Financial Statements Presentation

1
2011 IFRS Foundation

1
The IFRS for SMEs

Topic 1.5
Sections 38, 10, 30, 32 and 33
Financial Statement Presentation
2
2

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The accounting requirements applicable to small and medium-sized entities
(SMEs) are set out in the International Financial Reporting Standard (IFRS)
for SMEs, which was issued by the IASB in July 2009.
The IFRS Foundation, the authors, the presenters and the publishers do not
accept responsibility for loss caused to any person who acts or refrains
from acting in reliance on the material in this PowerPoint presentation,
whether such loss is caused by negligence or otherwise.
3
3
Overview of financial statement presentation
Section 3 specifies general requirements
for financial statement presentation
Sections 48 cover the presentation of
each component of financial statements
Section 10 covers accounting policies,
estimates and errors
Section 30 covers foreign currency
translation
4
4
Overview of financial statement presentation
Section 32 covers events after the end of
the reporting period
Section 33 covers related party
disclosures
the main principles in these sections are
generally the same as full IFRSs

5
5 Illustrative financial statements
Accompanies the IFRS for SMEs issued by
IASB
a fictional candle manufacturer group
see http://www.ifrs.org/IFRS+for+SMEs/IFRS+for+SMEs+and+related+material.htm
available in Armenian, English, Chinese,
Czech, French, Italian, Portuguese (Brazil),
Romanian, and Spanish
Issued by PwC (not reviewed by IASB/IFRS
Foundation)
a fictional first-time adopterfruit grower, wine
and fruit producer, wholesale and retail group
see http://www.pwc.com/gx/en/ifrs-reporting/ifrs-illustrative-financial-
statements-smes-pwc-publications.jhtml
6
6 Disclosure checklist
Accompanies the IFRS for SMEs issued
by IASB
see
http://www.ifrs.org/IFRS+for+SMEs/IFRS+for+SMEs+
and+related+material.htm
available in Armenian, English, Chinese,
Czech, French, Italian, Portuguese
(Brazil), Romanian, and Spanish

7
7
The IFRS for SMEs

Section 3
Financial Statement Presentation

8
8 Section 3 scope
Section 3 explains
fair presentation of financial statements
what compliance with the IFRS for SMEs
requires
what is a complete set of financial
statements
9
Section 3 fair presentation
Fair presentation is 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
The application of the IFRS for SMEs
(with additional disclosure when
necessary) is presumed to result in a fair
presentation of the financial position,
financial performance & cash flows of an
entity that is not publicly accountable
9
10
Section 3 compliance
An entity whose financial statements
comply with the IFRS for SMEs must
make an explicit and unreserved
statement of such compliance in the
notes
Financial statements shall not be
described as complying with the IFRS for
SMEs unless they comply with all the
requirements of the IFRS for SMEs
10
11
Section 3 compliance statement
Ex 1*: An entity prepares its consolidated
financial statements for the year ended
31 December 20X2 in accordance with the
IFRS for SMEs.
Note 2 Basis of preparation and
accounting policies
These consolidated financial statements have
been prepared in accordance with the
International Financial Reporting Standard
(IFRS
) for Small and Medium-sized Entities

issued by the International Accounting
Standards Board.
* see example 1 in Module 3 of the IFRS Foundation training material
11
12
Section 3 compliance statement?
Can either of the following entities assert
compliance with the IFRS for SMEs?
Ex 5*: A has public accountability. It
uses the IFRS for SMEs.
Ex 6*: B does not have public
accountability. It uses local GAAP.
The local GAAP is based mainly on the
IFRS for SMEs but has some material
differences.

* see example with the same number in Module 3 of the IFRS Foundation training material
12
13
Section 3 going concern
An entity is a going concern unless
management either intends to liquidate
the entity or to cease operations, or has
no realistic alternative but to do so
When preparing financial statements, the
management of an entity must make an
assessment of the entitys ability to
continue as a going concern
13
14
Section 3 going concern disclosures
Disclose material uncertainties related to
events or conditions that cast significant
doubt upon the entitys ability to
continue as a going concern
If financial statements are not prepared
on a going concern basis disclose:
that fact
the basis of preparation
the reason why the entity is not regarded
as a going concern
14
15

Same presentation and classification each
year unless:
significant change in the nature of the
entitys operations or review of
presentation and find another presentation
or classification more appropriate (ie
reliable and more relevant), or
the IFRS for SMEs requires a change in
presentation.
If change, restate comparatives and
disclose (nature, amount and reason)

Section 3 consistency of presentation
15
16
Section 3 comparative information
16
Disclose
1 years comparative amounts
comparative information for narrative and
descriptive information when relevant to
understanding current periods financial
statements
17
Section 3 materiality and aggregation
17
Material if could, individually or
collectively, influence economic decisions
of users
depends on size and nature of the
omission or misstatement
judged in the surrounding circumstances
Present separately
each material class of similar items
items of a dissimilar nature or function
unless they are immaterial

