Wiley 2023 Interpretation and Application of IFRS Standards E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Wiley Regulatory Reporting
- Sprache: Englisch
The newest edition of an essential accounting resource The Wiley 2023 Interpretation and Application of IFRS Standards is an authoritative, one-stop resource for accountants who need to interpret and apply the most recent International Financial Reporting Standards with precision and consistency. The book contains numerous practical examples and up-to-date guidance on the expanding framework for unified financial reporting. The authors have created a volume that offers transparent, accessible, and efficient information relevant to the ever-evolving IFRS standards. Readers will also find: * Clear and informative explanations of the newest updates found in the 2023 IFRS Standards * Well-reasoned examples of new standards being applied to difficult cases drawn from real-world situations * Realistic and practical advice created by, and for, accounting professionals Perfect for accountants and auditors, the Wiley 2023 Interpretation and Application of IFRS Standards will earn a place on the desks and bookshelves of students of accounting, finance, and related fields.
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Table of Contents
COVER
TITLE PAGE
COPYRIGHT
ABOUT THE AUTHORS
1 INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
INTRODUCTION
THE CURRENT STRUCTURE
PROCESS OF IFRS STANDARD-SETTING
Appendix A: Current International Financial Reporting Standards (IAS/IFRS) And Interpretations (SIC/IFRIC)
APPENDIX B: IFRS FOR SMEs
2 CONCEPTUAL FRAMEWORK
INTRODUCTION
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING 2018
HIERARCHY OF STANDARDS
IFRS PRACTICE STATEMENT 1—MANAGEMENT COMMENTARY
FUTURE DEVELOPMENTS
US GAAP COMPARISON
3 PRESENTATION OF FINANCIAL STATEMENTS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
FINANCIAL STATEMENTS
GENERAL FEATURES
STRUCTURE AND CONTENT
FUTURE DEVELOPMENTS
ILLUSTRATIVE FINANCIAL STATEMENTS
US GAAP COMPARISON
4 STATEMENT OF FINANCIAL POSITION
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
GENERAL CONCEPTS, STRUCTURE AND CONTENT
CLASSIFICATION OF ASSETS
CLASSIFICATION OF LIABILITIES
CLASSIFICATION OF SHAREHOLDERS' EQUITY
FUTURE DEVELOPMENTS
US GAAP COMPARISON
5 STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME, AND CHANGES IN EQUITY
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
CONCEPTS OF INCOME
RECOGNITION AND MEASUREMENT
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
PRESENTATION IN THE STATEMENT OF PROFIT OR LOSS
OTHER COMPREHENSIVE INCOME
STATEMENT OF CHANGES IN EQUITY
FUTURE DEVELOPMENTS
US GAAP COMPARISON
6 STATEMENT OF CASH FLOWS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
BACKGROUND
PRESENTATION
OTHER REQUIREMENTS
DISCLOSURE AND EXAMPLES
CONSOLIDATED STATEMENT OF CASH FLOWS
FUTURE DEVELOPMENTS
US GAAP COMPARISON
NOTES
7 ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
IMPORTANCE OF COMPARABILITY AND CONSISTENCY IN FINANCIAL REPORTING
ACCOUNTING POLICIES
SELECTING ACCOUNTING POLICIES
CHANGES IN ACCOUNTING POLICIES
ACCOUNTING ESTIMATES
CHANGES IN ACCOUNTING ESTIMATES
CORRECTION OF ERRORS
FUTURE DEVELOPMENTS
US GAAP COMPARISON
8 INVENTORIES
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
METHODS OF INVENTORY
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
9 PROPERTY, PLANT AND EQUIPMENT
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
LEASEHOLD IMPROVEMENTS
DERECOGNITION
DISCLOSURES
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
10 BORROWING COSTS
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
CARRYING AMOUNT IN EXCESS OF RECOVERABLE AMOUNT
DISCLOSURE REQUIREMENTS
US GAAP COMPARISON
11 INTANGIBLE ASSETS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
DISCLOSURES
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURE
FUTURE DEVELOPMENTS
US GAAP COMPARISON
12 INVESTMENT PROPERTY
INTRODUCTION
DEFINITIONS OF TERMS
IDENTIFICATION
RECOGNITION AND MEASUREMENT
PRESENTATION AND DISCLOSURE
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
13 IMPAIRMENT OF ASSETS AND NON-CURRENT ASSETS HELD FOR SALE
INTRODUCTION
DEFINITIONS OF TERMS: IMPAIRMENT OF ASSETS
IMPAIRMENT OF ASSETS (IAS 36)
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
DEFINITIONS OF TERMS: NON-CURRENT ASSETS HELD FOR SALE
NON-CURRENT ASSETS HELD FOR SALE
DISCONTINUED OPERATIONS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
14 CONSOLIDATIONS, JOINT ARRANGEMENTS, ASSOCIATES AND SEPARATE FINANCIAL STATEMENTS
INTRODUCTION
DEFINITIONS OF TERMS
CONSOLIDATED FINANCIAL STATEMENTS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
JOINT ARRANGEMENTS
ASSOCIATES
EQUITY METHOD OF ACCOUNTING
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
SEPARATE FINANCIAL STATEMENTS
DISCLOSURE REQUIREMENTS
IASB ACCOUNTING STANDARD PROJECT ON SUBSIDIARIES WITHOUT PUBLIC ACCOUNTABILITY: DISCLOSURES
US GAAP COMPARISON
15 BUSINESS COMBINATIONS
INTRODUCTION
DEFINITIONS OF TERMS
