What happened in the reporting period

What happened in the reporting period

There is no requirement to disclose a summary of significant events and transactions that have affected the company’s financial position and performance during the period under review (or simply what happened in the reporting period). However, information such as this could help readers understand the entity’s performance and any changes to the entity’s financial position during the year and make it easier finding the relevant information. However, information such as this could also be provided in the (unaudited) operating and financial review rather than the (audited) notes to the financial statements.

Covid-19
At the time of writing, the biggest impact on the financial statements of entities all around the world is related to the COVID-19 pandemic. Most entities will be affected by this in one form or another and should discuss the impact prominently in their financial statements. However, as the events are still unfolding, this publication is not providing any illustrative examples or guidance. See how to account for Covid-19 to get an up-to-date discussion.

Going concern disclosures [IAS1.25]
When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.

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IFRS 10 Special control approach

IFRS 10 Special control approach

– determines which entities are consolidated in a parent’s financial statements and therefore affects a group’s reported results, cash flows and financial position – and the activities that are ‘on’ and ‘off’ the group’s balance sheet. Under IFRS, this control assessment is accounted for in accordance with IFRS 10 ‘Consolidated financial statements’.

Some of the challenges of applying the IFRS 10 Special control approach include:

  • identifying the investee’s returns, which in turn involves identifying its assets and liabilities. This may appear straightforward but complications arise when the legal ownership of assets diverges from the accounting depiction (for example, in financial asset transfers that ‘fail’ de-recognition, and in finance leases). In general, the assessment of the investee’s assets and returns should be consistent with the accounting depiction in accordance with IFRS
  • it may not always be clear whether contracts and other arrangements between an investor and an investee
    • create rights or exposure to a variable return from the investee’s performance for the investor; or
    • transfer risk or variability from the investor to the investee IFRS 10 Special control approach
  • the relevant activities of an SPE may not be obvious, especially when its activities have been narrowly specified in its purpose and design IFRS 10 Special control approach
  • the rights to direct those activities might also be difficult to identify, because for example, they arise only in particular circumstances or from contracts that are outside the legal boundary of the SPE (but closely related to its activities).

IFRS 10 Special control approach sets out requirements for how to apply the control principle in less straight forward circumstances, which are detailed below:  IFRS 10 Special control approach

  • when voting rights or similar rights give an investor power, including situations where the investor holds less than a majority of voting rights and in circumstances involving potential voting rights
  • when an investee is designed so that voting rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements IFRS 10 Special control approach
  • involving agency relationships IFRS 10 Special control approach
  • when the investor has control only over specified assets of an investee
  • franchises. IFRS 10 Special control approach

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Consolidated financial statements

The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. The detailed ‘mechanics’ of the consolidation process vary from one group to another, depending on the group’s structure, history and financial reporting systems. IFRS 10 and much of the literature on consolidation are based on a traditional approach to consolidation under which the financial statements (or, more commonly in practice, group ‘reporting packs’) of group entities are aggregated and then adjusted on each reporting date.

IFRS 7 Best accounting for Treasury shares

IFRS 7 Best accounting for – Treasury shares are previously outstanding shares bought back from shareholders by the issuing company.

IFRS does not mandate a specific method of presenting treasury shares within equity. However, local laws may prescribe … Read more

Earnings per share

Earnings per share – The objective of IAS 33 Earnings per share is prescribing principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity.

Earnings per share is mostly used in the consolidated financial statements of a group with a parent:

  1. whose ordinary shares or potential ordinary shares are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
  2. that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing ordinary shares
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Dilution

Dilution is a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted etcetera

Disclosure innovations in financial reporting

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

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Allocation between Controlling and Non-controlling interest

Allocation between Controlling and Non-controlling interestAllocation between Controlling and Non-controlling interest is about consolidation, obtain control over but not hold 100% in another entity/subsidiary.

When a parent entity first obtains control over another entity, it recognises any non-controlling interest in the new subsidiary’s net assets as illustrated in the example below. In subsequent periods the parent allocates to the non-controlling interest its proportion of:

  • profit or loss Allocation between Controlling and Non-controlling interest
  • each component of other comprehensive income [IFRS 10 B94].

i.e. the entity’s profit or loss in consolidated profit or loss of the parent and the entity’s other comprehensive income in consolidated other comprehensive income of the parent. Allocation between Controlling and Non-controlling interest

The proportion allocated to non-controlling interest is based … Read more