Materiality threshold is lower for notes
18
Section 3 materiality decisions
Is the error material?
Ex 13*: Before its 20X8 FS approved for
issue discovered depreciation expense
for 20X8 overstated by CU150. Ignored
the error (reported profit for 20X8 at
CU600,000, ie understated by CU150).
Ex 15*: Same as Ex 13, except had the
error been corrected the entity would
have breached a borrowing covenant on
a significant long-term liability.
* see example with the same number in Module 3 of the IFRS Foundation training material
18
19
19 Section 3 financial statements
Complete set of financial statements
Statement of financial position (Section 4)
Either single statement of comprehensive
income or two statementsan income
statement and a statement of
comprehensive income (Section 5)
Statement of changes in equity (Section6)
Statement of cash flows (Section 7)
Notes (Section 8)
Present each with equal prominence
20
20 Section 3 optional alternative formats
Statement of income and retained
earnings (instead of statement of
comprehensive income (SOCI) and
statement of changes in equity) if only
changes in equity arise from:
profit or loss;
payment of dividends;
correction of prior period errors; and
changes in accounting policies
Income statement (instead of SOCI) if no
items of other comprehensive income
21
21 Section 3 other comprehensive income
The only other comprehensive income
(OCI) items are
some foreign exchange gains and losses
(see Section 30)
some changes in fair values of hedging
instruments (see Section 12)
some actuarial gains and losses (see
Section 28)
22
22 Section 3 identification
Clearly identify each of the financial
statements and notes and distinguish
them from other information in the same
document
Display prominently (and repeat when
necessary)
name
individual or group financial statements
presentation currency and level of
rounding
reporting date
23
23
The IFRS for SMEs

Section 4
Statement of Financial Position

24
24 Section 4 scope
The statement of financial position
(SOFP) (sometimes called the balance
sheet) presents an entitys assets,
liabilities and equity as of a specific
datethe end of the reporting period.
Section 4:
sets out the information to be presented in
a statement of financial position and how
to present it
25
25 Section 4 line items
Specifies minimum line items
sufficiently different in nature or function
for separate presentation (see 4.2)
Requires additional line items headings
and subtotals when relevant to an
understanding of the entitys financial
position.
Sequencing, format, and titles are not
mandated
Some items may be presented in the
SOFP or in the notes (see 4.114.14)
26
26 Section 4 line items continued
Provide information that is relevant to an
position
In making aggregation/disaggregation
judgements consider
the amounts, nature and liquidity of assets
the function of assets within the entity
the amounts, nature and timing of liabilities
27
27 Section 4 current/non-current distinction
Make current/non-current distinction
unless liquidity presentation is reliable
and more relevant
In liquidity presentation present assets
and liabilities in order of liquidity
Current assets and current liabilities are
defined
All other assets and liabilities are non-
current
Deferred tax balances are non-current
28
28
Section 4 current assets
Current asset if
expect to realise, sell or consume in
entitys normal operating cycle
held for trading
expects to realise in next 12 months
cash or equivalent, unless restricted for
+12 months
29
29
Section 4 examples current assets
Ex 3*: A produces whiskey from barley,
water and yeast in a 24-month distillation
process. Inventories include barley and
yeast raw materials, partly distilled
whiskey and distilled whiskey.
Current assetsexpected to be realised
(ie turned into cash) in the entitys normal
operating cycle.

30
30
Section 4 examples continued
Ex 7*: On 1/1/20X7 B invested CU900,000
in corporate bonds.
Fixed interest of 5% per year is payable
on 1 January each year.
Capital is repayable in 3 annual
instalments of CU300,000 each starting
31/12/20X8.

31
31
Ex 7 continued:
At 31/12/20X7 A presents
current assetsCU45,000 accrued
interest & CU300,000 capital repayable
on 31/12/20X8expected to be realised
within 12 months
non-current assetCU600,000 in +12
months
32
32 Section 4 current liabilities
Current liability if
expect to settle in entitys normal operating
cycle
held for trading
due to be settled in next 12 months
entity does not have an unconditional right
to defer settlement for at least 12 months
after reporting date
33
33
Section 4 examples current liabilities
Ex 9*: An obligation to suppliers for the
purchase of raw materials.
Current liabilityexpected to settle
(ie pay) the supplier in the entitys
normal operating cycle.


34
34
Ex 10*: At 31/12/20X7 A was in breach of
a covenant in a loan that is otherwise
repayable 3 years later. The breach
entitles (but does not oblige) the bank to
require immediate repayment.
At 31/12/20X7 the loan is a current
liabilityat 31/12/20X7 A does not have
an unconditional right to defer settlement
for at least 12 months.
35
35
Ex 11*: Same as in Ex 10 except after the
end of the reporting period (31/12/20X7)
and before the financial statements were
approved for issue, the bank formally
agreed not to demand early repayment of
the loan.
At 31/12/20X7 the loan is a current
liabilityat 31/12/20X7 A does not have
an unconditional right to defer settlement
for at least 12 months.
36
36
The IFRS for SMEs

