Article #1: Making Judgment Professional

Detailed guidance makes:

- It easier to determine accounting for specific transactions and events
- Consistent application of the standards more likely
Downfalls of detailed guidance:
- Become straight jacket that limits the ability of financial reporting to
provide info that meets user needs
- Easier to structure transactions to achieve result that is contrary to
underlying principles of standard
All standards should be based on principles
- Needs also to be some amount of guidance in standards on how apply
principles
Amount and type of guidance in new standards likely to be somewhat less
than previous standards
- Thus, accountants need to apply more professional judgment than in
past
Professional judgment
- Searches for accounting that best meets objective of
o Communicating info to users that helps in making decisions and
assessment
o Being consistent with primary sources of GAAP
- Acknowledges that certain circumstances may result in different
accounting being appropriate
Section 1100 and 1101 emphasize importance of core concepts in applying
professional judgment. These include;
- Objectives of financial statements
- Qualitative characteristics of relevance, reliability, understandability,
and comparability
- Definition of assets, liabilities and other FS elements
- Materiality and the cost/benefit trade off
Does using professional judgment mean diversity in applying standards?
- No wild west if professional judgment applied in manner above
- Criteria not met if its likely that most parties, exercising professional
judgment, would reject them as not resulting in fair presentation in
accordance with GAAP
- May be diversity in appropriate accounting consequence of not
having detailed rules
- Section 1505 requires that financial statements include clear and
concise description of significant accounting policies
KEY POINT: Detailed guidance is not being extensively provided as it
constricts firms to rigid rules that may not apply in their circumstances.
Professional judgment needed as guidance is loosened.
Article #2: A Tale of Prudence

Until
-

2010, prudence included in IASB conceptual framework

2010, reference to prudence removed due to ambiguity of meaning
1989, explicit reference to prudence
Now proposing to put prudence back as characteristic that makes FS
useful
o Because if accounts not prudent, they are imprudent
What does prudent mean in relation to financial reporting?
- 2010 defn: the inclusion of a degree of caution in the exercising of
the judgments needed in making the estimates required under
conditions of uncertainty
o People argued it asked for a conservative bias (understating net
assets)
o Underscored IASBs commitment to neutrality
o Others argue that it asks to not overstate assets and profit
- Now: prudent estimates are neither under or overstated; neutrality is
necessary component; prudent would mean to be consistent with
desire of neutrality, and realistic, well-judged, and unbiased estimates
2 types of people
- Those who favor conservative bias
o Believe FS needs to take in consequences of reported amounts
o Believe consequences of overestimating may be more severe
o May want to apply more conservatism to asset/income than
liabilities/expenses
o Provides investors info that is less relevant for decisions because
its biased
- Those who favor neutrality and the proposed definition
o Estimates should not be with an optimistic bias or pessimistic
bias
o Investors argue explicit reference to prudence can help fight bias
o Prudence can be seen as reinforcing true adherence to principle
of neutrality
KEY POINT: Prudence as defined up until 2010 caused confusion due to its
ambiguity and thus was eliminated as a reference. However, because of its
elimination, its posited that not referencing it means financial statements
are imprudent. To ensure that is not the case, IASB is proposing to
reintroduce the term in a clearly defined way that states prudence is the
exercise of caution that which supports the objective of neutrality and
unbiased information. Its intended purpose is to ensure neither
understatement nor overstatement of financial statement elements.
Article # 3: The Dangers of Ignoring Unrealized Income
The use of IFRS around the world
- Spread of IFRS is a success

