May 2010 1 January 2011

Effective date of August 2005 amendments to IAS 1 Revised IAS 1 (2007) issued IAS 1 (2007) is effective for annual periods beginning on or after 1 January 2009 Exposure Draft of proposed amendments to IAS 32 relating to Puttable Instruments and Obligations Arising on Liquidation would add new disclosure requirements to IAS 1 IAS 1 amended to add New Disclosure Requirements for puttable instruments and obligations arising on liquidation Effective date of February 2008 amendments for puttable instruments and obligations arising on liquidation IAS 1 amended for Annual Improvements to IFRSs 2007 in regards to classification of derivatives as current or non-current Effective date of May 2008 amendment to IAS 1 IAS 1 amended for Annual Improvements to IFRSs 2009 about classification of liabilities as current Effective date of the April 2009 revisions to IAS 1 IAS 1 amended for Annual Improvements to IFRSs 2010 Exposure Draft of proposed amendments to IAS 1 relating to Presenting Comprehensive Income Effective date of May 2010 amendment to IAS 1

16 June 2011 1 July 2012

Amendments to IAS 1 issued. Click for More Information Effective date of June 2011 amendments to IAS 1 RELATED INTERPRETATIONS

IAS 1 (2003) supersedes SIC 18 Consistency Alternative Methods IFRIC 17 Distributions of Non-cash Assets to Owners SIC 27 Evaluating the Substance of Transactions in the Legal Form of a Lease SIC 29 Disclosure - Service Concession Arrangements Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda

AMENDMENTS UNDER CONSIDERATION BY IASB

Financial Statement Presentation (Phase 2) 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 requirements 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 Applies to all general purpose financial statements based on International Financial Reporting Standards. [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] 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]

assets liabilities equity income and expenses, including gains and losses contributions by and distributions to owners 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 should include: [IAS 1.10]

a statement of financial position (balance sheet) at the end of the period a statement of comprehensive income for the period (or an income statement and a statement of comprehensive income) a statement of changes in equity for the period a statement of cash flows for the period notes, comprising a summary of accounting policies and other explanatory notes

When an entity applies an accounting policy retrospectively or makes a retrospective restatement 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.

An entity may use titles for the statements other than those stated above. 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 IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation. [IAS 1.15] IAS 1 requires that an entity whose financial statements comply with IFRSs make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with IFRSs unless they comply with all the requirements of IFRSs (including 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 1.16] 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 1.19-20] Going Concern An entity preparing IFRS financial statements is presumed to be 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 requirement of a new IFRS. [IAS 1.45] Materiality and Aggregation Each material class of similar items must be presented separately in the financial statements. Dissimilar items may be aggregated only if the are individually immaterial. [IAS 1.29] Offsetting> Assets and liabilities, and income and expenses, may not be offset unless required or permitted by an IFRS. [IAS 1.32] Comparative Information IAS 1 requires that comparative information shall be disclosed in respect of the previous period for all amounts reported in the financial statements, both face of financial statements and notes, unless another Standard requires otherwise. [IAS 1.38] If comparative amounts are changed or reclassified, various disclosures are required. [IAS 1.41] Structure and Content of Financial Statements in General

Clearly identify: [IAS 1.50]


the financial statements the reporting enterprise whether the statements are for the enterprise or for a group the date or period covered the presentation currency the level of precision (thousands, millions, etc.)

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 must disclose the reason for the change and a warning about problems of comparability. [IAS 1.36] Statement of Financial Position (Balance Sheet) An entity must normally present a classified statement of financial position, separating current and noncurrent assets and liabilities. Only if a presentation based on liquidity provides information that is reliable and more relevant may the current/noncurrent split be omitted. [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 cash; cash equivalent; assets held for collection, sale, or consumption within the entity's normal operating cycle; or assets held for trading within the next 12 months. All other assets are noncurrent. [IAS 1.66] Current liabilities are those expected to be settled within the entity's normal operating cycle or due within 12 months, or those held for trading, or those for which the entity does not have an unconditional right to defer payment beyond 12 months. Other liabilities are

noncurrent. [IAS 1.69] When a long-term debt is expected to be refinanced under an existing loan facility and the entity has the discretion the debt is classified as non-current, even if 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] Minimum items on the face of the statement of financial position [IAS 1.54] (a) property, plant and equipment (b) investment property (c) intangible assets financial assets (excluding amounts shown under (e), (d) (h), and (i)) (e) investments accounted for using the equity method (f) biological assets (g) inventories (h) trade and other receivables (i) cash and cash equivalents (j) assets held for sale (k) trade and other payables (l) provisions financial liabilities (excluding amounts shown under (m) (k) and (l)) liabilities and assets for current tax, as defined in IAS (n) 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 and issued capital and reserves attributable to owners of (r) the parent Additional line items may be needed to fairly present the entity's financial position. [IAS 1.54] IAS 1 does not prescribe the format of the balance sheet. Assets can be presented current then noncurrent, or vice versa, and liabilities and equity can be presented current then noncurrent then equity, or vice versa. A net asset presentation (assets minus liabilities) is allowed. The longterm financing approach used in UK and elsewhere fixed assets + current assets - short term payables = long-term debt plus equity is also acceptable. Regarding issued share capital and reserves, the following disclosures are required: [IAS 1.79]