BUSINESS COMBINATIONS AND CONSOLIDATIONS
BUSINESS COMBINATIONS
DISCLOSURE REQUIREMENTS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
NOTE
16 SHAREHOLDERS' EQUITY
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
PRESENTATION AND DISCLOSURE
CLASSIFICATION BETWEEN LIABILITIES AND EQUITY
SHARE ISSUANCES AND RELATED MATTERS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
17 SHARE-BASED PAYMENT
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
OVERVIEW
RECOGNITION AND MEASUREMENT
EQUITY-SETTLED SHARE-BASED PAYMENTS
CASH-SETTLED SHARE-BASED PAYMENTS
SHARE-BASED PAYMENT TRANSACTIONS WITH CASH ALTERNATIVES
SHARE-BASED TRANSACTIONS AMONG GROUP ENTITIES
DISCLOSURE
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
APPENDIX: EMPLOYEE SHARE OPTIONS VALUATION EXAMPLE UNDER IFRS
18 CURRENT LIABILITIES, PROVISIONS, CONTINGENCIES AND EVENTS AFTER THE REPORTING PERIOD
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION AND MEASUREMENT
DISCLOSURES
PRACTICAL EXAMPLES
REPORTING EVENTS OCCURRING AFTER THE REPORTING PERIOD
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
19 EMPLOYEE BENEFITS
INTRODUCTION
DEFINITIONS OF TERMS
BACKGROUND
BASIC PRINCIPLES OF IAS 19
POST-EMPLOYMENT BENEFIT PLANS
EMPLOYER'S LIABILITY AND ASSETS
MINIMUM FUNDING REQUIREMENT
OTHER PENSION CONSIDERATIONS
DISCLOSURES FOR POST-EMPLOYMENT BENEFIT PLANS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
OTHER EMPLOYEE BENEFITS
FUTURE DEVELOPMENTS
US GAAP COMPARISON
20 REVENUE FROM CONTRACTS WITH CUSTOMERS
INTRODUCTION
DEFINITIONS OF TERMS
SCOPE
THE REVENUE MODEL
CONTRACT COST
PRESENTATION
DISCLOSURE
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES
SPECIFIC TRANSACTIONS IN IFRS 15
OTHER SPECIFIC TRANSACTIONS
FUTURE DEVELOPMENTS
US GAAP COMPARISON
21 GOVERNMENT GRANTS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
RECOGNITION OF GOVERNMENT GRANTS
PRESENTATION AND DISCLOSURE
OTHER ISSUES
SERVICE CONCESSIONS
US GAAP COMPARISON
22 LEASES
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
CLASSIFICATION OF LEASES
RECOGNITION AND MEASUREMENT
DISCLOSURE REQUIREMENTS
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
23 FOREIGN CURRENCY
INTRODUCTION
DEFINITIONS OF TERMS
SCOPE, OBJECTIVES AND DISCUSSION OF DEFINITIONS
FOREIGN CURRENCY TRANSACTIONS
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS
GUIDANCE APPLICABLE TO SPECIAL SITUATIONS
DISCLOSURE
HEDGING
EXAMPLES OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
24 FINANCIAL INSTRUMENTS
INTRODUCTION
DEFINITIONS OF TERMS
RECOGNITION, MEASUREMENT AND DERECOGNITION OF FINANCIAL INSTRUMENTS
FINANCIAL LIABILITIES
SUBSEQUENT MEASUREMENT OF FINANCIAL LIABILITIES
EMBEDDED DERIVATIVES
FINANCIAL INSTRUMENTS MEASURED AT AMORTISED COST
FAIR VALUATION GAINS AND LOSSES
IMPAIRMENT OF FINANCIAL INSTRUMENTS
HEDGE ACCOUNTING
EFFECTIVE DATE AND TRANSITION REQUIREMENTS OF IFRS 9
PRESENTATION OF FINANCIAL INSTRUMENTS UNDER IAS 32
DISCLOSURES
EXAMPLE: FINANCIAL ASSETS SUBJECT TO OFFSETTING, ENFORCEABLE MASTER NETTING ARRANGEMENTS AND SIMILAR AGREEMENTS
EXAMPLE: FINANCIAL LIABILITIES SUBJECT TO OFFSETTING, ENFORCEABLE MASTER NETTING ARRANGEMENTS AND SIMILAR AGREEMENTS
EXAMPLE: NET FINANCIAL ASSETS SUBJECT TO ENFORCEABLE MASTER NETTING ARRANGEMENTS AND SIMILAR AGREEMENTS, BY COUNTERPARTY
FUTURE DEVELOPMENTS
US GAAP
25 FAIR VALUE
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
FAIR VALUE MEASUREMENT PRINCIPLES AND METHODOLOGIES
DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
26 INCOME TAXES
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
IDENTIFICATION
RECOGNITION AND MEASUREMENT OF CURRENT TAX
RECOGNITION AND MEASUREMENT OF DEFERRED TAX
RECOGNITION IN PROFIT OR LOSS
CALCULATION OF DEFERRED TAX ASSET OR LIABILITY
EFFECT OF CHANGED CIRCUMSTANCES
SPECIFIC TRANSACTIONS
PRESENTATION AND DISCLOSURE
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
27 EARNINGS PER SHARE
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
CONCEPTS, RULES AND EXAMPLES
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES
US GAAP COMPARISON
28 OPERATING SEGMENTS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
CONCEPTS AND REQUIREMENTS
DISCLOSURE REQUIREMENTS
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES UNDER IFRS
US GAAP COMPARISON
29 RELATED PARTY DISCLOSURES
INTRODUCTION
DEFINITIONS OF TERMS
IDENTIFICATION
DISCLOSURES
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES UNDER IFRS
US GAAP COMPARISON
30 ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
DEFINED CONTRIBUTION PLANS
DEFINED BENEFIT PLANS
DISCLOSURES
US GAAP COMPARISON
31 AGRICULTURE
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
IDENTIFICATION
RECOGNITION AND MEASUREMENT
PRESENTATION AND DISCLOSURES
OTHER ISSUES
US GAAP COMPARISON
32 EXTRACTIVE INDUSTRIES
INTRODUCTION
DEFINITIONS OF TERMS
EXPLORATION AND EVALUATION OF MINERAL RESOURCES
ASSETS SUBJECT TO IFRS 6
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES
IFRIC 20,
STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE
EXAMPLE OF FINANCIAL STATEMENT DISCLOSURES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
33 ACCOUNTING FOR INSURANCE CONTRACTS
INTRODUCTION
SCOPE OF IFRS 17
DEFINITIONS OF TERMS
US GAAP COMPARISON
34 INTERIM FINANCIAL REPORTING
INTRODUCTION
SCOPE
DEFINITIONS OF TERMS
OBJECTIVES OF INTERIM FINANCIAL REPORTING
APPLICATION OF ACCOUNTING POLICIES
PRESENTATION AND DISCLOSURES
RECOGNITION AND MEASUREMENT ISSUES
US GAAP COMPARISON
35 HYPERINFLATION
INTRODUCTION
FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES
FUTURE DEVELOPMENTS
US GAAP COMPARISON
APPENDIX: MONETARY VS. NON-MONETARY ITEMS
36 FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
INTRODUCTION
DEFINITIONS OF TERMS
FIRST-TIME ADOPTION GUIDANCE
OPTIONAL EXEMPTIONS
PRESENTATION AND DISCLOSURE
INDEX
END USER LICENSE AGREEMENT
List of Illustrations
Chapter 17
Figure 17.1 Fair value hierarchy
Figure 17.2 Modifications and cancellations to the terms and conditions
Chapter 25
Figure 25.1 Hierarchy of Fair Value Inputs
Guide
Cover
Title Page
Copyright
About the Authors
Table of Contents
Begin Reading
Index
End User License Agreement
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2023 Interpretation and Application of IFRS® Standards
Salim Alibhai
Erwin Bakker
T V Balasubramanian
Kunal Bharadva
Asif Chaudhry
Danie Coetsee
Jamie Drummond
Rob Hercus
Patrick Kuria
Frederick Macharia
Gillian Morrison
Rekha Nambiar
J Ramanarayanan
Darshan Shah
Douglas Woolley
A special note of appreciation to PKF O'Connor Davies, in the U.S., for their contributions to the US GAAP comparisons, interpretations and application material.
This edition contains interpretations and application of the IFRS Standards, as approved by the International Accounting Standards Board (Board) for issue up to 31 December 2022, that are required to be applied for accounting periods beginning on 1 January 2023.
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ABOUT THE AUTHORS
Salim Alibhai, FCCA, CPA (K), CPA (U), is an audit partner at PKF Kenya LLP and is involved in audits across diverse sectors and specialises in group audits. He is also part of the IT Risk Advisory Team of the Eastern Africa PKF member firms.
Erwin Bakker, RA, CDPSE, is international audit partner of PKF Wallast in the Netherlands, mainly involved in international (group) audits both as group audit lead and component auditor. He serves as chairman of the IFRS working group of PKF Wallast and was previously part of the Technical Bureau of PKF Wallast. He is a member of the NBA (Koninklijke Nederlandse Beroepsorganisatie van Accountants – The Royal Netherlands Institute of Chartered Accountants).
T V Balasubramanian, FCA, CFE, Registered Valuer and Insolvency Professional, is a senior partner in PKF Sridhar & Santhanam LLP, Chartered Accountants, India, and previously served as a member of the Auditing and Assurance Standards Board of the ICAI, India, and Committee on Accounting Standards for Local Bodies of the ICAI, India. He has been part of the technical team of the firm engaged in transition to Ind AS (the converged IFRS Standards) and the ongoing implementation of new and revised standards.
Kunal Bharadva, FCCA, CPA (K), ACA, is a partner at PKF Kenya LLP and is the Head of Training across the Eastern Africa PKF member firms.
Asif Chaudhry, FCCA, FCPA (K), MBA, ACA, is an audit partner at PKF Kenya LLP and heads the technical and quality control functions across the Eastern Africa PKF member firms. He is also a member of the Kenyan Institute's Professional Standards Committee.
Danie Coetsee, PhD (Accounting Sciences), CA (SA), is Professor of Accounting at the University of Johannesburg, specialising in financial accounting. He is the former chair of the Accounting Practice Committee of the South African Institute of Chartered Accountants, and of the Financial Reporting Technical Committee of the Financial Reporting Standards Council of South Africa.
Jamie Drummond, Head of Assurance with PKF Global, Jamie Drummond supports the PKF membership around the world deliver high quality audit and assurance engagements. Jamie's career in auditing has spanned more than 25 years, including previous roles leading engagements with PwC and KPMG in a variety of locations, including Scotland, Australia, Canada, Moscow and London.
Rob Hercus is a Chartered Accountant and Certified Coach with over 10 years' experience across Big 4 external audit, mid-tier internal audit, and his own private coaching business. After qualifying as a CA (ICAS) in 2016 with PwC, he managed a portfolio of clients primarily in the energy industry service sector, and also performed additional roles including training course facilitator and internal quality reviewer. Rob is now a Senior Manager at PKF Global in its Global Monitoring team, responsible for carrying out global network inspections and contributing to the ongoing development of inspections materials and supporting systems, as well as delivery of related learning and development activities, to enhance network quality management.
