Foreign currency translation

There are two accounting events in which an entity must deal with foreign currency translation:

  • Purchases, sales, cash receipts, cash payments, investments and other (individual) financial transactions in a currency other than the functional currency of the entity accounting for these transactions, Foreign currency translation
  • Conversion of financial statements of a foreign (currency) subsidiary or branch upon consolidation in the consolidated financial statements.

Financial transactions:

A company needs to decide on its presentation currency. This is a currency that is functionally (logically) based on the economic environment in which this company is operating.

– Foreign currency remeasurement

A foreign currency denominated transaction must be recorded initially as per the exchange rate applicable on the transaction date. Thereafter, at every … Read more

Disclosure Financial risk management

Disclosure Financial risk management

Disclosure financial risk management provides the guidance on the need for disclosure of the management policies, procedures and measurement practices in place at the operations within the reporting entity’s group of companies and an actual example of disclosures for financial risk management.

Disclosure Financial risk management guidance

Classes of financial instruments

Where IFRS 7 requires disclosures by class of financial instrument, the entity shall group its financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. The classes are determined by the entity and are therefore distinct from the categories of financial instruments specified in IFRS 9. Disclosure Financial risk management

As a minimum, the entity should distinguish between financial instruments measured at amortised cost and those measured at fair value, and treat as separate class any financial instruments outside the scope of IFRS 9. The entity shall provide sufficient information to permit reconciliation to the line items presented in the balance sheet. Guidance on classes of financial instruments and the level of required disclosures is provided in Appendix B to IFRS 7. [IFRS 7.6, IFRS 7.B1-B3]

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Disclosure Corporate Income Tax

Disclosure Corporate Income Tax

– provides guidance on the disclosure requirements under IFRS for IAS 12 income tax and provides a comprehensive example of a potential disclosures for these income taxes/corporate income tax.

Disclosure corporate income tax – Guidance

Relationship between tax expense and accounting profit

Entities can explain the relationship between tax expense (income) and accounting profit by disclosing reconciliations between: [IAS 12.81(c), IAS 12.85]

  1. tax expense and the product of accounting profit multiplied by the applicable tax rate, or
  2. the average effective tax rate and the applicable tax rate.

The applicable tax rate can either be the domestic rate of tax in the country in which the entity is domiciled, or it can be determined by aggregating separate reconciliations prepared using the domestic rate in each individual jurisdiction. Entities should choose the method that provides the most meaningful information to users.

Where an entity uses option (a) above and reconciles tax expense to the tax that is calculated by multiplying accounting profit with the applicable tax rate, the standard does not specify whether the reconciliation should be done for total tax expense, or only for tax expense attributable to continuing operations. While RePorting Co. Plc is reconciling total tax expense, it is equally acceptable to use profit from continuing operations as a starting point.

Initial recognition exemption – subsequent amortisation

The amount shown in the reconciliation of prima facie income tax payable to income tax expense as ‘amortisation of intangibles’ represents the amortisation of a temporary difference that arose on the initial recognition of the asset and for which no deferred tax liability has been recognised in accordance with IAS 12.15(b). The initial recognition exemption only applies to transactions that are not a business combination and do not affect either accounting profit or taxable profit.

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Equity reserves – 1 Best complete read

Equity reserves

are part of owner’s equity

Equity is defined as follows: The residual interest in the assets of the enterprise after deducting all of its liabilities. Equity reserves are defined/described in several IFRS Standards, let’s see….

Equity consists of several components such as Share capital, Treasury shares (issued shares held by the entity in a buyback), Share premium account (or Additional paid-in capital), Retained earnings and Non-controlling interest. But there is more….

  • Translation reserve (foreign currency translation reserve), that arises from the change in FX rates from translation of foreign operating entities (in other than the consolidationEquity reserves Equity reserves Equity reserves currency) from reporting period to reporting period, When realised in a sale the result is reclassified from other comprehensive income (OCI)
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Reclassification adjustments

With an increase in the use of fair value measurement in the financial position, there was a need to separate realised gains and losses from unrealised gains and loss. Realised gains and losses (using accrual accounting) are include in profit or loss. Unrealised gains and losses in other comprehensive income.

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