- 107/130 researched jurisdictions require use of IFRS

Use of IFRS in Japan
- IFRS adopting companies has more than doubled
- Companies have chosen IFRS because:
o Cost effective for firms with subsidiaries
o Easier to communicate with international investors
- ASBJ introduced new modifications of accounting standards to
treatment of
o Goodwill
o Recycling of some OCI items
- A lot of difference between Japanese GAAP & IFRS
- Firms that adopt JMIS and not IFRS:
o Will not be recognized by foreign investors as IFRS
o Would work with 2 different accounting languages
o Would incur costs of conversion to new accounting standards
- Adoption of IFRS is thus attractive option
Conceptual framework: how to deal with profit or loss and OCI?
- Previously, no hierarchy between profit or loss and OCI
- Profit or loss
o Primary source of info about return an entity has made on
resources
o Basis od many buy-or-hold decisions
o Basis for commonly used valuation techniques
o Needs to be robust
o Represents an all inclusive measure of irreversible outcomes of
firms business activities in certain period
o Should be all-inclusive and irreversible
o All inclusive to ensure nothing of interest escapes attention of
market participants
- In June meeting, IASB decided
o There should be rebuttable presumption that all items of income
and expense be included in profit and loss unless there is specific
standards concludes that including it in OCI enhances relevance
of profit or loss
o Implicates that standard setter has to pass high hurdle when
resorting to OCI
- Examples of decisions on the use of OCI
o Cash flow hedges
OCI used to temporarily park value changes of derivatives
until forecast transaction complete
o Foreign currency translation of foreign operation
OCI is plug between year end and average exchange rates
- More homogenous category of possible uses of OCI: dual measurement
o Occurs when IASB concludes that 1 measurement basis is
appropriate for SFP and another for profit and loss

o OCI serves as the bridge between profit and loss and the balance
sheet
o Example: FV/OCI category for debt investments
Amortized cost and FV info are both relevant
OCI serves as the bridge between 2
IASB considered and rejected, broader approach to use of OCI
o Based on view that most elements of unrealized income best
presented in P&L
o Unrealized income could result from periodic remeasurement of
A&L
Can reverse fully or significantly over holding period
o Income with high degree of outcome uncertainty should not be
included in P&L as long as its not realized
o Pension liabilities or assets held with long-term horizon for
example would be candidates for OCI
Why it was rejected: systematic relegation of unrealized income items
to OCI
o Can result in lack of faithful presentation
o Detrimental from stewardship perspective
o Unrealized income includes losses, not just gains. Downplaying
significance of unrealized losses can be hazardous
Very real example is with airline companies and car
manufacturers
Employee benefit schemes caused huge liabilities to build
up in accumulated OCI
These deficits were not unreal, only unrealized
Important ingredient in bankruptcy of some of them
Increase of liabilities did not hit P&L
Problems may have been confronted earlier if they had
been presented in P&L
Postponement of recognition of losses until they have become
irreversible has one big disadvantage: they indeed become irreversible
o Very reason why derivatives were chosen to have very different
treatment of unrealized income
o Can remain unrealized for long time and their value volatile and
reversible
o Presenting them in OCI never been serious option
o Decision to measure derivatives at FV through P&L inspired by
wish to make their impact clearly visible
Theoretically possible to address dangers of unrealized income by
presenting unrealized profits through OCI and unrealized losses
through P&L
o However, would lead to extreme bias
o Faithful presentation of economic reality would get lost

o Investors would lose track of the performance of a company

IASB has decided that given primacy of P&L, there should be a
rebuttable presumption that all items included in OCI should end up
being recycled in P&L
o May be circumstances though in which recycling is too complex
o Doesnt solve problem of unrealized income staying hidden too
long

