entity to prepare reports tailored to their particular
International Accounting
Standard 1
Presentation of Financial
Statements
Objective
1 This Standard prescribes the basis for presentation of
general purpose financial statements to ensure
comparability both with the entitys financial statements of
previous periods and with the financial statements of other
entities. It sets out overall requirements for the presentation
of financial statements, guidelines for their structure and
minimum requirements for their content.
Scope
2 An entity shall apply this Standard in preparing and
presenting general purpose financial statements in
accordance with International Financial Reporting
Standards (IFRSs).
3 Other IFRSs set out the recognition, measurement and
disclosure requirements for specific transactions and other
events.
4 This Standard does not apply to the structure and content
of condensed interim financial statements prepared in
accordance with IAS 34 Interim Financial Reporting.
However, paragraphs 1535 apply to such financial
statements. This Standard applies equally to all entities,
including those that present consolidated financial
statements and those that present separate financial
statements as defined in IAS 27 Consolidated and
Separate Financial Statements.
5 This Standard uses terminology that is suitable for profit-
oriented entities, including public sector business entities.
If entities with not-for-profit activities in the private sector
or the public sector apply this Standard, they may need to
amend the descriptions used for particular line items in the
financial statements and for the financial statements
themselves.
6 Similarly, entities that do not have equity as defined in IAS
32 Financial Instruments: Presentation (eg some mutual
funds) and entities whose share capital is not equity (eg
some co-operative entities) may need to adapt the financial
statement presentation of members or unitholders
interests.
Definitions
7 The following terms are used in this Standard with the
meanings specified:
General purpose financial statements (referred to as
financial statements) are those intended to meet the
needs of users who are not in a position to require an
information needs.
Impracticable Applying a requirement is impracticable
when the entity cannot apply it after making every
reasonable effort to do so.
International Financial Reporting Standards (IFRSs) are
Standards and Interpretations adopted by the
International Accounting Standards Board (IASB).
They comprise:
(a) International Financial Reporting Standards;
(b) International Accounting Standards; and
(c) Interpretations developed by the
International Financial Reporting
Interpretations Committee (IFRIC) or the
former Standing Interpretations Committee
(SIC).
Material Omissions or misstatements of items are
material if they could, individually or collectively,
influence the economic decisions that users make on the
basis of the financial statements. Materiality depends
on the size and nature of the omission or misstatement
judged in the surrounding circumstances. The size or
nature of the item, or a combination of both, could be
the determining factor.
Assessing whether an omission or misstatement could
influence economic decisions of users, and so be material,
requires consideration of the characteristics of those users.
The Framework for the Preparation and Presentation of
Financial Statements states in paragraph 25 that users are
assumed to have a reasonable knowledge of business and
economic activities and accounting and a willingness to
study the information with reasonable diligence.
Therefore, the assessment needs to take into account how
users with such attributes could reasonably be expected to
be influenced in making economic decisions.
Notes contain information in addition to that presented
in the statement of financial position, statement of
comprehensive income, separate statement of
comprehensive income (if presented), statement of
changes in equity and statement of cash flows. Notes
provide narrative descriptions or disaggregations of
items presented in those statements and information
about items that do not qualify for recognition in those
statements.
Other comprehensive income comprises items of income
and expense (including reclassification adjustments)
that are not recognised in profit or loss as required or
permitted by other IFRSs.
The components of other comprehensive income include:
(a) changes in revaluation surplus (see IAS 16
Property, Plant and Equipment and IAS 38
Intangible Assets);
 (b) actuarial gains and losses on defined benefit
plans recognised in accordance with paragraph
93A of IAS 19 Employee Benefits;
(c) gains and losses arising from translating the
financial statements of a foreign operation (see
IAS 21 The Effects of Changes in Foreign
Exchange Rates);
(d) gains and losses on remeasuring available-for-
sale financial assets (see IAS 39 Financial
Instruments: Recognition and Measurement);
(e) the effective portion of gains and losses on
hedging instruments in a cash flow hedge (see
IAS 39).
Owners are holders of instruments classified as equity.
Profit or loss is the total of income less expenses,
excluding the components of other comprehensive
income.
Reclassification adjustments are amounts reclassified to
profit or loss in the current period that were recognised
in other comprehensive income in the current or
previous periods.
Total comprehensive income is the change in equity
during a period resulting from transactions and other
events, other than those changes resulting from
transactions with owners in their capacity as owners.
Total comprehensive income comprises all components of
profit or loss and of other comprehensive income.
7 Although this Standard uses the terms other
comprehensive income, profit or loss and total
comprehensive income, an entity may use other terms to
describe the totals as long as the meaning is clear. For
example, an entity may use the term net income to
describe profit or loss.
8A The following terms are described in IAS 32 Financial
Instruments: Presentation and are used in this
Standard with the meaning specified in IAS 32:
(a) puttable financial instrument classified as an
equity instrument (described in paragraphs 16A
and 16B of IAS 32)
(b) an instrument that imposes on the entity an
obligation to deliver to another party a pro rata
share of the net assets of the entity only on
liquidation and is classified as an equity
instrument (described in paragraphs 16C and
16D of IAS 32).
Information to be presented either in the statement
of financial position or in the notes
Financial statements
Purpose of financial statements
9 Financial statements are a structured representation of the
financial position and financial performance of an entity.
The objective of financial statements is to provide
information about the financial position, financial
performance and cash flows of an entity that is useful to a
wide range of users in making economic decisions.
Financial statements also show the results of the
managements stewardship of the resources entrusted to
it. To meet this objective, financial statements provide
information about an entitys:
(a) assets;
(b) liabilities;
(c) equity;
(d) income and expenses, including gains and losses;
(e) contributions by and distributions to owners in
their capacity as owners; and
(f) cash flows.
This information, along with other information in the notes,
assists users of financial statements in predicting the
entitys future cash flows and, in particular, their timing
and certainty.
Complete set of financial statements
10 A complete set of financial statements comprises:
(a) a statement of financial position as at the end
of the period;
(b) a statement of comprehensive income for the
period;
(c) a statement of changes in equity for the
period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant
accounting policies and other explanatory
information; and
(f) a statement of financial position as at the
beginning of the earliest comparative period
when an entity applies an accounting policy
retrospectively or makes a retrospective
restatement of items in its financial
statements, or when it reclassifies items in its
financial statements.
An entity may use titles for the statements other than
those used in this Standard.
An entity shall present with equal prominence all of the
financial statements in a complete set of financial
statements.
As permitted by paragraph 81, an entity may present the
components of profit or loss either as part of a single
statement of comprehensive income or in a separate
statement of comprehensive income. When an statement of
 comprehensive income is presented it is part of a complete
set of financial statements and shall be displayed
immediately before the statement of comprehensive
income.
13 Many entities present, outside the financial statements, a
financial review by management that describes and
explains the main features of the entitys financial
performance and financial position, and the principal
uncertainties it faces. Such a report may include a review
of:
(a) the main factors and influences determining
financial performance, including changes in the
environment in which the entity operates, the
entitys response to those changes and their
effect, and the entitys policy for investment to
18
maintain and enhance financial performance,
including its dividend policy;
(b) the entitys sources of funding and its targeted
ratio of liabilities to equity; and
19
(c) the entitys resources not recognised in the
statement of financial position in accordance
with IFRSs.
14 Many entities also present, outside the financial statements,
reports and statements such as environmental reports and
value added statements, particularly in industries in which
environmental factors are significant and when employees
are regarded as an important user group. Reports and
statements presented outside financial statements are
outside the scope of IFRSs.
General features
Fair presentation and compliance with
IFRSs
15 Financial statements shall present fairly the financial
position, financial performance and cash flows of an
entity. Fair presentation requires the faithful
representation of the effects of transactions, other
events and conditions in accordance with the definitions
and recognition criteria for assets, liabilities, income
and expenses set out in the Framework. The application
of IFRSs, with additional disclosure when necessary, is
presumed to result in financial statements that achieve
a fair presentation.
16 An entity whose financial statements comply with
IFRSs shall make an explicit and unreserved statement
of such compliance in the notes. An entity shall not
describe financial statements as complying with IFRSs
unless they comply with all the requirements of IFRSs.
17 In virtually all circumstances, an entity achieves a fair 21
presentation by compliance with applicable IFRSs. A fair
presentation also requires an entity:
(a) to select and apply accounting policies in
accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.
IAS 8 sets out a hierarchy of authoritative
guidance that management considers in the
absence of an IFRS that specifically applies to
an item.
(b) to present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information.
(c) to provide additional disclosures when
compliance with the specific requirements in
IFRSs is insufficient to enable users to
understand the impact of particular transactions,
other events and conditions on the entitys
financial position and financial performance.
An entity cannot rectify inappropriate accounting
policies either by disclosure of the accounting policies
used or by notes or explanatory material.
In the extremely rare circumstances in which
management concludes that compliance with a
requirement in an IFRS would be so misleading that
it would conflict with the objective of financial
statements set out in the Framework, the entity shall
depart from that requirement in the manner set out in
paragraph 20 if the relevant regulatory framework
requires, or otherwise does not prohibit, such a
departure.
When an entity departs from a requirement of an IFRS
in accordance with paragraph 19, it shall disclose:
(a) that management has concluded that the
financial statements present fairly the entitys
financial position, financial performance and
cash flows;
(b) that it has complied with applicable IFRSs,
except that it has departed from a particular
requirement to achieve a fair presentation;
(c) the title of the IFRS from which the entity has
departed, the nature of the departure,
including the treatment that the IFRS would
require, the reason why that treatment would
be so misleading in the circumstances that it
would conflict with the objective of financial
statements set out in the Framework, and the
treatment adopted; and
(d) for each period presented, the financial effect
of the departure on each item in the financial
statements that would have been reported in
complying with the requirement.
When an entity has departed from a requirement of an
IFRS in a prior period, and that departure affects the
amounts recognised in the financial statements for the
current period, it shall make the disclosures set out in
paragraph 20(c) and (d).
22 Paragraph 21 applies, for example, when an entity departed
in a prior period from a requirement in an IFRS for the
measurement of assets or liabilities and that departure
affects the measurement of changes in assets and liabilities
recognised in the current periods financial statements.
23 In the extremely rare circumstances in which
management concludes that compliance with a
requirement in an IFRS would be so misleading that it
would conflict with the objective of financial statements
set out in the Framework, but the relevant regulatory
framework prohibits departure from the requirement,
the entity shall, to the maximum extent possible, reduce
the perceived misleading aspects of compliance by
disclosing:
(a) the title of the IFRS in question, the nature of
the requirement, and the reason why
management has concluded that complying
with that requirement is so misleading in the
circumstances that it conflicts with the
objective of financial statements set out in the
Framework; and
(b) for each period presented, the adjustments to
each item in the financial statements that
management has concluded would be
necessary to achieve a fair presentation.
24 For the purpose of paragraphs 1923, an item of
information would conflict with the objective of financial
statements when it does not represent faithfully the
transactions, other events and conditions that it either
purports to represent or could reasonably be expected to
represent and, consequently, it would be likely to influence
economic decisions made by users of financial statements.
When assessing whether complying with a specific
requirement in an IFRS would be so misleading that it
would conflict with the objective of financial statements set
out in the Framework, management considers:
(a) why the objective of financial statements is not
achieved in the particular circumstances; and
how the entitys circumstances differ from those of other
entities that comply with the requirement. If other entities in
similar circumstances comply with the requirement, there is
a rebuttable presumption that the entitys compliance with
the requirement would not be so misleading that it would
conflict with the objective of financial statements set out in
the Framework.
Going concern
When preparing financial statements, management
shall make an assessment of an entitys ability to
continue as a going concern. An entity shall prepare 31
financial statements on a going concern basis unless
management either intends to liquidate the entity or to
cease trading, or has no realistic alternative but to do
so. When management is aware, in making its
32
assessment, of material uncertainties related to events
or conditions that may cast significant doubt upon the
entitys ability to continue as a going concern, the entity
shall disclose those uncertainties. When an entity does
not prepare financial statements on a going concern
basis, it shall disclose that fact, together with the basis
on which it prepared the financial statements and the
reason why the entity is not regarded as a going
concern.
In assessing whether the going concern assumption is
appropriate, management takes into account all available
information about the future, which is at least, but is not
limited to, twelve months from the end of the reporting
period. The degree of consideration depends on the facts
in each case. When an entity has a history of profitable
operations and ready access to financial resources, the
entity may reach a conclusion that the going concern
basis of accounting is appropriate without detailed
analysis. In other cases, management may need to
consider a wide range of factors relating to current and
expected profitability, debt repayment schedules and
potential sources of replacement financing before it can
satisfy itself that the going concern basis is appropriate.
Accrual basis of accounting
27 An entity shall prepare its financial statements, except
for cash flow information, using the accrual basis of
accounting.
28 When the accrual basis of accounting is used, an entity
recognises items as assets, liabilities, equity, income and
expenses (the elements of financial statements) when
they satisfy the definitions and recognition criteria for
those elements in the Framework.
Materiality and aggregation
29 An entity shall present separately each material class of
similar items. An entity shall present separately items
of a dissimilar nature or function unless they are
immaterial.
30 Financial statements result from processing large numbers
of transactions or other events that are aggregated into
classes according to their nature or function. The final
stage in the process of aggregation and classification is
the presentation of condensed and classified data, which
form line items in the financial statements. If a line item
is not individually material, it is aggregated with other
items either in those statements or in the notes. An item
that is not sufficiently material to warrant separate
presentation in those statements may warrant separate
presentation in the notes.
An entity need not provide a specific disclosure required by
an IFRS if the information is not material.
Offsetting
An entity shall not offset assets and liabilities or income
and expenses, unless required or permitted by an IFRS.
33 An entity reports separately both assets and liabilities, and
income and expenses. Offsetting in the statements of
comprehensive income or financial position or in the
separate statement of comprehensive income (if presented),
except when offsetting reflects the substance of the
transaction or other event, detracts from the ability of users
both to understand the transactions, other events and
conditions that have occurred and to assess the entitys
future cash flows. Measuring assets net of valuation
allowancesfor example, obsolescence allowances on
inventories and doubtful debts allowances on receivables
is not offsetting.
34 IAS 18 Revenue defines revenue and requires an entity to
measure it at the fair value of the consideration received or
receivable, taking into account the amount of any trade
discounts and volume rebates the entity allows. An entity
undertakes, in the course of its ordinary activities, other
transactions that do not generate revenue but are incidental
to the main revenue-generating activities. An entity
presents the results of such transactions, when this
presentation reflects the substance of the transaction or
other event, by netting any income with related expenses
arising on the same transaction. For example:
(a) an entity presents gains and losses on the
disposal of non-current assets, including
investments and operating assets, by deducting
from the proceeds on disposal the carrying
amount of the asset and related selling expenses;
and
(b) an entity may net expenditure related to a
provision that is recognised in accordance with
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets and reimbursed under a
contractual arrangement with a third party (for
example, a suppliers warranty agreement)
against the related reimbursement.
35 In addition, an entity presents on a net basis gains and
losses arising from a group of similar transactions, for
example, foreign exchange gains and losses or gains and
losses arising on financial instruments held for trading.
However, an entity presents such gains and losses
separately if they are material.
Frequency of reporting
36 An entity shall present a complete set of financial
statements (including comparative information) at least
annually. When an entity changes the end of its
reporting period and presents financial statements for a
period longer or shorter than one year, an entity shall
disclose, in addition to the period covered by the
financial statements:
(a) the reason for using a longer or shorter
period, and
(b) the fact that amounts presented in the
financial statements are not entirely
comparable.
37 Normally, an entity consistently prepares financial
statements for a one-year period. However, for practical
reasons, some entities prefer to report, for example, for a
52-week period. This Standard does not preclude this
practice.
Comparative information
38 Except when IFRSs permit or require otherwise, an
entity shall disclose comparative information in
respect of the previous period for all amounts
reported in the current periods financial statements.
An entity shall include comparative information for
narrative and descriptive information when it is
relevant to an understanding of the current periods
financial statements.
39 An entity disclosing comparative information shall present,
as a minimum, two statements of financial position, two
of each of the other statements, and related notes. When
an entity applies an accounting policy retrospectively or
makes a retrospective restatement of items in its financial
statements or when it reclassifies items in its financial
statements, it shall present, as a minimum, three
statements of financial position, two of each of the other
statements, and related notes. An entity presents
statements of financial position as at:
(a) the end of the current period,
(b) the end of the previous period (which is the same
as the beginning of the current period), and
(c) the beginning of the earliest comparative period.
40 In some cases, narrative information provided in the
financial statements for the previous period(s) continues
to be relevant in the current period. For example, an
entity discloses in the current period details of a legal
dispute whose outcome was uncertain at the end of the
immediately preceding reporting period and that is yet to
be resolved. Users benefit from information that the
uncertainty existed at the end of the immediately
preceding reporting period, and about the steps that have
been taken during the period to resolve the uncertainty.
41 When the entity changes the presentation or
classification of items in its financial statements, the
entity shall reclassify comparative amounts unless
reclassification is impracticable. When the entity
reclassifies comparative amounts, the entity shall
disclose:
(a) the nature of the reclassification;
(b) the amount of each item or class of items that
is reclassified; and
(c) the reason for the reclassification.
42 When it is impracticable to reclassify comparative
amounts, an entity shall disclose:
(a) the reason for not reclassifying the amounts,
and
 (b) the nature of the adjustments that would have
been made if the amounts had been
reclassified.
43 Enhancing the inter-period comparability of information
assists users in making economic decisions, especially by
allowing the assessment of trends in financial information 49
for predictive purposes. In some circumstances, it is
impracticable to reclassify comparative information for a
particular prior period to achieve comparability with the
current period. For example, an entity may not have 50
collected data in the prior period(s) in a way that allows
reclassification, and it may be impracticable to recreate the
information.
44 IAS 8 sets out the adjustments to comparative information
required when an entity changes an accounting policy or
corrects an error. 51
Consistency of presentation
45 An entity shall retain the presentation and classification
of items in the financial statements from one period to
the next unless:
(a) it is apparent, following a significant change
in the nature of the entitys operations or a
review of its financial statements, that
another presentation or classification would
be more appropriate having regard to the
criteria for the selection and application of
accounting policies in IAS 8; or
(b) an IFRS requires a change in presentation.
46 For example, a significant acquisition or disposal, or a \
review of the presentation of the financial
statements, might suggest that the financial statements need
to be presented differently. An entity changes the
presentation of its financial statements only if the changed 52
presentation provides information that is reliable and more
relevant to users of the financial statements and the revised
structure is likely to continue, so that comparability is not
impaired. When making such changes in presentation, an
entity reclassifies its comparative information in accordance
with paragraphs 41 and 42.
Structure and content
Introduction 53
47 This Standard requires particular disclosures in the
statement of financial position or of comprehensive
income, in the separate statement of comprehensive
income (if presented), or in the statement of changes in
equity and requires disclosure of other line items either in
those statements or in the notes. IAS 7 Statement of Cash
Flows sets out requirements for the presentation of cash
flow information.
48 This Standard sometimes uses the term disclosure in a
broad sense, encompassing items presented in the financial 54
statements. Disclosures are also required by other IFRSs.
Unless specified to the contrary elsewhere in this Standard
or in another IFRS, such disclosures may be made in the
financial statements.
Identification of the financial
statements
An entity shall clearly identify the financial statements
and distinguish them from other information in the
same published document.
IFRSs apply only to financial statements, and not
necessarily to other information presented in an annual
report, a regulatory filing, or another document. Therefore,
it is important that users can distinguish information that is
prepared using IFRSs from other information that may be
useful to users but is not the subject of those requirements.
An entity shall clearly identify each financial statement
and the notes. In addition, an entity shall display the
following information prominently, and repeat it when
necessary for the information presented to be
understandable:
(a) the name of the reporting entity or other means
of identification, and any change in that
information from the end of the preceding
reporting period;
(b) whether the financial statements are of an
individual entity or a group of entities;
(c) the date of the end of the reporting period or
the period covered by the set of financial
statements or notes;
(d) the presentation currency, as defined in IAS
21; and
(e) the level of rounding used in presenting
amounts in the financial statements.
An entity meets the requirements in paragraph 51 by
presenting appropriate headings for pages, statements,
notes, columns and the like. Judgement is required in
determining the best way of presenting such information.
For example, when an entity presents the financial
statements electronically, separate pages are not always
used; an entity then presents the above items to ensure that
the information included in the financial statements can be
understood.
An entity often makes financial statements more
understandable by presenting information in thousands or
millions of units of the presentation currency. This is
acceptable as long as the entity discloses the level of
rounding and does not omit material information.
Statement of financial position
Information to be presented in the
statement of financial position
As a minimum, the statement of financial position shall
include line items that present the following amounts:
(a) property, plant and equipment;
 (b) investment property; provide information that is relevant to the
(c) intangible assets; operations of a financial institution.
(d) financial assets (excluding amounts shown
under (e), (h) and (i)); 58 An entity makes the judgement about whether to present
(e) investments accounted for using the equity additional items separately on the basis of an assessment
method; of:
(f) biological assets;
(g) inventories; (a) the nature and liquidity of assets;
(h) trade and other receivables; (b) the function of assets within the entity; and
(i) cash and cash equivalents; (c) the amounts, nature and timing of liabilities.
(j) the total of assets classified as held for sale
and assets included in disposal groups 59 The use of different measurement bases for different
classified as held for sale in accordance with classes of assets suggests that their nature or function
IFRS 5 Non-current Assets Held for Sale and differs and, therefore, that an entity presents them as
Discontinued Operations; separate line items. For example, different classes of
(k) trade and other payables; property, plant and equipment can be carried at cost or at
(l) provisions; revalued amounts in accordance with IAS 16.
(m) financial liabilities (excluding amounts shown
under (k) and (l));
(n) liabilities and assets for current tax, as
Current/non-current distinction
60 An entity shall present current and non-current assets,
defined in IAS 12 Income Taxes;
(o) deferred tax liabilities and deferred tax assets, and current and non-current liabilities, as separate
as defined in IAS 12; classifications in its statement of financial position in
(p) liabilities included in disposal groups accordance with paragraphs 6676 except when a
classified as held for sale in accordance with presentation based on liquidity provides information
IFRS 5; that is reliable and more relevant. When that exception
(q) non-controlling interest, presented within applies, an entity shall present all assets and liabilities
equity; and in order of liquidity.
(r) issued capital and reserves attributable to
owners of the parent. 61 Whichever method of presentation is adopted, an entity
shall disclose the amount expected to be recovered or
55 An entity shall present additional line items, headings settled after more than twelve months for each asset
and subtotals in the statement of financial position and liability line item that combines amounts expected
when such presentation is relevant to an understanding to be recovered or settled:
of the entitys financial position. (a) no more than twelve months after the
reporting period, and
56 When an entity presents current and non-current
(b) more than twelve months after the reporting
assets, and current and non-current liabilities, as
period.
separate classifications in its statement of financial
position, it shall not classify deferred tax assets 62 When an entity supplies goods or services within a clearly
(liabilities) as current assets (liabilities). identifiable operating cycle, separate classification of
current and non-current assets and liabilities in the
57 This Standard does not prescribe the order or format in
statement of financial position provides useful information
which an entity presents items. Paragraph 54 simply lists
by distinguishing the net assets that are continuously
items that are sufficiently different in nature or function to circulating as working capital from those used in the
warrant separate presentation in the statement of financial entitys long-term operations. It also highlights assets that
position. In addition: are expected to be realised within the current operating
(a) line items are included when the size, nature or cycle, and liabilities that are due for settlement within the
same period.
function of an item or aggregation of similar
63 For some entities, such as financial institutions, a
items is such that separate presentation is
presentation of assets and liabilities in increasing or
relevant to an understanding of the entitys
decreasing order of liquidity provides information that is
financial position; and
reliable and more relevant than a current/non-current
(b) the descriptions used and the ordering of items
presentation because the entity does not supply goods or
or aggregation of similar items may be amended
services within a clearly identifiable operating cycle.
according to the nature of the entity and its
transactions, to provide information that is
64 In applying paragraph 60, an entity is permitted to present
relevant to an understanding of the entitys
some of its assets and liabilities using a current/non-current
financial position. For example, a financial
classification and others in order of liquidity when this
institution may amend the above descriptions to
provides information that is reliable and more relevant.
 The need for a mixed basis of presentation might arise
when an entity has diverse operations
65 Information about expected dates of realisation of assets
and liabilities is useful in assessing the liquidity and
solvency of an entity. IFRS 7 Financial Instruments:
Disclosures requires disclosure of the maturity dates of
financial assets and financial liabilities. Financial assets
include trade and other receivables, and financial liabilities
include trade and other payables. Information on the
expected date of recovery of non-monetary assets such as
inventories and expected date of settlement for liabilities
such as provisions is also useful, whether assets and
liabilities are classified as current or as non-current. For
example, an entity discloses the amount of inventories that
are expected to be recovered more than twelve months after
the reporting period.
Current assets
66 An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell
or consume it, in its normal operating cycle;
(b) it holds the asset primarily for the purpose of
trading; 71
(c) it expects to realise the asset within twelve
months after the reporting period; or
(d) the asset is cash or a cash equivalent (as
defined in IAS 7) unless the asset is restricted
from being exchanged or used to settle a
liability for at least twelve months after the
reporting period.
An entity shall classify all other assets as non-current.
67 This Standard uses the term non-current to include
tangible, intangible and financial assets of a long-term
nature. It does not prohibit the use of alternative
descriptions as long as the meaning is clear.
68 The operating cycle of an entity is the time between the
acquisition of assets for processing and their realisation in
cash or cash equivalents. When the entitys normal
operating cycle is not clearly identifiable, it is assumed to
be 12 months. Current assets include assets (such as
inventories and trade receivables) that are sold, consumed
or realised as part of the normal operating cycle even when
they are not expected to be realised within 12 months after
the reporting period. Current assets also include assets held
primarily for the purpose of trading ((examples include 73
some financial assets classified as held for trading in
accordance with IAS 39) and the current portion of non-
current financial assets.
Current liabilities
69 An entity shall classify a liability as current when:
(a) it expects to settle the liability in its normal
operating cycle;
(b) it holds the liability primarily for the purpose
of trading;
(c) the liability is due to be settled within twelve
months after the reporting period; or
(d) it does not have an unconditional right to
defer settlement of the liability for at least
twelve months after the reporting period (see
paragraph 73). Terms of a liability that could,
at the option of the counterparty, result in its
settlement by the issue of equity instruments
do not affect its classification.
An entity shall classify all other liabilities as non-
current.
70 Some current liabilities, such as trade payables
and some accruals for employee and other operating costs,
are part of the working capital used in the entitys normal
operating cycle. An entity classifies such operating items as
current liabilities even if they are due to be settled more
than twelve months after the reporting period. The same
normal operating cycle applies to the classification of an
entitys assets and liabilities. When the entitys normal
operating cycle is not clearly identifiable, it is assumed to
be twelve months.
Other current liabilities are not settled as part of the normal
operating cycle, but are due for settlement within 12
months after the reporting period or held primarily for the
purpose of trading. Examples are some financial liabilities
classified as held for trading in accordance with IAS 39,
bank overdrafts, and the current portion of non-current
financial liabilities, dividends payable, income taxes and
other non-trade payables. Financial liabilities that provide
financing on a long-term basis (ie are not part of the
working capital used in the entitys normal operating
cycle) and are not due for settlement within 12 months
after the reporting period are non-current liabilities, subject
to paragraphs 74 and 75.
72 An entity classifies its financial liabilities as current when
they are due to be settled within twelve months after the
reporting period, even if:
(a) the original term was for a period longer than
twelve months, and
(b) an agreement to refinance, or to reschedule
payments, on a long-term basis is completed
after the reporting period and before the
financial statements are authorised for issue.
If an entity expects, and has the discretion, to refinance or
roll over an obligation for at least twelve months after the
reporting period under an existing loan facility, it classifies
the obligation as non-current, even if it would otherwise be
due within a shorter period. However, when refinancing or
rolling over the obligation is not at the discretion of the
entity (for example, there is no arrangement for
refinancing), the entity does not consider the potential to
refinance the obligation and classifies the obligation as
current.
74 When an entity breaches a provision of a long-term loan
arrangement on or before the end of the reporting period
with the effect that the liability becomes payable on
demand, it classifies the liability as current, even if the
lender agreed, after the reporting period and before the
authorisation of the financial statements for issue, not to
demand payment as a consequence of the breach. An entity 79
classifies the liability as current because, at the end of the
reporting period, it does not have an unconditional right to
defer its settlement for at least twelve months after that
date.
(d) provisions are disaggregated into provisions for
employee benefits and other items; and
(e) equity capital and reserves are disaggregated into
various classes, such as paid-in capital, share
premium and reserves.
An entity shall disclose the following, either in the
statement of financial position or the statement of
changes in equity, or in the notes:
(a) for each class of share capital:

75 However, an entity classifies the liability as non-current if (i) the number of shares authorised;
the lender agreed by the end of the reporting period to (ii) the number of shares issued and
provide a period of grace ending at least twelve months fully paid, and issued but not fully
after the reporting period, within which the entity can paid;
rectify the breach and during which the lender cannot (iii) par value per share, or that the
demand immediate repayment. shares have no par value;
(iv) a reconciliation of the number of
76 In respect of loans classified as current liabilities, if the shares outstanding at the beginning
following events occur between the end of the reporting and at the end of the period;
period and the date the financial statements are authorised (v) the rights, preferences and
for issue, those events are disclosed as non-adjusting restrictions attaching to that class
events in accordance with IAS 10 Events after the including restrictions on the
Reporting Period:
distribution of dividends and the
(a) refinancing on a long-term basis; repayment of capital;
(b) rectification of a breach of a long-term loan (vi) shares in the entity held by the
arrangement; and entity or by its subsidiaries or
(c) the granting by the lender of a period of grace to associates; and
rectify a breach of a long-term loan arrangement (vii) shares reserved for issue under
ending at least twelve months after the reporting options and contracts for the sale of
period. shares, including terms and
amounts; and
Information to be presented either in the
statement of financial position or in the (b) a description of the nature and purpose of
each reserve within equity.
notes
77 An entity shall disclose, either in the statement of 80 An entity without share capital, such as a partnership
financial position or in the notes, further or trust, shall disclose information equivalent to that
subclassifications of the line items presented, classified required by paragraph 79(a), showing changes during
in a manner appropriate to the entitys operations. the period in each category of equity interest, and the
rights, preferences and restrictions attaching to each
78 The detail provided in subclassifications depends on the category of equity interest.
requirements of IFRSs and on the size, nature and function
of the amounts involved. An entity also uses the factors set 80A If an entity has reclassified
out in paragraph 58 to decide the basis of subclassification.
The disclosures vary for each item, for example: (a) a puttable financial instrument classified as
an equity instrument, or
(a) items of property, plant and equipment are (b) an instrument that imposes on the entity an
disaggregated into classes in accordance with obligation to deliver to another party a pro
IAS 16; rata share of the net assets of the entity only
(b) receivables are disaggregated into amounts on liquidation and is classified as an equity
receivable from trade customers, receivables instrument
from related parties, prepayments and other
amounts; between financial liabilities and equity, it shall disclose
(c) inventories are disaggregated, in accordance the amount reclassified into and out of each category
with IAS 2 Inventories, into classifications such (financial liabilities or equity), and the timing and
as merchandise, production supplies, materials, reason for that reclassification.
work in progress and finished goods;
 Statement of comprehensive income
84 An entity may present in a separate statement of
81 An entity shall present all items of income and expense
recognised in a period: comprehensive income (see paragraph 81) the line
items in paragraph 82(a)(f) and the disclosures in
(a) in a single statement of comprehensive paragraph 83(a).
income, or
(b) in two statements: a statement displaying 85 An entity shall present additional line items, headings
components of profit or loss (separate and subtotals in the statement of comprehensive income
statement of comprehensive income) and a and the separate statement of comprehensive income (if
second statement beginning with profit or loss presented), when such presentation is relevant to an
and displaying components of other understanding of the entitys financial performance.
comprehensive income (statement of
86 Because the effects of an entitys various activities,
comprehensive income).
transactions and other events differ in frequency, potential
for gain or loss and predictability, disclosing the
Information to be presented in the components of financial performance assists users in
statement of comprehensive income understanding the financial performance achieved and in
82 As a minimum, the statement of comprehensive income making projections of future financial performance. An
shall include line items that present the following entity includes additional line items in the statement of
amounts for the period: comprehensive income and in the separate statement of
comprehensive income (if presented), and it amends the
(a) revenue; descriptions used and the ordering of items when this is
(b) finance costs; necessary to explain the elements of financial performance.
(c) share of the profit or loss of associates and An entity considers factors including materiality and the
joint ventures accounted for using the equity nature and function of the items of income and expense.
method; For example, a financial institution may amend the
(d) tax expense; descriptions to provide information that is relevant to the
(e) a single amount comprising the total of: operations of a financial institution. An entity does not
offset income and expense items unless the criteria in
(i) the post-tax profit or loss of paragraph 32 are met.
discontinued operations and
(ii) the post-tax gain or loss recognised 87 An entity shall not present any items of income or
on the measurement to fair value expense as extraordinary items, in the statement of
less costs to sell or on the disposal of comprehensive income or the separate statement of
the assets or disposal group(s) comprehensive income (if presented), or in the notes.
constituting the discontinued
operation; Profit or loss for the period
88 An entity shall recognise all items of income and
(f) profit or loss;
(g) each component of other comprehensive expense in a period in profit or loss unless an IFRS
income classified by nature (excluding requires or permits otherwise.
amounts in (h));
(h) share of the other comprehensive income of 89 Some IFRSs specify circumstances when an entity
recognises particular items outside profit or loss in the
associates and joint ventures accounted for
current period. IAS 8 specifies two such circumstances: the
using the equity method; and
correction of errors and the effect of changes in accounting
(i) total comprehensive income. policies. Other IFRSs require or permit components of
other comprehensive income that meet the Frameworks
83 An entity shall disclose the following items in the
definition of income or expense to be excluded from profit
statement of comprehensive income as allocations of
or loss (see paragraph 7).
profit or loss for the period:

(a) profit or loss for the period attributable to: Other comprehensive income for the period
90 An entity shall disclose the amount of income tax
(i) non-controlling interest, and
(ii) owners of the parent. relating to each component of other comprehensive
income, including reclassification adjustments, either in
(b) total comprehensive income for the period the statement of comprehensive income or in the notes.
attributable to:
91 An entity may present components of other comprehensive
(i) non-controlling interest, and income either:
(ii) owners of the parent.
 (a) net of related tax effects, or
(b) before related tax effects with one amount
shown for the aggregate amount of income tax
relating to those components.
92 An entity shall disclose reclassification adjustments
relating to components of other comprehensive income.
93 Other IFRSs specify whether and when amounts previously
recognised in other comprehensive income are reclassified
to profit or loss. Such reclassifications are referred to in
this Standard as reclassification adjustments. A
reclassification adjustment is included with the related
component of other comprehensive income in the period
that the adjustment is reclassified to profit or loss. For 99
example, gains realised on the disposal of available-for-
sale financial assets are included in profit or loss of the
current period. These amounts may have been recognised
in other comprehensive income as unrealised gains in the
current or previous periods. Those unrealised gains must be
deducted from other comprehensive income in the period 100
in which the realised gains are reclassified to profit or loss
to avoid including them in total comprehensive income
twice.
94 An entity may present reclassification adjustments in the
statement of comprehensive income or in the notes. An
entity presenting reclassification adjustments in the notes
presents the components of other comprehensive income
after any related reclassification adjustments.
95 Reclassification adjustments arise, for example, on
disposal of a foreign operation (see IAS 21), on
derecognition of available-for-sale financial assets (see
IAS 39) and when a hedged forecast transaction affects
profit or loss (see paragraph 100 of IAS 39 in relation to
cash flow hedges).
96 Reclassification adjustments do not arise on changes in
revaluation surplus recognised in accordance with IAS 16
or IAS 38 or on actuarial gains and losses on defined
benefit plans recognised in accordance with paragraph 93A
of IAS 19. These components are recognised in other
comprehensive income and are not reclassified to profit or
loss in subsequent periods. Changes in revaluation surplus
may be transferred to retained earnings in subsequent
periods as the asset is used or when it is derecognised (see
IAS 16 and IAS 38). Actuarial gains and losses are
reported in retained earnings in the period that they are
recognised as other comprehensive income (see IAS 19).
Information to be presented in the
statement of comprehensive income or
in the notes
97 When items of income or expense are material, an
entity shall disclose their nature and amount separately.
98 Circumstances that would give rise to the separate
disclosure of items of income and expense include:
(a) write-downs of inventories to net realisable value
or of property, plant and equipment to
recoverable amount, as well as reversals of such
write-downs;
(b) restructurings of the activities of an entity and
reversals of any provisions for the costs of
restructuring;
(d) disposals of items of property, plant and
equipment; disposals of investments;
(e) discontinued operations;
(f) litigation settlements; and
(g) other reversals of provisions.
An entity shall present an analysis of expenses
recognised in profit or loss using a classification based
on either their nature or their function within the
entity, whichever provides information that is reliable
and more relevant.
Entities are encouraged to present the analysis in paragraph
99 in the statement of comprehensive income or in the
separate statement of comprehensive income (if presented).
101 Expenses are subclassified to highlight components of
financial performance that may differ in terms of
frequency, potential for gain or loss and predictability.
This analysis is provided in one of two forms.
102 The first form of analysis is the nature of expense
method. An entity aggregates expenses within profit or loss
according to their nature (for example, depreciation,
purchases of materials, transport costs, employee benefits
and advertising costs), and does not reallocate them among
functions within the entity. This method may be simple to
apply because no allocations of expenses to functional
classifications are necessary. An example of a
classification using the nature of expense method is as
follows:
Revenue X
Other income X
Changes in inventories of finished X
goods and work in progress
Raw materials and consumables used X
Employee benefits expense X
Depreciation and amortisation expense X
Other expenses X
Total expenses (X)
Profit before tax X
103 The second form of analysis is the function of expense or
cost of sales method and classifies expenses according to
their function as part of cost of sales or, for example, the
costs of distribution or administrative activities. At a
minimum, an entity discloses its cost of sales under this
method separately from other expenses. This method can
provide more relevant information to users than the
classification of expenses by nature, but allocating costs to
functions may require arbitrary allocations and involve
 considerable judgement. An example of a classification separately contributions by and
using the function of expense method is as follows: distributions to owners and changes
in ownership interests in
Revenue X subsidiaries that do not result in a
Cost of Sales (X) loss of control.
GrossProfit X
Other Income X 106A For each component of equity an entity shall present, either
Distribution Costs (X) in the statement of changes in equity or in the notes, an
Administrative expenses (X) analysis of other comprehensive income by item (see
Other Expenses (X)
paragraph 106(d)(ii)).
Profit before tax X
107 An entity shall present, either in the statement of
104 An entity classifying expenses by function shall disclose changes in equity or in the notes, the amounts of
additional information on the nature of expenses, dividends recognised as distributions to owners during
including depreciation and amortisation expense and the period, and the related amount of dividends per
employee benefits expense. share.
105 The choice between the function of expense method and 108 In paragraph 106, the components of equity include, for
the nature of expense method depends on historical and example, each class of contributed equity, the accumulated
industry factors and the nature of the entity. Both methods balance of each class of other comprehensive income and
provide an indication of those costs that might vary, retained earnings.
directly or indirectly, with the level of sales or production
of the entity. Because each method of presentation has
109 Changes in an entitys equity between the beginning and
merit for different types of entities, this Standard requires
management to select the presentation that is reliable and the end of the reporting period reflect the increase or
more relevant. However, because information on the nature decrease in its net assets during the period. Except for
of expenses is useful in predicting future cash flows, changes resulting from transactions with owners in their
additional disclosure is required when the function of capacity as owners (such as equity contributions,
expense classification is used. In paragraph 104, employee reacquisitions of the entitys own equity instruments and
benefits has the same meaning as in IAS 19. dividends) and transaction costs directly related to such
transactions, the overall change in equity during a period
represents the total amount of income and expense,
Statement of changes in equity including gains and losses, generated by the entitys
Structure and content activities during that period.
Statement of changes in equity
110 IAS 8 requires retrospective adjustments to effect changes
in accounting policies, to the extent practicable, except
Information to be presented in the statement of
when the transition provisions in another IFRS require
changes in equity
otherwise. IAS 8 also requires restatements to correct
106 An entity shall present a statement of changes in equity
as required by paragraph 10. The statement of changes in errors to be made retrospectively, to the extent practicable.
equity includes the following information: Retrospective adjustments and retrospective restatements
are not changes in equity but they are adjustments to the
(a) total comprehensive income for the period, opening balance of retained earnings, except when an IFRS
showing separately the total amounts requires retrospective adjustment of another component of
attributable to owners of the parent and to equity. Paragraph 106(b) requires disclosure in the
non-controlling interest; statement of changes in equity of the total adjustment to
each component of equity resulting from changes in
(b) for each component of equity, the effects of
accounting policies and, separately, from corrections of
retrospective application or retrospective errors. These adjustments are disclosed for each prior
restatement recognised in accordance with period and the beginning of the period.
IAS 8; and
(c) [deleted]
(d) for each component of equity, a reconciliation Statement of cash flows
between the carrying amount at the beginning 111 Cash flow information provides users of financial
and the end of the period, separately statements with a basis to assess the ability of the entity to
disclosing changes resulting from: generate cash and cash equivalents and the needs of the
entity to utilise those cash flows. IAS 7 sets out
(i) profit or loss; requirements for the presentation and disclosure of cash
(ii) other comprehensive income; and flow information.
(iii) transactions with owners in their
capacity as owners, showing
 Notes 116
Structure
112 The notes shall:
(a) present information about the basis of
preparation of the financial statements and
the specific accounting policies used in
117
accordance with paragraphs 117124;
(b) disclose the information required by IFRSs
that is not presented elsewhere in the
financial statements; and
(c) provide information that is not presented
elsewhere in the financial statements, but is
relevant to an understanding of any of them.
113 An entity shall, as far as practicable, present notes in a 118
systematic manner. An entity shall cross-reference each
item in the statements of financial position and of
comprehensive income, in the separate statement of
comprehensive income (if presented), and in the
statements of changes in equity and of cash flows to any
related information in the notes.
114 An entity normally presents notes in the following order, to
assist users to understand the financial statements and to
compare them with financial statements of other entities:
(a) statement of compliance with IFRSs (see 119
paragraph 16);
(b) summary of significant accounting policies
applied (see paragraph 117);
(c) supporting information for items presented in the
statements of financial position and of
comprehensive income, in the separate statement
of comprehensive income (if presented), and in
the statements of changes in equity and of cash
flows, in the order in which each statement and
each line item is presented; and
(d) other disclosures, including:
(i) contingent liabilities (see IAS 37) and
unrecognised contractual
commitments, and 120
(ii) non-financial disclosures, eg the
entitys financial risk management
objectives and policies (see IFRS 7).
115 In some circumstances, it may be necessary or desirable to
vary the order of specific items within the notes. For
example, an entity may combine information on changes in
fair value recognised in profit or loss with information on
maturities of financial instruments, although the former
disclosures relate to the statement of comprehensive
121
income or separate statement of comprehensive income (if
presented) and the latter relate to the statement of financial
position. Nevertheless, an entity retains a systematic
structure for the notes as far as practicable.
An entity may present notes providing information about
the basis of preparation of the financial statements and
specific accounting policies as a separate section of the
financial statements.
Disclosure of accounting policies
An entity shall disclose in the summary of significant
accounting policies:
(a) the measurement basis (or bases) used in
preparing the financial statements, and
(b) the other accounting policies used that are
relevant to an understanding of the financial
statements.
It is important for an entity to inform users of the
measurement basis or bases used in the financial statements
(for example, historical cost, current cost, net realisable
value, fair value or recoverable amount) because the basis
on which an entity prepares the financial statements
significantly affects users analysis. When an entity uses
more than one measurement basis in the financial
statements, for example when particular classes of assets
are revalued, it is sufficient to provide an indication of the
categories of assets and liabilities to which each
measurement basis is applied.
In deciding whether a particular accounting policy should
be disclosed, management considers whether disclosure
would assist users in understanding how transactions, other
events and conditions are reflected in reported financial
performance and financial position. Disclosure of particular
accounting policies is especially useful to users when those
policies are selected from alternatives allowed in IFRSs.
An example is disclosure of whether a venturer recognises
its interest in a jointly controlled entity using proportionate
consolidation or the equity method (see IAS 31 Interests in
Joint Ventures). Some IFRSs specifically require disclosure
of particular accounting policies, including choices made
by management between different policies they allow. For
example, IAS 16 requires disclosure of the measurement
bases used for classes of property, plant and equipment.
Each entity considers the nature of its operations and the
policies that the users of its financial statements would
expect to be disclosed for that type of entity. For example,
users would expect an entity subject to income taxes to
disclose its accounting policies for income taxes, including
those applicable to deferred tax liabilities and assets. When
an entity has significant foreign operations or transactions
in foreign currencies, users would expect disclosure of
accounting policies for the recognition of foreign exchange
gains and losses.
An accounting policy may be significant because of the
nature of the entitys operations even if amounts for current
and prior periods are not material. It is also appropriate to
disclose each significant accounting policy that is not
specifically required by IFRSs but the entity selects and
applies in accordance with IAS 8.
122 An entity shall disclose, in the summary of significant
accounting policies or other notes, the judgements,
apart from those involving estimations (see paragraph
125), that management has made in the process of
applying the entitys accounting policies and that have
the most significant effect on the amounts recognised in
the financial statements.
123 In the process of applying the entitys accounting policies,
management makes various judgements, apart from those 127
involving estimations, that can significantly affect the
amounts it recognises in the financial statements. For
example, management makes judgements in determining:
(a) whether financial assets are held-to-maturity
investments;
(b) when substantially all the significant risks and
rewards of ownership of financial assets and
lease assets are transferred to other entities;
(c) whether, in substance, particular sales of goods
are financing arrangements and therefore do not
give rise to revenue; and
(d) whether the substance of the relationship
between the entity and a special purpose entity
indicates that the entity controls the special
purpose entity.
124 Some of the disclosures made in accordance with
paragraph 122 are required by other IFRSs. For example,
IAS 27 requires an entity to disclose the reasons why the 129
entitys ownership interest does not constitute control, in
respect of an investee that is not a subsidiary even though
more than half of its voting or potential voting power is
owned directly or indirectly through subsidiaries. IAS 40
Investment Property requires disclosure of the criteria
developed by the entity to distinguish investment property
from owner-occupied property and from property held for
sale in the ordinary course of business, when classification
of the property is difficult.
Sources of estimation uncertainty
125 An entity shall disclose information about the
assumptions it makes about the future, and other major
sources of estimation uncertainty at the end of the
reporting period, that have a significant risk of
resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next
financial year. In respect of those assets and liabilities,
the notes shall include details of:
(a) their nature, and
(b) their carrying amount as at the end of the
reporting period.
126 Determining the carrying amounts of some assets and
liabilities requires estimation of the effects of uncertain
future events on those assets and liabilities at the end of the
reporting period. For example, in the absence of recently
observed market prices, future-oriented estimates are
necessary to measure the recoverable amount of classes of
property, plant and equipment, the effect of technological
obsolescence on inventories, provisions subject to the
future outcome of litigation in progress, and long-term
employee benefit liabilities such as pension obligations.
These estimates involve assumptions about such items as
the risk adjustment to cash flows or discount rates, future
changes in salaries and future changes in prices affecting
other costs.
The assumptions and other sources of estimation
uncertainty disclosed in accordance with paragraph 125
relate to the estimates that require managements most
difficult, subjective or complex judgements. As the number
of variables and assumptions affecting the possible future
resolution of the uncertainties increases, those judgements
become more subjective and complex, and the potential for
a consequential material adjustment to the carrying
amounts of assets and liabilities normally increases
accordingly.
128 The disclosures in paragraph 125 are not required for assets
and liabilities with a significant risk that their carrying
amounts might change materially within the next financial
year if, at the end of the reporting period, they are
measured at fair value based on recently observed market
prices. Such fair values might change materially within the
next financial year but these changes would not arise from
assumptions or other sources of estimation uncertainty at
the end of the reporting period.
An entity presents the disclosures in paragraph 125 in a
manner that helps users of financial statements to
understand the judgements that management makes about
the future and about other sources of estimation
uncertainty. The nature and extent of the information
provided vary according to the nature of the assumption
and other circumstances. Examples of the types of
disclosures an entity makes are:
(a) the nature of the assumption or other estimation
uncertainty;
(b) the sensitivity of carrying amounts to the
methods, assumptions and estimates underlying
their calculation, including the reasons for the
sensitivity;
(c) the expected resolution of an uncertainty and the
range of reasonably possible outcomes within the
next financial year in respect of the carrying
amounts of the assets and liabilities affected; and
(d) an explanation of changes made to past
assumptions concerning those assets and
liabilities, if the uncertainty remains unresolved.
130 This Standard does not require an entity to disclose budget
information or forecasts in making the disclosures in
paragraph 125.
131 Sometimes it is impracticable to disclose the extent of the
possible effects of an assumption or another source of
estimation uncertainty at the end of the reporting period. In
 such cases, the entity discloses that it is reasonably
possible, on the basis of existing knowledge, that outcomes
within the next financial year that are different from the
assumption could require a material adjustment to the
carrying amount of the asset or liability affected. In all
cases, the entity discloses the nature and carrying amount
of the specific asset or liability (or class of assets or
liabilities) affected by the assumption. 136
132 The disclosures in paragraph 122 of particular judgements
that management made in the process of applying the
entitys accounting policies do not relate to the disclosures
of sources of estimation uncertainty in paragraph 125.
133 Other IFRSs require the disclosure of some of the
assumptions that would otherwise be required in
accordance with paragraph 125. For example, IAS 37
requires disclosure, in specified circumstances, of major
assumptions concerning future events affecting classes of
provisions. IFRS 7 requires disclosure of significant
assumptions the entity uses in estimating the fair values of
financial assets and financial liabilities that are carried at
fair value. IAS 16 requires disclosure of significant 136A
assumptions that the entity uses in estimating the fair
values of revalued items of property, plant and equipment.
Capital
134 An entity shall disclose information that enables users
of its financial statements to evaluate the entitys
objectives, policies and processes for managing capital.
135 To comply with paragraph 134, the entity discloses the
following:
(a) qualitative information about its objectives,
policies and processes for managing capital,
including:
(i) a description of what it manages as
capital;
(ii) when an entity is subject to externally
imposed capital requirements, the
nature of those requirements and how 137
those requirements are incorporated
into the management of capital; and
(iii) how it is meeting its objectives for
managing capital.
(b) summary quantitative data about what it
manages as capital. Some entities regard some
financial liabilities (eg some forms of
subordinated debt) as part of capital. Other
entities regard capital as excluding some 138
components of equity (eg components arising
from cash flow hedges).
(c) any changes in (a) and (b) from the previous
period.
(d) whether during the period it complied with any
externally imposed capital requirements to
which it is subject.
(e) when the entity has not complied with such
externally imposed capital requirements, the
consequences of such non-compliance.
The entity bases these disclosures on the information
provided internally to key management personnel.
An entity may manage capital in a number of ways and be
subject to a number of different capital requirements. For
example, a conglomerate may include entities that
undertake insurance activities and banking activities and
those entities may operate in several jurisdictions. When an
aggregate disclosure of capital requirements and how
capital is managed would not provide useful information or
distorts a financial statement users understanding of an
entitys capital resources, the entity shall disclose separate
information for each capital requirement to which the
entity is subject.
Puttable financial instruments classified as
equity
For puttable financial instruments classified as equity
instruments, an entity shall disclose (to the extent not
disclosed elsewhere):
(a) summary quantitative data about the amount
classified as equity;
(b) its objectives, policies and processes for
managing its obligation to repurchase or
redeem the instruments when required to do
so by the instrument holders, including any
changes from the previous period;
(c) the expected cash outflow on redemption or
repurchase of that class of financial
instruments; and
(d) information about how the expected cash
outflow on redemption or repurchase was
determined.
Other disclosures
An entity shall disclose in the notes:
(a) the amount of dividends proposed or declared
before the financial statements were
authorised for issue but not recognised as a
distribution to owners during the period, and
the related amount per share; and
(b) the amount of any cumulative preference
dividends not recognised.
An entity shall disclose the following, if not disclosed
elsewhere in information published with the financial
statements:
(a) the domicile and legal form of the entity, its
country of incorporation and the address of
its registered office (or principal place of
 business, if different from the registered
office);
(b) a description of the nature of the entitys
operations and its principal activities;
(c) the name of the parent and the ultimate
parent of the group; and
(d) if it is a limited life entity, information
regarding the length of its life.

