Current tax

Example accounting policies

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Example accounting policies

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.Example accounting policies

Example accounting policies guidance

Whether to disclose an accounting policy

1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users where those policies are selected from alternatives allowed in IFRS. [IAS 1.119]

2. Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 Property, Plant and Equipment requires disclosure of the measurement bases used for classes of property, plant and equipment and IFRS 3 Business Combinations requires disclosure of the measurement basis used for non-controlling interest acquired during the period.

3. In this guidance, policies are disclosed that are specific to the entity and relevant for an understanding of individual line items in the financial statements, together with the notes for those line items. Other, more general policies are disclosed in the note 25 in the example below. Where permitted by local requirements, entities could consider moving these non-entity-specific policies into an Appendix.

Change in accounting policy – new and revised accounting standards

4. Where an entity has changed any of its accounting policies, either as a result of a new or revised accounting standard or voluntarily, it must explain the change in its notes. Additional disclosures are required where a policy is changed retrospectively, see note 26 for further information. [IAS 8.28]

5. New or revised accounting standards and interpretations only need to be disclosed if they resulted in a change in accounting policy which had an impact in the current year or could impact on future periods. There is no need to disclose pronouncements that did not have any impact on the entity’s accounting policies and amounts recognised in the financial statements. [IAS 8.28]

6. For the purpose of this edition, it is assumed that RePort Co. PLC did not have to make any changes to its accounting policies, as it is not affected by the interest rate benchmark reforms, and the other amendments summarised in Appendix D are only clarifications that did not require any changes. However, this assumption will not necessarily apply to all entities. Where there has been a change in policy, this will need to be explained, see note 26 for further information.

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Disclosure Corporate Income Tax

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Disclosure Corporate Income Tax

– provides guidance on the disclosure requirements under IFRS for IAS 12 income tax and provides a comprehensive example of a potential disclosures for these income taxes/corporate income tax.

Disclosure corporate income tax – Guidance

Relationship between tax expense and accounting profit

Entities can explain the relationship between tax expense (income) and accounting profit by disclosing reconciliations between: [IAS 12.81(c), IAS 12.85]

  1. tax expense and the product of accounting profit multiplied by the applicable tax rate, or
  2. the average effective tax rate and the applicable tax rate.

The applicable tax rate can either be the domestic rate of tax in the country in which the entity is domiciled, or it can be determined by aggregating separate reconciliations prepared using the domestic rate in each individual jurisdiction. Entities should choose the method that provides the most meaningful information to users.

Where an entity uses option (a) above and reconciles tax expense to the tax that is calculated by multiplying accounting profit with the applicable tax rate, the standard does not specify whether the reconciliation should be done for total tax expense, or only for tax expense attributable to continuing operations. While RePorting Co. Plc is reconciling total tax expense, it is equally acceptable to use profit from continuing operations as a starting point.

Initial recognition exemption – subsequent amortisation

The amount shown in the reconciliation of prima facie income tax payable to income tax expense as ‘amortisation of intangibles’ represents the amortisation of a temporary difference that arose on the initial recognition of the asset and for which no deferred tax liability has been recognised in accordance with IAS 12.15(b). The initial recognition exemption only applies to transactions that are not a business combination and do not affect either accounting profit or taxable profit.

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Liabilities and assets for current tax

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Liabilities and assets for current tax – Current tax for the current and prior periods should be recognised as a liability to the extent that it is not paid

Deductible temporary tax differences

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Deductible temporary tax differences are temporary differences that will result in amounts that are deductible in determining taxable profit of future periods

Monetary items

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Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency cash.

Income tax

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Income tax – by law, but with a lot of different perks dependent on the country one pays its taxes, businesses and individuals must file income tax returns

Hyperinflation in Argentina

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Hyperinflation in Argentina – Argentina is now (October 2019) considered to be a hyperinflationary economy. IAS 29 – Financial Reporting in Hyperinflationary Economies is therefore applicable to entities whose functional currency is the Argentine peso. Assessment of the situation IAS 29 sets out a number of quantitative and qualitative characteristics for the purpose of assessing whether an economy is hyperinflationary (IAS 29 3), including: the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency (e.g., the US dollar or the euro); transactions are conducted in terms of a relatively stable foreign currency; sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the … Read more

Disclosure innovations in financial reporting

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Disclosure innovations in financial reporting – This is a note on the innovative history of Philips’ financial reporting, see the ‘Introduction to a history of innovation in financial reporting‘. In the Netherlands formal legislation concerning financial reporting was introduced rather late in the early 1970s. The lack of formal legislation was a stimulants to applying innovative financial reporting disclosures, bluntly said ‘anything was possible’ there were no legal minimum levels. This part is based on a research overview by Camfferman (1996) in his paper ‘Voluntary annual report disclosure by listed Dutch companies, 1945 – 1983’. Camfferman’s work identifies 9 disclosure items. The nine disclosure innovations are discussed in here. (1) Disclosure of Sales Disclosure innovations in financial reporting The movement towards … Read more

Corporate taxes

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Corporate taxes – also called income taxes, but than for corporates. Here we go…………  Just a reminder …… Two things in life are certain: …… DEATH……. and ……..TAXES What is it about? IAS 12 Income taxes prescribes the accounting treatment for income taxes being the accounting for the current and future tax consequences of: the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position, and Corporate taxes transactions and other events of the current period that are recognised in an entity’s financial report. Corporate taxes Current tax – Recognition and measurement IAS 12 requires the recognition of current tax in an entity’s financial statements. Current tax for current and prior … Read more