Section 5
Statement of Comprehensive Income
and
Income Statement

37
37 Section 5 scope
The statement of comprehensive income
presents an entitys financial
performance (ie its income and expenses)
for the period.
Section 5
requires financial performance be
presented in a single statement or two
statements (an accounting policy choice)
sets out the information to be presented in
those statements
38
38 Section 5 line items
Specifies minimum line items (see 5.5)
Requires
additional line items, headings and
subtotals when relevant to an
performance
an analysis of expenses based on either
the nature of expenses or
the function of expenses
segregation of discontinued operations
Prohibits use of the descriptor
extraordinary items
39
39
Section 5 disclose allocations
Profit or loss and total comprehensive
income are before allocating those
amounts to non-controlling interests and
owners of the parent
Disclose the allocations of those amounts
to
the non-controlling interests
the owners of the parent
40
40
Section 5 presentation alternatives
Accounting policy choice1 performance
statement or 2
Single statement of comprehensive
income
includes all income and expenses
separate line items include (among others)
profit or loss (unless no items of OCI)
each item of other comprehensive
income displayed below profit or loss
total comprehensive income
41
41
Section 5 two statements
Two statements
income statement
statement of comprehensive income
Income statement
ends with profit or loss
Statement of comprehensive income
starts with profit or loss
present each item of other comprehensive
income separately
ends with total comprehensive income
42
42
The IFRS for SMEs

Section 6
Statement of Changes in Equity
and
Statement of Income and Retained
Earnings

43
43 Section 6 scope
The statement of changes in equity
presents all changes in equity in the
reporting period, detailing those arising
from transactions with owners in their
capacity as owners.
Section 6
sets out requirements for presenting the
changes in an entitys equity for a period,
either in a statement of changes in equity
or, if specified conditions are met and an
entity chooses, in a statement of income
and retained earnings
44
44 Section 6 statement of changes in equity
Shows all changes to equity including
total comprehensive income (and the
allocation to owners of the parent and
NCI)
for each component of equity
the effects of retrospective application and
retrospective restatement (see Section 10)
reconciliation between the carrying amount at
the start & end of the period showing profit or
loss; each item of OCI; transactions with
owners as owners; & changes in ownership
interests in subsidiaries that do not result in
loss of control.
45
45
A statement of income and retained
earnings can be presented (optional)
instead of statement of comprehensive
income and statement of changes in
equity) if only changes in equity arise
from:
profit or loss;
payment of dividends;
correction of prior period errors; and
changes in accounting policies.
Section 6 statement of income and
retained earnings
46
46
Section 6 statement of income and
retained earnings
Shows
all the information required by Section 5
(comprehensive income)
retained earnings at the beginning and at
the end of the period
dividends recognised in the period
restatements of retained earnings for
correction of prior period errors and
changes in accounting policies
47
47
The IFRS for SMEs

Section 7
Statement of Cash Flows

48
48 Section 7 scope
The statement of cash flows provides
information about the changes in cash
and cash equivalents of an entity for a
reporting period, showing separately
changes from operating activities,
investing activities and financing
activities.
Section 7
sets out the information that is to be
presented in a statement of cash flows
and how to present it

49
49 Section 7 cash equivalents
Cash equivalents are short-term, highly
liquid investments held to meet short-
term cash commitments rather than for
investment or other purposes
Cash equivalents include
investments with a short maturity (say 3
months or less from the date of
acquisition)
bank overdrafts only if they are repayable
on demand and form an integral part of an
entitys cash management, bank
overdrafts
50
Present
the components of cash and cash
equivalents
reconciliation to the amounts in the
statement of financial position (unless
identical and similarly described)
Disclose commentary by management the
amount of
significant cash and cash equivalents that
are not available for use by the entity
examples: foreign exchange controls or
legal restrictions
Section 7 cash equivalents
50
51
51 Section 7 unrealised gains and losses

Unrealised gain and losses are not cash
flows
However, unrealised exchange rate
gain/loss on foreign currency cash and
cash equivalents are shown in CFS
separate from operating, investing and
financing activities
ie in the reconciliation of cash and cash
equivalents

52
52 Section 7 operating activities
Operating activities are the principal
revenue-producing activities of the entity
Operating activity cash flows include
cash receipts from customers
cash payments to suppliers & employees
cash flows of income tax, unless
specifically identified with financing and
investing activities
cash flows from investments, loans and
other contracts held for dealing or trading
purposes
53
53 Section 7 direct or indirect method
Accounting policy choice to present
operating cash flows
indirect method
profit or loss is adjusted for the effects of
non-cash transactions, any deferrals or
accruals of past or future operating cash
receipts or payments, and items of income
or expense associated with investing or
financing cash flows
direct method
major classes of gross cash receipts &
gross cash payments are presented
54
54 Section 7 investing activities
Investing activities are the acquisition &
disposal of long-term assets & other
investments not included in cash
equivalents.
Investing activity cash flows include
cash payments to acquire (cash receipts
from sale of) long-term assets (eg PP&E)
cash payments to acquire (cash receipts
from the sale) equity or debt instruments
of other entities and interests in joint
ventures (other than payments/receipts
for those instruments classified as cash
equivalents or held for dealing/trading)
55
55 Section 7 financing activities
Financing activities are activities that
result in changes in the size and
composition of the contributed equity and
borrowings of an entity
Financing activity cash flows include
cash proceeds from issuing shares or other
equity instruments and cash payments to
owners to acquire or redeem the entitys
shares
cash proceeds from borrowings and cash
repayments of amounts borrowed
cash payments by a lessee for the reduction
of the outstanding liability relating to a
finance lease
56
Section 7 investing and financing
Present separately major classes of gross
cash receipts and gross cash payments
arising from investing and financing
activities.
The aggregate cash flows arising from
acquisitions and from disposals of
subsidiaries or other business units shall
be presented separately and classified as
investing activities.