Transition and effective date

70 An entity shall apply this Standard for annual periods
beginning on or after 1 January 2009. Earlier
application is permitted. If an entity adopts this
Standard for an earlier period, it shall disclose that
fact.

139A IAS 27 (as amended by the International Accounting

Standards Board in 2008) amended paragraph 106.
An entity shall apply that amendment for annual
periods beginning on or after 1 July 2009. If an entity
applies IAS 27 (amended 2008) for an earlier period,
the amendment shall be applied for that earlier period.
The amendment shall be applied retrospectively.

139B Puttable Financial Instruments and Obligations Arising on

Liquidation (Amendments to IAS 32 and IAS 1), issued in
February 2008, amended paragraph 138 and inserted
paragraphs 8A, 80A and 136A. An entity shall apply those
amendments for annual periods beginning on or after 1
January 2009. Earlier application is permitted. If an entity
applies the amendments for an earlier period, it shall
disclose that fact and apply the related amendments to IAS
32, IAS 39, IFRS 7 and IFRIC 2 Members Shares in Co-
operative Entities and Similar Instruments at the same
time.

139C Paragraphs 68 and 71 were amended by Improvements to

IFRSs issued in May 2008. An entity shall apply those
amendments for annual periods beginning on or after 1
January 2009. Earlier application is permitted. If an entity
applies the amendments for an earlier period it shall
disclose that fact.

139D Paragraph 69 was amended by Improvements to IFRSs

issued in April 2009. An entity shall apply that amendment
for annual periods beginning on or after 1 January 2010.
Earlier application is permitted. If an entity applies the
amendment for an earlier period it shall disclose that fact.

139F Paragraphs 106 and 107 were amended and paragraph 106A
was added by Improvements to IFRSs issued in May 2010. An
entity shall apply those amendments for annual periods
beginning on or after 1 January 2011. Earlier application is
permitted.

Withdrawal of IAS 1 (revised 2003)

140 This Standard supersedes IAS 1 Presentation of Financial

Statements revised in 2003, as amended in 2005.

International Accounting
Standard 11 Construction
Contracts
Objective
The objective of this Standard is to prescribe the accounting
treatment of revenue and costs associated with construction
contracts. Because of the nature of the activity undertaken in
construction contracts, the date at which the contract activity is
entered into and the date when the activity is completed usually
fall into different accounting periods. Therefore, the primary issue 6
in accounting for construction contracts is the allocation of
contract revenue and contract costs to the accounting periods in
which construction work is performed. This Standard uses the
recognition criteria established in the Framework for the
Preparation and Presentation of Financial Statements to
determine when contract revenue and contract costs should be
recognised as revenue and expenses in the statement of
comprehensive income. It also provides practical guidance on the
application of these criteria.
Scope
2 This Standard shall be applied in accounting for
construction contracts in the financial statements of
contractors.
3 This Standard supersedes IAS 11 Accounting for
Construction Contracts approved in 1978.
Definitions
3 The following terms are used in this Standard with the
meanings specified:
A construction contract is a contract specifically
negotiated for the construction of an asset or a
combination of assets that are closely interrelated or
interdependent in terms of their design, technology and
function or their ultimate purpose or use.
A fixed price contract is a construction contract in which
the contractor agrees to a fixed contract price, or a fixed
rate per unit of output, which in some cases is subject to
cost escalation clauses.
A cost plus contract is a construction contract in which
the contractor is reimbursed for allowable or otherwise
defined costs, plus a percentage of these costs or a fixed
fee.
4 A construction contract may be negotiated for the
construction of a single asset such as a bridge, building,
dam, pipeline, road, ship or tunnel. A construction contract
may also deal with the construction of a number of assets
which are closely interrelated or interdependent in terms of
their design, technology and function or their ultimate
purpose or use; examples of such contracts include those for
the construction of refineries and other complex pieces of
plant or equipment.
5 For the purposes of this Standard, construction contracts
include:
(a) contracts for the rendering of services which are
directly related to the construction of the asset, for
example, those for the services of project
managers and architects; and
(b) contracts for the destruction or restoration of
assets, and the restoration of the environment
following the demolition of assets.
Construction contracts are formulated in a number of ways
which, for the purposes of this Standard, are classified as
fixed price contracts and cost plus contracts. Some
construction contracts may contain characteristics of both a
fixed price contract and a cost plus contract, for example in
the case of a cost plus contract with an agreed maximum
price. In such circumstances, a contractor needs to consider
all the conditions in paragraphs 23 and 24 in order to
determine when to recognise contract revenue and
expenses.
Combining and segmenting construction
contracts
7 The requirements of this Standard are usually applied
separately to each construction contract. However, in
certain circumstances, it is necessary to apply the Standard
to the separately identifiable components of a single
contract or to a group of contracts together in order to
reflect the substance of a contract or a group of contracts.
8 When a contract covers a number of assets, the
construction of each asset shall be treated as a separate
construction contract when:
(a) separate proposals have been submitted for
each asset;
(b) each asset has been subject to separate
negotiation and the contractor and customer
have been able to accept or reject that part of
the contract relating to each asset; and
(c) the costs and revenues of each asset can be
identified.
9 A group of contracts, whether with a single customer or
with several customers, shall be treated as a single
construction contract when:
(a) the group of contracts is negotiated as a single
package;
(b) the contracts are so closely interrelated that
they are, in effect, part of a single project with
an overall profit margin; and
(c) the contracts are performed concurrently or in
a continuous sequence.
10 A contract may provide for the construction of an
additional asset at the option of the customer or may be
amended to include the construction of an additional
asset. The construction of the additional asset shall be
treated as a separate construction contract when:
(a) the asset differs significantly in design,
technology or function from the asset or assets
covered by the original contract; or
(b) the price of the asset is negotiated without
regard to the original contract price.
Contract revenue
11 Contract revenue shall comprise:
15
(a) the initial amount of revenue agreed in the
contract; and
(b) variations in contract work, claims and
incentive payments:
(i) to the extent that it is probable that
they will result in revenue; and
(ii) they are capable of being reliably
measured.
12 Contract revenue is measured at the fair value of the
consideration received or receivable. The measurement of
contract revenue is affected by a variety of uncertainties
that depend on the outcome of future events. The estimates
often need to be revised as events occur and uncertainties Contract costs
are resolved. Therefore, the amount of contract revenue
may increase or decrease from one period to the next. For
16
example:
from the customer or another party as reimbursement for
costs not included in the contract price. A claim may arise
from, for example, customer caused delays, errors in
specifications or design, and disputed variations in contract
work. The measurement of the amounts of revenue arising
from claims is subject to a high level of uncertainty and
often depends on the outcome of negotiations. Therefore,
claims are included in contract revenue only when:
(a) negotiations have reached an advanced stage such
that it is probable that the customer will accept the
claim; and
(b) the amount that it is probable will be accepted by
the customer can be measured reliably.
Incentive payments are additional amounts paid to the
contractor if specified performance standards are met or
exceeded. For example, a contract may allow for an
incentive payment to the contractor for early completion of
the contract. Incentive payments are included in contract
revenue when:
(a) the contract is sufficiently advanced that it is
probable that the specified performance standards
will be met or exceeded; and
(b) the amount of the incentive payment can be
measured reliably.
Contract costs shall comprise:

(a) a contractor and a customer may agree variations
or claims that increase or decrease contract
revenue in a period subsequent to that in which the
contract was initially agreed;
(b) the amount of revenue agreed in a fixed price
contract may increase as a result of cost escalation
clauses;
(c) the amount of contract revenue may decrease as a
result of penalties arising from delays caused by
the contractor in the completion of the contract; or
(d) when a fixed price contract involves a fixed price
per unit of output, contract revenue increases as
the number of units is increased.
13 A variation is an instruction by the customer for a change
in the scope of the work to be performed under the contract. and from the contract site;
A variation may lead to an increase or a decrease in contract
revenue. Examples of variations are changes in the
specifications or design of the asset and changes in the
duration of the contract. A variation is included in contract
revenue when:
(a) it is probable that the customer will approve the
variation and the amount of revenue arising from
the variation; and
(b) the amount of revenue can be reliably measured.
14 A claim is an amount that the contractor seeks to collect
(a) costs that relate directly to the specific
contract;
(b) costs that are attributable to contract activity in
general and can be allocated to the contract;
and
(c) such other costs as are specifically chargeable
to the customer under the terms of the contract.
17 Costs that relate directly to a specific contract include:
(a) site labour costs, including site supervision;
(b) costs of materials used in construction;
(c) depreciation of plant and equipment used on the
contract;
(d) costs of moving plant, equipment and materials to
(e) costs of hiring plant and equipment;
(f) costs of design and technical assistance that is
directly related to the contract;
(g) the estimated costs of rectification and guarantee
work, including expected warranty costs; and
(h) claims from third parties.
These costs may be reduced by any incidental income that
is not included in contract revenue, for example income
 from the sale of surplus materials and the disposal of plant
and equipment at the end of the contract.
18 Costs that may be attributable to contract activity in general
and can be allocated to specific contracts include:
(a) insurance;
(b) costs of design and technical assistance that are
not directly related to a specific contract; and
(c) construction overheads.
Such costs are allocated using methods that are systematic
and rational and are applied consistently to all costs having
similar characteristics. The allocation is based on the normal
level of construction activity. Construction overheads
include costs such as the preparation and processing of
construction personnel payroll. Costs that may be
attributable to contract activity in general and can be
allocated to specific contracts also include borrowing costs. 24
Costs that are specifically chargeable to the customer under
the terms of the contract may include some general
administration costs and development costs for which
reimbursement is specified in the terms of the contract.
Costs that cannot be attributed to contract activity or cannot
be allocated to a contract are excluded from the costs of a
construction contract. Such costs include:
(a) general administration costs for which 25
reimbursement is not specified in the contract;
(b) selling costs;
(c) research and development costs for which
reimbursement is not specified in the contract; and
(d) depreciation of idle plant and equipment that is not
used on a particular contract.
Contract costs include the costs attributable to a
contract for the period from the date of securing the contract
to the final completion of the contract. However, costs that 26
relate directly to a contract and are incurred in securing the
contract are also included as part of the contract costs if they
can be separately identified and measured reliably and it is
probable that the contract will be obtained. When costs
incurred in securing a contract are recognised as an expense
in the period in which they are incurred, they are not
included in contract costs when the contract is obtained in a
subsequent period.
27
Recognition of contract revenue and
expenses
22 When the outcome of a construction contract can be
estimated reliably, contract revenue and contract costs
associated with the construction contract shall be
recognised as revenue and expenses respectively by
reference to the stage of completion of the contract 28
activity at the end of the reporting period. An expected
loss on the construction contract shall be recognised as
an expense immediately in accordance with paragraph
36.
23 In the case of a fixed price contract, the outcome of a
construction contract can be estimated reliably when all
the following conditions are satisfied:
(a) total contract revenue can be measured
reliably;
(b) it is probable that the economic benefits
associated with the contract will flow to the
entity;
(c) both the contract costs to complete the contract
and the stage of contract completion at the end
of the reporting period can be measured
reliably; and
(d) the contract costs attributable to the contract
can be clearly identified and measured reliably
so that actual contract costs incurred can be
compared with prior estimates.
In the case of a cost plus contract, the outcome of a
construction contract can be estimated reliably when all
the following conditions are satisfied:
(a) it is probable that the economic benefits
associated with the contract will flow to the entity; and
(b) the contract costs attributable to the contract,
whether or not specifically reimbursable, can be clearly
identified and measured reliably.
The recognition of revenue and expenses by reference to the
stage of completion of a contract is often referred to as the
percentage of completion method. Under this method,
contract revenue is matched with the contract costs incurred
in reaching the stage of completion, resulting in the
reporting of revenue, expenses and profit which can be
attributed to the proportion of work completed. This method
provides useful information on the extent of contract
activity and performance during a period.
Under the percentage of completion method, contract
revenue is recognised as revenue in profit or loss in the
accounting periods in which the work is performed.
Contract costs are usually recognised as an expense in profit
or loss in the accounting periods in which the work to
which they relate is performed. However, any expected
excess of total contract costs over total contract revenue for
the contract is recognised as an expense immediately in
accordance with paragraph 36.
A contractor may have incurred contract costs that relate to
future activity on the contract. Such contract costs are
recognised as an asset provided it is probable that they will
be recovered. Such costs represent an amount due from the
customer and are often classified as contract work in
progress.
The outcome of a construction contract can only be
estimated reliably when it is probable that the economic
benefits associated with the contract will flow to the entity.
However, when an uncertainty arises about the collectibility
of an amount already included in contract revenue, and
already recognised in profit or loss, the uncollectible
amount or the amount in respect of which recovery has
 ceased to be probable is recognised as an expense rather
than as an adjustment of the amount of contract revenue. 33
29 An entity is generally able to make reliable estimates after it
has agreed to a contract which establishes:
(a) each partys enforceable rights regarding the asset
to be constructed;
(b) the consideration to be exchanged; and
(c) the manner and terms of settlement.
It is also usually necessary for the entity to have an
effective internal financial budgeting and reporting system.
The entity reviews and, when necessary, revises the 34
estimates of contract revenue and contract costs as the
contract progresses. The need for such revisions does not
necessarily indicate that the outcome of the contract cannot
be estimated reliably.
30 The stage of completion of a contract may be determined in
a variety of ways. The entity uses the method that measures
reliably the work performed. Depending on the nature of the
contract, the methods may include:
(a) the proportion that contract costs incurred for
work performed to date bear to the estimated total
contract costs;
(b) surveys of work performed; or
(c) completion of a physical proportion of the contract
work.
Progress payments and advances received from customers
often do not reflect the work performed.
31 When the stage of completion is determined by reference to
the contract costs incurred to date, only those contract costs
that reflect work performed are included in costs incurred to
date. Examples of contract costs which are excluded are:
(a) contract costs that relate to future activity on the
contract, such as costs of materials that have been
delivered to a contract site or set aside for use in a
contract but not yet installed, used or applied
during contract performance, unless the materials
have been made specially for the contract; and
(b) payments made to subcontractors in advance of
work performed under the subcontract.
When the outcome of a construction contract cannot be
estimated reliably:
(a) revenue shall be recognised only to the extent of
contract costs incurred that it is probable will
be recoverable; and
(b) contract costs shall be recognised as an expense
in the period in which they are incurred.
An expected loss on the construction contract shall be
recognised as an expense immediately in accordance
with paragraph 36.
During the early stages of a contract it is often the case that
the outcome of the contract cannot be estimated reliably.
Nevertheless, it may be probable that the entity will recover
the contract costs incurred. Therefore, contract revenue is
recognised only to the extent of costs incurred that are
expected to be recoverable. As the outcome of the contract
cannot be estimated reliably, no profit is recognised.
However, even though the outcome of the contract cannot
be estimated reliably, it may be probable that total contract
costs will exceed total contract revenues. In such cases, any
expected excess of total contract costs over total contract
revenue for the contract is recognised as an expense
immediately in accordance with paragraph 36.
Contract costs that are not probable of being recovered are
recognised as an expense immediately. Examples of
circumstances in which the recoverability of contract costs
incurred may not be probable and in which contract costs
may need to be recognised as an expense immediately
include contracts:
(a) that are not fully enforceable, ie their validity is
seriously in question;
(b) the completion of which is subject to the outcome
of pending litigation or legislation;
(c) relating to properties that are likely to be
condemned or expropriated;
(d) where the customer is unable to meet its
obligations; or
(e) where the contractor is unable to complete the
contract or otherwise meet its obligations under
the contract.
35 When the uncertainties that prevented the
outcome of the contract being estimated reliably no
longer exist, revenue and expenses associated with the
construction contract shall be recognised in accordance
with paragraph 22 rather than in accordance with
paragraph 32.
Recognition of expected losses
32 When it is probable that total contract costs will exceed
total contract revenue, the expected loss shall be
recognised as an expense immediately.
33 The amount of such a loss is determined irrespective of:
(a) whether work has commenced on the contract;
(b) the stage of completion of contract activity; or
(c) the amount of profits expected to arise on other
contracts which are not treated as a single
construction contract in accordance with
paragraph 9.
Changes
60 in estimates
38 The percentage of completion method is applied
on a cumulative basis in each accounting period to the
current estimates of contract revenue and contract costs.
 Therefore, the effect of a change in the estimate of contract
revenue or contract costs, or the effect of a change in the
estimate of the outcome of a contract, is accounted for as a
change in accounting estimate (see IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors). The 45
changed estimates are used in the determination of the
amount of revenue and expenses recognised in the statement
of comprehensive income in the period in which the change
is made and in subsequent periods.
for all contracts in progress for which progress billings
exceed costs incurred plus recognised profits (less
recognised losses).
An entity discloses any contingent liabilities and contingent
assets in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Contingent liabilities and
contingent assets may arise from such items as warranty
costs, claims, penalties or possible losses.

Disclosure Effective date

39 An entity shall disclose:

(a) the amount of contract revenue recognised as 46 This Standard becomes operative for financial
revenue in the period; statements covering periods beginning on or after 1
(b) the methods used to determine the contract January 1995.
revenue recognised in the period; and
(c) the methods used to determine the stage of
completion of contracts in progress.

40 An entity shall disclose each of the following for

contracts in progress at the end of the reporting period:

(a) the aggregate amount of costs incurred and

recognised profits (less recognised losses) to
date;
(b) the amount of advances received; and
(c) the amount of retentions.

41 Retentions are amounts of progress billings that are not paid

until the satisfaction of conditions specified in the contract
for the payment of such amounts or until defects have been
rectified. Progress billings are amounts billed for work
performed on a contract whether or not they have been paid
by the customer. Advances are amounts received by the
contractor before the related work is performed.

42 An entity shall present:

(a) the gross amount due from customers for

contract work as an asset; and
(b) the gross amount due to customers for contract
work as a liability.

43 The gross amount due from customers for contract work is

the net amount of:

(a) costs incurred plus recognised profits; less

(b) the sum of recognised losses and progress billings

for all contracts in progress for which costs incurred plus

recognised profits (less recognised losses) exceeds progress
billings.

44 The gross amount due to customers for contract work is the

net amount of:

(a) costs incurred plus recognised profits; less

(b) the sum of recognised losses and progress billings

International Accounting
Standard 18 Revenue
Objective
Income is defined in the Framework for the Preparation
and Presentation of Financial Statements as increases in
6 This Standard does not deal with revenue arising from:
economic benefits during the accounting period in the form
of inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than those
relating to contributions from equity participants. Income
encompasses both revenue and gains. Revenue is income
that arises in the course of ordinary activities of an entity
and is referred to by a variety of different names including
sales, fees, interest, dividends and royalties. The objective
of this Standard is to prescribe the accounting treatment of
revenue arising from certain types of transactions and
events.
The primary issue in accounting for revenue is determining
when to recognise revenue. Revenue is recognised when it
is probable that future economic benefits will flow to the
entity and these benefits can be measured reliably. This
Standard identifies the circumstances in which these criteria
will be met and, therefore, revenue will be recognised. It
also provides practical guidance on the application of these
criteria.
Scope
1 This Standard shall be applied in accounting for revenue
arising from the following transactions and events: 7 The following terms are used in this Standard with the
a. the sale of goods;
b. the rendering of services; and
c. the use by others of entity assets yielding
interest, royalties and dividends.
2 This Standard supersedes IAS 18 Revenue Recognition
approved in 1982.
3 Goods includes goods produced by the entity for the
purpose of sale and goods purchased for resale, such as
merchandise purchased by a retailer or land and other
property held for resale.
4 The rendering of services typically involves the
performance by the entity of a contractually agreed task
over an agreed period of time. The services may be rendered
within a single period or over more than one period. Some
contracts for the rendering of services are directly related to
construction contracts, for example, those for the services of
project managers and architects. Revenue arising from these
contracts is not dealt with in this Standard but is dealt with
in accordance with the requirements for construction
contracts as specified in IAS 11 Construction Contracts.
5 The use by others of entity assets gives rise to revenue in
the form of:
a. interestcharges for the use of cash or cash
equivalents or amounts due to the entity;
b. royaltiescharges for the use of long-term assets
of the entity, for example, patents, trademarks,
copyrights and computer software; and
c. dividendsdistributions of profits to holders of
equity investments in proportion to their holdings
of a particular class of capital.
a. lease agreements (see IAS 17 Leases);
b. dividends arising from investments which are
accounted for under the equity method (see IAS 28
Investments in Associates);
c. insurance contracts within the scope of IFRS 4
Insurance Contracts;
d. changes in the fair value of financial assets and
financial liabilities or their disposal (see IAS 39
Financial Instruments: Recognition and
Measurement);
e. changes in the value of other current assets;
f. initial recognition and from changes in the fair
value of biological assets related to agricultural
activity (see IAS 41 Agriculture);
g. initial recognition of agricultural produce (see IAS
41); and
h. the extraction of mineral ores.
Definitions
meanings specified:
Revenue is the gross inflow of economic benefits during
the period arising in the course of the ordinary activities
of an entity when those inflows result in increases in
equity, other than increases relating to contributions
from equity participants.
Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable,
willing parties in an arms length transaction.
8 Revenue includes only the gross inflows of
economic benefits received and receivable by the entity on
its own account. Amounts collected on behalf of third
parties such as sales taxes, goods and services taxes and
value added taxes are not economic benefits which flow to
the entity and do not result in increases in equity. Therefore,
they are excluded from revenue. Similarly, in an agency
relationship, the gross inflows of economic benefits include
amounts collected on behalf of the principal and which do
not result in increases in equity for the entity. The amounts
collected on behalf of the principal are not revenue. Instead,
revenue is the amount of commission.
Measurement of revenue
9 Revenue shall be measured at the fair value of the
consideration received or receivable.*
10 The amount of revenue arising on a transaction is usually
determined by agreement between the entity and the buyer
or user of the asset. It is measured at the fair value of the
consideration received or receivable taking into account the
amount of any trade discounts and volume rebates allowed
by the entity.
11 In most cases, the consideration is in the form of cash or
cash equivalents and the amount of revenue is the amount of
cash or cash equivalents received or receivable. However,
when the inflow of cash or cash equivalents is deferred, the
fair value of the consideration may be less than the nominal Sale of goods
amount of cash received or receivable. For example, an 14
entity may provide interest free credit to the buyer or accept
a note receivable bearing a below-market interest rate from
the buyer as consideration for the sale of goods. When the
arrangement effectively constitutes a financing transaction,
the fair value of the consideration is determined by
discounting all future receipts using an imputed rate of
interest. The imputed rate of interest is the more clearly
determinable of either:
a. the prevailing rate for a similar instrument of an
issuer with a similar credit rating; or
b. a rate of interest that discounts the nominal
amount of the instrument to the current cash sales
price of the goods or services.
The difference between the fair value and the
nominal amount of the consideration is recognised as
interest revenue in accordance with paragraphs 29 and 30
and in accordance with IAS 39. 15 The assessment of when an entity has transferred the
12 When goods or services are exchanged or swapped for
goods or services which are of a similar nature and value,
the exchange is not regarded as a transaction which
generates revenue. This is often the case with commodities
like oil or milk where suppliers exchange or swap
inventories in various locations to fulfil demand on a timely
basis in a particular location. When goods are sold or
services are rendered in exchange for dissimilar goods or
services, the exchange is regarded as a transaction which 16
generates revenue. The revenue is measured at the fair
value of the goods or services received, adjusted by the
amount of any cash or cash equivalents transferred. When
the fair value of the goods or services received cannot be
measured reliably, the revenue is measured at the fair value
of the goods or services given up, adjusted by the amount of
any cash or cash equivalents transferred.
Identification of the transaction
13 The recognition criteria in this Standard are usually applied
separately to each transaction. However, in certain
circumstances, it is necessary to apply the recognition
criteria to the separately identifiable components of a single
transaction in order to reflect the substance of the
transaction. For example, when the selling price of a
product includes an identifiable amount for subsequent
servicing, that amount is deferred and recognised as
revenue over the period during which the service is
performed. Conversely, the recognition criteria are applied
to two or more transactions together when they are linked in
such a way that the commercial effect cannot be understood
without reference to the series of transactions as a whole.
For example, an entity may sell goods and, at the same
time, enter into a separate agreement to repurchase the
goods at a later date, thus negating the substantive effect of
the transaction; in such a case, the two transactions are dealt
with together.
Revenue from the sale of goods shall be recognised when
all the following conditions have been satisfied:
a. the entity has transferred to the buyer the
significant risks and rewards of ownership of
the goods;
b. the entity retains neither continuing
managerial involvement to the degree usually
associated with ownership nor effective control
over the goods sold;
c. the amount of revenue can be measured
reliably;
d. it is probable that the economic benefits
associated with the transaction will flow to the
entity; and
e. the costs incurred or to be incurred in respect
of the transaction can be measured reliably.
signifcant risks and rewards of ownership to the buyer
requires an examination of the circumstances of the
transaction. In most cases, the transfer of the risks and
rewards of ownership coincides with the transfer of the
legal title or the passing of possession to the buyer. This is
the case for most retail sales. In other cases, the transfer of
risks and rewards of ownership occurs at a different time
from the transfer of legal title or the passing of possession.
If the entity retains significant risks of ownership, the
transaction is not a sale and revenue is not recognised. An
entity may retain a significant risk of ownership in a number
of ways. Examples of situations in which the entity may
retain the significant risks and rewards of ownership are:
a. when the entity retains an obligation for
unsatisfactory performance not covered by normal
warranty provisions;
b. when the receipt of the revenue from a particular
sale is contingent on the derivation of revenue by
the buyer from its sale of the goods;
c. when the goods are shipped subject to installation
and the installation is a significant part of the
 contract which has not yet been completed by the
entity; and
d. when the buyer has the right to rescind the
purchase for a reason specified in the sales
contract and the entity is uncertain about the
probability of return.
17 If an entity retains only an insignificant risk of ownership,
the transaction is a sale and revenue is recognised. For
example, a seller may retain the legal title to the goods
solely to protect the collectibility of the amount due. In such 21
a case, if the entity has transferred the significant risks and
rewards of ownership, the transaction is a sale and revenue
is recognised. Another example of an entity retaining only
an insignificant risk of ownership may be a retail sale when
a refund is offered if the customer is not satisfied. Revenue
in such cases is recognised at the time of sale provided the
seller can reliably estimate future returns and recognises a
liability for returns based on previous experience and other
relevant factors.
18 Revenue is recognised only when it is probable that the
economic benefits associated with the transaction will flow 22
to the entity. In some cases, this may not be probable until
the consideration is received or until an uncertainty is
removed. For example, it may be uncertain that a foreign
governmental authority will grant permission to remit the
consideration from a sale in a foreign country. When the
permission is granted, the uncertainty is removed and
revenue is recognised. However, when an uncertainty arises
about the collectibility of an amount already included in
revenue, the uncollectible amount or the amount in respect 23
of which recovery has ceased to be probable is recognised
as an expense, rather than as an adjustment of the amount of
revenue originally recognised.
19 Revenue and expenses that relate to the same transaction or
other event are recognised simultaneously; this process is
commonly referred to as the matching of revenues and
expenses. Expenses, including warranties and other costs to
be incurred after the shipment of the goods can normally be
measured reliably when the other conditions for the
recognition of revenue have been satisfied. However,
revenue cannot be recognised when the expenses cannot be
measured reliably; in such circumstances, any consideration
already received for the sale of the goods is recognised as a
liability.
24
Rendering of services
20 When the outcome of a transaction involving the
rendering of services can be estimated reliably, revenue
associated with the transaction shall be recognised by
reference to the stage of completion of the transaction at
the end of the reporting period. The outcome of a
transaction can be estimated reliably when all the
following conditions are satisfied:
a. the amount of revenue can be measured
reliably;
b. it is probable that the economic benefits
associated with the transaction will flow to the
entity;
c. the stage of completion of the transaction at the
end of the reporting period can be measured
reliably; and
d. the costs incurred for the transaction and the
costs to complete the transaction can be
measured reliably.*
The recognition of revenue by reference to the stage of
completion of a transaction is often referred to as the
percentage of completion method. Under this method,
revenue is recognised in the accounting periods in which the
services are rendered. The recognition of revenue on this
basis provides useful information on the extent of service
activity and performance during a period. IAS 11 also
requires the recognition of revenue on this basis. The
requirements of that Standard are generally applicable to the
recognition of revenue and the associated expenses for a
transaction involving the rendering of services.
Revenue is recognised only when it is probable that the
economic benefits associated with the transaction will flow
to the entity. However, when an uncertainty arises about the
collectibility of an amount already included in revenue, the
uncollectible amount, or the amount in respect of which
recovery has ceased to be probable, is recognised as an
expense, rather than as an adjustment of the amount of
revenue originally recognised.
An entity is generally able to make reliable estimates after it
has agreed to the following with the other parties to the
transaction:
a. each partys enforceable rights regarding the
service to be provided and received by the parties;
b. the consideration to be exchanged; and
c. the manner and terms of settlement.
It is also usually necessary for the entity to have an
effective internal financial budgeting and reporting system.
The entity reviews and, when necessary, revises the
estimates of revenue as the service is performed. The need
for such revisions does not necessarily indicate that the
outcome of the transaction cannot be estimated reliably.
The stage of completion of a transaction may be determined
by a variety of methods. An entity uses the method that
measures reliably the services performed. Depending on the
nature of the transaction, the methods may include:
a. surveys of work performed;
b. services performed to date as a percentage of total
services to be performed; or
c. the proportion that costs incurred to date bear to
the estimated total costs of the transaction. Only
costs that reflect services performed to date are
included in costs incurred to date. Only costs that
reflect services performed or to be performed are
 included in the estimated total costs of the
transaction.
Progress payments and advances received from customers
often do not reflect the services performed.
25 For practical purposes, when services are performed by an 32
indeterminate number of acts over a specified period of
time, revenue is recognised on a straight-line basis over the
specified period unless there is evidence that some other
method better represents the stage of completion. When a
specific act is much more significant than any other acts, the
recognition of revenue is postponed until the significant act 33
is executed.
When the outcome of the transaction involving the
rendering of services cannot be estimated reliably,
revenue shall be recognised only to the extent of the
expenses recognised that are recoverable.
During the early stages of a transaction, it is often the case
that the outcome of the transaction cannot be estimated
reliably. Nevertheless, it may be probable that the entity
will recover the transaction costs incurred. Therefore,
revenue is recognised only to the extent of costs incurred
that are expected to be recoverable. As the outcome of the
transaction cannot be estimated reliably, no profit is
recognised.
28 When the outcome of a transaction cannot be estimated 35
reliably and it is not probable that the costs incurred will be
recovered, revenue is not recognised and the costs incurred
are recognised as an expense. When the uncertainties that
prevented the outcome of the contract being estimated
reliably no longer exist, revenue is recognised in
accordance with paragraph 20 rather than in accordance
with paragraph 26
Interest, royalties and dividends
29 Revenue arising from the use by others of entity assets
yielding interest, royalties and dividends shall be
recognised on the bases set out in paragraph 30 when:
a. it is probable that the economic benefits
associated with the transaction will flow to the
entity; and
b. the amount of the revenue can be measured
reliably.
30 Revenue shall be recognised on the following bases:
a. interest shall be recognised using the effective
interest method as set out in IAS 39, paragraphs
9 and AG5AG8;
b. royalties shall be recognised on an accrual basis
in accordance with the substance of the relevant
agreement; and
c. dividends shall be recognised when the
shareholders right to receive payment is
established.
31 [Deleted]
When unpaid interest has accrued before the acquisition of
an interest-bearing investment, the subsequent receipt of
interest is allocated between pre-acquisition and post-
acquisition periods; only the post-acquisition portion is
recognised as revenue.
Royalties accrue in accordance with the terms of the
relevant agreement and are usually recognised on that basis
unless, having regard to the substance of the agreement, it is
more appropriate to recognise revenue on some other
systematic and rational basis.
34 Revenue is recognised only when it is probable that the
economic benefits associated with the transaction will flow
to the entity. However, when an uncertainty arises about the
collectibility of an amount already included in revenue, the
uncollectible amount, or the amount in respect of which
recovery has ceased to be probable, is recognised as an
expense, rather than as an adjustment of the amount of
revenue originally recognised.
Disclosure
An entity shall disclose:
(a) the accounting policies adopted for the
recognition of revenue, including the methods
adopted to determine the stage of completion of
transactions involving the rendering of
services;
(b) the amount of each significant category of
revenue recognised during the period,
including revenue arising from:
i. the sale of goods;
ii. the rendering of services;
iii. interest;
iv. royalties;
v. dividends; and
(c) the amount of revenue arising from exchanges
of goods or services included in each significant
category of revenue.
36 An entity discloses any contingent liabilities and contingent
assets in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets. Contingent liabilities and
contingent assets may arise from items such as warranty
costs, claims, penalties or possible losses.
Effective date
37 This Standard becomes operative for financial
statements covering periods beginning on or after 1
January 1995.
38 Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or Associate (Amendments to IFRS 1 First-time
Adoption of International Financial Reporting Standards
and IAS 27 Consolidated and Separate Financial
Statements), issued in May 2008, amended paragraph 32.
An entity shall apply that amendment prospectively for
annual periods beginning on or after 1 January 2009. Earlier
application is permitted. If an entity applies the related
amendments in paragraphs 4 and 38A of IAS 27 for an
earlier period, it shall apply the amendment in paragraph 32
at the same time.
International Accounting
Standard 28 Investments in
Associates
Scope
1 This Standard shall be applied in accounting for
investments in associates. However, it does not apply to
investments in associates held by:
a. venture capital organisations, or
b. mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that upon initial recognition are designated as at fair
4 Separate financial statements are those presented in addition
value through profit or loss or are classified as held for
trading and accounted for in accordance with IAS 39
Financial Instruments: Recognition and Measurement.
Such investments shall be measured at fair value in
accordance with IAS 39, with changes in fair value
recognised in profit or loss in the period of the change.
An entity holding such an investment shall make the
disclosures required by paragraph 37(f).
5 Entities that are exempted in accordance with paragraph 10
Definitions
2 The following terms are used in this Standard with the
meanings specified:
An associate is an entity, including an unincorporated
entity such as a partnership, over which the investor has
significant influence and that is neither a subsidiary nor
an interest in a joint venture.
Consolidated financial statements are the financial
statements of a group presented as those of a single
economic entity.
Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits
from its activities.
The equity method is a method of accounting whereby
the investment is initially recognised at cost and
adjusted thereafter for the post-acquisition change in
the investors share of net assets of the investee. The
profit or loss of the investor includes the investor's share
of the profit or loss of the investee.
Joint control is the contractually agreed sharing of
control over an economic activity, and exists only when
the strategic financial and operating decisions relating
to the activity require the unanimous consent of the
parties sharing control (the venturers).
Separate financial statements are those presented by a
parent, an investor in an associate or a venturer in a
jointly controlled entity, in which the investments are
accounted for on the basis of the direct equity interest
rather than on the basis of the reported results and net
assets of the investees.
Significant influence is the power to participate in the
financial and operating policy decisions of the investee
but is not control or joint control over those policies.
A subsidiary is an entity, including an unincorporated
entity such as a partnership, that is controlled by
another entity (known as the parent).
4 Financial statements in which the equity method is applied
are not separate financial statements, nor are the financial
statements of an entity that does not have a subsidiary,
associate or venturers interest in a joint venture.
to consolidated financial statements, financial statements in
which investments are accounted for using the equity
method and financial statements in which venturers
interests in joint ventures are proportionately consolidated.
Separate financial statements may or may not be appended
to, or accompany, those financial statements.
 of IAS 27 Consolidated and Separate Financial Statements
from consolidation, paragraph 2 of IAS 31 Interests in Joint
Ventures from applying proportionate consolidation or
paragraph 13(c) of this Standard from applying the equity
method may present separate financial statements as their
only financial statements.
Significant influence
6 If an investor holds, directly or indirectly (eg through
subsidiaries), 20 per cent or more of the voting power of the
investee, it is presumed that the investor has significant
influence, unless it can be clearly demonstrated that this is
not the case. Conversely, if the investor holds, directly or
indirectly (eg through subsidiaries), less than 20 per cent of
the voting power of the investee, it is presumed that the
investor does not have significant influence, unless such
influence can be clearly demonstrated. A substantial or
majority ownership by another investor does not necessarily
preclude an investor from having significant influence.
7 The existence of significant influence by an investor is
usually evidenced in one or more of the following ways:
a. representation on the board of directors or equivalent
governing body of the investee;
b. participation in policy-making processes, including
participation in decisions about dividends or other
distributions;
c. material transactions between the investor and the
investee;
d. interchange of managerial personnel; or
e. provision of essential technical information.
8 An entity may own share warrants, share call options, debt Application of the equity method
or equity instruments that are convertible into ordinary 13
shares, or other similar instruments that have the potential,
if exercised or converted, to give the entity additional voting
power or reduce another partys voting power over the
financial and operating policies of another entity (ie
potential voting rights). The existence and effect of potential
voting rights that are currently exercisable or convertible,
including potential voting rights held by other entities, are
considered when assessing whether an entity has significant
influence. Potential voting rights are not currently
exercisable or convertible when, for example, they cannot
be exercised or converted until a future date or until the
occurrence of a future event.
9 In assessing whether potential voting rights contribute to
significant influence, the entity examines all facts and
circumstances (including the terms of exercise of the
potential voting rights and any other contractual
arrangements whether considered individually or in
combination) that affect potential rights, except the
intention of management and the financial ability to
exercise or convert.
10 An entity loses significant influence over an investee when
it loses the power to participate in the financial and
operating policy decisions of that investee. The loss of
significant influence can occur with or without a change in
absolute or relative ownership levels. It could occur, for
example, when an associate becomes subject to the control
of a government, court, administrator or regulator. It could
also occur as a result of a contractual agreement.
Equity method
11 Under the equity method, the investment in an associate is
initially recognised at cost and the carrying amount is
increased or decreased to recognise the investors share of
the profit or loss of the investee after the date of acquisition.
The investors share of the profit or loss of the investee is
recognised in the investors profit or loss. Distributions
received from an investee reduce the carrying amount of the
investment. Adjustments to the carrying amount may also
be necessary for changes in the investors proportionate
interest in the investee arising from changes in the
investees other comprehensive income. Such changes
include those arising from the revaluation of property, plant
and equipment and from foreign exchange translation
differences. The investors share of those changes is
recognised in other comprehensive income of the investor
(see IAS 1 Presentation of Financial Statements (as revised
in 2007).
12 When potential voting rights exist, the investors share of
profit or loss of the investee and of changes in the investees
equity is determined on the basis of present ownership
interests and does not reflect the possible exercise or
conversion of potential voting rights.
An investment in an associate shall be accounted for
using the equity method except when:
a. the investment is classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations;
b. the exception in paragraph 10 of IAS 27, allowing a
parent that also has an investment in an associate
not to present consolidated financial statements,
applies; o
c. rall of the following apply:
i. the investor is a wholly-owned subsidiary,
or is a partially-owned subsidiary of
another entity and its other owners,
including those not otherwise entitled to
vote, have been informed about, and do
not object to, the investor not applying the
equity method;
ii. the investors debt or equity instruments
are not traded in a public market (a
domestic or foreign stock exchange or an
over-the-counter market, including local
and regional markets);
iii. the investor did not file, nor is it in the
process of filing, its financial statements
with a securities commission or other
 regulatory organisation, for the purpose of
issuing any class of instruments in a public
market; and
iv. the ultimate or any intermediate parent of
the investor produces consolidated
financial statements available for public
use that comply with International
Financial Reporting Standards.
14 Investments described in paragraph 13(a) shall be accounted
for in accordance with IFRS 5.
15 When an investment in an associate previously classified as held
for sale no longer meets the criteria to be so classified, it shall be
accounted for using the equity method as from the date of its
classification as held for sale. Financial statements for the
periods since classification as held for sale shall be amended
accordingly.
16 [Deleted]
17 The recognition of income on the basis of distributions received
may not be an adequate measure of the income earned by an
investor on an investment in an associate because the
distributions received may bear little relation to the performance
of the associate. Because the investor has significant influence 21 A groups share in an associate is the aggregate of the holdings
over the associate, the investor has an interest in the associates
performance and, as a result, the return on its investment. The
investor accounts for this interest by extending the scope of its
financial statements to include its share of profits or losses of
such an associate. As a result, application of the equity method
provides more informative reporting of the net assets and profit
or loss of the investor.
18 An investor shall discontinue the use of the equity method
from the date when it ceases to have significant influence
over an associate and shall account for the investment in 22 Profits and losses resulting from upstream and downstream
accordance with IAS 39 from that date, provided the
associate does not become a subsidiary or a joint venture as
defined in IAS 31. On the loss of significant influence, the
investor shall measure at fair value any investment the
investor retains in the former associate. The investor shall
recognise in profit or loss any difference between:
a. the fair value of any retained investment and any
proceeds from disposing of the part interest in the
associate; and
b. the carrying amount of the investment at the date
when significant influence is lost.
19 When an investment ceases to be an associate and
is accounted for in accordance with IAS 39, the fair
value of the investment at the date when it ceases to be
an associate shall be regarded as its fair value on initial
recognition as a financial asset in accordance with IAS
39.
19A If an investor loses significant influence over an associate,
the investor shall account for all amounts recognised in
other comprehensive income in relation to that associate on
the same basis as would be required if the associate had
directly disposed of the related assets or liabilities.
Therefore, if a gain or loss previously recognised in other
comprehensive income by an associate would be
reclassified to profit or loss on the disposal of the related
assets or liabilities, the investor reclassifies the gain or loss
from equity to profit or loss (as a reclassification
adjustment) when it loses significant influence over the
associate. For example, if an associate has available-for-
sale financial assets and the investor loses significant
influence over the associate, the investor shall reclassify to
profit or loss the gain or loss previously recognised in other
comprehensive income in relation to those assets. If an
investors ownership interest in an associate is reduced, but
the investment continues to be an associate, the investor
shall reclassify to profit or loss only a proportionate
amount of the gain or loss previously recognised in other
comprehensive income.
20 Many of the procedures appropriate for the application of the
equity method are similar to the consolidation procedures
described in IAS 27. Furthermore, the concepts underlying the
procedures used in accounting for the acquisition of a subsidiary
are also adopted in accounting for the acquisition of an
investment in an associate.
in that associate by the parent and its subsidiaries. The holdings
of the groups other associates or joint ventures are ignored for
this purpose. When an associate has subsidiaries, associates, or
joint ventures, the profits or losses and net assets taken into
account in applying the equity method are those recognised in
the associates financial statements (including the associates
share of the profits or losses and net assets of its associates and
joint ventures), after any adjustments necessary to give effect to
uniform accounting policies (see paragraphs 26 and 27).
transactions between an investor (including its consolidated
subsidiaries) and an associate are recognised in the investors
financial statements only to the extent of unrelated investors
interests in the associate. Upstream transactions are, for
example, sales of assets from an associate to the investor.
Downstream transactions are, for example, sales of assets from
the investor to an associate. The investors share in the
associates profits and losses resulting from these transactions is
eliminated.
23 An investment in an associate is accounted for using the equity
method from the date on which it becomes an associate. On
acquisition of the investment any difference between the cost of
the investment and the investors share of the net fair value of
the associates identifiable assets and liabilities is accounted for
as follows:
a. goodwill relating to an associate is included in the
carrying amount of the investment. Amortisation
of that goodwill is not permitted.
b. any excess of the investors share of the net fair
value of the associates identifiable assets and
liabilities over the cost of the investment is
 included as income in the determination of the
investors share of the associates profit or loss in
the period in which the investment is acquired.
Appropriate adjustments to the investors share of the
associates profits or losses after acquisition are also made
to account, for example, for depreciation of the depreciable
assets based on their fair values at the acquisition date.
Similarly, appropriate adjustments to the investors share of
the associates profits or losses after acquisition are made
for impairment losses recognised by the associate, such as
for goodwill or property, plant and equipment.
24 The most recent available financial statements of the
associate are used by the investor in applying the equity
method. When the end of the reporting period of the investor
is different from that of the associate, the associate prepares,
for the use of the investor, financial statements as of the
same date as the financial statements of the investor unless it
is impracticable to do so.
31
25 When, in accordance with paragraph 24, the financial
statements of an associate used in applying the equity
method are prepared as of a different date from that of the
investor, adjustments shall be made for the effects of
significant transactions or events that occur between that
date and the date of the investors financial statements. In
any case, the difference between the end of the reporting 32
period of the associate and that of the investor shall be no
more than three months. The length of the reporting periods
and any difference between the ends of the reporting periods
shall be the same from period to period
26 The investors financial statements shall be prepared
using uniform accounting policies for like transactions
and events in similar circumstances.
27 If an associate uses accounting policies other than those of
the investor for like transactions and events in similar
circumstances, adjustments shall be made to conform the
associates accounting policies to those of the investor
when the associates financial statements are used by the
investor in applying the equity method.
28 If an associate has outstanding cumulative preference shares
that are held by parties other than the investor and classified
as equity, the investor computes its share of profits or losses
after adjusting for the dividends on such shares, whether or
not the dividends have been declared.
29 If an investors share of losses of an associate equals or
exceeds its interest in the associate, the investor
discontinues recognising its share of further losses. The
interest in an associate is the carrying amount of the
investment in the associate under the equity method
together with any long-term interests that, in substance,
form part of the investors net investment in the associate.
For example, an item for which settlement is neither
planned nor likely to occur in the foreseeable future is, in
substance, an extension of the entitys investment in that
associate. Such items may include preference shares and
long-term receivables or loans but do not include trade
receivables, trade payables or any long-term receivables for
which adequate collateral exists, such as secured loans.
Losses recognised under the equity method in excess of the
investors investment in ordinary shares are applied to the
other components of the investors interest in an associate in
the reverse order of their seniority (ie priority in
liquidation).
30 After the investors interest is reduced to zero, additional
losses are provided for, and a liability is recognised, only to
the extent that the investor has incurred legal or
constructive obligations or made payments on behalf of the
associate. If the associate subsequently reports profits, the
investor resumes recognising its share of those profits only
after its share of the profits equals the share of losses not
recognised.
Impairment losses
After application of the equity method, including
recognising the associates losses in accordance with
paragraph 29, the investor applies the requirements of IAS
39 to determine whether it is necessary to recognise any
additional impairment loss with respect to the investors net
investment in the associate.
The investor also applies the requirements of IAS 39 to
determine whether any additional impairment loss is
recognised with respect to the investors interest in the
associate that does not constitute part of the net investment
and the amount of that impairment loss.
33 Because goodwill that forms part of the carrying amount of
an investment in an associate is not separately recognised, it
is not tested for impairment separately by applying the
requirements for impairment testing goodwill in IAS 36
Impairment of Assets. Instead, the entire carrying amount of
the investment is tested for impairment in accordance with
IAS 36 as a single asset, by comparing its recoverable
amount (higher of value in use and fair value less costs to
sell) with its carrying amount, whenever application of the
requirements in IAS 39 indicates that the investment may
be impaired. An impairment loss recognised in those
circumstances is not allocated to any asset, including
goodwill, that forms part of the carrying amount of the
investment in the associate. Accordingly, any reversal of
that impairment loss is recognised in accordance with IAS
36 to the extent that the recoverable amount of the
investment subsequently increases. In determining the value
in use of the investment, an entity estimates:
(a) its share of the present value of the estimated
future cash flows expected to be generated by the
associate, including the cash flows from the
operations of the associate and the proceeds on the
ultimate disposal of the investment; or
(b) the present value of the estimated future cash
flows expected to arise from dividends to be
received from the investment and from its ultimate
disposal.

Under appropriate assumptions, both methods give the same
result.
(i)
34 The recoverable amount of an investment in an associate is
assessed for each associate, unless the associate does not
generate cash inflows from continuing use that are largely
independent of those from other assets of the entity.
using the equity method in accordance with
paragraph 13; and
summarised financial information of associates,
either individually or in groups, that are not
accounted for using the equity method,
including the amounts of total assets, total
liabilities, revenues and profit or loss.

