Measurement uncertainty

Measurement uncertainty – Uncertainty that arises when the result of applying a measurement basis is imprecise and can be determined only with a range.

Measurement uncertainty arises when a measure cannot be determined directly by observing prices in an active market and must instead be estimated.

The level of measurement uncertainty associated with a particular measurement basis may affect whether information provided by that measurement basis provides a faithful representation of an entity’s financial position and financial performance. A high level of measurement uncertainty does not necessarily prevent the use of a measurement basis that provides relevant information.

However, in some cases the level of measurement uncertainty is so high that information provided by a measurement basis might not provide … Read more

IFRS 7 Complete Maturity analysis disclosure

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IFRS 7 Complete Maturity analysis disclosure – IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments.

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 [IFRS 7 7 – 30]
  2. information about the nature and extent of risks arising from financial instruments [IFRS 7 31 – 42]

So … Read more

IFRS 7 Comprehensive Risk disclosures

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IFRS 7 Comprehensive Risk disclosures – Management should disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period [IFRS 7 31]. IFRS 7 Comprehensive Risk disclosures

IFRS 7 requires certain disclosures to be presented by category of an instrument based on the IFRS 9 recognition and measurement categories of financial instruments (previously the IAS 39 measurement categories). IFRS 7 Comprehensive Risk disclosures

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 … Read more

IFRS 12 Disclosure of Interest in Other Entities

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IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated ‘structured entities’. Disclosures are presented as a series of objectives, with detailed guidance on satisfying those objectives.

An investment entity that prepares financial statements in which all of its subsidiaries are measured at fair value through profit or loss presents the disclosures relating to investment entities required by IFRS 12. [IFRS 12 6 b ii]

IFRS 12 requires disclosure of the significant judgments and assumptions that an entity has made in determining the nature of its interest in another entity or arrangement. It also Read more

The IFRS 9 Framework for financial assets

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The IFRS 9 Framework for financial assets is a decision model

to help you go through decisions

with regard to

the classification and measurement of financial assets.

IFRS 9 recognises three different accounting policies for financial instruments. These principles determine the value of the financial instruments on the balance sheet. The IFRS 9 Framework for financial assets

The initial measurement is based on amortised costs, this is the amount for which an asset or liability is initially recognised in the balance sheet less principal repayments, plus or minus Read more

Fixed income Accounting for expected credit losses

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The ability to delay the recognition of credit losses on loans until there is evidence of a trigger event has been identified as one of the weaknesses in the incurred loss model outlined in Fixed income Accounting for expected credit losses IAS 39 for Fixed income Accounting for expected credit losses. To tighten up the credit loss rules, a forward-looking impairment model has been built into IFRS 9 that is applicable for bonds classified as amortized cost or FVOCI. Reporting entities are required to make Expected Credit Losses (ECL) calculations for these bonds.

Generally, the loss allowance shall be calculated at an amount equal to the 12-month ECL unless there has been a significant increase in credit risk since the purchase date of the … Read more

De minimis or non-genuine features

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De minimis or non-genuine features – A contractual cash flow characteristic does not affect the classification of a financial asset if it could have only a de minimis effect on the contractual cash flows of the financial asset. To make this determination, an entity considers the possible effect of the contractual cash flow characteristic in each reporting period and cumulatively over the life of the financial asset.

Additionally, if a contractual cash flow characteristic could have an effect on the contractual cash flows that is more than de minimis (either in a single reporting period or cumulatively), but that cash flow characteristic is not genuine, then it does not affect the classification of a financial asset.… Read more

Financial guarantees

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Financial guarantees IFRS 9 Definition: In general, a financial guarantee is a promise to take responsibility for another company’s financial obligation if that company cannot meet its obligation. The entity assuming this responsibility is called the guarantor. Financial guarantees

Such a guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt. Fi nancial guarantees

A contract with a customer may partially be in scope of IFRS 15 and partially within the scope of other standards, e.g. a contract for the lease of an asset and maintenance of the leased equipment.In such instances, an entity must first apply the other standards if those standards specify how to separate and/or … Read more

The way to IFRS 9 Financial Instruments

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This is the way to IFRS 9 Financial Instruments, introducing the why? for this new IFRS standard. In July 2014 the International Accounting Standards Board (IASB) published the 4th and final version of IFRS 9 Financial Instruments.

The way to IFRS 9 Financial Instruments

This was the conclusion of a major project started in 2002 as part of the Norwalk Agreement (WIKI) between the IASB and US Financial Accounting Standards Board (FASB) as a long term reform of financial instrument accounting.

The project had been divided into three phases in order to allow a step by step approach. Once a phase was completed, the corresponding chapters were created in IFRS 9 and withdrawn from IAS … Read more

Asset accumulation valuation example

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Asset accumulation valuation example  – The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach. Here is an example of the asset accumulation method:

A valuation expert has been retained to estimate the fair market value of the total equity of Brown Client Company (“Brown”) as of December 31, 2016. Let’s assume that Brown is a family-owned construction contractor company. Asset accumulation valuation example

The valuation expert decided to use the asset-based valuation approach and the asset accumulation valuation method. sset accumulation valuation example

The Brown GAAP-basis balance sheet for December 31, 2016, is presented on Exhibit 1. All financial data … Read more