Patrick Kuria, B/Ed (Hons), CPA (K), is a partner at PKF Kenya LLP and specialises in the audits of financial services and the not-for-profit sector. He is a member of the Institute of Certified Public Accountants of Kenya (ICPAK), PKF Eastern Africa technical committee and also serves as the chair of PKF Eastern Africa CSR Committee. He is a Life Member of Award Holders Alumni Kenya (AHA-K) and a member of the finance committee for President's Awards Kenya.
Fredrick Macharia, B. Com (Accounting), CPA (K), is the Director, Risk, Compliance & Quality Control at PKF Kenya LLP and is responsible for coordinating and implementing the risk, compliance and quality control functions across the Eastern Africa PKF member firms. He is a member of the PKF Eastern Africa technical committee and a former member of the Kenyan Institute's Professional Standards Committee. Prior to joining PKF Kenya LLP, Fredrick was the Professional Practice Group coordinator for EY East African Practice, a technical team that deals with financial reporting and auditing matters as well as risk management.
Gillian Morrison gained her CA in 2004 and managed a multitude of diverse audits. Gillian was also involved in global internal quality reviews and was an active member of the Scottish training team. Gillian spent 7 years in Muscat working within the assurance team of a Big-4 firm, managing a range of internal roles; including risk and quality, learning and development and professional qualifications. At PKF Global, Gillian supports our worldwide membership on audit methodology, quality and assurance. Externally, Gillian is an active participant at the Forum of Firms.
Rekha Nambiar, CPA (New York, USA and New Jersey, USA), is a Partner with PKF O'Connor Davies and helps oversee the firm's Quality Control Group. In her role, Rekha is responsible for many of the firm's quality initiatives related to assurance engagements and serves as a technical resource pertaining to accounting (US GAAP) and auditing matters. She is a member of the American Institute of Certified Public Accountants, the New York State Society of Certified Public Accountants and the New Jersey Society of Certified Public Accountants.
Ramanarayanan J, FCA, Cert. in IFRS (ICAEW), is a partner in PKF Sridhar & Santhanam LLP, Chartered Accountants, India. He has been part of the Ind AS (the converged IFRS Standards) technical team of the firm and actively involved in the ongoing implementation of new and revised standards.
Darshan Shah, FCCA, CPA (K), CPA (U), ACA, is a partner with PKF Kenya LLP, a director with PKF Taxation Services Limited and is the Head of Audit and Assurance for the Eastern Africa PKF member firms.
Douglas Woolley, CA(SA), qualified as an Chartered Accountant in 2011, having concluded his articles with a medium-sized firm, he thereafter pursued a career in commerce. Doug elected to re-enter the audit world and joined PKF Global Assurance as a Senior Manager in 2022, where he is primarily focussed on quality and risk.
1INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Introduction
The Current Structure
Process of IFRS Standard-Setting
Appendix A: Current International Financial Reporting Standards (IAS/IFRS) And Interpretations (SIC/IFRIC)
Appendix B: IFRS for SMEs
Definition of SMEs
IFRS for SMEs is a Complete, Self-Contained Set of Requirements
Modifications of Full IFRS Made in the IFRS for SMEs
Disclosure Requirements Under the IFRS for SMEs
Maintenance of the IFRS for SMEs
Implications of the IFRS for SMEs
Application of the IFRS for SMEs
INTRODUCTION
The mission of the IFRS Foundation and the International Accounting Standards Board (IASB) is to develop International Financial Reporting Standards (IFRS) that bring transparency, accountability and efficiency to financial markets around the world. They seek to serve the public interest by fostering trust, growth and long-term stability in the global economy. The IFRS Foundation also created the International Sustainability Standards Board to develop sustainability standards. These standards are outside the scope of this book.
The driver for the convergence of historically dissimilar financial reporting standards has been mainly to facilitate the free flow of capital so that, for example, investors in the US would become more willing to finance business in, say, China or the Czech Republic. Access to financial statements which are written in the same “language” would help to eliminate a major impediment to investor confidence, sometimes referred to as “accounting risk,” which adds to the more tangible risks of making such cross-border investments. Additionally, permission to list a company's equity or debt securities on an exchange has generally been conditional on making filings with national regulatory authorities. These regulators tend to insist either on conformity with local Generally Accepted Accounting Principles (GAAP) or on a formal reconciliation to local GAAP. These procedures are tedious and time-consuming, and the human resources and technical knowledge to carry them out are not always widely available, leading many would-be registrants to forgo the opportunity of broadening their investor bases and potentially lowering their costs of capital.
There were once scores of unique sets of financial reporting standards among the more developed nations (“national GAAP”). The year 2005 saw the beginning of a new era in the global conduct of business, and the fulfilment of a 30-year effort to create the financial reporting rules for a worldwide capital market. During that year's financial reporting cycle, the 27 European Union (EU) member states plus many other countries, including Australia, New Zealand and South Africa, adopted IFRS.
This easing of US registration requirements for foreign companies seeking to enjoy the benefits of listing their equity or debt securities in the US led understandably to a call by domestic companies to permit them also to choose freely between financial reporting under US GAAP and IFRS. By late 2008 the SEC appeared to have begun the process of acceptance, first for the largest companies in those industries having (worldwide) the preponderance of IFRS adopters, and later for all publicly held companies. However, a new SEC chair took office in 2009, expressing a concern that the move to IFRS, if it were to occur, should perhaps take place more slowly than had previously been indicated.
It had been highly probable that non-publicly held US entities would have remained restricted to US GAAP for the foreseeable future. However, the American Institute of Certified Public Accountants (AICPA), which oversees the private-sector auditing profession's standards in the US, amended its rules in 2008 to fully recognise IASB as an accounting standard-setting body (giving it equal status with the Financial Accounting Standards Board (FASB)), meaning that auditors and other service providers in the US could now issue opinions (or provide other levels of assurance, as specified under pertinent guidelines). This change, coupled with the promulgation by IASB of a long-sought standard providing simplified financial reporting rules for privately held entities (described later in this chapter), might be seen as increasing the likelihood that a more broadly based move to IFRS will occur in the US over the coming years.