KEY POINT: Systematic relegation of unrealized profits or losses to OCI is

extremely problematic. Where OCI is used to capture short-term market
volatility of long-term assets or liabilities, the info it contains should not be
ignored. While income in OCI may be of a less certain nature than income in
P&L, OCI may contain indicators of risk that may materialize sooner than had
been thought. Ignoring unrealized elements of income may be hazardous to
financial health.
Article # 4: Historical Cost vs. Fair Value Measurement
Host of measurement techniques we use divided in accounting into 2 basic
categories:
- Historical cost (HC)
- Current value (FV)
Fair value account generates most controversy
Fair value and historical cost at opposite ends
- FV demands full updating of all variables
- Historical cost requires only partial and less regular updating
Fans of historical cost
- Like its alleged objectivity and relative stability
- Dislike FV for volatility and subjectivity needed when FV must be
estimated (mark-to-model valuations)
- Believe FV more prone to abuse
Fans of FV
- Like that it requires full update of all inputs at each reporting date
- Believe it gives more meaningful picture of financial position
- Believe volatility to be accurate reflection of economic reality
- Believe HV to be primitive measurement basis
Not a stark difference between HC and FV because HC:
- Starts and ends with FV
- Dates of purchase and sale is when it is most objective
- Gets updated too, but just less than FV
o Depreciation
- Subjectivity in HC exists too and thus, room for abuse
o Especially when asset is impaired and estimate of its value-inuse needs to be made
- Alleged stability of HC can be misleading

o As exemplified by Savings and Loans (S&L) crisis in US

o Has steep cliff effects because measurement updates less
frequent
o Creeping erosion of BS unseen for long time
- Therefore, HC is to some extent, based on FV and just as vulnerable
Despite shortcomings in HC, IASB has not opted for FV measurement in
general because:
- Not believed that using FV leads to relevant info as market price of
asset is not of importance if such assets are used in combination with
other assets to produce
- Frequent adjustments to revaluations of PPE can cloud income
statement
o Reason why IASM amended Agriculture Standard
o Previously, firms required to measure trees and vineyards at FV
although theyre used to produce inventory
o Now measurement basis is historical cost
In some cases, FV is much more relevant than historical cost however
- Assets that are actively traded
o Ex. financial instruments
- Assets and liabilities that are very sensitive to value change in market
prices
o Ex. derivatives and insurance liability
- Therefore, in some cases FV may be only measurement basis that can
provide faithful presentation
IFRS 13
- Developed to limit the risks of subjectivity associated with FV
- Sets out extensive disclosure requirements
- Requires firms to clearly disclose where they make use of mark-tomodel accounting
- Requires sensitivity analyses where theres high degree of outcome
uncertainty
Conclusion
- IASB has not expressed a general preference for either HC or FV
- Seems to be wise choice
- If nature of business activities is to use assets in combination with
other to produce goods, this point to direction of HC
- If nature of business is to trade assets or liabilities in markets, this
points to direction of FV
- If characteristics of assets or liabilities are such that they are highly
sensitive to market factors, this points to direction of FV
KEY POINT: Historical cost and fair value both have shortcomings and
strengths. In general however, circumstances surrounding assets and
liabilities and the nature of a business will determine which is more

appropriate to use. IASB recognizes this and thus has not rigidly expressed a
preference for one over the other.
Article # 5: Reporting Alert IFRS 13 Fair Value Measurement
IFRS 13 Fair Value Measurement
- Now the single source of IFRS guidance on FV measurements
- Establishes new requirements for measurement of FV
- Will need to measure more items at FV than you currently do
- Tells you how to measure FV
- Enhanced disclosures
When is IFRS 13 effective?
- Beginning on or after January 1, 2013
- Method of adoption is prospectively as of the beginning of the annual
period which it is applied
What is IFRS 13?
- Defines FV
- Establishes framework for measuring FV that applies whenever IFRS
requires or permits such a measurement
- Sets disclosure requirements about FV measurements
How does IFRS 13 define FV?
- The price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date
- Market based, exit price
Some key concepts to consider in determination of FV
- Principal or most advantageous market
o Assume asset sold or liability transferred in principal market for
that item
o Principal market = one with greatest volume and level of activity
for A or L
o If no principal market, most advantageous market used
o Advantages market = market that maximizes amount to sell A or
minimizes amount to transfer L
- Application to non-financial assets: highest and best use
o Measurement based on market participants ability to generate
economic benefits by using non-financial asset in its highest and
best use
- Applications to liabilities and entitys own equity instruments
o When quoted price not available and identical item held by
another entity, FV of liability or equity is FV of corresponding
asset
- Valuation methods
o Market approach: use market info of similar items
o Income approach: PV of future cash flows on measurement date