56
57
57
Section 7 example
Ex 1: In 20X7 A acquires 50% of the
equity of B for CU110 when Bs cash and
cash equivalents = CU10. From 1/1/20X7
A controls B (ie B is a subsidiary of A)
Scenarios
(i) A settles the purchase price in cash
(ii) A buys on credit (will settle next year)
(iii) A settles by issuing its own equity to the
seller
(iv) A borrows CU110 from the bank and
uses cash borrowed to settle
58
58
Section 7 example 1 continued
The group (A & B consolidated) would
present a cash flow in the investing
activities section for the purchase of a
subsidiary of:
scenario (i) CU100 outflow (ie CU110 less
CU10)
scenario (ii) CU10 inflow
scenario (iii) CU10 inflow
scenario (iv) CU100 outflow (in investing
activities) & CU110 inflow in financing
activities
59
59
Section 7 example
Ex 2: Same as Ex 1 except A has
significant influence over B (ie B is an
associate of A)
A would present:
scenario (i) CU110 outflow in investing
activities
scenario (ii) no cash flows
scenario (iii) no cash flows
scenario (iv) CU110 outflow in investing
activities & CU110 inflow in financing
activities
60
Section 7 interest and dividends
Interest and dividends CFs:
show separately and classify consistently
interest & dividends received = operating
or investing activity
interest paid = operating or financing
activity
dividends paid usually = financing activity

60
61
Section 7 foreign currency and hedging
Foreign currency: record CFs at the
exchange rate on the date of the cash flow
Hedge accounting: CFs of the hedging
instrument are classified same way as
CFs of hedged item

61
62
Section 7 non-cash transactions
Exclude from statement of cash flows
however, disclose elsewhere in the
financial statements (eg notes)
Examples
finance lease (initial recognition)
issue own equity to acquire business
convert debt into equity
62
63
63
The IFRS for SMEs

Section 8
Notes to the Financial Statements

64
64 Section 8 scope
Notes provide additional information
narrative descriptions or disaggregations
of items presented in statements and
information about items that do not
qualify for recognition.
Section 8 sets out the principles for
presenting note disclosures
Other sections require note disclosures
65
65 Section 8 overview of notes
Notes are presented systematically and
cross-reference to FS
Notes present information about
basis of presentation
specific accounting policies used
information about judgements and key
sources of estimation uncertainty
Notes disclose
the information required by the IFRS for
SMEs that is not presented elsewhere
other information that is relevant to an
understanding of the FS
66
66 Section 8 order of presentation
1
st:
statement of compliance (IFRS for
SMEs)
2
nd:
summary of significant accounting
policies applied
3
rd:
supporting information for items
presented in FS, follow sequence in FS
4
th:
other disclosures
67
67 Section 8 accounting policies
Disclose:
measurement bases used
other relevant accounting policies used
information about judgements made in
applying accounting policies that have the
most significant effect on the FS
information about key sources of
estimation uncertainty that have a
significant risk of causing a material
adjustment within 1 year (including their
nature and carrying amount)