numbers of shares authorised, issued and fully paid, and issued but not fully paid par value reconciliation of shares outstanding at the beginning and the end of the period description of rights, preferences, and restrictions treasury shares, including shares held by subsidiaries and associates shares reserved for issuance under options and contracts a description of the nature and purpose of each reserve within equity

Statement of Comprehensive Income Comprehensive income for a period includes profit or loss for that period plus other comprehensive income recognised in that period. As a result of the 2003 revision to IAS 1, the Standard is now using 'profit or loss' rather than 'net profit or loss' as the descriptive term for the bottom line of the income statement.

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 comprehensive income. [IAS 1.89] The components of other comprehensive income include:

changes in revaluation surplus (IAS 16 and IAS 38) actuarial gains and losses on defined benefit plans recognised in accordance with IAS 19 gains and losses arising from translating the financial statements of a foreign operation (IAS 21) gains and losses on remeasuring available-for-sale financial assets (IAS 39) the effective portion of gains and losses on hedging instruments in a cash flow hedge (IAS 39).

An entity has a choice of presenting:


a single statement of comprehensive income or two statements: o an income statement displaying components of profit or loss and o a statement of comprehensive income that begins with profit or loss (bottom line of the income statement) and displays components of other comprehensive income [IAS 1.81]

Minimum items on the face of the statement of comprehensive income should include: [IAS 1.82]

revenue finance costs share of the profit or loss of associates and joint ventures accounted for using the equity method tax expense a single amount comprising the total of (i) the posttax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognised on the disposal

of the assets or disposal group(s) constituting the discontinued operation profit or loss each component of other comprehensive income classified by nature share of the other comprehensive income of associates and joint ventures accounted for using the equity method total comprehensive income

The following items must also be disclosed in the statement of comprehensive income as allocations for the period: [IAS 1.83]

profit or loss for the period attributable to noncontrolling interests and owners of the parent total comprehensive income attributable to noncontrolling interests and owners of the parent

Additional line items may be needed to fairly present the entity's results of operations. [IAS 1.85] No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as 'extraordinary items'. [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]

write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as reversals of such write-downs restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring disposals of items of property, plant and equipment disposals of investments discontinuing operations litigation settlements other reversals of provisions

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] Statement of Cash Flows Rather than setting out separate standards for presenting the cash flow statement, IAS 1.111 refers to IAS 7 Statement of Cash Flows Statement of Changes in Equity IAS 1 requires an entity to present a statement of changes in equity as a separate component of the financial statements. The statement must show: [IAS 1.106]

total comprehensive income for the period, showing separately amounts attributable to owners of the parent and to non-controlling interests the effects of retrospective application, when applicable, for each component 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 o each item of 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

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]

amount of dividends recognised as distributions, and the related amount per share

Notes to the Financial Statements

The notes must: [IAS 1.112]

present information about the basis of preparation of the financial statements and the specific accounting policies used disclose any information required by IFRSs that is not presented elsewhere in the financial statements and provide additional information that is not presented elsewhere in the financial statements but is relevant to an understanding of any of them

Notes should be 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:

a statement of compliance with IFRSs 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 supporting information for items presented on the face of the statement of financial position (balance sheet), statement of comprehensive income (and income statement, if presented), statement of changes in equity and statement of cash flows, in the order in which each statement and each line item is presented 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)

Disclosure of judgements. New in the 2003 revision to IAS 1, 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:

whether financial assets are held-to-maturity investments when substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and whether the substance of the relationship between the entity and a special purpose entity indicates control

Disclosure of key sources of estimation uncertainty. Also new in the 2003 revision to IAS 1, an entity must 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 disclosing budgets or forecasts. [IAS 1.130] The following other note disclosures are required by IAS 1.126 if not disclosed elsewhere in information published with the financial statements:

domicile and legal form of the entity country of incorporation address of registered office or principal place of business description of the entity's operations and principal activities if it is part of a group, the name of its parent and the ultimate parent of the group if it is a limited life entity, information regarding

the length of the life Other Disclosures Disclosures about 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] " the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to owners during the period, and the related amount per share and " the amount of any cumulative preference dividends not recognised. Capital Disclosures An entity should disclose information about its objectives, policies and processes for managing capital. [IASA 1.134] To comply with this, the disclosures include: [IAS1.135]

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 quantitative data about what the entity regards as capital changes from one period to another whether the entity has complied with any external capital requirements and if it has not complied, the consequences of such non-compliance.