The historic 2002 Norwalk Agreement—embodied in a Memorandum of Understanding (MoU) between the US standard setter, FASB, and the IASB—called for “convergence” of the respective sets of standards, and indeed since that time, a number of revisions of either US GAAP or IFRS have already taken place to implement this commitment.
Despite this commitment by the IASB and the FASB (collectively, the ‘Boards’), certain projects such as financial instruments (impairment and hedge accounting), revenue recognition, leases and insurance contracts were deferred due to their complexity and the difficulty in reaching consensus views. The converged standard on revenue recognition, IFRS 15, was finally published in May 2014, although both Boards subsequently deferred its effective date to annual periods beginning on or after January 1, 2018. The standard on leasing, IFRS 16, was published in January 2016, bringing to completion the work of the Boards on the MoU projects. Details of these and other projects of the standard setters are included in a separate section in each relevant chapter of this book.
Despite the progress towards convergence described above, the SEC dealt a blow to hopes of future alignment in its strategic plan published in February 2014. The document states that the SEC “will consider, among other things, whether a single set of high-quality global accounting standards is achievable,” which is a significant reduction in its previously expressed commitment to a single set of global standards. This leaves IFRS and US GAAP as the two comprehensive financial reporting frameworks in the world, with IFRS gaining more and more momentum.
The completed MoU with FASB (and with other international organisations and jurisdictional authorities) has been replaced by a MoU with the Accounting Standards Advisory Forum (ASAF). The ASAF is an advisory group to the IASB, which was set up in 2013. It consists of national standard setters and regional bodies with an interest in financial reporting. Its objective is to provide an advisory forum where members can constructively contribute towards the achievement of the IASB's goal of developing globally accepted high-quality accounting standards. FASB's involvement with the IASB is now through ASAF.
The International Sustainability Standards Board (ISSB) is an independent body that develops and approves IFRS Sustainability Disclosure Standards and was formed in 2021, following various stakeholder consultations on demand for global sustainability standards. The ISSB operates under the oversight of the IFRS Foundation.
The ISSB has complete responsibility for all sustainability-related technical matters of the IFRS Foundation including full discretion in developing and pursuing its technical agenda and the preparation and issuing of exposure drafts, following the due process stipulated in the Constitution.
THE CURRENT STRUCTURE
The formal structure put in place in 2000 has the IFRS Foundation, a Delaware corporation, as its keystone (this was previously known as the IASC Foundation). The Trustees of the IFRS Foundation have both the responsibility to raise funds needed to finance standard setting, and the responsibility of appointing members to the IASB, the IFRS Interpretations Committee (IFRIC) and the IFRS Advisory Council. The structure was amended to incorporate the IFRS Foundation Monitoring Board (“Monitoring Board”) in 2009, renaming and incorporating the SME Implementation Group in 2010 as follows:
The Monitoring Board is responsible for ensuring that the Trustees of the IFRS Foundation discharge their duties as defined by the IFRS Foundation Constitution and for approving the appointment or reappointment of Trustees. The Monitoring Board consists of the Boards (as defined above) and the Growth and Emerging Markets Committees of the IOSCO (The International Organization of Securities Commissions—an international body that brings together the world's securities regulators and is recognised as the global standard setter for the securities sector), the Financial Services Agency of Japan (JFSA), the SEC, the Brazilian Securities Commission (CVM), the Financial Services Commission of Korea (FSC) and Ministry of Finance of the People's Republic of China (China MOF). The Basel Committee on Banking Supervision participates as an observer.
The IFRS Foundation is governed by trustees and reports to the Monitoring Board. The IFRS Foundation has fundraising responsibilities and oversees the standard-setting work, the IFRS structure and strategy. It is also responsible for a five-yearly, formal, public review of the Constitution.
The IFRS Advisory Council is the formal advisory body to the IASB and the Trustees of the IFRS Foundation. Members consist of user groups, preparers, financial analysts, academics, auditors, regulators, professional accounting bodies and investor groups.
The IASB is an independent body that is solely responsible for establishing IFRS, including the IFRS for small and medium-sized enterprises (SMEs). The IASB also approves new interpretations.
The IFRS Interpretations Committee (the Interpretations Committee) is a committee comprised partly of technical partners in audit firms but also includes preparers and users. The Interpretations Committee's function is to answer technical queries from constituents about how to interpret IFRS—in effect, filling in the cracks between different requirements. It also proposes modifications to standards to the IASB, in response to perceived operational difficulties or the need to improve consistency. The Interpretations Committee liaises with the US Emerging Issues Task Force and similar bodies and standard setters to preserve convergence at the level of interpretation.
Working relationships are set up with local standard setters who have adopted or converged with IFRS, or are in the process of adopting or converging with IFRS.
PROCESS OF IFRS STANDARD-SETTING
The IASB has a formal due process, which is currently set out in the IFRS Foundation Due Process Handbook issued in February 2013 by the Due Process Oversight Committee (DPOC), and updated in June 2016 to include the final IFRS Taxonomy due process.
The DPOC is responsible for:
reviewing regularly, and in a timely manner, together with the IASB and the IFRS Foundation staff, the due process activities of the standard-setting activities of the IASB;
reviewing, and proposing updates to, the
Due Process Handbook
that relates to the development and review of Standards, Interpretations and the IFRS Taxonomy so as to ensure that the IASB procedures are best practice;
reviewing the composition of the IASB's consultative groups to ensure an appropriate balance of perspectives and monitoring the effectiveness of those groups;
responding to correspondence from third parties about due process matters, in collaboration with the Director for Trustee Activities and the technical staff;
monitoring the effectiveness of the IFRS Advisory Council (“Advisory Council”), the Interpretations Committee and other bodies of the IFRS Foundation relevant to its standard-setting activities; and
making recommendations to the Trustees about constitutional changes related to the composition of committees that are integral to due process, as appropriate.