68
Whether outflow is more likely than not re
a present obligation = recognise a liability?
Whether a lease transfers substantially all
risks and rewards of ownership = finance
or operating lease?
When risks and rewards transfer for goods
sold = when to recognise revenue?
Whether arrangement = sales of goods or
financing?
Whether controls exists = whether to
consolidate?
Section 8 examples of judgements in
applying accounting policies 68
69
Ex 3* lease classification
In 20X3 A entered into an agreement (as lessee) for the use
of an executive jet. It is not clear whether the lease transfers
substantially all the risks and rewards incidental to
ownership. However, management judge the lease to be an
operating lease and therefore the lease is accounted for as
an executory contract. Had the lease been judged to be a
finance lease, the entity would have recognised the leased
asset and a corresponding lease liability and it would have
apportioned lease payments between finance costs and the
repayment of the liability. It would also have depreciated the
leased asset over its useful life. The entitys commitment to
make future non-cancellable lease payments for the use of
the jet is set out in note 40.
Section 8 judgement in applying
AP
69
70
Ex 4* Fair value of financial instruments
Financial assets and financial liabilities that are not
basic financial instruments (see note 12) are carried
at their fair value, with changes in fair value
recorded in profit or loss. When no active market
exists, or when quoted prices are not otherwise
available, judgement is required in determining fair
value.
In these circumstances, fair value is determined
using a variety of valuation techniques including
present value methods, models based on
observable input parameters, and models where
some of the input parameters are unobservable.
Section 8 key measurement
assumptions 70
71
Ex 4 continued:
Valuation models are used primarily to value
derivatives transacted in the over-the-counter
market, including credit derivatives and unlisted
securities with embedded derivatives. All valuation
models are validated before they are used, and
periodically reviewed thereafter, by independent
qualified financial instrument valuation experts.
Wherever possible, valuations derived from models
are compared with quoted prices of similar financial
instruments, and with actual values when realised,
in order to further validate and calibrate our models.
assumptions 71
72
Ex 4 continued:
Our models incorporate information about the actual
or estimated market prices and rates, time value,
volatility, market depth and liquidity among others.
When available, we use market observable prices and
rates derived from market verifiable data. When such
factors are not market observable, changes in
assumptions could affect the reported fair value of
financial instruments. The models are applied from
one period to the next. However, estimating fair value
inherently involves a significant degree of judgement.
Management therefore establishes valuation
adjustments to cover the risks associated with the
estimation of unobservable input parameters and the
assumptions within the models themselves.
assumptions 72
73
Ex 4 continued:
Valuation adjustments are also made to reflect such
elements as aged positions, deteriorating creditworthiness
(including country-specific risks), concentrations in specific
types of instruments and market risk factors (interest rates,
currencies etc), and market depth and liquidity. Although a
significant degree of judgement is, in some cases, required
in establishing fair values, management believes the fair
values recorded in the statement of financial position and the
changes in fair values recorded in the statement of
comprehensive income are reflective of the underlying
economics, based on the controls and procedural
safeguards employed.
assumptions 73
74
Ex 4 continued:
Nevertheless, management have estimated the
effect that a change in assumptions to reasonably
possible alternatives could have on fair values
where model inputs are not market observable. For
all financial instruments carried at fair value which
rely on assumptions for their valuation, we estimate
that fair value could lie in a range from CU500,000
lower to CU500,000 higher than the fair values of
CU2,000,000 (see note 12) recognised in the
financial statements.
assumptions 74
75
75
The IFRS for SMEs

Section 10
Accounting Policies, Estimates and
Errors

76
76 Section 10 scope
Section 10
Provides guidance for selecting and
applying the accounting policies
Specifies accounting for
changes in accounting estimates
corrections of errors in prior period
financial statements
77
77 Section 10 accounting policies hierarchy
If IFRS for SMEs addresses an issue,
must follow IFRS for SMEs
If not
choose policy that results in most relevant
and reliable information by
1
st
try to analogise from requirements in
other sections
2
nd
use concepts/pervasive principles in
Section 2
may also (not required) look to full
IFRSs
78
78 Section 10 accounting policies hierarchy
Ex 5*: A received a grant of CU50,000
from a non-government development
agency to set up farming operations in a
specified rural area.
IFRS for SMEs does not specify how to account for
a grant from a non-government agency.
However, it specifies how to account for
government grants (Section 24 Government
Grants).
By analogy, A should account for the grant
received in accordance with Section 24.
79
79
Section 10 consistency of acc.
policies
Select and apply its accounting policies
consistently for similar transactions,
other events and conditions
Change accounting policy only if
is required by change to IFRS for SMEs
(compulsory)
results in reliable and more relevant
information (voluntary)

80
Ex 7*: A measures invests in associates
at fair value. Because it cannot determine
the fair value of its investment in
associate B, it measures it using the cost
model.
As accounting policy is acceptable. Sect 14
requires A choose cost, equity method, or
fair value. If choose fair value still use cost
for investments if impracticable to measure
fair value reliably without undue cost or effort
(see paragraph 14.10).
81
Ex 9*: As acc. policy = account for
investments in associates at fair value
and jointly controlled entities at cost.
None of As investments are traded in a
public securities market.
As accounting policies are acceptable. Its
policy for associates need not be the same
as its policy for jointly controlled entities.
82
82 Section 10 change in accounting policy
Change accounting policy if
if mandated, follow the transition guidance
as mandated
if voluntary, retrospective application
impracticability exemption
Disclosures
83
83 Section 10 retrospective application
Ex 20*: In 20X7 A voluntarily changed an
accounting policy. The cumulative effect of
the change is a decrease of CU100,000 in
retained earnings at 1/1/20X7 (ie CU25,000
less profit for each of the past four years).
The entity presents two years of
comparative information.
Presented as a restatement of:
retained earnings at 1/1/20X5reduce by
CU50,000
profit 20X5 & 20X6reduce by CU25,000 each
84
84 Section 10 impracticability exemption
Ex 21*: Facts same as Ex 20. Except, it is
impracticable to determine the individual
period effects of the change of policy.
Presented as a restatement of:
retained earnings at 1/1/20X7reduce by
CU100,000 (no adjustment to 20X5 & 20X6)
additional disclosures

85
85 Section 10 accounting estimate
The use of reasonable estimates is an
essential part of accounting.
Changes in accounting estimates result
from new information or new
developments and, accordingly, are not
corrections of errors.