o Cost approach: current replacement cost

- FV hierarchy
o Level 1: inputs that are quoted prices in active markets for
identical item at measurement date
o Level 2: other observable inputs such as quotes for similar items
in an active market, interest rates, or credit rates
o Level 3 unobservable inputs including entitys own data
What are the disclosure requirements?
- Disclosure requirements apply to all assets and liabilities
- Minimum disclosure requirements:
o FV at end of reporting period
o Level of hierarchy under which valuation falls
o Amounts of any transfers between levels 1 & 2 of hierarchy
o Techniques and inputs to FV measurements and changes in
valuation methods
o Detailed level 3 measurement disclosures, including processes
used
What has changed from the previous standards?
- Definition of FV as exit price
- Description of market participants and principal market
- Highest and best use for non-financial assets
- Bid ask spread: introduces element of judgment in that an entity must
determine which price is most representative of FV
- Distinguishes transaction costs from transport costs; transaction costs
expensed
- 3 level FV hierarchy
- Disclosures are more detailed
KEY POINT: IFRS 13 was made effective in 2013. It essentially outlines how to
measure FV and has increased the usage of FV as a measurement technique
for some items on the financial statements. It has defined FV to be an exit
price, it has defined what market FV is ideally derived from (principal or
advantageous), it defines highest and best use to be the basis for the FV of
non-financial assets, and it introduces a 3 level FV hierarchy with level 1
being the best source of FV and level 3 being the worst. It also requires
additional disclosures that have built on previous disclosure requirements.
The most significant change in disclosure is in regard to Level 3
measurements that if in use as measurement basis, must include details as
to its process and sensitivity in the notes.
Article # 6: Defining Profit or Loss & OCICan It Be Done?
3 standards in the making are of great importance to many companies:
- Revenue recognition
- Leases
- Financial instruments

New revenue recognition standard

- Final standard will be almost identical between IFRS & US GAAP
Leases standard
- Controversial for several reasons
- Leases contain heavy element of financing
- Standard reduces some implementation costs
- Looks to further simplify type A and type B leases
- Limits changes to lessor accounting
- Will make companies look better in the eyes of investors
- Will help executives make better reasoned decision about purchasing
and leasing
Financial instruments standard = IFRS 9
Clear that some further work on measurement needs to be done
- Many supportive of choice for mixed measurement but are looking for
more in depth analysis on different measurement basis and info they
provide
- European Accounting Association proposes dropping term
measurement altogether
o Believes we should be using term estimation as it does more
justice to high degree of subjectivity in accounting
o Speaker doesnt think its wise to remove such an ingrained term
Hotly debated topic: profit or loss vs. OCI
- Many ask IASK to define P&L as an element and draw clear distinction
with OCI
- ASBJ has described nature of P&L as an all-inclusive measure of
irreversible outcomes of firms business activities in certain period
- Clear that a lot of work needs to be done because theres no clear or
fixed answer yet
- IASB considers P&L as primary source of info about return an entity
has made on its economic resources in a period
- Markets rely a lot on P&L because:
o Its used by unsophisticated and professional investors
o EPS are basis of commonly used valuation techniques
- If P&L is primary indicator of performance, it needs to be robust
- Vital that P&L contains all info that be relevant to investors
o Reason why IASC removed possibility of adjusting net income for
extraordinary items
- Broad definition of P&L comes at price
o Lacks nuance to adequately portray performance of an entity in
all circumstances
- Thus, have to accepts that prepares and analysts may need non-GAAP
measures to fine tune their presentation and assessment of an entity
o Fine as long as theyre built on cornerstone of IFRS
- If P&L is primary indicator of performance, we should be disciplined in
use of OCI

o Resorting to it too easily can undermine credibility of net income

What current practice tells us about OCI
o It is dangerous to assume that liabilities which remain unrealized
in OCI for years are somehow less real
o Unrealized does not mean unreal
o Ex. airline companies brought to their knees by employee
benefits that built up over years