Disclosures about Puttable Financial Instruments IAS 1.136A requires the following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:

summary quantitative data about the amount classified as equity 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 the expected cash outflow on redemption or repurchase of that class of financial instruments and information about how the expected cash outflow on redemption or repurchase was determined.

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 information that is relevant to an understanding of the entity's financial position." Term before 2007 revision of IAS 1 balance sheet cash flow statement Term as amended by IAS 1 (2007) statement of financial position statement of cash flows statement of comprehensive income (income statement is retained in case of a twostatement approach) recognised in profit or loss recognised in other

income statement

recognised in the income statement recognised [directly]

in equity (only for OCI components) recognised [directly] in equity (for recognition both in OCI and equity) removed from equity and recognised in profit or loss ('recycling') Standard or/and Interpretation on the face of equity holders balance sheet date reporting date after the balance sheet date

comprehensive income recognised outside profit or loss (either in OCI or equity) reclassified from equity to profit or loss as a reclassification adjustment IFRS in owners (exception for 'ordinary equity holders') end of the reporting period end of the reporting period after the reporting period

June 2011: IASB issued amendments to IAS 1 On 16 June 2011, the IASB published amendments to IAS 1 Presentation of Financial Statements. The amendments to IAS 1 retain the 'one or two statement' approach at the option of the entity and only revise the way other comprehensive income is presented: requiring separate subtotals for those elements which may be 'recycled' (e.g. cash-flow hedging, foreign currency translation), and those elements that will not (e.g. fair value through OCI items under IFRS 9). Amendments to IAS 1 Presentation of Financial Statements

Preserve the amendments made to IAS 1 in 2007 to require profit or loss and OCI to be presented together, i.e. either as a single

statement of comprehensive income, or separate income statement and a statement of comprehensive income rather than requiring a single continuous statement as was proposed in the exposure draft Require entities to group items presented in OCI based on whether they are potentially reclassifiable to profit or loss subsequently. i.e. those that might be reclassified and those that will not be reclassified Require tax associated with items presented before tax to be shown separately for each of the two groups of OCI items (without changing the option to present items of OCI either before tax or net of tax) Applicable to annual periods beginning on or after 1 July 2012, with early adoption permitted.

Click for: IASB press release on the amendments to IAS 1 (link to IASB website)

IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

HISTORY OF IFRS 7 22 July 2004 18 August 2005 1 January 2007 10 January 2008 14 February 2008 Exposure Draft ED 7 Financial Instruments: Disclosures Click for Press Release on ED (PDF 31k). IFRS 7 Financial Instruments: Disclosures issued Click for IASB Press Release (PDF 57k). Effective date of IFRS 7 IFRS 3 (2008) is issued as a consequence deleting paragraph 3(c) - scope exemption for acquirer for contracts for contingent consideration IAS 32 is amended for puttable instruments and obligations arising on liquidation, adding to IFRS 7 paragraph 3(f) scope exemption for such instruments classified as equity Consequential amendment to IFRS 7.3(a) following from Improvements amendment to IAS 27, IAS 28 and IAS 31. The requirement to present additional disclosures of IAS 27, IAS 28, and IAS 31 in the individual financial statements accounting for interests in subsidiaries, associates or joint ventures in accordance with IAS 39 has been deleted. Amendment to IFRS 7 for disclosures relating to reclassifications of financial assets Effective date of the October 2008 reclassifications amendment Exposure Draft of proposed amendments to IFRS 7 issued Amendment to IFRS 7 on enhancing disclosures about fair value and liquidity risk Click for Press Release (PDF 45k) Effective date of the: 1 January 2009

22 May 2008

13 October 2008 1 July 2008 23 December 2008 5 March 2009

March 2009 enhanced fair value disclosure amendments scope exemption for puttable instruments classified as equity exemption from presenting additional IAS 27, IAS 28 and IAS31 disclosures amendment

1 July 2009 6 May 2010 7 October 2010 1 January 2011 1 July 2011 16 December 2011 16 December 2011 1 January 2013 1 January 2015

Effective date of the January 2008 IFRS 3 consequential amendment IFRS 7 amended for Annual Improvements to IFRSs 2010 Amendment to IFRS 7 on enhancing disclosures about transfers of financial assets. Click for Press Release (PDF 36k). Effective date of May 2010 amendment to IFRS 7 Effective date of October 2010 amendment to IFRS 7 related to transfers of financial assets Amendment to IFRS 7 related to the offsetting of financial assets and financial liabilities Amendment to IFRS 7 related to disclosures on transition to IFRS 9 Effective date of December 2011 amendment to IFRS 7 related to offsetting of financial assets and financial liabilities Effective date of December 2011 amendment to IFRS 7 related to transition to IFRS 9 (or otherwise when IFRS 9 is first applied) RELATED INTERPRETATIONS

Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda AMENDMENTS UNDER CONSIDERATION BY IASB

None SUMMARY OF IFRS 7

Overview of IFRS 7

adds certain new disclosures about financial instruments to those currently required by IAS 32; replaces the disclosures previously required by IAS 30; and puts all of those financial instruments disclosures together in a new standard on Financial Instruments: Disclosures. The remaining parts

of IAS 32 deal only with financial instruments presentation matters. Disclosure Requirements of IFRS 7 IFRS requires certain disclosures to be presented by category of instrument based on the IAS 39 measurement categories. Certain other disclosures are required by class of financial instrument. For those disclosures an entity must group its financial instruments into classes of similar instruments as appropriate to the nature of the information presented. [IFRS 7.6] The two main categories of disclosures required by IFRS 7 are: 1. information about the significance of financial instruments. 2. information about the nature and extent of risks arising from financial instruments Information about the significance of financial instruments Balance Sheet

Disclose the significance of financial instruments for an entity's financial position and performance. [IFRS 7.7] This includes disclosures for each of the following categories: [IFRS 7.8] o financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition o held-to-maturity investments o loans and receivables o available-for-sale assets o financial liabilities at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition o financial liabilities measured at amortised cost Other balance sheet-related disclosures: o special disclosures about financial assets and financial liabilities designated to be measured at fair value through profit and loss, including disclosures about credit risk and market risk, changes in fair values attributable to these risks and the methods of measurement.[IFRS 7.9-11] o reclassifications of financial instruments from one category to another (e.g. from fair value to amortised cost or vice versa) [IFRS 7.12-12A] o information about financial assets pledged as collateral and about financial or non-financial assets held as collateral [IFRS 7.14-15]

o o o

reconciliation of the allowance account for credit losses (bad debts) by class of financial assets[IFRS 7.16] information about compound financial instruments with multiple embedded derivatives [IFRS 7.17] breaches of terms of loan agreements [IFRS 7.18-19]

Income Statement and Equity

Items of income, expense, gains, and losses, with separate disclosure of gains and losses from: [IFRS 7.20(a)] o financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. o held-to-maturity investments. o loans and receivables. o available-for-sale assets. o financial liabilities measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. o financial liabilities measured at amortised cost. Other income statement-related disclsures: o total interest income and total interest expense for those financial instruments that are not measured at fair value through profit and loss [IFRS 7.20(b)] o fee income and expense [IFRS 7.20(c)] o amount of impairment losses by class of financial assets [IFRS 7.20(e)] o interest income on impaired financial assets [IFRS 7.20(d)]

Other Disclosures

accounting policies for financial instruments [IFRS 7.21] information about hedge accounting, including: [IFRS 7.22] o description of each hedge, hedging instrument, and fair values of those instruments, and nature of risks being hedged o for cash flow hedges, the periods in which the cash flows are expected to occur, when they are expected to enter into the determination of profit or loss, and a description of any forecast transaction for which hedge accounting had previously been used but which is no longer expected to occur o if a gain or loss on a hedging instrument in a cash flow hedge has been recognised in other comprehensive income, an entity should disclose the following: [IAS 7.23] o the amount that was so recognised in other comprehensive income during the period

the amount that was removed from equity and included in profit or loss for the period o the amount that was removed from equity during the period and included in the initial measurement of the acquisition cost or other carrying amount of a non-financial asset or nonfinancial liability in a hedged highly probable forecast transaction for fair value hedges, information about the fair value changes of the hedging instrument and the hedged item [IFRS 7.24(a)] hedge ineffectiveness recognised in profit and loss (separately for cash flow hedges and hedges of a net investment in a foreign operation) [IFRS 7.24(b-c)] information about the fair values of each class of financial asset and financial liability, along with: [IFRS 7.25-30] o comparable carrying amounts o description of how fair value was determined o the level of inputs used in determining fair value o reconciliations of movements between levels of fair value measurement hierarchy additional disclosures for financial instruments whose fair value is determined using level 3 inputs including impacts on profit and loss, other comprehensive income and sensitivity analysis o information if fair value cannot be reliably measured
o

The fair value hierarchy introduces 3 levels of inputs based on the lowest level of input significant to the overall fair value (IFRS 7.27A-27B):

Level 1 - quoted prices for similar instruments Level 2 - directly observable market inputs other than Level 1 inputs Level 3 - inputs not based on observable market data

Note that disclosure of fair values is not required when the carrying amount is a reasonable approximation of fair value, such as short-term trade receivables and payables, or for instruments whose fair value cannot be measured reliably. [IFRS 7.29(a)] Nature and extent of exposure to risks arising from financial instruments Qualitative disclosures [IFRS 7.33]

