IAS 1 Presentation of financial statements

IAS 1 Presentation of financial statements

Objective

IAS 1 Presentation of financial statements provides the basis for presentation of general-purpose financial statements, to ensure:

  • comparability both with the entity’s financial statements of previous periods, and
  • with the financial statements of other entities.

To achieve this objective, IAS 1 sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.

The illustration below shows an overview of the purpose, overall considerations, and components of financial statements.

IAS 1 Technical summary

Fundamental concepts/conventions for FS

Fair presentation and compliance with International Financial Reporting Standards (IFRSs)

  • Financial statements shall present fairly the financial position, financial performance and cash flows of an entity
  • An entity whose financial statements
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IAS 16 Generation assets for Power and Utilities

Generation assets for Power and Utilities

– are often large and complex installations. They are expensive to construct, tend to be exposed to harsh operating conditions and require periodic replacement or repair. This environment leads to specific accounting issues.

1 Fixed assets and components

IFRS has a specific requirement for ‘component’ depreciation, as described in IAS 16 Property, Plant and Equipment. Each significant part of an item of property, plant and equipment is depreciated separately. Significant parts of an asset that have similar useful lives and patterns of consumption can be grouped together. This requirement can create complications for utility entities, because many assets include components with a shorter useful life than the asset as a whole.

Identifying components of an asset

Generation assets might comprise a significant number of components, many of which will have differing useful lives. The significant components of these types of assets must be separately identified. This can be a complex process, particularly on transition to IFRS, because the detailed record-keeping needed for componentisation might not have been required in order to comply with national generally accepted accounting principles (GAAP). This can particularly be an issue for older power plants. However, some regulators require detailed asset records, which can be useful for IFRS component identification purposes.

An entity might look to its operating data if the necessary information for components is not readily identified by the accounting records. Some components can be identified by considering the routine shutdown or overhaul schedules for power stations and the associated replacement and maintenance routines. Consideration should also be given to those components that are prone to technological obsolescence, corrosion or wear and tear that is more severe than that of the other portions of the larger asset.

First-time IFRS adopters can benefit from an exemption under IFRS 1 First-time Adoption of International Financial Reporting Standards. This exemption allows entities to use a value that is not depreciated cost in accordance with IAS 16, and IAS 23 Borrowing Costs as deemed cost on transition to IFRS. It is not necessary to apply the exemption to all assets or to a group of assets.

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IFRS vs US GAAP Investment property – Broken in 10 great excellent reads

IFRS vs US GAAP Investment property

The following discussion captures a number of the more significant GAAP differences under both the impairment standards. It is important to note that the discussion is not inclusive of all GAAP differences in this area.

The significant differences and similarities between U.S. GAAP and IFRS related to accounting for investment property are summarized in the following tables.

Standards Reference

US GAAP1

IFRS2

360 Property, Plant and equipment

IAS 40 Investment property

Introduction

The guidance under US GAAP and IFRS as it relates to investment property contains some significant differences with potentially far-reaching implications.

Links to detailed observations by subject

Definition and classification Initial measurement Subsequent measurement
Fair value model Cost model Subsequent expenditure
Timing of transfers Measurement of transfers Redevelopment
Disposals

Overview

US GAAP

IFRS

Unlike IFRS Standards, there is no specific definition of ‘investment property’; such property is accounted for as property, plant and equipment unless it meets the criteria to be classified as held-for-sale.

‘Investment property’ is property (land or building) held by the owner or lessee to earn rentals or for capital appreciation, or both.

Unlike IFRS Standards, there is no guidance on how to classify dual-use property. Instead, the entire property is accounted for as property, plant and equipment.

A portion of a dual-use property is classified as investment property only if the portion could be sold or leased out under a finance lease. Otherwise, the entire property is classified as investment property only if the portion of the property held for own use is insignificant.

Unlike IFRS Standards, ancillary services provided by a lessor do not affect the treatment of a property as property, plant and equipment.

If a lessor provides ancillary services, and such services are a relatively insignificant component of the arrangement as a whole, then the property is classified as investment property.

Like IFRS Standards, investment property is initially measured at cost as property, plant and equipment.

Investment property is initially measured at cost.

Unlike IFRS Standards, subsequent to initial recognition all investment property is measured using the cost model as property, plant and equipment.

Subsequent to initial recognition, all investment property is measured under either the fair value model (subject to limited exceptions) or the cost model.

If the fair value model is chosen, then changes in fair value are recognised in profit or loss.

Unlike IFRS Standards, there is no requirement to disclose the fair value of investment property.