KEY POINT: P&L is very important indicator of financial performance and thus
should be as inclusive as possible. To protect integrity of P&L, we have to be
cautious with OCI, which should only be used as instrument of last resort.
Article # 7: 3rd Statement of Financial Position
Has the entity adopted a new IFRS standard that requires retrospective
application?
- If yes, 3rd statement of financial position may be required
In annual statement under IFRS, SFP presented at beginning of earliest
comparative period follow retrospective application of:
- Accounting policy change
- The correction of an error
- The reclassification of items in the financial statements
When such reclassification has material effect on info in SFP at beginning of
preceding period
In such cases, 3 statements of SFP presented:
- December 31, 20X3
- December 31, 202
- January 1, 20X2
In annual and interim financials, materiality may, in some instances allow
exclusion of 3rd SFP
- Ex. when retrospective application of new standard doesnt have
impact on FS
KEY POINT: When retrospective change of a new standard, correction of error,
or reclassification results in a change to the SFP that is quantitatively or
qualitatively material, 3rd SFP should be presented
Article # 8: Mind the Gap (Between non-GAAP & GAAP)
The path toward global standards
- There is good progress towards objective of truly global accounting
standards
The disclosure initiative
- People complain about complexity of accounting and lengthy financial
statements

Disclosure initiative under IASB seeks to make complexity more

manageable
- Issued amendments to IAS 1: presentation of financial statements
o Encourages companies to apply professional judgment in
determining what info to disclose in their FS
o Makes clear that immaterial info should be avoided in FS
- Aims to give preparers more flexibility in accounting policies
- Next objective: identify and develop set of general principles for
disclosure in IFRS
Alternative performance measures
- Also known as non-GAAP measures
- Currently focus of much debate
- No fundamental objection against use of non-GAAP measures
o Because IFRS tries to create comparability across sectors
o Because IFRS doesnt define many line items or subtotals in FS
o Understands how alternative measures can be useful to investors
- However, important to remember that non-GAAP measures represent
selective presentation of firms performance
o Often, selection is not free from bias
o Some costs, such as restructuring, left out as being exceptional
o Firms that report other adjusted profit measures can often give
investors misleading impression
- IASB has no ambition to stamp out use of non-GAAP measures
o But does think there should be greater discipline in presentation
of FS
- IASB believes IFRS numbers should serve as primary performance
measure
o Great lengths taken to ensure IFRS numbers are neutral,
comparable, and verifiable
o Provide info markets can trust
- IASB has no problem with firms providing additional non-GAAP
measures to enrich IFRS data but some basic ground rules should be
respected:
o First, measures should not present misleading info
o Second, this info should not be given greater prominence in FS
than IFRS numbers
- IASB pen to idea of learning from non-GAAP measures
IFRS taxonomy
- Korea has shown leadership in area of digital reporting
- IASB is responsible for developing high quality IFRS Taxonomy that
jurisdictions can incorporate into their own digital reporting activities
- IFRS Taxonomy critical to achieving goal of high quality standards
o Aims to help protect integrity of financial info