38 Investments in associates accounted for using the equity

Separate financial statements
35 An investment in an associate shall be accounted for in
the investors separate financial statements in
accordance with paragraphs 3742 of IAS 27.
36 This Standard does not mandate which entities produce
separate financial statements available for public use.
Disclosure
37 The following disclosures shall be made:
(a) the fair value of investments in associates for
which there are published price quotations;
(b) summarised financial information of associates,
including the aggregated amounts of assets,
liabilities, revenues and profit or loss;
(c) the reasons why the presumption that an
investor does not have significant influence is
overcome if the investor holds, directly or
indirectly through subsidiaries, less than 20 per
cent of the voting or potential voting power of
the investee but concludes that it has significant
influence;
(d) the reasons why the presumption that an
investor has significant influence is overcome if
the investor holds, directly or indirectly
through subsidiaries, 20 per cent or more of the
voting or potential voting power of the investee
but concludes that it does not have significant
influence;
(e) the end of the reporting period of the financial
statements of an associate, when such financial
statements are used in applying the equity
method and are as of a date or for a period that
is different from that of the investor, and the
reason for using a different date or different
period;
(f) the nature and extent of any significant
restrictions (eg resulting from borrowing
arrangements or regulatory requirements) on
the ability of associates to transfer funds to the
investor in the form of cash dividends, or
repayment of loans or advances;
(g) the unrecognised share of losses of an associate,
both for the period and cumulatively, if an
investor has discontinued recognition of its
share of losses of an associate;
(h) the fact that an associate is not accounted for
method shall be classified as non-current assets. The
investors share of the profit or loss of such associates,
and the carrying amount of those investments, shall be
separately disclosed. The investors share of any
discontinued operations of such associates shall also be
separately disclosed.
39 The investors share of changes recognised in other
comprehensive income by the associate shall be
recognised by the investor in other comprehensive
income.
40 In accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets the investor shall
disclose:
(a) its share of the contingent liabilities of an
associate incurred jointly with other investors;
and
(b) those contingent liabilities that arise because
the investor is severally liable for all or part of
the liabilities of the associate.
Effective date
41 An entity shall apply this Standard for annual periods
beginning on or after 1 January 2005. Earlier
application is encouraged. If an entity applies this
Standard for a period beginning before 1 January 2005,
it shall disclose that fact.
41A IAS 1 (as revised in 2007) amended the terminology used
throughout IFRSs. In addition it amended paragraphs
11 and 39. An entity shall apply those amendments for
annual periods beginning on or after 1 January 2009. If
an entity applies IAS 1 (revised 2007) for an earlier
period, the amendments shall be applied for that earlier
period.
41B IAS 27 (as amended by the International Accounting
Standards Board in 2008) amended paragraphs 18 and
19 and added paragraph 19A. An entity shall apply
those amendments for annual periods beginning on or
after 1 July 2009. If an entity applies IAS 27 (amended
2008) for an earlier period, the amendments shall be
applied for that earlier period.
41C Paragraphs 1 and 33 were amended by Improvements to
IFRSs issued in May 2008. An entity shall apply those
amendments for annual periods beginning on or after 1
January 2009. Earlier application is permitted. If an entity
applies the amendments for an earlier period it shall
disclose that fact and apply for that earlier period the
 amendments to paragraph 3 of IFRS 7 Financial
Instruments: Disclosures, paragraph 1 of IAS 31 and
paragraph 4 of IAS 32 Financial Instruments: Presentation
issued in May 2008. An entity is permitted to apply the
amendments prospectively.
Withdrawal of other pronouncements
39 This Standard supersedes IAS 28 Accounting for
Investments in Associates (revised in 2000).
40 This Standard supersedes the following Interpretations:
(a) SIC-3 Elimination of Unrealised Profits and
Losses on Transactions with Associates;
(b) SIC-20 Equity Accounting MethodRecognition
of Losses; and
SIC-33 Consolidation and Equity MethodPotential Voting Rights
and Allocation of Ownership Interests.
International Accounting
Standard 31 Interests in Joint
Ventures
Scope
1 This Standard shall be applied in accounting for
interests in joint ventures and the reporting of joint
venture assets, liabilities, income and expenses in the
financial statements of venturers and investors,
regardless of the structures or forms under which the
joint venture activities take place. However, it does not
apply to venturers interests in jointly controlled entities
held by:
a. venture capital organisations, or
b. mutual funds, unit trusts and similar entities
including investment-linked insurance funds
that upon initial recognition are designated as at fair
value through profit or loss or are classified as held for
trading and accounted for in accordance with IAS 39
Financial Instruments: Recognition and Measurement.
Such investments shall be measured at fair value in
accordance with IAS 39, with changes in fair value
recognised in profit or loss in the period of the change.
A venturer holding such an interest shall make the
disclosures required by paragraphs 55 and 56.
2 A venturer with an interest in a jointly controlled entity
is exempted from paragraphs 30 (proportionate
consolidation) and 38 (equity method) when it meets the
following conditions:
a. the interest is classified as held for sale in
accordance with IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations;
b. the exception in paragraph 10 of IAS 27
Consolidated and Separate Financial Statements
allowing a parent that also has an interest in a
jointly controlled entity not to present
consolidated financial statements is applicable;
or
c. all of the following apply:
i. the venturer is a wholly-owned
subsidiary, or is a partially-owned
subsidiary of another entity and its
owners, including those not otherwise
entitled to vote, have been informed
about, and do not object to, the
venturer not applying proportionate
consolidation or the equity method;
ii. the venturers debt or equity
instruments are not traded in a public
market (a domestic or foreign stock
exchange or an over-the-counter
 market, including local and regional
markets);
iii. the venturer did not file, nor is it in
the process of filing, its financial
statements with a securities
commission or other regulatory
organisation, for the purpose of
issuing any class of instruments in a
public market; and
iv. the ultimate or any intermediate
parent of the venturer produces
consolidated financial statements
available for public use that comply
with International Financial
Reporting Standards.
Definitions
3 The following terms are used in this Standard with the
meanings specified:
Control is the power to govern the financial and
operating policies of an economic activity so as to obtain
benefits from it.
The equity method is a method of accounting whereby an
interest in a jointly controlled entity is initially recorded
at cost and adjusted thereafter for the post-acquisition
change in the venturers share of net assets of the jointly
controlled entity. The profit or loss of the venturer
includes the venturers share of the profit or loss of the
jointly controlled entity.
An investor in a joint venture is a party to a joint venture
and does not have joint control over that joint venture.
Joint control is the contractually agreed sharing of
control over an economic activity, and exists only when
the strategic financial and operating decisions relating
to the activity require the unanimous consent of the
parties sharing control (the venturers).
A joint venture is a contractual arrangement whereby Joint control
two or more parties undertake an economic activity that 8
is subject to joint control.
Proportionate consolidation is a method of accounting
whereby a venturers share of each of the assets,
liabilities, income and expenses of a jointly controlled
entity is combined line by line with similar items in the
venturers financial statements or reported as separate Contractual arrangement
line items in the venturers financial statements. 9 The existence of a contractual arrangement distinguishes
Separate financial statements are those presented by a
parent, an investor in an associate or a venturer in a
jointly controlled entity, in which the investments are
accounted for on the basis of the direct equity interest
rather than on the basis of the reported results and net
assets of the investees. 10
Significant influence is the power to participate in the
financial and operating policy decisions of an economic
activity but is not control or joint control over those
policies.
A venturer is a party to a joint venture and has joint
control over that joint venture.
4 Financial statements in which proportionate consolidation
or the equity method is applied are not separate financial
statements, nor are the financial statements of an entity that
does not have a subsidiary, associate or venturers interest
in a jointly controlled entity.
5 Separate financial statements are those presented in addition
to consolidated financial statements, financial statements in
which investments are accounted for using the equity
method and financial statements in which venturers
interests in joint ventures are proportionately consolidated.
Separate financial statements need not be appended to, or
accompany, those statements.
6 Entities that are exempted in accordance with paragraph 10
of IAS 27 from consolidation, paragraph 13(c) of IAS 28
Investments in Associates from applying the equity method
or paragraph 2 of this Standard from applying proportionate
consolidation or the equity method may present separate
financial statements as their only financial statements.
Forms of joint venture
7 Joint ventures take many different forms and structures.
This Standard identifies three broad typesjointly
controlled operations, jointly controlled assets and jointly
controlled entitiesthat are commonly described as, and
meet the definition of, joint ventures. The following
characteristics are common to all joint ventures:
a. two or more venturers are bound by a contractual
arrangement; and
b. the contractual arrangement establishes joint control.
Joint control may be precluded when an investee is in legal
reorganisation or in bankruptcy, or operates under severe
long-term restrictions on its ability to transfer funds to the
venturer. If joint control is continuing, these events are not
enough in themselves to justify not accounting for joint
ventures in accordance with this Standard.
interests that involve joint control from investments in
associates in which the investor has significant influence
(see IAS 28). Activities that have no contractual
arrangement to establish joint control are not joint ventures
for the purposes of this Standard.
The contractual arrangement may be evidenced in a number
of ways, for example by a contract between the venturers or
minutes of discussions between the venturers. In some
cases, the arrangement is incorporated in the articles or
other by-laws of the joint venture. Whatever its form, the
 contractual arrangement is usually in writing and deals with
such matters as:
a. the activity, duration and reporting obligations of the
joint venture;
b. the appointment of the board of directors or equivalent
governing body of the joint venture and the voting
rights of the venturers;
c. capital contributions by the venturers; and
d. the sharing by the venturers of the output, income,
expenses or results of the joint venture.
11 The contractual arrangement establishes joint control over
the joint venture. Such a requirement ensures that no single
venturer is in a position to control the activity unilaterally.
18
12 The contractual arrangement may identify one venturer as
the operator or manager of the joint venture. The operator
does not control the joint venture but acts within the
financial and operating policies that have been agreed by the
venturers in accordance with the contractual arrangement
and delegated to the operator. If the operator has the power
to govern the financial and operating policies of the
economic activity, it controls the venture and the venture is 19
a subsidiary of the operator and not a joint venture.
Jointly controlled operations
13 The operation of some joint ventures involves the use of the
assets and other resources of the venturers rather than the 20
establishment of a corporation, partnership or other entity,
or a financial structure that is separate from the venturers
themselves. Each venturer uses its own property, plant and
equipment and carries its own inventories. It also incurs its
own expenses and liabilities and raises its own finance,
which represent its own obligations. The joint venture
activities may be carried out by the venturers employees
alongside the venturers similar activities. The joint venture
agreement usually provides a means by which the revenue
from the sale of the joint product and any expenses incurred 21
in common are shared among the venturers.
14 An example of a jointly controlled operation is when two or
more venturers combine their operations, resources and
expertise to manufacture, market and distribute jointly a
particular product, such as an aircraft. Different parts of the
manufacturing process are carried out by each of the
venturers. Each venturer bears its own costs and takes a
share of the revenue from the sale of the aircraft, such share
being determined in accordance with the contractual
arrangement.
15 In respect of its interests in jointly controlled operations,
a venturer shall recognise in its financial statements:
a. the assets that it controls and the liabilities that
it incurs; and
b. the expenses that it incurs and its share of the
income that it earns from the sale of goods or
services by the joint venture.
16 Because the assets, liabilities, income and expenses are
recognised in the financial statements of the venturer, no
adjustments or other consolidation procedures are required
in respect of these items when the venturer presents
consolidated financial statements.
17 Separate accounting records may not be required for the
joint venture itself and financial statements may not be
prepared for the joint venture. However, the venturers may
prepare management accounts so that they may assess the
performance of the joint venture.
Jointly controlled assets
Some joint ventures involve the joint control, and often the
joint ownership, by the venturers of one or more assets
contributed to, or acquired for the purpose of, the joint
venture and dedicated to the purposes of the joint venture.
The assets are used to obtain benefits for the venturers. Each
venturer may take a share of the output from the assets and
each bears an agreed share of the expenses incurred.
These joint ventures do not involve the establishment of a
corporation, partnership or other entity, or a financial
structure that is separate from the venturers themselves.
Each venturer has control over its share of future economic
benefits through its share of the jointly controlled asset.
Many activities in the oil, gas and mineral extraction
industries involve jointly controlled assets. For example, a
number of oil production companies may jointly control and
operate an oil pipeline. Each venturer uses the pipeline to
transport its own product in return for which it bears an
agreed proportion of the expenses of operating the pipeline.
Another example of a jointly controlled asset is when two
entities jointly control a property, each taking a share of the
rents received and bearing a share of the expenses.
In respect of its interest in jointly controlled assets, a
venturer shall recognise in its financial statements:
a. its share of the jointly controlled assets,
classified according to the nature of the assets;
b. any liabilities that it has incurred;
c. its share of any liabilities incurred jointly with
the other venturers in relation to the joint
venture;
d. any income from the sale or use of its share of
the output of the joint venture, together with its
share of any expenses incurred by the joint
venture; and
e. any expenses that it has incurred in respect of
its interest in the joint venture.
22 In respect of its interest in jointly controlled assets, each
venturer includes in its accounting records and recognises
in its financial statements:
a. its share of the jointly controlled assets, classified
according to the nature of the assets rather than as
 an investment. For example, a share of a jointly
controlled oil pipeline is classified as property,
plant and equipment.
b. any liabilities that it has incurred, for example
those incurred in financing its share of the assets.
c. its share of any liabilities incurred jointly with
other venturers in relation to the joint venture.
d. any income from the sale or use of its share of the 28
output of the joint venture, together with its share
of any expenses incurred by the joint venture.
e. any expenses that it has incurred in respect of its
interest in the joint venture, for example those
related to financing the venturers interest in the
assets and selling its share of the output.
Because the assets, liabilities, income and expenses are
recognised in the financial statements of the venturer, no
adjustments or other consolidation procedures are required
in respect of these items when the venturer presents
consolidated financial statements.
Financial statements of a venturer
23 The treatment of jointly controlled assets reflects the Proportionate consolidation
substance and economic reality and, usually, the legal form
of the joint venture. Separate accounting records for the
joint venture itself may be limited to those expenses 30
incurred in common by the venturers and ultimately borne
by the venturers according to their agreed shares. Financial
statements may not be prepared for the joint venture,
although the venturers may prepare management accounts
so that they may assess the performance of the joint venture.
Jointly controlled entities
24 A jointly controlled entity is a joint venture that involves the
establishment of a corporation, partnership or other entity in
which each venturer has an interest. The entity operates in
the same way as other entities, except that a contractual 32
arrangement between the venturers establishes joint control
over the economic activity of the entity.
25 A jointly controlled entity controls the assets of the joint
venture, incurs liabilities and expenses and earns income. It
may enter into contracts in its own name and raise finance
for the purposes of the joint venture activity. Each venturer
is entitled to a share of the profits of the jointly controlled
entity, although some jointly controlled entities also involve
a sharing of the output of the joint venture.
26 A common example of a jointly controlled entity is when
two entities combine their activities in a particular line of 33
business by transferring the relevant assets and liabilities
into a jointly controlled entity. Another example is when an
entity commences a business in a foreign country in
conjunction with the government or other agency in that
country, by establishing a separate entity that is jointly
controlled by the entity and the government or agency.
27 Many jointly controlled entities are similar in substance to
those joint ventures referred to as jointly controlled
operations or jointly controlled assets. For example, the
venturers may transfer a jointly controlled asset, such as an 34
oil pipeline, into a jointly controlled entity, for tax or other
reasons. Similarly, the venturers may contribute into a
jointly controlled entity assets that will be operated jointly.
Some jointly controlled operations also involve the
establishment of a jointly controlled entity to deal with
particular aspects of the activity, for example, the design,
marketing, distribution or after-sales service of the product.
A jointly controlled entity maintains its own accounting
records and prepares and presents financial statements in
the same way as other entities in conformity with
International Financial Reporting Standards.
29 Each venturer usually contributes cash or other resources to
the jointly controlled entity. These contributions are
included in the accounting records of the venturer and
recognised in its financial statements as an investment in the
jointly controlled entity.
A venturer shall recognise its interest in a jointly
controlled entity using proportionate consolidation or
the alternative method described in paragraph 38. When
proportionate consolidation is used, one of the two
reporting formats identified below shall be used.
31 A venturer recognises its interest in a jointly controlled
entity using one of the two reporting formats for
proportionate consolidation irrespective of whether it also
has investments in subsidiaries or whether it describes its
financial statements as consolidated financial statements.
When recognising an interest in a jointly controlled entity, it
is essential that a venturer reflects the substance and
economic reality of the arrangement, rather than the joint
ventures particular structure or form. In a jointly controlled
entity, a venturer has control over its share of future
economic benefits through its share of the assets and
liabilities of the venture. This substance and economic
reality are reflected in the consolidated financial statements
of the venturer when the venturer recognises its interests in
the assets, liabilities, income and expenses of the jointly
controlled entity by using one of the two reporting formats
for proportionate consolidation described in paragraph 34.
The application of proportionate consolidation means that
the statement of financial position of the venturer includes
its share of the assets that it controls jointly and its share of
the liabilities for which it is jointly responsible. The
statement of comprehensive income of the venturer includes
its share of the income and expenses of the jointly
controlled entity. Many of the procedures appropriate for
the application of proportionate consolidation are similar to
the procedures for the consolidation of investments in
subsidiaries, which are set out in IAS 27.
Different reporting formats may be used to give effect to
 proportionate consolidation. The venturer may combine its
share of each of the assets, liabilities, income and expenses
of the jointly controlled entity with the similar items, line by
line, in its financial statements. For example, it may
combine its share of the jointly controlled entitys inventory
with its inventory and its share of the jointly controlled
entitys property, plant and equipment with its property,
plant and equipment. Alternatively, the venturer may
include separate line items for its share of the assets,
liabilities, income and expenses of the jointly controlled
entity in its financial statements. For example, it may show
its share of a current asset of the jointly controlled entity
separately as part of its current assets; it may show its share
of the property, plant and equipment of the jointly
controlled entity separately as part of its property, plant and
equipment. Both these reporting formats result in the
reporting of identical amounts of profit or loss and of each
major classification of assets, liabilities, income and
expenses; both formats are acceptable for the purposes of
this Standard.
35 Whichever format is used to give effect to proportionate
consolidation, it is inappropriate to offset any assets or
liabilities by the deduction of other liabilities or assets or
any income or expenses by the deduction of other expenses
or income, unless a legal right of set-off exists and the
offsetting represents the expectation as to the realisation of 44
the asset or the settlement of the liability.
36 A venturer shall discontinue the use of proportionate
consolidation from the date on which it ceases to have
joint control over a jointly controlled entity.
37 A venturer discontinues the use of proportionate
consolidation from the date on which it ceases to share in
the control of a jointly controlled entity. This may happen,
for example, when the venturer disposes of its interest or
when such external restrictions are placed on the jointly
controlled entity that the venturer no longer has joint
control.
Equity method
38 As an alternative to proportionate consolidation
described in paragraph 30, a venturer shall recognise its
interest in a jointly controlled entity using the equity
method.
39 A venturer recognises its interest in a jointly controlled
entity using the equity method irrespective of whether it
also has investments in subsidiaries or whether it describes
its financial statements as consolidated financial statements.
40 Some venturers recognise their interests in jointly
controlled entities using the equity method, as described in
IAS 28. The use of the equity method is supported by those 45A
who argue that it is inappropriate to combine controlled
items with jointly controlled items and by those who
believe that venturers have significant influence, rather than
joint control, in a jointly controlled entity. This Standard
does not recommend the use of the equity method because
proportionate consolidation better reflects the substance and
economic reality of a venturers interest in a jointly
controlled entity, that is to say, control over the venturers
share of the future economic benefits. Nevertheless, this
Standard permits the use of the equity method, as an
alternative treatment, when recognising interests in jointly
controlled entities.
41 A venturer shall discontinue the use of the equity
method from the date on which it ceases to have joint
control over, or have significant influence in, a jointly
controlled entity.
Exceptions to proportionate consolidation and
equity method
42 Interests in jointly controlled entities that are classified
as held for sale in accordance with IFRS 5 shall be
accounted for in accordance with that IFRS.
43 When an interest in a jointly controlled entity previously
classified as held for sale no longer meets the criteria to be
so classified, it shall be accounted for using proportionate
consolidation or the equity method as from the date of its
classification as held for sale. Financial statements for the
periods since classification as held for sale shall be
amended accordingly.
[Deleted]
45 When an investor ceases to have joint control
over an entity, it shall account for any remaining
investment in accordance with IAS 39 from that date,
provided that the former jointly controlled entity does
not become a subsidiary or associate. From the date
when a jointly controlled entity becomes a subsidiary of
an investor, the investor shall account for its interest in
accordance with IAS 27 and IFRS 3 Business
Combinations (as revised by the International Accounting
Standards Board in 2008). From the date when a jointly
controlled entity becomes an associate of an investor,
the investor shall account for its interest in accordance
with IAS 28. On the loss of joint control, the investor
shall measure at fair value any investment the investor
retains in the former jointly controlled entity. The
investor shall recognise in profit or loss any difference
between:
a. the fair value of any retained investment and any
proceeds from disposing of the part interest in the
jointly controlled entity; and
b. the carrying amount of the investment at the date
when joint control is lost.
When an investment ceases to be a jointly controlled
entity and is accounted for in accordance with IAS 39,
the fair value of the investment when it ceases to be a
jointly controlled entity shall be regarded as its fair
value on initial recognition as a financial asset in
accordance with IAS 39.
45B If an investor loses joint control of an entity, the investor
shall account for all amounts recognised in other
comprehensive income in relation to that entity on the same
basis as would be required if the jointly controlled entity Reporting interests in joint ventures in the
had directly disposed of the related assets or liabilities.
Therefore, if a gain or loss previously recognised in other financial statements of an investor
comprehensive income would be reclassified to profit or
loss on the disposal of the related assets or liabilities, the
51 An investor in a joint venture that does not have joint
investor reclassifies the gain or loss from equity to profit or
loss (as a reclassification adjustment) when the investor
loses joint control of the entity. For example, if a jointly
controlled entity has available-for-sale financial assets and
the investor loses joint control of the entity, the investor Operators of joint ventures
shall reclassify to profit or loss the gain or loss previously 52
recognised in other comprehensive income in relation to
those assets. If an investors ownership interest in a jointly
controlled entity is reduced, but the investment continues to 53
be a jointly controlled entity, the investor shall reclassify to
profit or loss only a proportionate amount of the gain or loss
previously recognised in other comprehensive income.
Separate financial statements of a venturer
46 An interest in a jointly controlled entity shall be Disclosure
54
accounted for in a venturers separate financial
statements in accordance with paragraphs 3742 of IAS
27.
47 This Standard does not mandate which entities produce
separate financial statements available for public use.
Transactions between a venturer and a
joint venture
48 When a venturer contributes or sells assets to a joint
venture, recognition of any portion of a gain or loss from
the transaction shall reflect the substance of the
transaction. While the assets are retained by the joint
venture, and provided the venturer has transferred the
significant risks and rewards of ownership, the venturer
shall recognise only that portion of the gain or loss that 55
is attributable to the interests of the other venturers.1
The venturer shall recognise the full amount of any loss
when the contribution or sale provides evidence of a
reduction in the net realisable value of current assets or
an impairment loss.
49 When a venturer purchases assets from a joint venture,
the venturer shall not recognise its share of the profits of
the joint venture from the transaction until it resells the
assets to an independent party. A venturer shall
recognise its share of the losses resulting from these
transactions in the same way as profits except that losses 56
shall be recognised immediately when they represent a
reduction in the net realisable value of current assets or
an impairment loss.
50 To assess whether a transaction between a venturer and a
joint venture provides evidence of impairment of an asset,
the venturer determines the recoverable amount of the asset
in accordance with IAS 36 Impairment of Assets. In
determining value in use, the venturer estimates future cash
flows from the asset on the basis of continuing use of the
asset and its ultimate disposal by the joint venture.
control shall account for that investment in accordance
with IAS 39 or, if it has significant influence in the joint
venture, in accordance with IAS 28.
Operators or managers of a joint venture shall account
for any fees in accordance with IAS 18 Revenue.
One or more venturers may act as the operator or manager
of a joint venture. Operators are usually paid a management
fee for such duties. The fees are accounted for by the joint
venture as an expense.
A venturer shall disclose the aggregate amount of
the following contingent liabilities, unless the
probability of loss is remote, separately from the
amount of other contingent liabilities:
a. any contingent liabilities that the venturer has
incurred in relation to its interests in joint ventures
and its share in each of the contingent liabilities that
have been incurred jointly with other venturers;
b. its share of the contingent liabilities of the joint
ventures themselves for which it is contingently
liable; and
c. those contingent liabilities that arise because the
venturer is contingently liable for the liabilities of
the other venturers of a joint venture.
A venturer shall disclose the aggregate amount of the
following commitments in respect of its interests in joint
ventures separately from other commitments:
a. any capital commitments of the venturer in
relation to its interests in joint ventures and its
share in the capital commitments that have
been incurred jointly with other venturers; and
b. its share of the capital commitments of the joint
ventures themselves.
A venturer shall disclose a listing and description of
interests in significant joint ventures and the proportion
of ownership interest held in jointly controlled entities.
A venturer that recognises its interests in jointly
controlled entities using the line-by-line reporting
format for proportionate consolidation or the equity
method shall disclose the aggregate amounts of each of
current assets, long-term assets, current liabilities, long-
term liabilities, income and expenses related to its
interests in joint ventures.
57 A venturer shall disclose the method it uses to recognise
its interests in jointly controlled entities.
Effective date
58 An entity shall apply this Standard for annual periods
beginning on or after 1 January 2005. Earlier
application is encouraged. If an entity applies this
Standard for a period beginning before 1 January 2005,
it shall disclose that fact.
58A IAS 27 (as amended in 2008) amended paragraphs 45
and 46 and added paragraphs 45A and 45B. An entity
shall apply the amendment to paragraph 46 retrospectively
and the amendments to paragraph 45 and paragraphs 45A and 45B
prospectively for annual periods beginning on or after 1 July 2009. Scope
If an entity applies IAS 27 (amended 2008) for an earlier period, 1
the amendments shall be applied for that earlier period.
58B Paragraph 1 was amended by Improvements to IFRSs
issued in May 2008. An entity shall apply that amendment
for annual periods beginning on or after 1 January 2009.
Earlier application is permitted. If an entity applies the
amendment for an earlier period it shall disclose that fact
and apply for that earlier period the amendments to
paragraph 3 of IFRS 7 Financial Instruments: Disclosures,
paragraph 1 of IAS 28 and paragraph 4 of IAS 32
Financial Instruments: Presentation issued in May 2008. 2
An entity is permitted to apply the amendment
prospectively.
58D Paragraph 58A was amended by Improvements to IFRSs issued 3
in May 2010. An entity shall apply that amendment for annual
periods beginning on or after 1 July 2010. Earlier application is
permitted. If an entity applies the amendment before 1 July 2010
it shall disclose that fact.
Withdrawal of IAS 31 (revised 2000)
This Standard supersedes IAS 31 Financial Reporting of Interests in
5 When another Standard deals with a specific type of
Joint Ventures (revised in 2000).
International Accounting Standard 37
Provisions, Contingent Liabilities and
Contingent Assets
Objective
The objective of this Standard is to ensure that appropriate
recognition criteria and measurement bases are applied to
provisions, contingent liabilities and contingent assets and
that sufficient information is disclosed in the notes to enable
users to understand their nature, timing and amount.
This Standard shall be applied by all entities in
accounting for provisions, contingent liabilities and
contingent assets, except:
a. those resulting from executory contracts, except
where the contract is onerous; and
b. [deleted]
c. those covered by another Standard.
This Standard does not apply to financial instruments
(including guarantees) that are within the scope of IAS 39
Financial Instruments: Recognition and Measurement.
Executory contracts are contracts under which neither party
has performed any of its obligations or both parties have
partially performed their obligations to an equal extent. This
Standard does not apply to executory contracts unless they
are onerous.
4 [Deleted]
provision, contingent liability or contingent asset, an entity
applies that Standard instead of this Standard. For example,
some types of provisions are addressed in Standards on:
a. construction contracts (see IAS 11 Construction
Contracts);
b. income taxes (see IAS 12 Income Taxes);
c. leases (see IAS 17 Leases). However, as IAS 17
contains no specific requirements to deal with
operating leases that have become onerous, this
Standard applies to such cases;
d. employee benefits (see IAS 19 Employee
Benefits); and
e. insurance contracts (see IFRS 4 Insurance
Contracts). However, this Standard applies to
provisions, contingent liabilities and contingent
assets of an insurer, other than those arising from
its contractual obligations and rights under
insurance contracts within the scope of IFRS 4.
6 Some amounts treated as provisions may relate to the
 recognition of revenue, for example where an entity gives
guarantees in exchange for a fee. This Standard does not
address the recognition of revenue. IAS 18 Revenue
identifies the circumstances in which revenue is recognised
and provides practical guidance on the application of the
recognition criteria. This Standard does not change the
requirements of IAS 18.
7 This Standard defines provisions as liabilities of uncertain
timing or amount. In some countries the term provision is
also used in the context of items such as depreciation,
impairment of assets and doubtful debts: these are
adjustments to the carrying amounts of assets and are not
addressed in this Standard.
8 Other Standards specify whether expenditures are treated as
assets or as expenses. These issues are not addressed in this
Standard. Accordingly, this Standard neither prohibits nor
requires capitalisation of the costs recognised when a
provision is made.
9 This Standard applies to provisions for restructurings
(including discontinued operations). When a restructuring
meets the definition of a discontinued operation, additional
disclosures may be required by IFRS 5 Non-current Assets
Held for Sale and Discontinued Operations.
Definitions
10 The following terms are used in this Standard with the
meanings specified:
A provision is a liability of uncertain timing or amount.
A liability is a present obligation of the entity arising
from past events, the settlement of which is expected to
result in an outflow from the entity of resources
embodying economic benefits.
An obligating event is an event that creates a legal or
constructive obligation that results in an entity having
no realistic alternative to settling that obligation.
A legal obligation is an obligation that derives from:
a. a contract (through its explicit or implicit terms);
b. legislation; or
c. other operation of law.
A constructive obligation is an obligation that derives
from an entitys actions where:
a. by an established pattern of past practice, published
policies or a sufficiently specific current statement,
the entity has indicated to other parties that it will
accept certain responsibilities; and
b. as a result, the entity has created a valid expectation
on the part of those other parties that it will
discharge those responsibilities.
A contingent liability is:
a. a possible obligation that arises from past events
and whose existence will be confirmed only by the
occurrence or non-occurrence of one or more
uncertain future events not wholly within the
control of the entity; or
b. a present obligation that arises from past events but
is not recognised because:
i. it is not probable that an outflow of
resources embodying economic
benefits will be required to settle the
obligation; or
ii. the amount of the obligation cannot be
measured with sufficient reliability.
A contingent asset is a possible asset that arises from
past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of
the entity.
An onerous contract is a contract in which the
unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be
received under it.
A restructuring is a programme that is planned and
controlled by management, and materially changes
either:
a. the scope of a business undertaken by an entity; or
b. the manner in which that business is conducted.
Provisions and other liabilities
11 Provisions can be distinguished from other liabilities such
as trade payables and accruals because there is uncertainty
about the timing or amount of the future expenditure
required in settlement. By contrast:
a. trade payables are liabilities to pay for goods or
services that have been received or supplied and
have been invoiced or formally agreed with the
supplier; and
b. accruals are liabilities to pay for goods or services
that have been received or supplied but have not
been paid, invoiced or formally agreed with the
supplier, including amounts due to employees (for
example, amounts relating to accrued vacation
pay). Although it is sometimes necessary to
estimate the amount or timing of accruals, the
uncertainty is generally much less than for
provisions.
Accruals are often reported as part of trade and other
payables, whereas provisions are reported separately.
Relationship between provisions and
contingent liabilities
12 In a general sense, all provisions are contingent because
they are uncertain in timing or amount. However, within
this Standard the term contingent is used for liabilities and
assets that are not recognised because their existence will be
confirmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the
control of the entity. In addition, the term contingent
liability is used for liabilities that do not meet the
recognition criteria.
13 This Standard distinguishes between:
a. provisions which are recognised as liabilities
(assuming that a reliable estimate can be made)
because they are present obligations and it is
probable that an outflow of resources embodying
economic benefits will be required to settle the
obligations; and
b. contingent liabilities which are not recognised as
liabilities because they are either:
i. possible obligations, as it has yet to be 17
confirmed whether the entity has a
present obligation that could lead to an
outflow of resources embodying
economic benefits; or
ii. present obligations that do not meet the
recognition criteria in this Standard
(because either it is not probable that an
outflow of resources embodying
economic benefits will be required to
settle the obligation, or a sufficiently
reliable estimate of the amount of the
obligation cannot be made).
18
Recognition
Provisions
14 A provision shall be recognised when:
a. an entity has a present obligation (legal or
constructive) as a result of a past event;
b. it is probable that an outflow of resources
embodying economic benefits will be required
to settle the obligation; and
c. a reliable estimate can be made of the amount
of the obligation.
If these conditions are not met, no provision shall be
recognised.
Present obligation
15 In rare cases it is not clear whether there is a present
obligation. In these cases, a past event is deemed to give
rise to a present obligation if, taking account of all
available evidence, it is more likely than not that a
present obligation exists at end of each reporting period.
16 In almost all cases it will be clear whether a past event has
given rise to a present obligation. In rare cases, for example
in a law suit, it may be disputed either whether certain
events have occurred or whether those events result in a
present obligation. In such a case, an entity determines
whether a present obligation exists at the end of the
reporting period by taking account of all available evidence,
including, for example, the opinion of experts. The evidence
considered includes any additional evidence provided by
events after the statement of financial position date. On the
basis of such evidence:
a. where it is more likely than not that a present
obligation exists at the end of the reporting period,
the entity recognises a provision (if the recognition
criteria are met); and
b. where it is more likely that no present obligation
exists at the end of the reporting period, the entity
discloses a contingent liability, unless the
possibility of an outflow of resources embodying
economic benefits is remote (see paragraph 86).
Past event
A past event that leads to a present obligation is called an
obligating event. For an event to be an obligating event, it is
necessary that the entity has no realistic alternative to
settling the obligation created by the event. This is the case
only:
a. where the settlement of the obligation can be
enforced by law; or
b. in the case of a constructive obligation, where the
event (which may be an action of the entity)
creates valid expectations in other parties that the
entity will discharge the obligation.
Financial statements deal with the financial position of an
entity at the end of its reporting period and not its possible
position in the future. Therefore, no provision is recognised
for costs that need to be incurred to operate in the future.
The only liabilities recognised in an entitys statement of
financial position are those that exist at the end of the
reporting period.
19 It is only those obligations arising from past events existing
independently of an entitys future actions (ie the future
conduct of its business) that are recognised as provisions.
Examples of such obligations are penalties or clean-up costs
for unlawful environmental damage, both of which would
lead to an outflow of resources embodying economic
benefits in settlement regardless of the future actions of the
entity. Similarly, an entity recognises a provision for the
decommissioning costs of an oil installation or a nuclear
power station to the extent that the entity is obliged to
rectify damage already caused. In contrast, because of
commercial pressures or legal requirements, an entity may
intend or need to carry out expenditure to operate in a
particular way in the future (for example, by fitting smoke
filters in a certain type of factory). Because the entity can
avoid the future expenditure by its future actions, for
 example by changing its method of operation, it has no
present obligation for that future expenditure and no
provision is recognised.
20 An obligation always involves another party to whom the
obligation is owed. It is not necessary, however, to know 25
the identity of the party to whom the obligation is owed
indeed the obligation may be to the public at large. Because
an obligation always involves a commitment to another
party, it follows that a management or board decision does
not give rise to a constructive obligation at the end of the
reporting period unless the decision has been communicated
before the end of the reporting period to those affected by it
in a sufficiently specific manner to raise a valid expectation
in them that the entity will discharge its responsibilities.
21 An event that does not give rise to an obligation
immediately may do so at a later date, because of changes in
the law or because an act (for example, a sufficiently
specific public statement) by the entity gives rise to a
constructive obligation. For example, when environmental
damage is caused there may be no obligation to remedy the Contingent liabilities
consequences. However, the causing of the damage will 27
become an obligating event when a new law requires the
existing damage to be rectified or when the entity publicly 28
accepts responsibility for rectification in a way that creates a
constructive obligation.
22 Where details of a proposed new law have yet to 29
be finalised, an obligation arises only when the legislation is
virtually certain to be enacted as drafted. For the purpose of
this Standard, such an obligation is treated as a legal
obligation. Differences in circumstances surrounding
enactment make it impossible to specify a single event that
would make the enactment of a law virtually certain. In
many cases it will be impossible to be virtually certain of
the enactment of a law until it is enacted. 30
Probable outflow of resources embodying
economic benefits
23 For a liability to qualify for recognition there must be not
only a present obligation but also the probability of an
outflow of resources embodying economic benefits to settle
that obligation. For the purpose of this Standard,1 an outflow
of resources or other event is regarded as probable if the
event is more likely than not to occur, ie the probability that
the event will occur is greater than the probability that it
will not. Where it is not probable that a present obligation Contingent assets
exists, an entity discloses a contingent liability, unless the 31
possibility of an outflow of resources embodying economic
benefits is remote (see paragraph 86).
24 Where there are a number of similar obligations (eg product
warranties or similar contracts) the probability that an
outflow will be required in settlement is determined by
considering the class of obligations as a whole. Although
the likelihood of outflow for any one item may be small, it 33
may well be probable that some outflow of resources will be
needed to settle the class of obligations as a whole. If that is
the case, a provision is recognised (if the other recognition
criteria are met).
Reliable estimate of the obligation
The use of estimates is an essential part of the preparation of
financial statements and does not undermine their
reliability. This is especially true in the case of provisions,
which by their nature are more uncertain than most other
items in the statement of financial position. Except in
extremely rare cases, an entity will be able to determine a
range of possible outcomes and can therefore make an
estimate of the obligation that is sufficiently reliable to use
in recognising a provision.
26 In the extremely rare case where no reliable estimate can be
made, a liability exists that cannot be recognised. That
liability is disclosed as a contingent liability (see paragraph
86).
An entity shall not recognise a contingent liability.
A contingent liability is disclosed, as required by paragraph
86, unless the possibility of an outflow of resources
embodying economic benefits is remote.
Where an entity is jointly and severally liable for an
obligation, the part of the obligation that is expected to be
met by other parties is treated as a contingent liability. The
entity recognises a provision for the part of the obligation
for which an outflow of resources embodying economic
benefits is probable, except in the extremely rare
circumstances where no reliable estimate can be made.
Contingent liabilities may develop in a way not initially
expected. Therefore, they are assessed continually to
determine whether an outflow of resources embodying
economic benefits has become probable. If it becomes
probable that an outflow of future economic benefits will be
required for an item previously dealt with as a contingent
liability, a provision is recognised in the financial
statements of the period in which the change in probability
occurs (except in the extremely rare circumstances where no
reliable estimate can be made).
An entity shall not recognise a contingent asset.
32 Contingent assets usually arise from unplanned or other
unexpected events that give rise to the possibility of an
inflow of economic benefits to the entity. An example is a
claim that an entity is pursuing through legal processes,
where the outcome is uncertain.
Contingent assets are not recognised in financial statements
since this may result in the recognition of income that may
never be realised. However, when the realisation of income
 is virtually certain, then the related asset is not a contingent
asset and its recognition is appropriate.
34 A contingent asset is disclosed, as required by paragraph
89, where an inflow of economic benefits is probable.
35 Contingent assets are assessed continually to ensure that
developments are appropriately reflected in the financial
statements. If it has become virtually certain that an inflow
of economic benefits will arise, the asset and the related
income are recognised in the financial statements of the
period in which the change occurs. If an inflow of economic
benefits has become probable, an entity discloses the 40
contingent asset (see paragraph 89).
Measurement
Best estimate
36 The amount recognised as a provision shall be the best
estimate of the expenditure required to settle the present
obligation at the end of the reporting period.
37 The best estimate of the expenditure required to settle the
present obligation is the amount that an entity would
rationally pay to settle the obligation at the end of the
reporting period or to transfer it to a third party at that time. 41 The provision is measured before tax, as the tax
It will often be impossible or prohibitively expensive to
settle or transfer an obligation at the end of the reporting
period. However, the estimate of the amount that an entity
would rationally pay to settle or transfer the obligation gives Risks and uncertainties
the best estimate of the expenditure required to settle the 42
present obligation at the end of the reporting period.
38 The estimates of outcome and financial effect are
determined by the judgement of the management of the 43
entity, supplemented by experience of similar transactions
and, in some cases, reports from independent experts. The
evidence considered includes any additional evidence
provided by events after the end of the reporting period.
39 Uncertainties surrounding the amount to be recognised as a
provision are dealt with by various means according to the
circumstances. Where the provision being measured
involves a large population of items, the obligation is
estimated by weighting all possible outcomes by their
associated probabilities. The name for this statistical method
of estimation is expected value. The provision will
therefore be different depending on whether the probability
of a loss of a given amount is, for example, 60 per cent or 44
90 per cent. Where there is a continuous range of possible
outcomes, and each point in that range is as likely as any
other, the mid-point of the range is used.
Example 45
An entity sells goods with a warranty under which
customers are covered for the cost of repairs of any
manufacturing defects that become apparent within the first
six months after purchase. If minor defects were detected in
46
all products sold, repair costs of 1 million would result. If
major defects were detected in all products sold, repair
costs of 4 million would result. The entitys past experience
and future expectations indicate that, for the coming year,
75 per cent of the goods sold will have no defects, 20 per
cent of the goods sold will have minor defects and 5 per
cent of the goods sold will have major defects. In
accordance with paragraph 24, an entity assesses the
probability of an outflow for the warranty obligations as a
whole.
The expected value of the cost of repairs is:
(75% of nil) + (20% of 1m) + (5% of 4m) = 400,000
Where a single obligation is being measured, the individual
most likely outcome may be the best estimate of
the liability. However, even in such a case, the entity
considers other possible outcomes. Where other possible
outcomes are either mostly higher or mostly lower than the
most likely outcome, the best estimate will be a higher or
lower amount. For example, if an entity has to rectify a
serious fault in a major plant that it has constructed for a
customer, the individual most likely outcome may be for
the repair to succeed at the first attempt at a cost of 1,000,
but a provision for a larger amount is made if there is a
significant chance that further attempts will be necessary.
consequences of the provision, and changes in it, are dealt
with under IAS 12.
The risks and uncertainties that inevitably surround
many events and circumstances shall be taken into
account in reaching the best estimate of a provision.
Risk describes variability of outcome. A risk adjustment
may increase the amount at which a liability is measured.
Caution is needed in making judgements under conditions
of uncertainty, so that income or assets are not overstated
and expenses or liabilities are not understated. However,
uncertainty does not justify the creation of excessive
provisions or a deliberate overstatement of liabilities. For
example, if the projected costs of a particularly adverse
outcome are estimated on a prudent basis, that outcome is
not then deliberately treated as more probable than is
realistically the case. Care is needed to avoid duplicating
adjustments for risk and uncertainty with consequent
overstatement of a provision.
Disclosure of the uncertainties surrounding the amount of
the expenditure is made under paragraph 85(b).
Present value
Where the effect of the time value of money is material,
the amount of a provision shall be the present value of
the expenditures expected to be required to settle the
obligation.
Because of the time value of money, provisions relating to
cash outflows that arise soon after the reporting period are
more onerous than those where cash outflows of the same
 amount arise later. Provisions are therefore discounted,
where the effect is material.
47 The discount rate (or rates) shall be a pre-tax rate (or
rates) that reflect(s) current market assessments of the
time value of money and the risks specific to the
liability. The discount rate(s) shall not reflect risks for
which future cash flow estimates have been adjusted.
Future events
48 Future events that may affect the amount required to
settle an obligation shall be reflected in the amount of a
provision where there is sufficient objective evidence
that they will occur.
49 Expected future events may be particularly important in
measuring provisions. For example, an entity may believe
that the cost of cleaning up a site at the end of its life will be
reduced by future changes in technology. The amount
recognised reflects a reasonable expectation of technically
qualified, objective observers, taking account of all
available evidence as to the technology that will be
available at the time of the clean-up. Thus it is appropriate
to include, for example, expected cost reductions associated
with increased experience in applying existing technology
or the expected cost of applying existing technology to a
larger or more complex clean-up operation than has
previously been carried out. However, an entity does not
anticipate the development of a completely new technology
for cleaning up unless it is supported by sufficient objective
evidence.
50 The effect of possible new legislation is taken into
consideration in measuring an existing obligation when
sufficient objective evidence exists that the legislation is
virtually certain to be enacted. The variety of circumstances
that arise in practice makes it impossible to specify a single
event that will provide sufficient, objective evidence in
every case. Evidence is required both of what legislation
will demand and of whether it is virtually certain to be
enacted and implemented in due course. In many cases
sufficient objective evidence will not exist until the new
legislation is enacted.
Application of the recognition and
measurement rules
Future operating losses
63 Provisions shall not be recognised for future operating
losses.
64 Future operating losses do not meet the definition of a
liability in paragraph 10 and the general recognition criteria
set out for provisions in paragraph 14.
65 An expectation of future operating losses is an indication
that certain assets of the operation may be impaired. An
entity tests these assets for impairment under IAS 36
Impairment of Assets.
Onerous contracts
66 If an entity has a contract that is onerous, the present
obligation under the contract shall be recognised and
measured as a provision.
67 Many contracts (for example, some routine purchase orders)
can be cancelled without paying compensation to the other
party, and therefore there is no obligation. Other contracts
establish both rights and obligations for each of the
contracting parties. Where events make such a contract
onerous, the contract falls within the scope of this Standard
and a liability exists which is recognised. Executory
contracts that are not onerous fall outside the scope of this
Standard.
68 This Standard defines an onerous contract as a contract in
which the unavoidable costs of meeting the obligations
under the contract exceed the economic benefits expected to
be received under it. The unavoidable costs under a contract
reflect the least net cost of exiting from the contract, which
is the lower of the cost of fulfilling it and any compensation
or penalties arising from failure to fulfil it.
69 Before a separate provision for an onerous contract is
established, an entity recognises any impairment loss that
has occurred on assets dedicated to that contract (see IAS
36).
Restructuring
70 The following are examples of events that may fall under
the definition of restructuring:
a. sale or termination of a line of business;
b. the closure of business locations in a country or
region or the relocation of business activities from
one country or region to another;
c. changes in management structure, for example,
eliminating a layer of management; and
d. fundamental reorganisations that have a material
effect on the nature and focus of the entitys
operations.
71 A provision for restructuring costs is recognised only when
the general recognition criteria for provisions set out in
paragraph 14 are met. Paragraphs 7283 set out how the
general recognition criteria apply to restructurings.
72 A constructive obligation to restructure arises only when
an entity:
a. has a detailed formal plan for the restructuring
identifying at least:
i. the business or part of a business
concerned;
ii. the principal locations affected;
 iii. the location, function, and
approximate number of employees
who will be compensated for
terminating their services;
iv. the expenditures that will be
undertaken; and
v. when the plan will be implemented; 77
and
b. has raised a valid expectation in those affected
that it will carry out the restructuring by
starting to implement that plan or announcing
its main features to those affected by it.
73 Evidence that an entity has started to implement a 78
restructuring plan would be provided, for example, by
dismantling plant or selling assets or by the public
announcement of the main features of the plan. A public
announcement of a detailed plan to restructure constitutes a 79
constructive obligation to restructure only if it is made in
such a way and in sufficient detail (ie setting out the main
features of the plan) that it gives rise to valid expectations in
other parties such as customers, suppliers and employees (or
their representatives) that the entity will carry out the
restructuring.
74 For a plan to be sufficient to give rise to a constructive
obligation when communicated to those affected by it, its
implementation needs to be planned to begin as soon as
possible and to be completed in a timeframe that makes
significant changes to the plan unlikely. If it is expected that
there will be a long delay before the restructuring begins or
that the restructuring will take an unreasonably long time, it 80
is unlikely that the plan will raise a valid expectation on the
part of others that the entity is at present committed to
restructuring, because the timeframe allows opportunities
for the entity to change its plans.
75 A management or board decision to restructure taken before
the end of the reporting period does not give rise to a
constructive obligation at the end of the reporting period
unless the entity has, before the end of the reporting period:
a. started to implement the restructuring plan; or
b. announced the main features of the restructuring
plan to those affected by it in a sufficiently
specific manner to raise a valid expectation in
them that the entity will carry out the
restructuring.
If an entity starts to implement a restructuring plan, or
announces its main features to those affected, only after the
reporting period, disclosure is required under IAS 10 Events
82
after the Reporting Period, if the restructuring is material
and non-disclosure could influence the economic decisions
that users make on the basis of the financial statements.
83
76 Although a constructive obligation is not created solely by a
management decision, an obligation may result from other
earlier events together with such a decision. For example,
negotiations with employee representatives for termination
payments, or with purchasers for the sale of an operation,
may have been concluded subject only to board approval.
Once that approval has been obtained and communicated to
the other parties, the entity has a constructive obligation to
restructure, if the conditions of paragraph 72 are met.
In some countries, the ultimate authority is vested in a board
whose membership includes representatives of interests
other than those of management (eg employees) or
notification to such representatives may be necessary before
the board decision is taken. Because a decision by such a
board involves communication to these representatives, it
may result in a constructive obligation to restructure.
No obligation arises for the sale of an operation until the
entity is committed to the sale, ie there is a binding sale
agreement.
Even when an entity has taken a decision to sell an
operation and announced that decision publicly, it cannot be
committed to the sale until a purchaser has been identified
and there is a binding sale agreement. Until there is a
binding sale agreement, the entity will be able to change its
mind and indeed will have to take another course of action
if a purchaser cannot be found on acceptable terms. When
the sale of an operation is envisaged as part of a
restructuring, the assets of the operation are reviewed for
impairment, under IAS 36. When a sale is only part of a
restructuring, a constructive obligation can arise for the
other parts of the restructuring before a binding sale
agreement exists.
A restructuring provision shall include only the direct
expenditures arising from the restructuring, which are
those that are both:
(a) necessarily entailed by the restructuring; and
(b) not associated with the ongoing activities of the
entity.
81 A restructuring provision does not include such
costs as:
a. retraining or relocating continuing staff;
b. marketing; or
c. investment in new systems and distribution
networks.
These expenditures relate to the future conduct of the
business and are not liabilities for restructuring at the end of
the reporting period. Such expenditures are recognised on
the same basis as if they arose independently of a
restructuring.
Identifiable future operating losses up to the date of a
restructuring are not included in a provision, unless they
relate to an onerous contract as defined in paragraph 10.
As required by paragraph 51, gains on the expected disposal
of assets are not taken into account in measuring a
restructuring provision, even if the sale of assets is
envisaged as part of the restructuring.