86
86 Section 10 errors
Prior period errors are omissions from,
and misstatements in, financial
statements for prior periods arising from
a failure to use, or misuse of, reliable
information that:
was available when financial statements
for those periods were authorised for
issue, and
could reasonably be expected to have
been obtained and taken into account in
the preparation & presentation of those
financial statements.
87
87 Section 10 change in estimate
Account for changes in accounting
estimates prospectively
Disclose
nature of change and the effect of the
change on assets, liabilities, income and
expense for the current period
if practicable, estimates of the effect of
the change in one or more future periods
88
88 Section 10 correcting errors
Correct prior period errors retrospectively
(ie restate comparative figures)
Disclose
nature of the error
financial effects (each line-item)
an explanation if it is not practicable to
determine the financial effects

89
Ex 28*: On 1/1/20X1 A buys yacht for
CU1,000,000. Useful life = 30 years.
Residual value = CU100,000. Straight-line
method of depreciation.
At 31/12/20X9, as a result of research in
20X9, A reassessed the yacht as follows:
useful life at 20 years from 1/1/20X1;
residual value at nil; fair value at
CU800,000; and straight-line depreciation
as most appropriate method.

90
Ex 28 continued: The reassessment of the
yachts useful life and its residual value are
changes in accounting estimates. The
revised assessments are appropriately made
on the basis of new information that arose
from research performed in the current
reporting period20X9.*
* for accounting entries see example 32 in Module 10 of the IFRS Foundation training
material
91
91 Section 10 prior period error
Ex 29*: Same as Ex 28, except, the
research was publicly available in late
20X5. A believed the research to be valid
but chose to ignore it until 20X9.
As 20X520X8 financial statements include
errors. The comparative figures in its 20X9
financial statements must be restated to
correct the effects of the prior period errors
[if material].
92
92
The IFRS for SMEs

Section 30
Foreign Currency Translation

93
93 Section 30 background
An entity can have transactions in foreign
currencies and it can have foreign
operations.
It may also present its FS in a foreign
currency.
Accounting for financial instruments
denominated in a foreign currency and
hedge accounting of foreign currency items
are dealt with in Sections 11 and 12 (session
on PM day-2 of this workshop).

94
94 Section 30 scope
Section 30 prescribes how to:
determine an entitys functional currency
measure foreign currency transactions
include foreign operations in FS (see
session on PM day-3 of this workshop)
translate FS into a presentation currency
(see session on PM day-3 of this workshop).
It also specifies disclosures.

95
95 Section 30 functional currency
Each entity identifies its functional
currencythe currency of the primary
economic environment in which the entity
operates (ie normally the one in which it
primarily generates and expends cash)
A foreign currency transaction is a
transaction that is denominated or
requires settlement in a foreign currency
(ie a currency other than the entitys
functional currency)

96
96 Section 30 determine functional currency
Most important factors to consider when
determining an entitys functional currency:
the currency:
that mainly influences sales prices (often
the currency in which its sales are
denominated and settled), and
of the country whose competitive forces and
regulations mainly determine its sales
prices.
the currency that mainly influences labour,
material & other costs of providing goods or
services (this will often be the currency in
which such costs are denominated and
settled).
97
97
Section 30 disclose functional
currency
Disclose currency in which financial
statements are presented
If presentation currency is not functional
currency disclose:
that fact
the functional currency
reason for using a different presentation
currency
When functional currency of entity or a
significant operation changes disclose:
that fact
reason for the change
98
98
Section 30 change functional
currency
Change functional currency only if
change to underlying transactions,
events and conditions
eg a change in the currency that mainly
influences the sales prices of goods and
services
Accounted for change prospectively
translate all items using the exchange
rate at the date of the change
resulting translated amounts for non-
monetary items are treated as their
historical cost
99
99
Section 30 foreign currency
transaction
Initial recognition
measure a foreign currency transaction in
the functional currency using the spot
exchange rate on the date when the
transaction first qualifies for recognition
100
100 Section 30 examples initial recognition
Ex 1: As functional currency is CU.
On 1/12/20X1 A buys goods on credit for
FCU100,000 (FCU denominated) when
spot currency exchange rate = FCU1:CU2.
On 1/12/20X1 A recognises inventories and
trade payables of CU200,000.
101
101 Section 30 examples initial recognition
Ex 2: As functional currency is CU.
On 1/12/20X1 A buys an investment
property for FCU100,000 when the spot
currency exchange rate = FCU1:CU2 (ie A
pays CU200,000).
A accounts for the investment property at
its fair value.
On 1/12/20X1 A recognises its investment
property at CU200,000.
102
102 Section 30 subsequent measurement
At the end of each reporting period
translate foreign currency monetary items
using the closing rate;
translate non-monetary items that are
measured in terms of historical cost in a
foreign currency using the exchange rate
at the date of the transaction; and
translate non-monetary items that are
measured at fair value in a foreign
currency using the exchange rates at the
date when the fair value was determined.
103
Monetary items
recognise, in profit or loss when the
exchange differences arise (ie on settlement
or on retranslating (exception see paragraph
30.13).
Non-monetary items
recognise exchange differences (in profit or
loss or OCI) follows classification of the
underlying item.
Disclose
amount of exchange differences recognised
in profit or loss (excluding those on items
carried using the fair value model)
Section 30 translation gains and losses 103
104
Ex 1 continued: On 31/12/20X1 (As year-end)
the spot currency exchange rate =
FCU1:CU2.1.
On 1/2/20X2 when the spot rate =
FCU1:CU2.05 A pays CU205,000 to settle
the FCU100,000 liability.
At 31/12/20X1 A reports the trade payable at
CU210,000 and recognises loss of
CU10,000 in profit or loss.
On 1/2/20X2 A derecognises the
FCU100,000 payable and recognises gain of
CU5,000.
105
Ex 2 continued: On 31/12/20X1 (As financial
year-end) the fair value of the investment
property = FCU100,000 (ie coincidentally
no change) and the spot currency
exchange rate = FCU1:CU2.1.
At 31/12/20X1 A remeasures the investment
property at CU210,000 and records a gain of
CU10,000 as a change in fair value (rather
than exchange difference) in profit or loss.
106
Ex 3: Same as Ex 2 except:
A accounts for its investment property
using the cost model (because its fair
value cannot be measured reliably on
an ongoing basis).
At 31/12/20X1 A records the investment
property at CU200,000 (ie no
remeasurement because it is a non-
monetary asset carried at historical cost).
107
The amount of exchange differences
recognised in profit or loss (other than
those arising from fair value changes)
Non-monetary items
recognise exchange differences (in profit
or loss or OCI) follows classification of the
underlying item.
Section 30 presentation &
disclosure
107
108
108
The IFRS for SMEs