KEY POINT: IASBs disclosure initiative seeks to make amendments that will
make financial statements less complex for users. In context of disclosure
initiative, non-GAAP measures are of debate. While non-GAAP measures can
enrich information on financial statements, they can also be misleading and
unnecessary. As such, IASB purports that non-GAAP measures should not
overpower IFRS numbers and they should be voluntarily provided on
condition that they do not mislead users or investors of the financial
statement.
Article # 9: Helping Investors Better Understand Cash Flow
IASB proposing amendments to IAS 7 Statement of Cash Flows
- Will provide users with info to help better understand how firms
generate and deploy resources
- Additional disclosure requirements are modest
- Represent significant enhancement to financial reporting
For investors, important to recognize that not all investments firm makes are
reflected in cash flows
- Ex. Firm acquires another business that has substantial debt but debt
is not in cash flow
o Acquiring company not required to disclose amount of debt
- Ex. Firm buys new plant not with cash, but finance lease
o Not reflected in cash flows
Net debt reconciliation
- Captures items such as acquired debt, inception of finance leases, any
FV adjustments made to debt and impact of foreign exchange
movements
- Investors have been asking IASB to include this as a requirement
IAS7 still does not include net debt reconciliation
- But does ensure that users have necessary info to undertake it
themselves
- No definition of net debt under IFRS
- Will require firms to reconcile debt movement from one period to
another
Proposed amendments also ask preparers to consider providing additional
info around liquidity
- May include noting restrictions that impinge of use of cash
- Additional disclosures to understand different types of debt financing
KEY POINT: Proposed amendments to statement of cash flows by IASB are
finally progressing towards providing investors with what they need deeper
info to help understand cash flows. While IAS 7 doesnt require companies to
report or provide specific values, it outlines additional disclosure
requirements that provide investors with richer info to calculate such things
as net debt reconciliation. While there is more work to be done, these
proposed changes are substantially beneficial to investors.

Article # 10: FYI Article IFRS 15 The New Revenue Standard*

IFRS 15 = Revenue from Contracts with Customers
- Introduces significant changes in accounting for revenue
- Effect on firms will depend on nature of their sales transactions
- Many firms will have additional disclosure requirements
- Incorporated into CPA handbook in February 2015
IFRS 15 is effective for annual periods beginning or after January 1, 2017
- Comparatives will be required for 2016
In a nutshell IFRS 15:
- Covers when and how much revenue to recognize
- Includes guidance for transactions that were not previously addressed
comprehensively
- Establishes core principles that will reduce the need for interpretive
guidance
- Provides info for financial statement users
When to recognize revenue
- Recognized when seller completes each separate performance
obligation
- Some sales include 2 or more performance obligations
How much revenue to recognize
- Revenue for each performance obligation is allocation of total amount
expected to be received under the contract, based on stand alone
selling price of goods/services
Other considerations
- May need to ask if there are:
o Incremental costs of obtaining contract
o Costs to fulfill a contract
- These costs are expensed today but may be able to be capitalized
under new standard
KEY POINT: A new standard, IFRS 15, has been introduced and is to be
implemented beginning January 2017. It essentially recognizes revenue in
components similar to multiple deliverable contracts. It recognizes that more
often than not, revenue is attributable to a number of performance
obligations and each is fulfilled at a different time.
Article # 11: Revenue Recognition Finally, A Standard Approach for
All *
IASBs new stand: IFRS 15 Revenue from Contracts with Customers
- Will lead to better alignment between firms revenue and performance
- Will provide one-stop shop for revenue accounting for companies that
use IFRS and GAAP
- Will help investors in their analysis and comparison of firms

IFRS 15 required to be applied beginning January 1, 2017 BUT

- Companies can start applying IFRS 15 before then
- In financial statements prior to adopting IFRS 15, companies required
to disclose info about possible impact IFRS 15 will have on their results
What will change?
- Standard specifies new framework that applies consistently to all
contracts for goods and services
- Standard will effect companies differently
- Example of how standard may significantly change:
o Revenue will now be recognized for subsequent services such as
extended warranties that are promised in addition to the food
that is delivered to customer
Sectors most likely to be affected:
- Practical effect will depend on company, transaction, etc.
- Telecommunications and real estate developments expected to be
particularly affected
Telecommunications
- Previously, when contract provides customer with phone and service,
firms would recognize revenue on sale of phone only up to cash
received from customer at that time. If customer provided with free
phone, no revenue would be recognized at that time.
- Now under IFRS 15, company required to allocate the transaction price
(amount customer pays on entering the contract) to the phone and
service on basis of relative stand alone value prices of each item
Residential real estate
- Previously, real estate firms had trouble determining whether
construction of assets should be accounted for as a service to be
recognized over time, or a good to be recognized when construction
complete
- IFRS 15 specifies clear and objective basis for assessing this problem
Disclosure requirements
- Have clearer objectives and will improve disclosure of info about firms
revenue
- It requires:
o Disaggregation of revenue into meaningful categories
o Info about firms rights to consideration and obligation to transfer
goods or services and when those rights convert to revenue
o Quantitative and qualitative info about when remaining
performance obligations are typically satisfied and amount of
transaction price allocated to remaining performance
o More info about estimates and judgments a company makes in
determining amount and timing of revenue recognition
IFRS 5 to be applied retrospectively. They can make this transition in 2 ways:
- Retrospectively with adjustments to opening balances of earliest
comparative period