Disclosure
84 For each class of provision, an entity shall disclose:
(a) the carrying amount at the beginning and end
of the period;
(b) additional provisions made in the period,
including increases to existing provisions;
(c) amounts used (ie incurred and charged against
the provision) during the period;
(d) unused amounts reversed during the period;
and
(e) the increase during the period in the
discounted amount arising from the passage of
time and the effect of any change in the
discount rate.
Comparative information is not required.
85 An entity shall disclose the following for each class of
provision:
(a) a brief description of the nature of the
obligation and the expected timing of any
resulting outflows of economic benefits;
(b) an indication of the uncertainties about the
amount or timing of those outflows. Where
necessary to provide adequate information, an
entity shall disclose the major assumptions
made concerning future events, as addressed in Transitional provisions
paragraph 48; and
(c) the amount of any expected reimbursement,
stating the amount of any asset that has been
recognised for that expected reimbursement.
86 Unless the possibility of any outflow in settlement is
remote, an entity shall disclose for each class of
contingent liability at the end of the reporting period a
brief description of the nature of the contingent liability
and, where practicable:
(a) an estimate of its financial effect, measured
under paragraphs 3652; Effective date
(b) an indication of the uncertainties relating to the 95
amount or timing of any outflow; and
(c) the possibility of any reimbursement.
87 In determining which provisions or contingent liabilities
may be aggregated to form a class, it is necessary to
consider whether the nature of the items is sufficiently 96
similar for a single statement about them to fulfil the
requirements of paragraphs 85(a) and (b) and 86(a) and (b).
Thus, it may be appropriate to treat as a single class of
provision amounts relating to warranties of different
products, but it would not be appropriate to treat as a single
class amounts relating to normal warranties and amounts
that are subject to legal proceedings
88 Where a provision and a contingent liability arise from the
same set of circumstances, an entity makes the disclosures
required by paragraphs 8486 in a way that shows the link
between the provision and the contingent liability.
89 Where an inflow of economic benefits is probable, an
entity shall disclose a brief description of the nature of
the contingent assets at the end of the reporting period,
and, where practicable, an estimate of their financial
effect, measured using the principles set out for
provisions in paragraphs 3652.
90 It is important that disclosures for contingent assets avoid
giving misleading indications of the likelihood of income
arising.
91 Where any of the information required by paragraphs
86 and 89 is not disclosed because it is not practicable to
do so, that fact shall be stated.
92 In extremely rare cases, disclosure of some or all of the
information required by paragraphs 8489 can be
expected to prejudice seriously the position of the entity
in a dispute with other parties on the subject matter of
the provision, contingent liability or contingent asset. In
such cases, an entity need not disclose the information,
but shall disclose the general nature of the dispute,
together with the fact that, and reason why, the
information has not been disclosed.
93 The effect of adopting this Standard on its effective date
(or earlier) shall be reported as an adjustment to the
opening balance of retained earnings for the period in
which the Standard is first adopted. Entities are
encouraged, but not required, to adjust the opening
balance of retained earnings for the earliest period
presented and to restate comparative information. If
comparative information is not restated, this fact shall
be disclosed.
94 [Deleted]
This Standard becomes operative for annual financial
statements covering periods beginning on or after 1 July
1999. Earlier application is encouraged. If an entity
applies this Standard for periods beginning before 1
July 1999, it shall disclose that fact.
[Deleted]