Disclosure of the fair value of all investment property is required, regardless of the measurement model used.

Similar to IFRS Standards, subsequent expenditure is generally capitalised if it is probable that it will give rise to future economic benefits.

Subsequent expenditure is capitalised only if it is probable that it will give rise to future economic benefits.

Unlike IFRS Standards, investment property is accounted for as property, plant and equipment, and there are no transfers to or from an ‘investment property’ category.

Transfers to or from investment property can be made only when there has been a change in the use of the property.

IFRS vs US GAAP Investment property IFRS vs US GAAP Investment property IFRS vs US GAAP Investment property

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Non-monetary transactions IFRS 15 Complete and Exemplary Read

Non-monetary transactions IFRS 15

Barter transactions are the exchange of goods or services, in exchange for other goods or services

IFRS References: IFRS 15, IAS 16, IAS 38, IAS 40 Non-monetary transactions IFRS 15

If an entity enters into a non-monetary exchange with a customer as part of its ordinary activities, then generally it applies the guidance on non-cash consideration in the IFRS 15 Revenue standard. Non-monetary transactions IFRS 15

Non-monetary exchanges with non-customers do not give rise to revenue. If a non-monetary exchange of assets with a non-customer has commercial substance, then the transaction gives rise to a gain or loss. The cost of the asset acquired is generally the fair value of the asset surrendered, adjusted for any cash transferred. Non-monetary transactions IFRS 15

Simple bartering involves no cost as this involves exchanging goods and/or services of the same value.

A barter exchange operates as a broker and bank in which each participating member has an account that is debited when purchasesNon-monetary transactions IFRS 15 are made, and credited when sales are made. Compared to one-to-one bartering, concerns over unequal exchanges are reduced in a barter exchange.

The exchange plays an important role because it provides the record-keeping, brokering expertise and monthly statements to each member. Commercial exchanges make money by charging a commission on each transaction on either the buy or sell side, or a combination of both. Non-monetary transactions IFRS 15

In general, one requirement remains in tact in non-monetary transactions, revenue cannot be recognised if the amount of revenue is not reliably measurable. Non-monetary transactions IFRS 15

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IFRS 5 Non-current assets Held for Sale and Discontinued Operations

 

IFRS 5 Non-current assets Held for Sale and Discontinued Operations

at a glance – here it is the ultimate summary:

IFRS 5

Source: https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance

Definitions
Cash-generating unit – The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Discontinued operation – A component of an entity that either has been disposed of or is classified as held for sale and either:
  • Represents a separate major line of business or geographical area
  • Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations
  • Is a subsidiary acquired exclusively with a view to resale.
SCOPE
  • Applies to all
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IAS 36 Other impairment issues

IAS 36 Other impairment issues – When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps: IAS 36 How Impairment test

  • What?? – Determining the scope and structure of the impairment review, explained here,
  • If and when? – Determining if and when a quantitative impairment test is necessary, explained here,
  • IAS 36 How Impairment test or understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary, which is explained here

IAS 36 Other impairment issues discusses other common application issues encountered when applying IAS 36, including those related to:

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Leveraged buyout IFRS 3 best reporting

Leveraged buyout IFRS 3 best reporting – In corporate finance, a leveraged buyout (LBO) is a transaction where a company is acquired using debt as the main source of consideration. These transactions typically occur when a private equity (PE) firm borrows as much as they can from a variety of lenders (up to 70 or 80 percent of the purchase price) and funds the balance with their own equity. Leveraged buyout IFRS 3 best reporting

1 The process and business reason

The use of leverage (debt) enhances expected returns to the private equity firm. By putting in as little of their own money as possible, PE firms can achieve a large return on equity (ROE) and internal rate of return … Read more

1 best way Q Inventory or Equipment?

Inventory or Equipment – This distinction is important because inventory is current and equipment is non-current property plant and equipment. Inventory is cash flow from operating activities, equipment is cash flow used in investing activities. Inventory is cost of sales and equipment is depreciation. Inventory or Equipment

Equipment is recognised component-wise. This means each significant part is treated just like a non-current asset. When that part is replaced, it is derecognised (or scrapped) and the new part is purchased and capitalised. Inventory or Equipment

Therefore, the stocks of such significant parts are not classified as inventories. They are just like capital ‘work in progress’. The stock of significant parts awaiting utilisation may be classified as for example equipment … Read more

Notes to the financial statements

Notes to the financial statements that contain information in addition to the statement of financial position, of financial performance, of changes in equity

Non-current asset

A non-current asset is an asset that is not expected to turn to cash within one year of date shown on a company's statement of financial position