Section 32
Events after the End of the Reporting
Period

109
109 Section 32 scope
Events after the end of the reporting
period are those events, favourable and
unfavourable, that occur between the end
of the reporting period and the date when
the financial statements are authorised
for issue.

110
110 Section 32 types of events
Two types of events after the end of the
reporting period
adjusting eventsthose that provide
evidence of conditions that existed at the
end of the reporting period
non-adjusting eventsthose that are
indicative of conditions that arose after
the end of the reporting period
111
111 Section 32 accounting and reporting
Adjusting eventsadjust the amounts
recognised (and update disclosures
made) in its financial statements
Non-adjusting eventsdo not adjust the
amounts recognised in its financial
statements. However, disclose:
the nature of the event, and
an estimate of its financial effect, or a
statement that estimate cannot be made
112
112 Section 32 example adjusting event
Ex 7*: On 31/12/20X5 A assessed its
warranty obligation as CU100,000. Before
its 20X5 financial statements were
authorised for issue, A discovered a
latent defect in one of its lines of
products. It reassessed its warranty
obligation at 31/12/20X5 at CU150,000.
Adjusting eventlatent defect existed at
31/12/20X5. Measure warranty provision at
CU150,000 at 31/12/20X5.
113
113 Section 32 example non-adjusting event
Ex 12*: On 28/2/20X1 As 31/12/20X0 FS
authorised for issue. At 31/12/20X0 the
fair value of As investment in Bs
publicly traded shares = CU20,000.
On 28/2/20X1 fair value of shares =
CU25,000.


114
114 Section 32 example non-adjusting event
Ex 12 continued:
Non-adjusting eventthe change in the fair
value results from conditions that arose after
20X0.
A does not adjust the amounts recognised in
its financial statements. However, it must
give additional disclosure see paragraph
32.10.
115
115 Section 32 disclosure non-adjusting
Ex 15*: 1/3/20X1 As 31/12/20X0 FS
authorised for issue when spot ex rate =
CU2.5:FCU1.
At 31/12/20X0 spot ex rate = CU2:FCU1. A
measured its FCU2,000,000 unhedged
non-current liability at CU4,000,000 in
SOFP.

116
116 Section 32 disclosure non-adjusting
Ex 15 continued:
Note 20 Events after the end of the reporting
period
The financial statements were authorised for
issue on 1 March 20X1 when the exchange
rate was CU2.5:FCU1. The deterioration of
the exchange rate from CU2:FCU1 at
31 December 20X1 has increased the
expected settlement amount of the
FCU-denominated liability by CU1,000,000.
117
117
The IFRS for SMEs

Section 33
Related Party Disclosures

118
118 Section 33 scope
FS include disclosures necessary to draw
attention to the possibility that an entitys
financial position and performance have
been affected by the existence of related
parties and by transactions and
outstanding balances with such parties.
Assess the substance of the relationship
and not merely its legal form.
119
119 Section 33 related parties defined
(a) A person or a close member of that
persons family that
(i) is a member of the key management
personnel of the reporting entity or of a
parent of the reporting entity;
(ii) has control over the reporting entity; or
(iii) has joint control or significant influence
over the reporting entity or has significant
voting power in it.
120
J is owned and managed by the X familyMr
and Mrs X and their 2 children (Ms Y and Ms
Z).
Section 33 related parties defined continued
25%
25%
25%
25%
X family

Mrs X
Operations
Director
Mr X
Administration
Director
Ms Z
Sales
Director
Ms Y
Financial
Director
Entity J