The qualitative disclosures describe: o risk exposures for each type of financial instrument o management's objectives, policies, and processes for managing those risks

changes from the prior period

Quantitative disclosures

The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity's key management personnel. These disclosures include: [IFRS 7.34] o summary quantitative data about exposure to each risk at the reporting date o disclosures about credit risk, liquidity risk, and market risk and how these risks are managed as further described below o concentrations of risk

Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation. [IFRS 7. Appendix A] Disclosures about credit risk include: [IFRS 7.36-38] o maximum amount of exposure (before deducting the value of collateral), description of collateral, information about credit quality of financial assets that are neither past due nor impaired, and information about credit quality of financial assets whose terms have been renegotiated [IFRS 7.36] o for financial assets that are past due or impaired, analytical disclosures are required [IFRS 7.37] o information about collateral or other credit enhancements obtained or called [IFRS 7.38]

Liquidity Risk

Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities. [IFRS 7. Appendix A] Disclosures about liquidity risk include: [IFRS 7.39] o a maturity analysis of financial liabilities o description of approach to risk management

Market Risk [IFRS 7.40-42]

Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks. [IFRS 7. Appendix A] Disclosures about market risk include:

o o

a sensitivity analysis of each type of market risk to which the entity is exposed additional information if the sensitivity analysis is not representative of the entity's risk exposure (for example because exposures during the year were different to exposures at year-end). IFRS 7 provides that if an entity prepares a sensitivity analysis such as value-at-risk for management purposes that reflects interdependencies of more than one component of market risk (for instance, interest risk and foreign currency risk combined), it may disclose that analysis instead of a separate sensitivity analysis for each type of market risk

Transfers of Financial Assets [IFRS 7.42A-H] An entity shall disclose information that enables users of its financial statements: a. to understand the relationship between transferred financial assets that are not derecognised in their entirety and the associated liabilities; and b. to evaluate the nature of, and risks associated with, the entitys continuing involvement in derecognised financial assets. [IFRS 7 42B] Transferred financial assets that are not derecognised in their entirety

Required disclosures include description of the nature of the transferred assets, nature of risk and rewards as well as description of the nature and quantitative disclosure depicting relationship between transferred financial assets and the associated liabilities. [IFRS 7.42D]

Transferred financial assets that are derecognised in their entirety

Required disclosures include the carrying amount of the assets and liabilities recognised, fair value of the assets and liabilities that represent continuing involvement, maximum exposure to loss from the continuing involvement as well as maturity analysis of the undiscounted cash flows to repurchase the derecognised financial assets. [IFRS 7.42E] Additional disclosures are required for any gain or loss recognised at the date of transfer of the assets, income or expenses recognise from the entitys continuing involvement in the derecognised financial assets as well as details of uneven distribution of proceed from

transfer activity throughout the reporting period. [IFRS 7.42G] Application Guidance An appendix of mandatory application guidance (Appendix B) is part of the standard. There is also an appendix of non-mandatory implementation guidance (Appendix C) that describes how an entity might provide the disclosures required by IFRS 7. AS 32 FINANCIAL INSTRUMENTS: PRESENTATION HISTORY OF IAS 32 September 1991 January 1994 June 1995 1 January 1996 December 1998 17 December 2003 1 January 2005 18 August 2005 22 June 2006 14 February 2008 Exposure Draft E40 Financial Instruments E40 was modified and re-exposed as Exposure Draft E48, Financial Instruments The disclosure and presentation portion of E48 was adopted as IAS 32 Financial Instruments: Disclosure and Presentation Effective date of IAS 32 (1995) IAS 32 was revised by IAS 39, effective 1 January 2001

Revised version of IAS 32 issued by the IASB

Effective date of IAS 32 (2003) Disclosure provisions of IAS 32 are replaced by IFRS 7 Financial Instruments: Disclosures effective 1 January 2007 Title of IAS 32 changed to Financial Instruments: Presentation Exposure Draft of proposed amendments relating to Puttable Instruments and Obligaitons Arising on Liquidation IAS 32 amended for Puttable Instruments and Obligations Arising on Liquidation

1 January 2009 6 August 2009 8 October 2009 1 February 2010 16 December 2011 1 January 2014

Effective date of amendments for puttable instruments and obligations arising on liquidation Exposure Draft Classification of Rights Issues proposing to amend IAS 32 Amendment to IAS 32 about Classification of Rights Issues Effective date of the October 2009 amendment Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) issued Effective date of the December 2011 amendment RELATED INTERPRETATIONS

IAS 32 (2003) superseded SIC 5 Classification of Financial Instruments - Contingent Settlement Provisions IAS 32 (2003) superseded SIC 16 Share Capital - Reacquired Own Equity Instruments (Treasury Shares) IAS 32 (2003) superseded SIC 17 Equity - Costs of an Equity Transaction IFRIC 2 Members' Shares in Co-operative Entities and Similar Instruments Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda AMENDMENTS UNDER CONSIDERATION BY THE IASB