o All contracts would have to be restated

Retrospectively with adjustment to appropriate opening balances of
the current period upon transition
o Contracts determined to be completed before would not be
restated
o Existing and new contracts would have to be presented under
precious requirements in footnotes in year of initial application
o Company must disclose effects of applying new requirements on
specific line item

KEY POINT: Before IFRS 15, there were weaknesses in accounting for revenue
that resulted in different accounting for similar transactions among
companies. This made it hard for investors to understand and compare the
company. With new standard theres consistency in how firms recognize
revenue. IFRS 15 essentially requires that firms allocate revenue from a
transaction according to the relative stand-alone values of each component
or performance obligation within the contract. IFRS 15 also introduces
several new disclosure requirements with the goal to enhance investors
understanding of a firms revenue. While some businesses may not be
affected, others will be significantly affected. Namely the telecommunication
and real estate industries.
Article # 12: Reporting Alert - IFRS 15 Revenue from Contracts with
Customers
IFRS 15: Revenue from Contracts with Customers
- Sets out principles for when revenue should be recognized and it how it
should be measured, together with related disclosure
- Expected to be incorporated in CPA handbook shortly
- Replaces all current revenue standards and interpretations in IFRS
Why does IFRS 15 matter to me?
- For some the new standard will have significant impact
- For others transition will be limited
- Extent of impact will vary depending on complexity of revenue
arrangements, and other facts and circumstances
- All entities will be subject to disclosure requirements
When is IFRS 15 effective?
- Effective beginning January 1, 2017
- Earlier application is permitted
- Applies to new contracts created on or after effective date and to
existing contracts not yet complete as of the effective date
What are the transitional requirements?
- Must be applied retrospectively
- In regards to comparative period, firms have option of either applying
it on full retrospective or modified retrospective basis
- Full retrospective application

o Apply standard in full to prior periods

o Certain limited practical expedients available
- Modified retrospective application
o Retain prior period comparative figures as reported under
previous standards
o Recognize cumulative effect of applying IFRS 15 as adjustment to
opening balance of retained earnings as at date of initial
application
What are the basics of IFRS 15?
- Core principle: entity recognizes revenue that represents the transfer
of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in
exchange for those goods or services
- Transfer is complete when customer has control of goods or services
- Revenue recognized when control is passed, over time or at one point
in time
What are the 5 steps to the new revenue model?
- Step 1: Identify the contract(s) with the customer
o Contract is agreement between 2 or more parties that creates
enforceable rights and obligations
o Contract must meet all of the following:
Be approved by the parties
Have commercial substance
Identify each parties rights and obligations
Outline payment terms
Result in collection being probable
- Step 2: Identify the separate performance obligations
o Each performance obligation is a separate promise to transfer
either distinct goods or services, a bundle of distinct goods or
services, or a series of distinct goods or services
o Good or service is distinct if both meet criteria:
Customer can benefit from its use on its own or with
readily available resources
Firms promise to transfer goods or services to customer is
separately identifiable from other promises in the contract
- Step 3: Determine the transaction price
o Transaction price is amount of consideration entity expects to
receive in exchange for transfer of goods and or services
o Include in transaction price the FV of any non-cash consideration
promised
o Reduce transaction price by any consideration payable to
customer
- Step 4: Allocate the transaction price to the performance
obligation