As a minimum, a proposed standard should be exposed for comment, and these comments should be reviewed before issuance of a final standard, with debates open to the public. However, this formal process is rounded out in practice, with wider consultation taking place on an informal basis.
The IASB's agenda is determined in various ways. Suggestions are made by the Trustees, the IFRS Advisory Council, liaison standard setters, the international accounting firms and others. These are debated by IASB and tentative conclusions are discussed with the various consultative bodies. Long-range projects are first put on the research agenda, which means that preliminary work is being done on collecting information about the problem and potential solutions. Projects can also arrive on the current agenda outside that route.
Once a project reaches the current agenda, the formal process is that the staff (a group of about 20 technical staff permanently employed by the IASB) drafts papers which are then discussed by IASB in open meetings. Following that debate, the staff rewrites the paper, or writes a new paper, which is then debated at a subsequent meeting. In theory at least, there is an internal process where the staff proposes solutions, and IASB either accepts or rejects them. In practice, the process is more involved: sometimes (especially for projects such as financial instruments) individual Board members are delegated special responsibility for the project, and they discuss the problems regularly with the relevant staff, helping to build the papers that come to the Board. Equally, Board members may write or speak directly to the staff outside of the formal meeting process to indicate concerns about one matter or another.
The due process comprises six stages: (1) setting the agenda; (2) project planning; (3) developing and publishing a Discussion Paper; (4) developing and publishing an Exposure Draft; (5) developing and publishing the IFRS; and (6) procedures after an IFRS is issued. The process also includes discussion of Staff Papers outlining the principal issues and analysis of comments received on Discussion Papers and Exposure Drafts. A pre-ballot draft is normally subject to external review. A near-final draft is also posted on the limited access website. If all outstanding matters are resolved, the final ballot is applied.
Final ballots on the standard are carried out in secret, but otherwise the process is quite open, with outsiders able to consult project summaries on the IASB website and attend Board meetings if they wish. Of course, the informal exchanges between staff and Board on a day-to-day basis are not visible to the public, nor are the meetings where IASB takes strategic and administrative decisions.
The basic due process can be modified in different circumstances. The Board may decide not to issue Discussion Papers or to reissue Discussion Papers and Exposure Drafts.
The IASB also has regular public meetings with the Capital Markets Advisory Committee (CMAC) and the Global Preparers Forum (GPF), among others. Special groups are set up from time to time. An example was the Financial Crisis Advisory Group, which was set up to consider how improvements in financial reporting could help enhance investor confidence in financial markets in the wake of the financial crisis of 2008. Formal working groups are established for certain major projects to provide additional practical input and expertise. Apart from these formal consultative processes, IASB also carries out field trials of some standards (examples of this include performance reporting and insurance), where volunteer preparers apply the proposed new standards. The IASB may also hold some form of public consultation during the process, such as roundtable discussions. The IASB engages closely with stakeholders around the world such as investors, analysts, regulators, business leaders, accounting standard setters and the accountancy profession.
The revised IFRS Foundation Due Process Handbook has an introduction section dealing with oversight, which identifies the responsibilities of the DPOC. The work of the IASB is divided into development and maintenance projects. Developments are comprehensive projects such as major changes and new IFRS Standards. Maintenance consists of narrow scope amendments. A research programme is also described that should form the development base for comprehensive projects. Each phase of a major project should also include an effects analysis detailing the likely cost and benefits of the project.
Appendix A: Current International Financial Reporting Standards (IAS/IFRS) And Interpretations (SIC/IFRIC)
IFRS 1
First-Time Adoption of IFRS
IFRS 2
Share-Based Payment
IFRS 3
Business Combinations
IFRS 4
Insurance Contracts
IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
IFRS 6
Exploration for and Evaluation of Mineral Resources
IFRS 7
Financial Instruments: Disclosures
IFRS 8
Operating Segments
IFRS 9
Financial Instruments (effective for accounting periods commencing on or after January 1, 2018 and will supersede IAS 39 and IFRIC 9)
IFRS 10
Consolidated Financial Statements
IFRS 11
Joint Arrangements
IFRS 12
Disclosure of Interest in Other Entities
IFRS 13
Fair Value Measurement
IFRS 14
Regulatory Deferral Accounts
IFRS 15
Revenue from Contracts with Customers
IFRS 16
Leases
IFRS 17
Insurance Contracts
IAS 1
Presentation of Financial Statements
IAS 2
Inventories
IAS 7
Statement of Cash Flows
IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10
Events after the Reporting Period
IAS 11
Construction Contracts (replaced by IFRS 15)
IAS 12
Income Taxes
IAS 16
Property, Plant and Equipment
IAS 17
Leases
IAS 18
Revenue (replaced by IFRS 15)
IAS 19
Employee Benefits
IAS 20
Accounting for Government Grants and Disclosure of Government Assistance
IAS 21
The Effects of Changes in Foreign Exchange Rates
IAS 23
Borrowing Costs
IAS 24
Related-Party Disclosure
IAS 26
Accounting and Reporting by Retirement Benefit Plans
IAS 27
Separate Financial Statements
IAS 28
Investments in Associates and Joint Ventures
IAS 29
Financial Reporting in Hyperinflationary Economies
IAS 32
Financial Instruments: Presentation
IAS 33
Earnings per Share
IAS 34
Interim Financial Reporting
IAS 36
Impairment of Assets
IAS 37
Provisions, Contingent Liabilities and Contingent Assets
IAS 38