Financial Instruments with Characteristics of Equity (Liabilities and Equity) SUMMARY OF IAS 32

Objective of IAS 32 The stated objective of IAS 32 is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and liabilities. [IAS 32.1] IAS 32 addresses this in a number of ways:

clarifying the classification of a financial instrument issued by an entity as a liability or as equity prescribing the accounting for treasury shares (an entity's own repurchased shares) prescribing strict conditions under which assets and liabilities may be offset in the balance sheet

IAS 32 is a companion to IAS 39 Financial Instruments: Recognition and Measurement. IAS 39 deals with, among other things, initial recognition of financial assets and liabilities, measurement subsequent to initial recognition, impairment, derecognition, and hedge accounting. Scope IAS 32 applies in presenting and disclosing information about all types of financial instruments with the following exceptions: [IAS 32.4]

interests in subsidiaries, associates and joint ventures that are accounted for under IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates or IAS 31 Interests in Joint Ventures. However, IAS 32 applies to all derivatives on interests in subsidiaries, associates, or joint ventures. employers' rights and obligations under employee benefit plans (see IAS 19) insurance contracts(see IFRS 4). However, IAS 32 applies to derivatives that are embedded in insurance contracts if they are required to be accounted separately by IAS 39 financial instruments that are within the scope of IFRS 4 because they contain a discretionary participation feature are only exempt from applying paragraphs 15-32 and AG25-35 (analysing debt and equity components) but are subject to all other IAS 32 requirements contracts and obligations under share-based payment transactions (see IFRS 2) with the following exceptions: o this standard applies to contracts within the scope of IAs 32.810 (see below) o paragraphs 33-34 apply when accounting for treasury shares purchased, sold, issued or cancelled by employee share option plans or similar arrangements

IAS 32 applies to those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, except for contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity's expected

purchase, sale or usage requirements. [IAS 32.8] Key Definitions [IAS 32.11] Financial instrument: a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial asset: any asset that is:

cash an equity instrument of another entity a contractual right o to receive cash or another financial asset from another entity; or o to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or a contract that will or may be settled in the entity's own equity instruments and is: o a non-derivative for which the entity is or may be obliged to receive a variable number of the entity's own equity instruments o a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. For this purpose the entity's own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments o puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

Financial liability: any liability that is:

a contractual obligation: o to deliver cash or another financial asset to another entity; or o to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or a contract that will or may be settled in the entity's own equity instruments and is o a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity's own equity instruments or

a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments. For this purpose the entity's own equity instruments do not include: instruments that are themselves contracts for the future receipt or delivery of the entity's own equity instruments; puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

Equity instrument: Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Fair value: the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The definition of financial instrument used in IAS 32 is the same as that in IAS 39. Puttable instrument: a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset or is automatically put back to the issuer on occurrence of an uncertain future event or the death or retirement of the instrument holder. Classification as Liability or Equity The fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial liability or an equity instrument according to the substance of the contract, not its legal form, and the definitions of financial liability and equity instrument. Two exceptions from this principle are certain puttable instruments meeting specific criteria and certain obligations arising on liquidation (see below). The entity must make the decision at the time the instrument is initially recognised. The classification is not subsequently changed based on changed circumstances. [IAS 32.15] A financial instrument is an equity instrument only if (a) the instrument includes no contractual obligation to deliver cash or another financial asset to another entity and (b) if the instrument will or may be settled in the issuer's own equity instruments, it is either:

a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its

own equity instruments. [IAS 32.16] Illustration preference shares If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a future date, the substance is that they are a contractual obligation to deliver cash and, therefore, should be recognised as a liability. [IAS 32.18(a)] In contrast, preference shares that do not have a fixed maturity, and where the issuer does not have a contractual obligation to make any payment are equity. In this example even though both instruments are legally termed preference shares they have different contractual terms and one is a financial liability while the other is equity. Illustration issuance of fixed monetary amount of equity instruments A contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity's own equity instruments to be received or delivered equals the fixed monetary amount of the contractual right or obligation is a financial liability. [IAS 32.20] Illustration - one party has a choice over how an instrument is settled When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument. [IAS 32.26] Contingent settlement provisions If, as a result of contingent settlement provisions, the issuer does not have an unconditional right to avoid settlement by delivery of cash or other financial instrument (or otherwise to settle in a way that it would be a financial liability) the instrument is a financial liability of the issuer, unless:

the contingent settlement provision is not genuine or the issuer can only be required to settle the obligation in the event of the issuer's liquidation or the instrument has all the features and meets the conditions of IAS 32.16A and 16B for puttable instruments [IAS 32.25]

