Example accounting policies

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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Step 1 Identify the contract with the customer

Step 1 Identify the contract with the customer

– is the starting point of IFRS 15 Revenue from contract with customers. IFRS 15 The revenue recognition standard provides a single comprehensive standard that applies to nearly all industries and has changed revenue recognition quite significant. Step 1 Identify the contract with the customer

IFRS 15 introduced a five step process for recognising revenue, as follows:Step 1 Identify the contract with the customer

      1. Identify the contract with the customer
      2. Identify the performance obligations in the contract
      3. Determine the transaction price for the contract
      4. Allocate the transaction price to each specific performance obligation
      5. Recognise the revenue when the entity satisfies each performance obligation

 


INTRO – Step 1: Identify the contract with the customer – A contract with a Read more

1st and best IFRS Accounting for client money

IFRS Accounting for client money

If an entity holds money on behalf of clients (‘client money’):

  • should the client money be recognised as an asset in the entity’s financial statements?
  • where the client money is recognised as an asset, can it be offset against the corresponding liability to the client on the face of the statement of financial position?

DEFINITION: Client money

“Client money” is used to describe a variety of arrangements in which the reporting entity holds funds on behalf of clients. Client money arrangements are often regulated and more specific definitions of the term are contained in some regulatory pronouncements. The guidance in this alert is not specific to any particular regulatory regime.

Entities may hold money on behalf of clients under many different contractual arrangements, for example:

  • a bank may hold money on deposit in a customer’s bank account;
  • a fund manager or stockbroker may hold money on behalf of a customer as a trustee;
  • an insurance broker may hold premiums paid by policyholders before passing them onto an insurer;
  • a lawyer or accountant may hold money on behalf of a client, often in a separate client bank account where the interest earned is for the client’s benefit.

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Offsetting

Offsetting - Identifying, recognising and measuring both an asset and a liability as separate units of account, but presenting them as a net asset or liability

What can happen to a contract with a customer?

What can happen to a contract with a customer? – IFRS 15 Revenue from Contracts with Customers (contents page is here) introduced a single and comprehensive framework which sets out how much revenue is to be recognised, and when. The core principle is that a vendor should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. See a summary of IFRS 15 here.

In step 1 Identify the contract there are some specifically identified circumstances to capture the day-to-day complexities of selling products and services to customers into useful financial reporting:

  1. Combination
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Bank overdrafts and cash and cash equivalents

Bank overdrafts and cash and cash equivalents – IAS 7 8 notes that although bank borrowings are generally considered to be financing activities, in some countries bank overdrafts form an integral part of an entity’s cash management. In such cases, bank overdrafts are included as a component of cash and cash equivalents meaning that bank overdraft balances would be offset against any positive cash and cash equivalent balances for the purposes of the statement of cash flows.

However, care is required when presenting bank overdrafts, and cash and cash equivalents, in the statement of financial position. This is because, even though IAS 7 permits offset of balances in the statement of cash flows, this may not be permitted by IAS Read more

IFRS 16 Leases and joint arrangements

IFRS 16 Leases and joint arrangements – Entities often enter into joint arrangements with other entities for certain activities (e.g., exploration of oil and gas fields, development of pharmaceutical products).

A contract for the use of an asset by a joint arrangement might be entered into in a number of different ways, including:

  1. Directly by the joint arrangement, if the joint arrangement has its own legal identity IFRS 16 Leases and joint arrangements
  2. By each of the parties to the joint arrangement (i.e., the lead operator and the other parties, commonly referred to as the non-operators) individually signing the same arrangementIFRS 16 Leases and joint arrangements
  3. By one or more of the parties to the joint arrangement on behalf of the joint arrangement. Generally, this
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