IFRS 18 Presentation and Disclosure in Financial Statements – Best read

IFRS 18 Presentation and Disclosure in Financial Statements

The IASB’s newly issued standard IFRS 18 mainly deals with the presentation of the income statement, balance sheet and certain footnotes. At the same time, certain aspects of the cash flow statement are modified. IFRS 18 does not change the recognition and measurement of the components of financial statements; therefore, the amounts reported as shareholders’ equity and net income are both unchanged. However, it will have a significant impact on the presentation and disaggregation of what is reported (primarily in the income statement and footnotes), including what subtotals companies must provide and how these are defined.

There are five main areas where we think the new standard will help investors as users of IFRS Financial Statements:IFRS 18 Presentation and Disclosure in Financial Statements

Operating–Investing–Financing classification

IFRS 18 aims to establishes a structured statement of profit or loss by implementing the following measures:

  • It introduces three defined categories for income and expenses: operating, investing, and financing.
    • Operating – income/expenses resulting from the company’s main business operations.
    • Investingincome/expenses from:
      • investments in associates, joint ventures and unconsolidated subsidiaries;
      • cash and cash equivalents;
      • assets that generate a return individually and largely independently (e.g. rental income from investment properties).
    • Financing – consisting of:
      • income/expenses from liabilities related to raising finance only (e.g. interest expense on borrowings); and
      • interest income/expenses and effects of changes in interest rates from other liabilities (e.g. interest expense on lease liabilities).
  • It mandates to present new defined totals and subtotals, including operating profit, thereby enhancing the clarity and consistency of financial reporting.

Entities primarily engaged in investing in assets or providing finance to customers are subject to specific categorisation requirements. This entails that additional income and expense items, which would typically be classified as investing or financing activities, are instead categorised under operating activities. Consequently, operating profit reflects the outcomes of an entity’s core business operations. Identifying the main business activity involves exercising judgment based on factual circumstances.

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Natural disasters Decommissioning obligations

Natural disasters Decommissioning obligations arise when an entity is required to dismantle or remove an asset at the end of its useful life and to restore the site on which it has been located, for example, when an oil rig or nuclear power station reaches the end of its economic life. Natural disasters Decommissioning obligations

Natural disasters Decommissioning obligations

Rather than allowing an entity to build up a provision for the required costs over the life of the facility, IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires that the liability is recognised as soon as the obligation arises, which will normally be at commencement of operations. Similarly, IAS 16 Property, plant and equipment requires the initial cost of an item of property, plant … Read more

Natural disasters Hedge accounting

Natural disasters Hedge accounting, how to deal with this combination, contracts go on but the business dies….. Here is how to report such issues under IFRS.

The natural disaster and potential subsequent events can disrupt many business transactions that may be postponed or cancelled. For example, entities may have been forecasting purchases of local goods or sales of their goods to local entities. Natural disasters Hedge accounting

Prior to the disaster, many such transactions may have constituted ‘highly probable’ hedged transactions in cash flow hedges under IFRS 9 Financial instruments (or IAS 39, if still applicable). However, purchases and sales that were considered highly probable a few weeks prior to the natural disaster, may no longer be highly probable (in … Read more

Natural disasters Financial impact overview

Natural disasters Financial impact overview comprises a discussion of items to quantify in table in combination with qualifications to provide a clear as possible picture (without photo shopping the disaster off course). As communities begin the process of recovering from the tragedy of a natural disaster, entities operating in those locations, or providing goods and services in them, raise questions about the related financial reporting effects. This narrative provides a reminder of the existing accounting requirements that should be considered when addressing the financial effects of natural disasters, including:

  • Asset impairments– If an entity determines that the events resulting from a natural disaster have triggered impairment indicators, an impairment test must be performed in accordance with IAS 36
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Natural disasters Financial statement disclosure

Natural disasters Financial statement disclosure is about that, how to explain the disaster in the financial statements in a manner that leads to useful information for many users. The financial statement disclosure for entities directly and/or indirectly affected by natural disasters will vary depending on the magnitude of their losses and the availability of information.

In many cases, the financial statement disclosure requirements are addressed based on the nature of the loss (e.g., asset impairments, hedging, decommissioning costs) or the timing of the loss (e.g., events after the reporting period). Because the natural disaster may result in new obligations and uncertainties that an entity may not have previously experienced, the following discussion provides a brief summary of some of the … Read more

Natural disasters Classification of income and expense

Natural disasters Classification of income and expense deals with how important these (insurance) income and (impairment) expense items are in the financial statement after such disaster.

IAS 1 Presentation of Financial Statements requires that when items of income or expense (a term covering both profit or loss and other comprehensive income) are material, their nature and amount are disclosed separately. The standard provides examples of circumstances that would give rise to the separate disclosure of items of income and expense, which include:

  1. Write-downs of inventories to net realisable value, or of property, plant and equipment to recoverable amount, as well as reversals of such write-downsNatural disasters Classification of income and expense
  2. Restructuring of the activities of an entity and reversals of any provisions for the costs
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Natural disasters Insurance recoveries and reimbursements

Natural disasters Insurance recoveries and reimbursements discusses the IFRS accounting between several standards and the reporting for a natural disaster and the insurances involved.

An entity may experience a loss related to a natural disaster either through the impairment of an asset or the incurrence of a liability. For example, as a result of damage from a natural disaster, an entity may determine that an item of property, plant and equipment is impaired in accordance with IAS 36 Impairment of assets or that a receivable from a customer is impaired in accordance with IFRS 9 Financial instruments (or IAS 39, if still applicable).

Alternatively, an entity may incur costs to repair a damaged facility or determine that it has a … Read more

Natural disasters Miscellaneous considerations

Natural disasters Miscellaneous considerations deals with several special IFRS accounting issues after a natural disaster.

Future operating losses Natural disasters Miscellaneous considerations

Entities may incur other losses directly or indirectly related to a natural disaster. An entity may anticipate having future operating losses for a period of time after a natural disaster. For example, an entity may have repair costs, lost revenue due to plant closures or losses due to an overall decline in the economy. Additional costs might be incurred in renting alternative production facilities, providing transport or accommodation for employees or outsourcing business functions.

Future operating losses and costs do not meet the definition of a liability (because they do not arise from a present obligation resulting Read more

Natural disasters Restructuring

When your business is just surviving, Natural disasters Restructuring does not help, but the accounting and financial reporting is somewhat explained here. As a result of a natural disaster, an entity may decide to sell or abandon certain assets or execute a restructuring plan. A restructuring is a programme that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity or the manner in which business is conducted. IAS 37 Provisions, Contingent Liabilities and Contingent Assets addresses the accounting for costs associated with exit or disposal activities. Exit activities may include: Natural disasters RestructuringNatural disasters Restructuring

  • Sale or termination of a line of business Natural disasters Restructuring
  • Closure of a business location in
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