Puttable instruments and obligations arising on liquidation

In February 2008, the IASB amended IAS 32 and IAS 1 Presentation of Financial Statements with respect to the balance sheet classification of puttable financial instruments and obligations arising only on liquidation. As a result of the amendments, some financial instruments that currently meet the definition of a financial liability will be classified as equity because they represent the residual interest in the net assets of the entity. [IAS 32.16A-D] Classifications of rights issues In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues. For rights issues offered for a fixed amount of foreign currency current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to an entity's all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. Compound Financial Instruments Some financial instruments - sometimes called compound instruments - have both a liability and an equity component from the issuer's perspective. In that case, IAS 32 requires that the component parts be accounted for and presented separately according to their substance based on the definitions of liability and equity. The split is made at issuance and not revised for subsequent changes in market interest rates, share prices, or other event that changes the likelihood that the conversion option will be exercised. [IAS 32.29-30] To illustrate, a convertible bond contains two components. One is a financial liability, namely the issuer's contractual obligation to pay cash, and the other is an equity instrument, namely the holder's option to convert into common shares. Another example is debt issued with detachable share purchase warrants. When the initial carrying amount of a compound financial instrument is required to be allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. [IAS 32.32] Interest, dividends, gains, and losses relating to an instrument classified as a liability should be reported in profit or loss. This means that dividend payments on preferred shares classified as liabilities are treated as expenses. On the other hand, distributions (such as dividends) to holders of a financial

instrument classified as equity should be charged directly against equity, not against earnings. [IAS 32.35] Transaction costs of an equity transaction are deducted from equity. Transaction costs related to an issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds. Treasury Shares The cost of an entity's own equity instruments that it has reacquired ('treasury shares') is deducted from equity. Gain or loss is not recognised on the purchase, sale, issue, or cancellation of treasury shares. Treasury shares may be acquired and held by the entity or by other members of the consolidated group. Consideration paid or received is recognised directly in equity. [IAS 32.33] Offsetting IAS 32 also prescribes rules for the offsetting of financial assets and financial liabilities. It specifies that a financial asset and a financial liability should be offset and the net amount reported when, and only when, an entity: [IAS 32.42]

has a legally enforceable right to set off the amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. [IAS 32.48]

Costs of Issuing or Reacquiring Equity Instruments Costs of issuing or reacquiring equity instruments (other than in a business combination) are accounted for as a deduction from equity, net of any related income tax benefit. [IAS 32.35] Disclosures Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures, and no longer in IAS 32. The disclosures relating to treasury shares are in IAS 1 Presentation of Financial Statements and IAS 24 Related Parties for share repurchases from related parties. [IAS 32.34 and 39]

IAS 37 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS HISTORY OF IAS 37 August 1997 September 1998 1 July 1999 30 June 2005 Exposure Draft E59 Provisions, Contingent Liabilities and Contingent Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets Effective date of IAS 37 (1998) Exposure Draft of substantial revisions to IAS 37 RELATED INTERPRETATIONS

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Funds IFRIC 6 Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic Equipment IFRIC 17 Distributions of Non-cash Assets to Owners Issues Relating to This Standard that IFRIC Did Not

Add to Its Agenda AMENDMENTS UNDER CONSIDERATION BY IASB

Liabilities SUMMARY OF IAS 37

Objective The objective of IAS 37 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. The key principle established by the Standard is that a provision should be recognised only when there is a liability i.e. a present obligation resulting from past events. The Standard thus aims to ensure that only genuine obligations are dealt with in the financial statements - planned future expenditure, even where authorised by the board of directors or equivalent governing body, is excluded from recognition. Scope IAS 37 excludes obligations and contingencies arising from: [IAS 37.1]

financial instruments that are in the scope of IAS 39 non-onerous executory contracts insurance company policy liabilities (but IAS 37 does apply to non-policy-related liabilities of an insurance company) items covered by another IAS. For example, IAS 11, Construction Contracts, applies to obligations arising under such contracts; IAS 12, Income Taxes, applies to obligations for current or deferred income taxes; IAS 17, Leases, applies to lease obligations; and IAS 19, Employee Benefits, applies to pension and other employee benefit obligations.

Key Definitions [IAS 37.10] Provision: a liability of uncertain timing or amount. Liability:

present obligation as a result of past events settlement is expected to result in an outflow of resources (payment)

Contingent liability:

a possible obligation depending on whether some uncertain future event occurs, or a present obligation but payment is not probable or the amount cannot be measured reliably

Contingent asset:

a possible asset that arises from past events, and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Recognition of a Provision An entity must recognise a provision if, and only if: [IAS 37.14]

a present obligation (legal or constructive) has arisen as a result of a past event (the obligating event), payment is probable ('more likely than not'), and the amount can be estimated reliably.