Intangible Assets
IAS 39
Financial Instruments: Recognition and Measurement (replaced by IFRS 9)
IAS 40
Investment Property
IAS 41
Agriculture
IFRIC 1
Changes in Existing Decommissioning, Restoration and Similar Liabilities
IFRIC 2
Members' Shares in Co-operative Entities and Similar Instruments
IFRIC 4
Determining Whether an Arrangement Contains a Lease
IFRIC 5
Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds
IFRIC 6
Liabilities Arising from Participating in a Specific Market—Waste Electrical and Electronic Equipment
IFRIC 7
Applying the Restatement Approach under IAS 29,
Financial Reporting in Hyperinflationary Economies
IFRIC 9
Reassessment of Embedded Derivatives (replaced by IFRS 9)
IFRIC 10
Interim Financial Reporting and Impairment
IFRIC 12
Service Concession Arrangements
IFRIC 13
Customer Loyalty Programmes (replaced by IFRS 15)
IFRIC 14
IAS 19—
The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction
IFRIC 15
Agreements for the Construction of Real Estate (replaced by IFRS 15)
IFRIC 16
Hedges of a Net Investment in a Foreign Operation
IFRIC 17
Distributions of Non-cash Assets to Owners
IFRIC 18
Transfer of Assets from Customers (replaced by IFRS 15)
IFRIC 19
Extinguishing Financial Liabilities with Equity Instruments
IFRIC 20
Stripping Costs in the Production Phase of a Surface Mine
IFRIC 21
Levies
IFRIC 22
Foreign Currency Transactions and Advance Consideration
IFRIC 23
Uncertainty over Income Tax Treatments
SIC 7
Introduction of the Euro
SIC 10
Government Assistance—No Specific Relation to Operating Activities
SIC 25
Income Taxes—Changes in the Tax Status of an Enterprise or its Shareholders
SIC 29
Disclosure—Service Concession Arrangements
SIC 32
Intangible Assets—Website Costs
APPENDIX B: IFRS FOR SMEs
A long-standing debate among professional accountants, users and preparers—between those advocating some form of simplified financial reporting standards for smaller or non-publicly responsible entities (however they are defined), and those arguing that all reporting entities purporting to adhere to officially mandated accounting standards should do so with absolute faithfulness—was resolved on July 9, 2009 with the publication of the International Financial Reporting Standard (IFRS) for Small and Medium-Sized Entities (IFRS for SMEs). Notwithstanding the name, it is actually intended as an optional, somewhat simplified and choice-limited comprehensive financial reporting standard for enterprises not having public accountability. Many of the recognition and measurement principles in full IFRS have been simplified, disclosures significantly reduced and topics not relevant to SMEs omitted from the IFRS for SMEs. The IASB carried out a comprehensive review of the IFRS for SMEs which it completed in May 2015 resulting in limited amendments to the standard. A complete revised version of the standard was issued in December 2015 and is effective from January 1, 2017. The IASB expects that revisions to the standard will be limited to once every three years.
The IFRS for SMEs is not immediately updated for any changes to full IFRS but, as noted above, the IASB issued amendments in the first half of 2015 and then anticipates updating the standard every three years thereafter.
The IASB has published a Request for information for commentary at 27 October 2020 to seeks views on how to align the IFRS for SMEs with full IFRS. The next step is to considers when the second comprehensive review should be done.
Definition of SMEs
The IFRS for SMEs is intended for entities that do not have public accountability. An entity has public accountability—and therefore would not be permitted to use the IFRS for SMEs—if it meets either of the following conditions: (1) it has issued debt or equity securities in a public market; or (2) it holds assets in a fiduciary capacity, as one of its primary businesses, for a broad group of outsiders. The latter category of entity would include most banks, insurance companies, securities brokers/dealers, pension funds, mutual funds and investment banks. The standard does not impose a size test in defining SMEs, notwithstanding its name.
The standard also states that it is intended for entities which publish financial statements for external users, as with IFRS and US GAAP. In other words, the standard is not intended to govern internal or managerial reporting, although there is nothing to prevent such reporting from fully conforming to such standards.
A subsidiary of an entity that employs full IFRS, or an entity that is part of a consolidated entity that reports in compliance with IFRS, may report, on a stand-alone basis, in accordance with the IFRS for SMEs, if the financial statements are so identified, and if the subsidiary does not have public accountability itself. If this is done, the standard must be fully complied with, which could mean that the subsidiary's stand-alone financial statements would differ from how they are presented within the parent's consolidated financial statements; for example, in the subsidiary's financial statements prepared in accordance with the IFRS for SMEs, borrowing costs incurred in connection with the construction of long-lived assets would be expensed as incurred, but those same borrowing costs would be capitalised in the consolidated financial statements, since IAS 23 as most recently revised no longer provides the option of immediate expensing. In the authors' view, this would not be optimal financial reporting, and the goals of consistency and comparability would be better served if the stand-alone financial statements of the subsidiary were also based on full IFRS.
IFRS for SMEs is a Complete, Self-Contained Set of Requirements
The IFRS for SMEs is a complete and comprehensive standard, and accordingly contains much or most of the vital guidance provided by full IFRS. For example, it defines the qualities that are needed for IFRS-compliant financial reporting (reliability, understandability, et al.), the elements of financial statements (assets, liabilities, et al.), the required minimum captions in the required full set of financial statements, the mandate for comparative reporting and so on. There is no need for an entity reporting under this standard to refer elsewhere (other than for guidance in IAS 39, discussed below), and indeed it would be improper to do so.