International Financial Reporting
Standard 4 Insurance Contracts
Objective
1 The objective of this IFRS is to specify the financial
reporting for insurance contracts by any entity that issues
such contracts (described in this IFRS as an insurer) until
the Board completes the second phase of its project on
insurance contracts. In particular, this IFRS requires:
a. limited improvements to accounting by insurers
for insurance contracts.
b. disclosure that identifies and explains the amounts
in an insurers financial statements arising from
insurance contracts and helps users of those
financial statements understand the amount, timing
and uncertainty of future cash flows from
insurance contracts.
c.
Scope
2 An entity shall apply this IFRS to:
a. insurance contracts (including reinsurance
contracts) that it issues and reinsurance contracts
that it holds.
b. financial instruments that it issues with a
discretionary participation feature (see paragraph
35). IFRS 7 Financial Instruments: Disclosures
requires disclosure about financial instruments,
including financial instruments that contain such
features.
3 This IFRS does not address other aspects of accounting by
insurers, such as accounting for financial assets held by
insurers and financial liabilities issued by insurers (see IAS
32 Financial Instruments: Presentation, IAS 39 Financial
Instruments: Recognition and Measurement and IFRS 7),
except in the transitional provisions in paragraph 45.
4 An entity shall not apply this IFRS to:
a. product warranties issued directly by a
manufacturer, dealer or retailer (see IAS 18
Revenue and IAS 37 Provisions, Contingent
Liabilities and Contingent Assets).
b. employers assets and liabilities under employee
benefit plans (see IAS 19 Employee Benefits and
IFRS 2 Share-based Payment) and retirement
benefit obligations reported by defined benefit
retirement plans (see IAS 26 Accounting and
Reporting by Retirement Benefit Plans).
c. contractual rights or contractual obligations that
are contingent on the future use of, or right to use,
a non-financial item (for example, some licence
fees, royalties, contingent lease payments and
similar items), as well as a lessees residual value
guarantee embedded in a finance lease (see IAS 17
Leases, IAS 18 Revenue and IAS 38 Intangible
Assets).
d. financial guarantee contracts unless the issuer has
previously asserted explicitly that it regards such
contracts as insurance contracts and has used
accounting applicable to insurance contracts, in
which case the issuer may elect to apply either
IAS 39, IAS 32 and IFRS 7 or this Standard to
such financial guarantee contracts. The issuer may
make that election contract by contract, but the
election for each contract is irrevocable.
e. contingent consideration payable or receivable in a
business combination (see IFRS 3 Business
Combinations).
f. direct insurance contracts that the entity holds (ie
direct insurance contracts in which the entity is the
policyholder). However, a cedant shall apply this
IFRS to reinsurance contracts that it holds.
5 For ease of reference, this IFRS describes any entity that
issues an insurance contract as an insurer, whether or not
the issuer is regarded as an insurer for legal or supervisory
purposes.
6 A reinsurance contract is a type of insurance contract.
Accordingly, all references in this IFRS to insurance
contracts also apply to reinsurance contracts.
Embedded derivatives
7 IAS 39 requires an entity to separate some embedded
derivatives from their host contract, measure them at fair
value and include changes in their fair value in profit or
loss. IAS 39 applies to derivatives embedded in an
insurance contract unless the embedded derivative is itself
an insurance contract.
8 As an exception to the requirement in IAS 39, an insurer
need not separate, and measure at fair value, a
policyholders option to surrender an insurance contract for
a fixed amount (or for an amount based on a fixed amount
and an interest rate), even if the exercise price differs from
the carrying amount of the host insurance liability.
However, the requirement in IAS 39 does apply to a put
option or cash surrender option embedded in an insurance
contract if the surrender value varies in response to the
change in a financial variable (such as an equity or
commodity price or index), or a non-financial variable that
is not specific to a party to the contract. Furthermore, that
requirement also applies if the holders ability to exercise a
put option or cash surrender option is triggered by a change
in such a variable (for example, a put option that can be
exercised if a stock market index reaches a specified level).
9 Paragraph 8 applies equally to options to surrender a
financial instrument containing a discretionary participation
feature.
 Unbundling of deposit components
10 Some insurance contracts contain both an insurance
component and a deposit component. In some cases, an
insurer is required or permitted to unbundle those
components:
a. unbundling is required if both the following
conditions are met:
i. the insurer can measure the deposit
component (including any embedded
surrender options) separately (ie without
considering the insurance component).
ii. the insurers accounting policies do not
otherwise require it to recognise all
obligations and rights arising from the
deposit component.
b. unbundling is permitted, but not required, if the
insurer can measure the deposit component
separately as in (a)(i) but its accounting policies
require it to recognise all obligations and rights
arising from the deposit component, regardless of
the basis used to measure those rights and
obligations.
c. unbundling is prohibited if an insurer cannot
measure the deposit component separately as in
(a)(i).
11 The following is an example of a case when an insurers
accounting policies do not require it to recognise all
obligations arising from a deposit component. A cedant
receives compensation for losses from a reinsurer, but the
contract obliges the cedant to repay the compensation in
future years. That obligation arises from a deposit
component. If the cedants accounting policies would
otherwise permit it to recognise the compensation as
income without recognising the resulting obligation,
unbundling is required.
12 To unbundle a contract, an insurer shall:
a. apply this IFRS to the insurance component.
b. apply IAS 39 to the deposit component.
Recognition and measurement
Temporary exemption from some
other IFRSs
13 Paragraphs 1012 of IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors specify criteria for an
entity to use in developing an accounting policy if no IFRS
applies specifically to an item. However, this IFRS exempts
an insurer from applying those criteria to its accounting
policies for:
a. insurance contracts that it issues (including related
acquisition costs and related intangible assets,
such as those described in paragraphs 31 and 32);
and
b. reinsurance contracts that it holds.
14 Nevertheless, this IFRS does not exempt an insurer from
some implications of the criteria in paragraphs 10
12 of IAS 8. Specifically, an insurer:
a. shall not recognise as a liability any provisions for
possible future claims, if those claims arise under
insurance contracts that are not in existence at the
end of the reporting period (such as catastrophe
provisions and equalisation provisions).
b. shall carry out the liability adequacy test described
in paragraphs 1519.
c. shall remove an insurance liability (or a part of an
insurance liability) from its statement of financial
position when, and only when, it is extinguished
ie when the obligation specified in the contract is
discharged or cancelled or expires.
d. shall not offset:
i. reinsurance assets against the related
insurance liabilities; or
ii. income or expense from reinsurance
contracts against the expense or income
from the related insurance contracts.
e. shall consider whether its reinsurance assets are
impaired (see paragraph 20).
Liability adequacy test
15 An insurer shall assess at the end of each reporting
period whether its recognised insurance liabilities are
adequate, using current estimates of future cash flows
under its insurance contracts. If that assessment shows
that the carrying amount of its insurance liabilities (less
related deferred acquisition costs and related intangible
assets, such as those discussed in paragraphs 31 and 32)
is inadequate in the light of the estimated future cash
flows, the entire deficiency shall be recognised in profit
or loss.
16 If an insurer applies a liability adequacy test that meets
specified minimum requirements, this IFRS imposes no
further requirements. The minimum requirements are the
following:
a. The test considers current estimates of all
contractual cash flows, and of related cash flows
such as claims handling costs, as well as cash
flows resulting from embedded options and
guarantees.
b. If the test shows that the liability is inadequate, the
entire deficiency is recognised in profit or loss.
17 If an insurers accounting policies do not require a liability
adequacy test that meets the minimum requirements of
paragraph 16, the insurer shall:
 a. determine the carrying amount of the relevant
insurance liabilities* less the carrying amount of:
i. any related deferred acquisition costs;
and
ii. any related intangible assets, such as
those acquired in a business combination
or portfolio transfer (see paragraphs 31
and 32). However, related reinsurance
assets are not considered because an
insurer accounts for them separately (see
paragraph 20).
b. determine whether the amount described in (a) is
less than the carrying amount that would be
required if the relevant insurance liabilities were
within the scope of IAS 37. If it is less, the insurer
shall recognise the entire difference in profit or
loss and decrease the carrying amount of the
related deferred acquisition costs or related
intangible assets or increase the carrying amount
of the relevant insurance liabilities.
18 If an insurers liability adequacy test meets the minimum
requirements of paragraph 16, the test is applied at the level
of aggregation specified in that test. If its liability adequacy
test does not meet those minimum requirements, the
comparison described in paragraph 17 shall be made at the
level of a portfolio of contracts that are subject to broadly
similar risks and managed together as a single portfolio.
19 The amount described in paragraph 17(b) (ie the result of
applying IAS 37) shall reflect future investment margins
(see paragraphs 2729) if, and only if, the amount described
in paragraph 17(a) also reflects those margins.
Impairment of reinsurance assets
20 If a cedants reinsurance asset is impaired, the cedant shall
reduce its carrying amount accordingly and recognise that
impairment loss in profit or loss. A reinsurance asset is
impaired if, and only if:
a. there is objective evidence, as a result of an event
that occurred after initial recognition of the
reinsurance asset, that the cedant may not receive
all amounts due to it under the terms of the
contract; and
b. that event has a reliably measurable impact on the
amounts that the cedant will receive from the
reinsurer.
Changes in accounting policies
21 Paragraphs 2230 apply both to changes made by an insurer
that already applies IFRSs and to changes made by an
insurer adopting IFRSs for the first time.
22 An insurer may change its accounting policies for
insurance contracts if, and only if, the change makes the
financial statements more relevant to the economic
decision-making needs of users and no less reliable, or
more reliable and no less relevant to those needs. An
insurer shall judge relevance and reliability by the
criteria in IAS 8.
23 To justify changing its accounting policies for insurance
contracts, an insurer shall show that the change brings its
financial statements closer to meeting the criteria in IAS 8,
but the change need not achieve full compliance with those
criteria. The following specific issues are discussed below:
a. current interest rates (paragraph 24);
b. continuation of existing practices (paragraph 25);
c. prudence (paragraph 26);
d. future investment margins (paragraphs 2729);
and
e. shadow accounting (paragraph 30).
Current market interest rates
24 An insurer is permitted, but not required, to change its
accounting policies so that it remeasures designated
insurance liabilities* to reflect current market interest rates
and recognises changes in those liabilities in profit or loss.
At that time, it may also introduce accounting policies that
require other current estimates and assumptions for the
designated liabilities. The election in this paragraph permits
an insurer to change its accounting policies for designated
liabilities, without applying those policies consistently to all
similar liabilities as IAS 8 would otherwise require. If an
insurer designates liabilities for this election, it shall
continue to apply current market interest rates (and, if
applicable, the other current estimates and assumptions)
consistently in all periods to all these liabilities until they
are extinguished.
Continuation of existing practices
25 An insurer may continue the following practices, but the
introduction of any of them does not satisfy paragraph 22:
a. measuring insurance liabilities on an undiscounted
basis.
b. measuring contractual rights to future investment
management fees at an amount that exceeds their
fair value as implied by a comparison with current
fees charged by other market participants for
similar services. It is likely that the fair value at
inception of those contractual rights equals the
origination costs paid, unless future investment
management fees and related costs are out of line
with market comparables.
c. using non-uniform accounting policies for the
insurance contracts (and related deferred
acquisition costs and related intangible assets, if
any) of subsidiaries, except as permitted by
paragraph 24. If those accounting policies are not
uniform, an insurer may change them if the
change does not make the accounting policies
more diverse and also satisfies the other
requirements in this IFRS.

Prudence
26 An insurer need not change its accounting policies for
insurance contracts to eliminate excessive prudence.
However, if an insurer already measures its insurance
contracts with sufficient prudence, it shall not introduce
additional prudence.
Future investment margins
27 An insurer need not change its accounting policies for
insurance contracts to eliminate future investment margins.
However, there is a rebuttable presumption that an insurers
financial statements will become less relevant and reliable
if it introduces an accounting policy that reflects future
investment margins in the measurement of insurance
contracts, unless those margins affect the contractual
payments. Two examples of accounting policies that reflect
those margins are:
a. using a discount rate that reflects the estimated
return on the insurers assets; or
b. projecting the returns on those assets at an
estimated rate of return, discounting those
projected returns at a different rate and including
the result in the measurement of the liability.
28 An insurer may overcome the rebuttable presumption
described in paragraph 27 if, and only if, the other
components of a change in accounting policies increase the
relevance and reliability of its financial statements
sufficiently to outweigh the decrease in relevance and
reliability caused by the inclusion of future investment
margins. For example, suppose that an insurers existing
accounting policies for insurance contracts involve
excessively prudent assumptions set at inception and a
discount rate prescribed by a regulator without direct
reference to market conditions, and ignore some embedded
options and guarantees. The insurer might make its financial
statements more relevant and no less reliable by switching
to a comprehensive investor-oriented basis of accounting
that is widely used and involves:
a. current estimates and assumptions;
b. a reasonable (but not excessively prudent) adjustment
to reflect risk and uncertainty;
32
c. measurements that reflect both the intrinsic value and
time value of embedded options and guarantees; and
d. a current market discount rate, even if that discount rate 33
reflects the estimated return on the insurers assets.
29 In some measurement approaches, the discount rate is used
to determine the present value of a future profit margin. That
profit margin is then attributed to different periods using a
formula. In those approaches, the discount rate affects the
measurement of the liability only indirectly. In particular, the
use of a less appropriate discount rate has a limited or no
effect on the measurement of the liability at inception.
However, in other approaches, the discount rate determines
the measurement of the liability directly. In the latter case,
because the introduction of an asset-based discount rate has a
more significant effect, it is highly unlikely that an insurer
could overcome the rebuttable presumption described in
paragraph 27.
Shadow accounting
30 In some accounting models, realised gains or losses on an
insurers assets have a direct effect on the measurement of
some or all of (a) its insurance liabilities, (b) related deferred
acquisition costs and (c) related intangible assets, such as
those described in paragraphs 31 and 32. An insurer is
permitted, but not required, to change its accounting policies
so that a recognised but unrealised gain or loss on an asset
affects those measurements in the same way that a realised
gain or loss does. The related adjustment to the insurance
liability (or deferred acquisition costs or intangible assets)
shall be recognised in other comprehensive income if, and
only if, the unrealised gains or losses are recognised in other
comprehensive income. This practice is sometimes described
as shadow accounting.
Insurance contracts acquired in a
business combination or portfolio transfer
31 To comply with IFRS 3, an insurer shall, at the acquisition
date, measure at fair value the insurance liabilities assumed
and insurance assets acquired in a business combination.
However, an insurer is permitted, but not required, to use an
expanded presentation that splits the fair value of acquired
insurance contracts into two components:
a. a liability measured in accordance with the insurers
accounting policies for insurance contracts that it
issues; and
b. an intangible asset, representing the difference between
(i) the fair value of the contractual insurance rights
acquired and insurance obligations assumed and (ii) the
amount described in (a). The subsequent measurement
of this asset shall be consistent with the measurement
of the related insurance liability.
An insurer acquiring a portfolio of insurance contracts may
use the expanded presentation described in paragraph 31.
The intangible assets described in paragraphs 31 and 32 are
excluded from the scope of IAS 36 Impairment of Assets
and IAS 38. However, IAS 36 and IAS 38 apply to
customer lists and customer relationships reflecting the
expectation of future contracts that are not part of the
contractual insurance rights and contractual insurance
obligations that existed at the date of a business
combination or portfolio transfer.
 Discretionary participation features
Discretionary participation features in
insurance contracts
34 Some insurance contracts contain a discretionary
participation feature as well as a guaranteed element. The
issuer of such a contract:
a. may, but need not, recognise the guaranteed element
separately from the discretionary participation feature.
If the issuer does not recognise them separately, it shall
classify the whole contract as a liability. If the issuer
classifies them separately, it shall classify the
guaranteed element as a liability.
b. shall, if it recognises the discretionary participation
feature separately from the guaranteed element, classify
that feature as either a liability or a separate component
of equity. This IFRS does not specify how the issuer
determines whether that feature is a liability or equity.
The issuer may split that feature into liability and
equity components and shall use a consistent
accounting policy for that split. The issuer shall not
classify that feature as an intermediate category that is
neither liability nor equity.
c. may recognise all premiums received as revenue
without separating any portion that relates to the equity
component. The resulting changes in the guaranteed
element and in the portion of the discretionary Disclosure
participation feature classified as a liability shall be
recognised in profit or loss. If part or all of the 36
discretionary participation feature is classified in
equity, a portion of profit or loss may be attributable to from insurance contracts.
that feature (in the same way that a portion may be
attributable to non-controlling interests). The issuer 37 To comply with paragraph 36, an insurer shall disclose:
shall recognise the portion of profit or loss attributable
to any equity component of a discretionary
participation feature as an allocation of profit or loss,
not as expense or income (see IAS 1 Presentation of
Financial Statements).
d. shall, if the contract contains an embedded derivative
within the scope of IAS 39, apply IAS 39 to that
embedded derivative.
e. shall, in all respects not described in paragraphs 1420
and 34(a)(d), continue its existing accounting policies
for such contracts, unless it changes those accounting
policies in a way that complies with paragraphs 2130.
Discretionary participation features in
financial instruments
35 The requirements in paragraph 34 also apply to a financial
instrument that contains a discretionary participation
feature. In addition:
a. if the issuer classifies the entire discretionary
participation feature as a liability, it shall apply the
liability adequacy test in paragraphs 1519 to the
whole contract (ie both the guaranteed element and the
discretionary participation feature). The issuer need not
determine the amount that would result from applying
IAS 39 to the guaranteed element.
b. if the issuer classifies part or all of that feature as a
separate component of equity, the liability recognised
for the whole contract shall not be less than the amount
that would result from applying IAS 39 to the
guaranteed element. That amount shall include the
intrinsic value of an option to surrender the contract,
but need not include its time value if paragraph 9
exempts that option from measurement at fair value.
The issuer need not disclose the amount that would
result from applying IAS 39 to the guaranteed element,
nor need it present that amount separately.
Furthermore, the issuer need not determine that amount
if the total liability recognised is clearly higher.
c. although these contracts are financial instruments, the
issuer may continue to recognise the premiums for
those contracts as revenue and recognise as an expense
the resulting increase in the carrying amount of the
liability.
d. although these contracts are financial instruments, an
issuer applying paragraph 20(b) of IFRS 7 to contracts
with a discretionary participation feature shall disclose
the total interest expense recognised in profit or loss,
but need not calculate such interest expense using the
effective interest method.
Explanation of recognised amounts
An insurer shall disclose information that identifies and
explains the amounts in its financial statements arising
a. its accounting policies for insurance contracts and
related assets, liabilities, income and expense.
b. the recognised assets, liabilities, income and expense
(and, if it presents its statement of cash flow using the
direct method, cash flows) arising from insurance
contracts. Furthermore, if the insurer is a cedant, it
shall disclose:
i. gains and losses recognised in profit or
loss on buying reinsurance; and
ii. if the cedant defers and amortises gains
and losses arising on buying reinsurance,
the amortisation for the period and the
amounts remaining unamortised at the
beginning and end of the period.
c. the process used to determine the assumptions that
have the greatest effect on the measurement of the
recognised amounts described in (b). When
practicable, an insurer shall also give quantified
disclosure of those assumptions.
d. the effect of changes in assumptions used to
measure insurance assets and insurance liabilities,
 showing separately the effect of each change that
has a material effect on the financial statements.
e. reconciliations of changes in insurance liabilities,
reinsurance assets and, if any, related deferred
acquisition costs.
Nature and extent of risks arising
from insurance contracts
38 An insurer shall disclose information that enables users
of its financial statements to evaluate the nature and
extent of risks arising from insurance contracts.
39 To comply with paragraph 38, an insurer shall disclose:
a. its objectives, policies and processes for managing
risks arising from insurance contracts and the
methods used to manage those risks.
b. [deleted]
c. information about insurance risk (both before and
after risk mitigation by reinsurance), including
information about:
i. sensitivity to insurance risk (see
paragraph 39A).
ii. concentrations of insurance risk,
including a description of how
management determines concentrations
and a description of the shared
characteristic that identifies each
concentration (eg type of insured event,
geographical area, or currency).
iii. actual claims compared with previous
estimates (ie claims development). The
disclosure about claims development
shall go back to the period when the
earliest material claim arose for which
there is still uncertainty about the amount
and timing of the claims payments, but
need not go back more than ten years. An
insurer need not disclose this information
for claims for which uncertainty about
the amount and timing of claims
payments is typically resolved within one
year.
d. information about credit risk, liquidity risk and
market risk that paragraphs 3142 of IFRS 7
41A
would require if the insurance contracts were
within the scope of IFRS 7. However:
i. an insurer need not provide the maturity
analyses required by paragraph 39(a) and
(b) of IFRS 7 if it discloses information
about the estimated timing of the net
cash outflows resulting from recognised
insurance liabilities instead. This may
take the form of an analysis, by
estimated timing, of the amounts 41B
recognised in the statement of financial
position.
ii. if an insurer uses an alternative method
to manage sensitivity to market
conditions, such as an embedded value
analysis, it may use that sensitivity
analysis to meet the requirement in
paragraph 40(a) of IFRS 7. Such an
insurer shall also provide the disclosures
required by paragraph 41 of IFRS 7.
e. information about exposures to market risk arising
from embedded derivatives contained in a host
insurance contract if the insurer is not required to,
and does not, measure the embedded derivatives at
fair value.
39A To comply with paragraph 39(c)(i), an insurer shall disclose
either (a) or (b) as follows:
a. a sensitivity analysis that shows how profit or loss and
equity would have been affected if changes in the
relevant risk variable that were reasonably possible at
the end of the reporting period had occurred; the
methods and assumptions used in preparing the
sensitivity analysis; and any changes from the previous
period in the methods and assumptions used. However,
if an insurer uses an alternative method to manage
sensitivity to market conditions, such as an embedded
value analysis, it may meet this requirement by
disclosing that alternative sensitivity analysis and the
disclosures required by paragraph 41 of IFRS 7.
b. qualitative information about sensitivity, and
information about those terms and conditions of
insurance contracts that have a material effect on the
amount, timing and uncertainty of the insurers future
cash flows.
Effective date and transition
40 The transitional provisions in paragraphs 4145 apply both
to an entity that is already applying IFRSs when it first
applies this IFRS and to an entity that applies IFRSs for the
first-time (a first-time adopter).
41 An entity shall apply this IFRS for annual periods beginning
on or after 1 January 2005. Earlier application is
encouraged. If an entity applies this IFRS for an earlier
period, it shall disclose that fact.
Financial Guarantee Contracts (Amendments to IAS 39
and IFRS 4), issued in August 2005, amended
paragraphs 4(d), B18(g) and B19(f). An entity shall
apply those amendments for annual periods beginning
on or after 1 January 2006. Earlier application is
encouraged. If an entity applies those amendments for
an earlier period, it shall disclose that fact and apply the
related amendments to IAS 39 and IAS 32* at the same
time.
IAS 1 (as revised in 2007) amended the terminology used
throughout IFRSs. In addition it amended paragraph 30. An
 entity shall apply those amendments for annual periods
beginning on or after 1 January 2009. If an entity applies discretionary A contractual right to receive, as a supplement to guarante
IAS 1 (revised 2007) for an earlier period, the amendments participation
shall be applied for that earlier period.

Disclosure that are likely to be a significant portion

42 An entity need not apply the disclosure requirements in this feature (a) of the total contractual benefits;
IFRS to comparative information that relates to annual
periods beginning before 1 January 2005, except for the
whose amount or timing is contractually at the
disclosures required by paragraph 37(a) and (b) about
(b) discretion of the issuer; and
accounting policies, and recognised assets, liabilities,
income and expense (and cash flows if the direct method is (c) that are contractually based on:
used).

43 If it is impracticable to apply a particular requirement of the performance of a specified pool

paragraphs 1035 to comparative information that relates to of contracts or a specified type of
annual periods beginning before 1 January 2005, an entity (i) contract;
shall disclose that fact. Applying the liability adequacy test
(paragraphs 1519) to such comparative information might
sometimes be impracticable, but it is highly unlikely to be realised and/or unrealised investment
impracticable to apply other requirements of paragraphs returns on a specified pool of assets
1035 to such comparative information. IAS 8 explains the (ii) held by the issuer; or
term impracticable.