An obligating event is an event that creates a legal or constructive obligation and, therefore, results in an entity having no realistic alternative but to settle the obligation. [IAS 37.10] A constructive obligation arises if past practice creates a valid expectation on the part of a third party, for example, a retail store that has a long-standing policy of allowing

customers to return merchandise within, say, a 30-day period. [IAS 37.10] A possible obligation (a contingent liability) is disclosed but not accrued. However, disclosure is not required if payment is remote. [IAS 37.86] In rare cases, for example in a lawsuit, it may not be clear whether an entity has a present obligation. In those cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the balance sheet date. A provision should be recognised for that present obligation if the other recognition criteria described above are met. If it is more likely than not that no present obligation exists, the entity should disclose a contingent liability, unless the possibility of an outflow of resources is remote. [IAS 37.15] Measurement of Provisions The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date, that is, the amount that an entity would rationally pay to settle the obligation at the balance sheet date or to transfer it to a third party. [IAS 37.36] This means:

Provisions for one-off events (restructuring, environmental clean-up, settlement of a lawsuit) are measured at the most likely amount. [IAS 37.40] Provisions for large populations of events (warranties, customer refunds) are measured at a probability-weighted expected value. [IAS 37.39] Both measurements are at discounted present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the liability. [IAS 37.45 and 37.47]

In reaching its best estimate, the entity should take into account the risks and uncertainties that surround the

underlying events. [IAS 37.42] If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised as a separate asset, and not as a reduction of the required provision, when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The amount recognised should not exceed the amount of the provision. [IAS 37.53] In measuring a provision consider future events as follows:

forecast reasonable changes in applying existing technology [IAS 37.49] ignore possible gains on sale of assets [IAS 37.51] consider changes in legislation only if virtually certain to be enacted [IAS 37.50]

Remeasurement of Provisions [IAS 37.59]


Review and adjust provisions at each balance sheet date If outflow no longer probable, reverse the provision to income.

Some Examples of Provisions Circumstance Restructuring by sale of an operation Accrue a Provision? Accrue a provision only after a binding sale agreement [IAS 37.78] Accrue a provision only after a detailed formal plan is adopted and announced publicly. A Board decision is not enough [Appendix C, Examples 5A & 5B] Accrue a provision (past event

Restructuring by closure or reorganisation

Warranty

was the sale of defective goods) [Appendix C, Example 1] Accrue a provision if the company's policy is to clean up even if there is no legal requirement to do so (past event is the obligation and public expectation created by the company's policy) [Appendix C, Examples 2B] Accrue if the established policy is to give refunds (past event is the customer's expectation, at time of purchase, that a refund would be available) [Appendix C, Example 4] Accrue a provision when installed, and add to the cost of the asset [Appendix C, Example 2] Accrue a provision [Appendix C, Example 8] No provision (there is no obligation to provide the training) [Appendix C, Example 7] No provision (no obligation) [Appendix C, Example 11] Accrue a provision [IAS 37.66]

Land contamination

Customer refunds

Offshore oil rig must be removed and sea bed restored Abandoned leasehold, four years to run CPA firm must staff training for recent changes in tax law Major overhaul or repairs Onerous (lossmaking) contract Restructurings

A restructuring is: [IAS 37.70]


sale or termination of a line of business closure of business locations

changes in management structure fundamental reorganisation of company

Restructuring provisions should be accrued as follows: [IAS 37.72]

Sale of operation: accrue provision only after a binding sale agreement [IAS 37.78] If the binding sale agreement is after balance sheet date, disclose but do not accrue Closure or reorganisation: accrue only after a detailed formal plan is adopted and announced publicly. A board decision is not enough. Future operating losses: provisions should not be recognised for future operating losses, even in a restructuring Restructuring provision on acquisition: accrue provision only if there is an obligation at acquisition date [IFRS 3.43 or IFRS3 R.11]

Restructuring provisions should include only direct expenditures caused by the restructuring, not costs that associated with the ongoing activities of the entity. [IAS 37.80] What Is the Debit Entry? When a provision (liability) is recognised, the debit entry for a provision is not always an expense. Sometimes the provision may form part of the cost of the asset. Examples: obligation for environmental cleanup when a new mine is opened or an offshore oil rig is installed. [IAS 37.8] Use of Provisions Provisions should only be used for the purpose for which they were originally recognised. They should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources will be required to settle the obligation, the provision should be reversed. [IAS 37.61] Contingent Liabilities Since there is common ground as regards liabilities that

are uncertain, IAS 37 also deals with contingencies. It requires that entities should not recognise contingent liabilities - but should disclose them, unless the possibility of an outflow of economic resources is remote. [IAS 37.86] Contingent Assets Contingent assets should not be recognised - but should be disclosed where an inflow of economic benefits is probable. When the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. [IAS 37.31-35] Disclosures Reconciliation for each class of provision: [IAS 37.84]

opening balance additions used (amounts charged against the provision) released (reversed) unwinding of the discount closing balance

A prior year reconciliation is not required. [IAS 37.84] For each class of provision, a brief description of: [IAS 37.85]

nature timing uncertainties assumptions reimbursement, if any

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