An entity having no public accountability, which elects to report in conformity with the IFRS for SMEs, must make an “explicit and unreserved” declaration to that effect in the notes to the financial statements. As with a representation that the financial statements comply with full IFRS, if this representation is made, the entity must comply fully with all relevant requirements in the standard(s).
Many options under full IFRS remain under the IFRS for SMEs. For example, a single statement of comprehensive income may be presented, with profit or loss being an intermediate step in the derivation of the period's comprehensive income or loss, or alternatively a separate statement of income can be displayed, with profit or loss (the “bottom line” in that statement) then being the opening item in the separate statement of comprehensive income. Likewise, most of the mandates under full IFRS, such as the requirement to consolidate special-purpose entities that are controlled by the reporting entity, also exist under the IFRS for SMEs.
Modifications of Full IFRS Made in the IFRS for SMEs
Compared to full IFRS, the aggregate length of the standard, in terms of number of words, has been reduced by more than 90%. This was achieved by removing topics deemed not to be generally relevant to SMEs, by eliminating certain choices of accounting treatments and by simplifying methods for recognition and measurement. These three sets of modifications to the content of full IFRS, which are discussed below, respond both to the perceived needs of users of SMEs' financial statements and to cost-benefit concerns. According to the IASB, the set of standards in the IFRS for SMEs will be suitable for a typical enterprise having 50 employees and will also be valid for so-called micro-entities having only a single or a few employees. However, no size limits are stipulated in the standard, and thus even very large entities could conceivably elect to apply the IFRS for SMEs, assuming they have no public accountability as defined in the standard, and that no objections are raised by their various other stakeholders, such as lenders, customers, vendors or joint venture partners.
Omitted topics. Certain topics covered in the full IFRS were viewed as not being relevant to typical SMEs (e.g., rules pertaining to transactions that were thought to be unlikely to occur in an SME context), and have accordingly been omitted from the standard. This leaves open the question of whether SMEs could optionally seek expanded guidance in the full IFRS. Originally, when the Exposure Draft of the IFRS for SMEs was released, cross-references to the full IFRS were retained, so that SMEs would not be precluded from applying any of the financial reporting standards and methods found in IFRS, essentially making the IFRS for SMEs standard entirely optional on a component-by-component basis. However, in the final IFRS for SMEs standard all of these cross-references have been removed, with the exception of a reference to IAS 39, Financial Instruments: Recognition and Measurement, thus making the IFRS for SMEs a fully stand-alone document, not to be used in conjunction with the full IFRS. An entity that would qualify for use of the IFRS for SMEs must therefore make a decision to use full IFRS or the IFRS for SMEs exclusively.
Topics addressed in full IFRS, which are entirely omitted from the IFRS for SMEs, are as follows:
Earnings per share;
Interim reporting;
Segment reporting;
Special accounting for assets held for sale;
Insurance (since, because of public accountability, such entities would be precluded from using
IFRS for SMEs
in any event).
Thus, for example, if a reporting entity concluded that its stakeholders wanted presentation of segment reporting information, and the entity's management wished to provide that to them, it would elect to prepare financial statements in conformity with the full set of IFRS, rather than under the IFRS for SMEs.
Only the simpler option included. Where full IFRS provides an accounting policy choice, generally only the simpler option is included in IFRS for SMEs. SMEs will not be permitted to employ the other option(s) provided by the full IFRS, as had been envisioned by the Exposure Draft that preceded the standard, as all cross-references to the full IFRS have been eliminated.
The simpler options selected for inclusion in IFRS for SMEs are as follows, with the excluded alternatives noted:
For investment property, measurement is driven by circumstances rather than a choice between the cost and fair value models, both of which are permitted under IAS 40,
Investment Property
. Under the provisions of the
IFRS for SMEs
, if the fair value of investment property can be measured reliably without undue cost or effort, the fair value model must be used. Otherwise, the cost method is required.
Use of the cost-amortisation-impairment model for intangible assets is required; the revaluation model set out in IAS 38,
Intangible Assets
, is not allowed.
Immediate expensing of borrowing costs is required; the capitalisation model stipulated under revised IAS 23 is not deemed appropriate for SMEs.
Jointly controlled entities cannot be accounted for under the proportionate consolidation method under the
IFRS for SMEs
but can be under full IFRS as they presently exist. The
IFRS for SMEs
does permit the use of the fair value-through-earnings method as well as the equity method, and even the cost method can be used when it is not possible to obtain price or value data.
Entities electing to employ the
IFRS for SMEs
are required to expense development costs as they are incurred, together with all research costs. Full IFRS necessitates making a distinction between research and development costs, with the former expensed and the latter capitalised and then amortised over an appropriate period receiving economic benefits.
It should be noted that the Exposure Draft that preceded the original version of the IFRS for SMEs would have required that the direct method for the presentation of operating cash flows be used, to the exclusion of the less desirable, but vastly more popular, indirect method. The final standard has retreated from this position and permits both methods, so it includes necessary guidance on application of the indirect method, which was absent from the draft.
All references to full IFRS found in the original draft of the standard have been eliminated, except for the reference to IAS 39, which may be used, optionally, by entities reporting under the IFRS for SMEs. The general expectation is that few reporting entities will opt to do this, since the enormous complexity of that standard was a primary impetus to the development of the streamlined IFRS for SMEs.
It is inevitable that some financial accounting or reporting situations will arise for which the IFRS for SMEs itself will not provide complete guidance. The standard provides a hierarchy, of sorts, of additional literature upon which reliance could be placed, in the absence of definitive rules contained in the IFRS for SMEs. First, the requirements and guidance that are set out for highly similar or closely related circumstances would be consulted within the IFRS for SMEs. Secondly, the