121
X, X, Y & Z are related parties to J (33.2(a)(iii))
If Y (the dominant party) acts for the family, Y
would be in control of J (33.2(a)(ii))
If X, X, Y & Z contractually agree sharing control
over J; X, X, Y & Z are related to J (33.2(a)(iii))
X, X, Y & Z are related parties to J (33.2(a)(i))
Related parties
122
122 Section 33 related parties defined continued
(b) An entity if any of the following
conditions applies:
(i) the entity & the reporting entity are
members of the same group (parent,
subsidiary & fellow subsidiary are related
to the others).
(ii) either entity is an associate or joint
venture of the other entity (or of a member
of a group of which the other entity is a
member).
(iii) both entities are joint ventures of a
third entity.
123
conditions applies continued:
(iv) either entity is a joint venture of a third
entity and the other entity is an associate
of the third entity.
(v) the entity is a post-employment 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 plan.
124

Entity X

Entity A

Entity B
Are A and B related parties?
125
Xs influence over B
Control
Joint
control
Significant
influence
Xs
influence
over A
Control
Yes 33.2(b)(i) Yes 33.2(b)(ii) Yes 33.2(b)(ii)
Joint
control
Yes 33.2(b)(ii) Yes 33.2(b)(iii) Yes 33.2(b)(iv)
Significant
influence
Yes 33.2(b)(ii) Yes 33.2(b)(iv)
Not related
126
(vi) the entity is controlled or jointly
controlled by a person identified in (a).
(vii) a person identified in (a)(i) has
significant voting power in the entity.
(viii) a person identified in (a)(ii) has
significant influence over the entity or
significant voting power in it.
127
(ix) a person or a close member of that
persons family has both significant
influence over the entity or significant
voting power in it and joint control over the
reporting entity.
(x) a member of the key management
personnel of the entity or of a parent of the
entity, or a close member of that members
family, has control or joint control over the
reporting entity or has significant voting
power in it.
128

Family X

Entity A

Entity B
Are A and B related parties?
Family Xs influence over Entity B
Control JC SVP KMP SI
Family
Xs
influence
over
Entity A
Control
Yes
33.2(b)(vi)
Yes
33.2(b)(vi)
Yes
33.2(b)(viii)
Yes
33.2(b)(x)
Yes
33.2(b)(viii)
JC
Yes
33.2(b)(vi)
Yes
33.2(b)(vi)
Yes
33.2(b)(ix)
Yes
33.2(b)(x)
Yes
33.2(b)(ix)
SVP
Yes
33.2(b)(viii)
Yes
33.2(b)(ix)
Not
related
Yes
33.2(b)(v
ii and x)
Not
related
KMP
Yes
33.2(b)(x)
Yes
33.2(b)(x)
Yes
33.2(b)(vii
and x)
Not
related
Not
related
SI
Yes
33.2(b)(viii)
Yes
33.2(b)(ix)
Not
related
Not
related
Not
related
130
130 Section 33 not necessarily related party
2 entities simply because of common director
2 venturers simply because they share joint
control
Simply by virtue of their normal dealings with
an entity: providers of finance; trade unions;
public utilities; and government departments
and agencies.
A customer, supplier, franchisor, distributor
or general agent with whom an entity
transacts a significant volume of business,
merely by virtue of the resulting economic
dependence.
131
131 Section 33 relationship disclosures
Disclose related party relationship only if
an entity has related party transactions
Exceptiondisclose parent-subsidiary
relationship irrespective of whether there
are related party transactions
including name of its parent and ultimate
controlling party
if neither parent nor ultimate controlling
party produces FS available for public use
then also disclose name of the next most
senior parent that does do so
132
132 Section 33 relationship disclosures
Disclose key management personnel
compensation in total
this disclosure is in addition to disclosures
about related party transactions (see
following slides)
133
133 Section 33 related party transactions
A RPT is a transfer of resources, services or
obligations between a reporting entity and a
related party, regardless of whether a price is
charged.
If an entity has a RPT it discloses information
about the transactions, outstanding balances
and commitments necessary for an
understanding of the potential effect of the
relationship on the financial statements.
Do not state RPT made on terms equivalent to
arms length transactions unless can be
substantiated.
134
134 Section 33 RPT disclosures
RPT disclosures include (at minimum):
the amount of the transactions
the amount of outstanding balances and:
their terms and conditions, including
whether they are secured, and the nature
of the consideration to be provided in
settlement, and
details of any guarantees given or
received.
provisions for uncollectible RP receivables.
expense recognised for RP bad/doubtful
debts.
135
135 Section 33 aggregation
Disclose items of a similar nature in the
aggregate except when separate disclosure
is necessary for an understanding of the
effects of RPTs on the financial statements
Disclose separately for each of
entities with control, joint control or significant
influence over the entity
entities over which the entity has control, joint
control or significant influence
key management personnel of the entity or
its parent (in the aggregate)
other related parties
136
136 Section 33 exemption from RPT discl.
Exemption applies to transaction
disclosures only (ie the nature of the
relationship must be disclosed).
a state (a national, regional or local
government) that has control, joint control
or significant influence over the reporting
entity, and
another entity that is a related party
because the same state has control, joint
control or significant influence over both
the reporting entity and the other entity.

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2011 IFRS Foundation

) for Small and Medium-sized Entities

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