Types of accounting errors

Types of accounting errors come in the form of different kinds of errors. Some errors are discovered in the period in which they are made and are easily adjusted. Others may not be discovered currently and are incorrectly reflected in the financial statements until discovered. Some errors are never discovered; however, the effects of these errors may be counterbalanced in subsequent periods, and after this takes place, account balances are again accurately stated. Errors may be classified as follows:

  1. Errors discovered currently in the course of normal accounting procedures. Examples of this type of error are clerical errors, such as an addition error, posting to the wrong account) misstating an account, or omitting an account from
Read more

Control without a majority of voting rights

Control without a majority of voting rightsControl without a majority of voting rights is a more special case of structuring the investments of investors in companies. IFRS 10 confirms that an investor with the majority of an investee’s voting rights controls an investee in most circumstances. In the absence of other relevant factors the majority vote holder has control if: Control without a majority of voting rights

Read more

Measurement under IFRS

Measurement under IFRS is still diverse and sometimes inconsistent. Here is a summary of current measurement practices in IFRS and areas for improvement.

The standards for which the IASB is responsible – International Financial Reporting Standards (IFRS) – are one collection of financial reporting practices. They are increasingly important because of the growing number of companies around the world (especially listed companies) that are required to comply with them, and the growing number of countries that model their own more general financial reporting requirements on them. Measurement under IFRS

IFRS incorporates and builds on the accumulated, often inconsistent practical solutions devised by national standard-setters to deal with financial reporting problems that have emerged over many years, solutions which are in Read more

IFRS 10 Structured vs non-structured entities

IFRS 10 Structured vs non-structured entities is a distinction in use under IFRS 10 Consolidated Financial Statements. Consolidation under IFRS 10 is based on what can be referred to as a ‘power-to-direct’ model. Although there is no distinction between different types of entities in determining whether one entity controls another, there is a ‘gating’ question in the analysis that distinguishes between entities for which: IFRS 10 Structured vs non-structured entities

  • voting rights are the dominant factor in assessing whether the investor has power over the investee – i.e. the investee is controlled by voting instruments; and
  • voting rights are not the dominant factor in assessing whether the investor has power over the investee – i.e. the investee is
Read more

Assets held for sale measurement

Assets held for sale measurement is part of IFRS 5 Non-current assets held for sale and discontinued operations. Plans to dispose of assets may be an indicator that the asset(s) may be impaired and may accordingly trigger impairment testing procedures. Any impairments (or reversals of previous impairments) are recognised before the entity classifies the asset(s) as held for sale (see step 1 below).

Once the decision has been made to classify an asset as ‘held for sale’ in accordance with the 5 conditions mentioned in Non-current assets held for sale, the question of measurement arises. At what value will we carry the asset within current assets? IFRS 5 requires the following procedure:

  1. Before transfer to ‘held for sale’,
Read more

Common Elements of Customer Relationships – How 2 best complete it

Common Elements of Customer Relationships determines whether a (intangible) customer relationship asset exists for IFRS 3 Business Combinations, one should consider several elements that create that intangible asset. Common Elements of Customer Relationships

Required Information

For a customer relationship asset to exist, it should have an informational component or factual information about the customer that is important and useful to the company. Common Elements of Customer Relationships

This information may include such attributes as name, address, telephone number, email address, social security number, customer account number, credit rating, insurance information, or other third-party payer information. It may also include account information, date of first and last purchase, accounts receivable balance, trends, the amounts purchased (last year, greatest, etc.), customer payment Read more

Joint Arrangements

IFRS 11 describes the accounting for joint arrangements. The investor will be required to either apply the equity method of accounting or recognize, on a line-by-line basis, its share of the underlying assets, liabilities, revenues and expenses. The accounting treatment required will depend on the substance of the arrangement and the nature of the investor’s interest in it. The option to apply proportionate consolidation has been removed. IFRS 11 supersedes the requirements relating to joint ventures in IAS 31 and SIC 13.

A joint arrangement is an arrangement of which two or more parties have joint control and the following characteristics are present:

Read more

IFRS 13 Fair value measurement

IFRS 13 Fair value measurementIFRS 13 Fair Value Measurement is a single source of fair value measurement guidance that:

  • clarifies the definition of fair value, IFRS 13 Fair value measurement
  • provides a clear framework for measuring fair value, and IFRS 13 Fair value measurement
  • enhances the disclosures about fair value measurements. IFRS 13 Fair value measurement

Basis for use in other IFRS

IFRS 13 Fair Value Measurement applies to IFRSs that require or permit fair value measurements or disclosures. It does not introduce new fair value measurements, nor does it eliminate practicability exceptions to fair value measurements. In other words, IFRS 13 specifies how an entity should measure fair value and disclose information about fair value measurements. It does not specify when an entity … Read more

1 Best Read – An error in issued financial statements

An error in issued financial statements

Adjustment of an error in issued financial statements (i.e. financial statements approved by Board of Directors and by the Shareholders (in general meeting), and filed at a a Chamber of Commerce / Companies House) is fundamentally different from a chance in accounting policies or a change in estimates. See the following definitions from IAS 8:

Error Accounting policies Change in accounting estimate

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more 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
Read more

IAS 36 What is a lease impairment?

IAS 36 What is a lease impairment? IAS 36 What is a lease impairment

Simple, it is a right-of-use asset and will frequently be included in a cash generating unit to be tested for impairment.

The right-of-use-asset

At initial recognition, the right-of-use-asset equals the recognised lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset and restoring the site on which the leased asset is located.

Lease liability

The most significant part of the right-of-use asset will often be the lease liability, which is the … Read more