o Generally, allocation based on relative stand alone selling price

for each distinct good or service
o Stand alone selling price is price at which good or service would
be sold separately to customer
- Step 5: Recognize revenue when performance obligation is
satisfied
o Performance obligation is satisfied when control of the good or
service is transferred to the customer. May be at single point in
time or over time. If entity does not satisfy its performance
obligation over time, it satisfies it at a point in time
o When to recognize revenue over time?
If customer simultaneously receives and consumes all
benefits provided by entity as entity performs, recognize
revenue over time
If entitys performance creates or enhances an asset
customer controls as the asset is created, recognize
revenue over time
If entitys performance creates an asset with no alternative
use to the entity and entity has enforceable right to
payment for performance completed to date, recognize
revenue over time
o When none of the above scenarios are applicable, revenue
recognized at single point in time when:
Seller has right to payment
The customer has legal title of the goods
The customer has physical possession of the goods
The customer assumes significant risks and rewards of
ownership
The customer accepts the asset
- Entities will be required to apply these steps for each type of revenue
transaction
How are the costs associated with obtaining and fulfilling a contract
recognized?
- 2 specific type of contract costs considered in new standard
- Type 1: Obtainment costs
o Costs incurred solely to obtain customer contract
o Capitalized when they are either incremental or explicitly
chargeable to customer regardless of whether contract obtained
o Costs not considered incremental if they would have been
incurred regardless of whether contract was obtained
o Incremental costs of obtaining a contract can be expensed if
associated amortization period is 12 months or less
- Type 2: Fulfillment costs
o Costs of fulfilling a contract that are not within the scope of
another standard

o Capitalized under IFRS 15 when:

Those costs relate directly to contract or specific
anticipated contract
Generate/enhance resources that will be used in satisfying
performance obligations in the future and are expected to
be recovered
o Ex. direct labor hours, direct materials, etc.
What new disclosures are required?
- For some, IFRS 15 may require more disclosure about revenue
- No exceptions provided for commercially sensitive info
- Objective of disclosure requirements: for entity to disclose sufficient
info to enable users of financial statements to understand the nature,
amount, timing, and uncertainty of revenue and cash flows arising
from contracts with customers
- Entity should disclose qualitative and quantitative info about following:
o Contracts with customers
o Significant judgments and changes in judgments made in
applying guidance to those contracts
o Any assets recognized from costs to obtain or fulfill a contract
with a customer
KEY POINT: IFRS 15 is a new standard that is effective in 2017. It aims to
renew when and how entities recognize revenue by outlining 5 steps.
Essentially it requires that firms enter contracts with customers, identify the
separate and distinct performance obligations within the contract, determine
the transaction price to be paid for the goods and services as whole, allocate
the transaction price between each performance obligation based on stand
alone value of each distinct good or service, and finally recognize revenue for
each performance obligation when it is satisfied. The standard is quite
comparable to multiple deliverable contracts. The standard also outline
additional disclosure requirements firms must follow. These disclosure
requirements provide details about contracts and significant judgments.
Bearer Plants: IAS 41, Agriculture
IAS 41: Agriculture
- Amendments IAS 16 and IAS 41
- Beginning on or after January 2016
- Early adoption allowed
- Retrospective adoption
- Bearer plant is living plant used in production or supply of agricultural
produce, is expected to bear produce in more than 1 period, and has
remote likelihood of being sold as agricultural produce, except in
incidental scrap sales
- Bearer plants used solely to grow produce

Only future benefit is from selling agricultural produce they create

Timber, plants that will be harvested, annual crops are not bearer
plants
Bearer plants treated same way as self constructed asset before in
location and condition capable of operating
Choice of cost or revaluation model