44 In applying paragraph 39(c)(iii), an entity need not disclose
information about claims development that occurred earlier
than five years before the end of the first financial year in
which it applies this IFRS. Furthermore, if it is
impracticable, when an entity first applies this IFRS, to fair value
prepare information about claims development that
occurred before the beginning of the earliest period for
which an entity presents full comparative information that
complies with this IFRS, the entity shall disclose that fact.
financial
Redesignation of financial assets
45 When an insurer changes its accounting policies for
insurance liabilities, it is permitted, but not required, to
reclassify some or all of its financial assets as at fair value
through profit or loss. This reclassification is permitted if
an insurer changes accounting policies when it first applies
this IFRS and if it makes a subsequent policy change
permitted by paragraph 22. The reclassification is a change
in accounting policy and IAS 8 applies.
Appendix A
Defined terms
the profit or loss of the company,
fund or other entity that issues the
(iii) contract.
The amount for which an asset could be exchanged,
or a liability settled, between knowledgeable,
willing parties in an arms length transaction.
A contract that requires the issuer to make specified
payments to reimburse the holder for a loss it
guarantee contract incurs because a specified debtor fails to make
payment when due in accordance with the original
or modified terms of a debt instrument.
financial risk The risk of a possible future change in one or
more of a specified interest rate, financial instrument
price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit
index
or other variable, provided in the case of a non-
financial variable that the variable is not specific
to
a party to the contract.

guaranteed Payments or other benefits to which a particular

This appendix is an integral part of the IFRS. policyholder or investor has an unconditional
benefits right that is not subject to the contractual
cedant The policyholder under a reinsurance contract. discretion of the issuer.

deposit component A contractual component that is not accounted guaranteed An obligation to pay guaranteed benefits,
for as a derivative under IAS 39 and would be included in a contract that contains a discretionary
within the scope of IAS 39 if it were a separate element participation feature.
instrument. insurance asset An insurers net contractual rights under an
insurance contract.
direct insurance An insurance contract that is not a reinsurance contract.
contract
insurance contract A contract under which one party (the insurer)
accepts significant insurance risk from another Appendix B
party (the policyholder) by agreeing to
compensate the policyholder if a specified Definition of an insurance
uncertain future event (the insured event)
adversely affects the policyholder. (See
contract
Appendix B for guidance on this definition.)

insurance liability An insurers net contractual obligations under an This appendix is an integral part of the IFRS.
insurance contract.
B1 This appendix gives guidance on the definition of an
insurance risk Risk, other than financial risk, transferred from insurance contract in Appendix A. It addresses the
the holder of a contract to the issuer. following issues:

insured event An uncertain future event that is covered by an a. the term uncertain future event (paragraphs B2B4);
insurance contract and creates insurance risk
b. payments in kind (paragraphs B5B7);
insurer The party that has an obligation under an
insurance contract to compensate a policyholder if an c. insurance risk and other risks (paragraphs B8B17);
insured event occurs.
d. examples of insurance contracts (paragraphs B18
B21);
liability adequacy An assessment of whether the carrying amount of
an insurance liability needs to be increased (or
e. significant insurance risk (paragraphs B22B28); and
test the carrying amount of related deferred
acquisition costs or related intangible assets f. changes in the level of insurance risk (paragraphs B29
decreased), based on a review of future cash and B30).
flows.

policyholder A party that has a right to compensation under an

insurance contract if an insured event occurs.
Uncertain future event
B2 Uncertainty (or risk) is the essence of an insurance contract.
reinsurance assets A cedants net contractual rights under a Accordingly, at least one of the following is uncertain at the
reinsurance contract. inception of an insurance contract:

a. whether an insured event will occur;

reinsurance An insurance contract issued by one insurer (the
reinsurer) to compensate another insurer (the
b. when it will occur; or
contract cedant) for losses on one or more contracts
issued by the cedant. c. how much the insurer will need to pay if it occurs.
reinsurer The party that has an obligation under a B3 In some insurance contracts, the insured event is the
reinsurance contract to compensate a cedant if an discovery of a loss during the term of the contract, even if
insured event occurs. the loss arises from an event that occurred before the
inception of the contract. In other insurance contracts, the
unbundle Account for the components of a contract as if
insured event is an event that occurs during the term of the
they were separate contracts.
contract, even if the resulting loss is discovered after the
end of the contract term.

B4 Some insurance contracts cover events that have already

occurred, but whose financial effect is still uncertain. An
example is a reinsurance contract that covers the direct
insurer against adverse development of claims already
reported by policyholders. In such contracts, the insured
event is the discovery of the ultimate cost of those claims.

Payments in kind
B5 Some insurance contracts require or permit payments to be
made in kind. An example is when the insurer replaces a
stolen article directly, instead of reimbursing the
policyholder. Another example is when an insurer uses its
 own hospitals and medical staff to provide medical services
covered by the contracts. B9
B6 Some fixed-fee service contracts in which the level of
service depends on an uncertain event meet the definition of
an insurance contract in this IFRS but are not regulated as
insurance contracts in some countries. One example is a
maintenance contract in which the service provider agrees
to repair specified equipment after a malfunction. The fixed
service fee is based on the expected number of
malfunctions, but it is uncertain whether a particular
machine will break down. The malfunction of the
equipment adversely affects its owner and the contract
compensates the owner (in kind, rather than cash). Another
example is a contract for car breakdown services in which
the provider agrees, for a fixed annual fee, to provide
roadside assistance or tow the car to a nearby garage. The
latter contract could meet the definition of an insurance
contract even if the provider does not agree to carry out
repairs or replace parts
B10
B7 Applying the IFRS to the contracts described in paragraph
B6 is likely to be no more burdensome than applying the
IFRSs that would be applicable if such contracts were
outside the scope of this IFRS:
a. There are unlikely to be material liabilities for
malfunctions and breakdowns that have already
occurred. B11
b. If IAS 18 Revenue applied, the service provider would
recognise revenue by reference to the stage of
completion (and subject to other specified criteria).
That approach is also acceptable under this IFRS,
which permits the service provider (i) to continue its
existing accounting policies for these contracts unless
they involve practices prohibited by paragraph 14 and
(ii) to improve its accounting policies if so permitted by
paragraphs 2230.
c. The service provider considers whether the cost of
meeting its contractual obligation to provide services B12
exceeds the revenue received in advance. To do this, it
applies the liability adequacy test described in
paragraphs 1519 of this IFRS. If this IFRS did not
apply to these contracts, the service provider would
apply IAS 37 to determine whether the contracts are
onerous. B13
d. For these contracts, the disclosure requirements in this
IFRS are unlikely to add significantly to disclosures
required by other IFRSs.
Distinction between insurance risk
and other risks
B8 The definition of an insurance contract refers to insurance
risk, which this IFRS defines as risk, other than financial
risk , transferred from the holder of a contract to the issuer.
B14
A contract that exposes the issuer to financial risk without
significant insurance risk is not an insurance contract.
The definition of financial risk in Appendix A includes a list
of financial and non-financial variables. That list includes
non-financial variables that are not specific to a party to the
contract, such as an index of earthquake losses in a
particular region or an index of temperatures in a particular
city. It excludes non-financial variables that are specific to a
party to the contract, such as the occurrence or non-
occurrence of a fire that damages or destroys an asset of that
party. Furthermore, the risk of changes in the fair value of a
non-financial asset is not a financial risk if the fair value
reflects not only changes in market prices for such assets (a
financial variable) but also the condition of a specific non-
financial asset held by a party to a contract (a non-financial
variable). For example, if a guarantee of the residual value
of a specific car exposes the guarantor to the risk of changes
in the cars physical condition, that risk is insurance risk,
not financial risk.
Some contracts expose the issuer to financial risk, in
addition to significant insurance risk. For example, many
life insurance contracts both guarantee a minimum rate of
return to policyholders (creating financial risk) and promise
death benefits that at some times significantly exceed the
policyholders account balance (creating insurance risk in
the form of mortality risk). Such contracts are insurance
contracts.
Under some contracts, an insured event triggers the payment
of an amount linked to a price index. Such contracts are
insurance contracts, provided the payment that is contingent
on the insured event can be significant. For example, a life-
contingent annuity linked to a cost-of-living index transfers
insurance risk because payment is triggered by an uncertain
eventthe survival of the annuitant. The link to the price
index is an embedded derivative, but it also transfers
insurance risk. If the resulting transfer of insurance risk is
significant, the embedded derivative meets the definition of
an insurance contract, in which case it need not be separated
and measured at fair value (see paragraph 7 of this IFRS).
The definition of insurance risk refers to risk that the insurer
accepts from the policyholder. In other words, insurance
risk is a pre-existing risk transferred from the policyholder
to the insurer. Thus, a new risk created by the contract is not
insurance risk.
The definition of an insurance contract refers to an adverse
effect on the policyholder. The definition does not limit the
payment by the insurer to an amount equal to the financial
impact of the adverse event. For example, the definition
does not exclude new-for-old coverage that pays the
policyholder sufficient to permit replacement of a damaged
old asset by a new asset. Similarly, the definition does not
limit payment under a term life insurance contract to the
financial loss suffered by the deceaseds dependants, nor
does it preclude the payment of predetermined amounts to
quantify the loss caused by death or an accident.
Some contracts require a payment if a specified uncertain
event occurs, but do not require an adverse effect on the
 policyholder as a precondition for payment. Such a contract
is not an insurance contract even if the holder uses the
contract to mitigate an underlying risk exposure. For
example, if the holder uses a derivative to hedge an
underlying non-financial variable that is correlated with
cash flows from an asset of the entity, the derivative is not
an insurance contract because payment is not conditional on
whether the holder is adversely affected by a reduction in
the cash flows from the asset. Conversely, the definition of
an insurance contract refers to an uncertain event for which
an adverse effect on the policyholder is a contractual
precondition for payment. This contractual precondition
does not require the insurer to investigate whether the event
actually caused an adverse effect, but permits the insurer to
deny payment if it is not satisfied that the event caused an
adverse effect.
B15 Lapse or persistency risk (ie the risk that the counterparty
will cancel the contract earlier or later than the issuer had
expected in pricing the contract) is not insurance risk
because the payment to the counterparty is not contingent
on an uncertain future event that adversely affects the
counterparty. Similarly, expense risk (ie the risk of
unexpected increases in the administrative costs associated
with the servicing of a contract, rather than in costs
associated with insured events) is not insurance risk
because an unexpected increase in expenses does not
adversely affect the counterparty.
B16 Therefore, a contract that exposes the issuer to lapse risk,
persistency risk or expense risk is not an insurance contract
unless it also exposes the issuer to insurance risk. However,
if the issuer of that contract mitigates that risk by using a
second contract to transfer part of that risk to another party,
the second contract exposes that other party to insurance
risk.
B17 An insurer can accept significant insurance risk from the
policyholder only if the insurer is an entity separate from
the policyholder. In the case of a mutual insurer, the mutual
accepts risk from each policyholder and pools that risk.
Although policyholders bear that pooled risk collectively in
their capacity as owners, the mutual has still accepted the
risk that is the essence of an insurance contract.
Examples of insurance contracts
B18 The following are examples of contracts that are insurance
contracts, if the transfer of insurance risk is significant:
a. insurance against theft or damage to property.
b. insurance against product liability, professional
liability, civil liability or legal expenses.
c. life insurance and prepaid funeral plans (although death
is certain, it is uncertain when death will occur or, for
some types of life insurance, whether death will occur B19
within the period covered by the insurance).
d. life-contingent annuities and pensions (ie contracts that
provide compensation for the uncertain future event
the survival of the annuitant or pensionerto assist the
annuitant or pensioner in maintaining a given standard
of living, which would otherwise be adversely affected
by his or her survival).
e. disability and medical cover.
f. surety bonds, fidelity bonds, performance bonds and
bid bonds (ie contracts that provide compensation if
another party fails to perform a contractual obligation,
for example an obligation to construct a building).
g. credit insurance that provides for specified payments to
be made to reimburse the holder for a loss it incurs
because a specified debtor fails to make payment when
due under the original or modified terms of a debt
instrument. These contracts could have various legal
forms, such as that of a guarantee, some types of letter
of credit, a credit derivative default contract or an
insurance contract. However, although these contracts
meet the definition of an insurance contract, they also
meet the definition of a financial guarantee contract in
IAS 39 and are within the scope of IAS 324 and IAS 39,
not this IFRS (see paragraph 4(d)). Nevertheless, if an
issuer of financial guarantee contracts has previously
asserted explicitly that it regards such contracts as
insurance contracts and has used accounting applicable
to insurance contracts, the issuer may elect to apply
either IAS 39 and IAS 325 or this Standard to such
financial guarantee contracts.
h. product warranties. Product warranties issued by
another party for goods sold by a manufacturer, dealer
or retailer are within the scope of this IFRS. However,
product warranties issued directly by a manufacturer,
dealer or retailer are outside its scope, because they are
within the scope of IAS 18 and IAS 37.
i. title insurance (ie insurance against the discovery of
defects in title to land that were not apparent when the
insurance contract was written). In this case, the
insured event is the discovery of a defect in the title,
not the defect itself.
j. travel assistance (ie compensation in cash or in kind to
policyholders for losses suffered while they are
travelling). Paragraphs B6 and B7 discuss some
contracts of this kind.
k. catastrophe bonds that provide for reduced payments of
principal, interest or both if a specified event adversely
affects the issuer of the bond (unless the specified
event does not create significant insurance risk, for
example if the event is a change in an interest rate or
foreign exchange rate).
l. insurance swaps and other contracts that require a
payment based on changes in climatic, geological or
other physical variables that are specific to a party to
the contract.
m. reinsurance contracts.
The following are examples of items that are not insurance
contracts:
a. investment contracts that have the legal form of an
insurance contract but do not expose the insurer to
significant insurance risk, for example life insurance
contracts in which the insurer bears no significant
 mortality risk (such contracts are non-insurance
financial instruments or service contracts, see
paragraphs B20 and B21).
b. contracts that have the legal form of insurance, but pass
all significant insurance risk back to the policyholder
through non-cancellable and enforceable mechanisms
that adjust future payments by the policyholder as a
direct result of insured losses, for example some B22
financial reinsurance contracts or some group contracts
(such contracts are normally non-insurance financial
instruments or service contracts, see paragraphs B20
and B21).
c. self-insurance, in other words retaining a risk that could B23
have been covered by insurance (there is no insurance
contract because there is no agreement with another
party).
d. contracts (such as gambling contracts) that require a
payment if a specified uncertain future event occurs,
but do not require, as a contractual precondition for
payment, that the event adversely affects the
policyholder. However, this does not preclude the
specification of a predetermined payout to quantify the
loss caused by a specified event such as death or an
accident (see also paragraph B13). B24
e. derivatives that expose one party to financial risk but
not insurance risk, because they require that party to
make payment based solely on changes in one or more
of a specified interest rate, financial instrument price,
commodity price, foreign exchange rate, index of
prices or rates, credit rating or credit index or other
variable, provided in the case of a non-financial
variable that the variable is not specific to a party to the
contract (see IAS 39).
f. a credit-related guarantee (or letter of credit, credit
derivative default contract or credit insurance contract)
that requires payments even if the holder has not
incurred a loss on the failure of the debtor to make
payments when due (see IAS 39).
g. contracts that require a payment based on a climatic,
geological or other physical variable that is not specific
to a party to the contract (commonly described as
weather derivatives).
h. catastrophe bonds that provide for reduced payments of
principal, interest or both, based on a climatic,
geological or other physical variable that is not specific
to a party to the contract.
B20 If the contracts described in paragraph B19 create financial
assets or financial liabilities, they are within the scope of
IAS 39. Among other things, this means that the parties to
the contract use what is sometimes called deposit
accounting, which involves the following:
a. one party recognises the consideration received as a
financial liability, rather than as revenue.
b. the other party recognises the consideration paid as a
financial asset, rather than as an expense.
B21 If the contracts described in paragraph B19 do not create
financial assets or financial liabilities, IAS 18 applies.
Under IAS 18, revenue associated with a transaction
involving the rendering of services is recognised by
reference to the stage of completion of the transaction if the
outcome of the transaction can be estimated reliably.
Significant insurance risk
A contract is an insurance contract only if it transfers
significant insurance risk. Paragraphs B8B21 discuss
insurance risk. The following paragraphs discuss the
assessment of whether insurance risk is significant.
Insurance risk is significant if, and only if, an insured event
could cause an insurer to pay significant additional benefits
in any scenario, excluding scenarios that lack commercial
substance (ie have no discernible effect on the economics of
the transaction). If significant additional benefits would be
payable in scenarios that have commercial substance, the
condition in the previous sentence may be met even if the
insured event is extremely unlikely or even if the expected
(ie probability-weighted) present value of contingent cash
flows is a small proportion of the expected present value of
all the remaining contractual cash flows.
The additional benefits described in paragraph B23 refer to
amounts that exceed those that would be payable if no
insured event occurred (excluding scenarios that lack
commercial substance). Those additional amounts include
claims handling and claims assessment costs, but exclude:
a. the loss of the ability to charge the policyholder for
future services. For example, in an investment-linked
life insurance contract, the death of the policyholder
means that the insurer can no longer perform
investment management services and collect a fee for
doing so. However, this economic loss for the insurer
does not reflect insurance risk, just as a mutual fund
manager does not take on insurance risk in relation to
the possible death of the client. Therefore, the potential
loss of future investment management fees is not
relevant in assessing how much insurance risk is
transferred by a contract.
b. waiver on death of charges that would be made on
cancellation or surrender. Because the contract brought
those charges into existence, the waiver of these
charges does not compensate the policyholder for a
pre-existing risk. Hence, they are not relevant in
assessing how much insurance risk is transferred by a
contract.
c. a payment conditional on an event that does not cause a
significant loss to the holder of the contract. For
example, consider a contract that requires the issuer to
pay one million currency units if an asset suffers
physical damage causing an insignificant economic
loss of one currency unit to the holder. In this contract,
the holder transfers to the insurer the insignificant risk
of losing one currency unit. At the same time, the
contract creates non-insurance risk that the issuer will
need to pay 999,999 currency units if the specified
event occurs. Because the issuer does not accept
 significant insurance risk from the holder, this contract contract transfers no insurance risk to the issuer until the
is not an insurance contract. option is exercised, because the insurer remains free to price
d. possible reinsurance recoveries. The insurer accounts the annuity on a basis that reflects the insurance risk
for these separately. transferred to the insurer at that time. However, if the
contract specifies the annuity rates (or a basis for setting the
B25 An insurer shall assess the significance of insurance risk annuity rates), the contract transfers insurance risk to the
contract by contract, rather than by reference to materiality issuer at inception.
to the financial statements.6 Thus, insurance risk may be
significant even if there is a minimal probability of material B30 A contract that qualifies as an insurance contract remains an
losses for a whole book of contracts. This contract-by- insurance contract until all rights and obligations are
contract assessment makes it easier to classify a contract as extinguished or expire.
an insurance contract. However, if a relatively
homogeneous book of small contracts is known to consist
of contracts that all transfer insurance risk, an insurer need
not examine each contract within that book to identify a few
non-derivative contracts that transfer insignificant insurance
risk.

B26 It follows from paragraphs B23B25 that if a contract pays a

death benefit exceeding the amount payable on survival, the
contract is an insurance contract unless the additional death
benefit is insignificant (judged by reference to the contract
rather than to an entire book of contracts). As noted in
paragraph B24(b), the waiver on death of cancellation or
surrender charges is not included in this assessment if this
waiver does not compensate the policyholder for a pre-
existing risk. Similarly, an annuity contract that pays out
regular sums for the rest of a policyholders life is an
insurance contract, unless the aggregate life-contingent
payments are insignificant.

B27 Paragraph B23 refers to additional benefits. These additional

benefits could include a requirement to pay benefits earlier
if the insured event occurs earlier and the payment is not
adjusted for the time value of money. An example is whole
life insurance for a fixed amount (in other words, insurance
that provides a fixed death benefit whenever the
policyholder dies, with no expiry date for the cover). It is
certain that the policyholder will die, but the date of death is
uncertain. The insurer will suffer a loss on those individual
contracts for which policyholders die early, even if there is
no overall loss on the whole book of contracts.

B28 If an insurance contract is unbundled into a deposit

component and an insurance component, the significance of
insurance risk transfer is assessed by reference to the
insurance component. The significance of insurance risk
transferred by an embedded derivative is assessed by
reference to the embedded derivative.

Changes in the level of insurance

risk
B29 Some contracts do not transfer any insurance risk to the
issuer at inception, although they do transfer insurance risk
at a later time. For example, consider a contract that
provides a specified investment return and includes an
option for the policyholder to use the proceeds of the
investment on maturity to buy a life-contingent annuity at
the current annuity rates charged by the insurer to other new
annuitants when the policyholder exercises the option. The
International Financial Reporting Standard
11 Joint Arrangements
Objective
1 The objective of this IFRS is to establish principles
for financial reporting by entities that have an
interest in arrangements that are controlled jointly
(ie joint arrangements).
Meeting the objective
2 To meet the objective in paragraph 1, this IFRS defines
joint control and requires an entity that is a party to a
joint arrangement to determine the type of joint
arrangement in which it is involved by assessing its
rights and obligations and to account for those rights
and obligations in accordance with that type of joint
arrangement.
Scope
3 This IFRS shall be applied by all entities that are a party
to a joint arrangement.
Joint arrangements
4 A joint arrangement is an arrangement of which two or
more parties have joint control.
5 A joint arrangement has the following characteristics:
a. The parties are bound by a contractual
arrangement (see paragraphs B2B4).
b. The contractual arrangement gives two or
more of those parties joint control of the
arrangement (see paragraphs 713).
6 A joint arrangement is either a joint operation or a joint
venture.
Joint control
7 Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when
decisions about the relevant activities require the
unanimous consent of the parties sharing control.
8 An entity that is a party to an arrangement shall assess
whether the contractual arrangement gives all the
parties, or a group of the parties, control of the
arrangement collectively. All the parties, or a group of
the parties, control the arrangement collectively when
they must act together to direct the activities that
significantly affect the returns of the arrangement (ie
the relevant activities).
9 Once it has been determined that all the parties, or a
group of the parties, control the arrangement
collectively, joint control exists only when decisions
about the relevant activities require the unanimous
consent of the parties that control the arrangement
collectively.
10 In a joint arrangement, no single party controls the
arrangement on its own. A party with joint control of an
arrangement can prevent any of the other parties, or a
group of the parties, from controlling the arrangement.
11 An arrangement can be a joint arrangement even
though not all of its parties have joint control of the
arrangement. This IFRS distinguishes between parties
that have joint control of a joint arrangement (joint
operators or joint venturers) and parties that participate
in, but do not have joint control of, a joint arrangement.
12 An entity will need to apply judgement when assessing
whether all the parties, or a group of the parties, have joint
control of an arrangement. An entity shall make this
assessment by considering all facts and circumstances (see
paragraphs B5B11).
13 If facts and circumstances change, an entity shall reassess
whether it still has joint control of the arrangement.
Types of joint arrangement
14 An entity shall determine the type of joint arrangement
in which it is involved. The classification of a joint
arrangement as a joint operation or a joint venture
depends upon the rights and obligations of the parties to
the arrangement.
15 A joint operation is a joint arrangement whereby the
parties that have joint control of the arrangement have
rights to the assets, and obligations for the liabilities,
relating to the arrangement. Those parties are called
joint operators.
16 A joint venture is a joint arrangement whereby the
parties that have joint control of the arrangement have
rights to the net assets of the arrangement. Those parties
are called joint venturers.
17 An entity applies judgement when assessing whether a joint
arrangement is a joint operation or a joint venture. An entity
shall determine the type of joint arrangement in which it is
involved by considering its rights and obligations arising
from the arrangement. An entity assesses its rights and
obligations by considering the structure and legal form of
the arrangement, the terms agreed by the parties in the
contractual arrangement and, when relevant, other facts and
circumstances (see paragraphs B12B33).
18 Sometimes the parties are bound by a framework agreement
that sets up the general contractual terms for undertaking
one or more activities. The framework agreement might set
out that the parties establish different joint arrangements to
deal with specific activities that form part of the agreement.
Even though those joint arrangements are related to the
same framework agreement, their type might be different if
the parties rights and obligations differ when undertaking
the different activities dealt with in the framework
agreement. Consequently, joint operations and joint
 ventures can coexist when the parties undertake different
activities that form part of the same framework agreement.
19 If facts and circumstances change, an entity shall reassess
whether the type of joint arrangement in which it is
involved has changed.
Financial statements of parties to a joint
arrangement
Joint operations
20 A joint operator shall recognise in relation to its interest
in a joint operation:
a. its assets, including its share of any assets held
jointly;
b. its liabilities, including its share of any
liabilities incurred jointly;
c. its revenue from the sale of its share of the
output arising from the joint operation;
d. its share of the revenue from the sale of the
output by the joint operation; and
e. its expenses, including its share of any expenses
incurred jointly.
21 A joint operator shall account for the assets, liabilities, This appendix is an integral part of the IFRS.
revenues and expenses relating to its interest in a joint
operation in accordance with the IFRSs applicable to the joint arrangement
particular assets, liabilities, revenues and expenses. parties have joint control.
22 The accounting for transactions such as the sale,
contribution or purchase of assets between an entity and a
joint operation in which it is a joint operator is specified in
paragraphs B34B37.
23 A party that participates in, but does not have joint control
of, a joint operation shall also account for its interest in the joint operation
arrangement in accordance with paragraphs 2022 if that
party has rights to the assets, and obligations for the
liabilities, relating to the joint operation. If a party that
participates in, but does not have joint control of, a joint
operation does not have rights to the assets, and obligations
for the liabilities, relating to that joint operation, it shall
account for its interest in the joint operation in accordance
with the IFRSs applicable to that interest.
Joint ventures
24 A joint venturer shall recognise its interest in a joint
venture as an investment and shall account for that
investment using the equity method in accordance
with IAS 28 Investments in Associates and Joint
Ventures unless the entity is exempted from
applying the equity method as specified in that
standard.
25 A party that participates in, but does not have joint
control of, a joint venture shall account for its interest
in the arrangement in accordance with IFRS 9
Financial Instruments, unless it has significant
influence over the joint venture, in which case it shall
account for it in accordance with IAS 28 (as amended
in 2011).
Separate financial statements
26 In its separate financial statements, a joint operator or
joint venturer shall account for its interest in:
a. a joint operation in accordance with
paragraphs 2022;
b. a joint venture in accordance with paragraph
10 of IAS 27 Separate Financial Statements.
27 In its separate financial statements, a party that
participates in, but does not have joint control of, a
joint arrangement shall account for its interest in:
a. a joint operation in accordance with paragraph
23;
b. a joint venture in accordance with IFRS 9,
unless the entity has significant influence over
the joint venture, in which case it shall apply
paragraph 10 of IAS 27 (as amended in 2011).
Appendix A
Defined terms
An arrangement of which two or more
joint control The contractually agreed sharing of
control of an arrangement, which exists only when
decisions about the relevant activities
require the unanimous consent of the
parties sharing control.
A joint arrangement whereby the parties
that have joint control of the arrangement have
rights to the assets, and obligations for
the liabilities, relating to the
arrangement.
joint operator A party to a joint operation that has joint
control of that joint operation.
joint venture A joint arrangement whereby the parties
that have joint control of the arrangement have
rights to the net assets of the
arrangement.
joint venturer A party to a joint venture that has joint
control of that joint venture.
party to a joint An entity that participates in a joint
arrangement, regardless of whether that entity has
arrangement joint control of the arrangement.
separate vehicle A separately identifiable financial
structure, including separate legal entities or entities
recognised by statute, regardless of
whether those entities have a legal
personality.
The following terms are defined in IAS 27 (as amended in 2011), IAS
28 (as amended in 2011) or IFRS 10
Consolidated Financial Statements and are used in this IFRS with the
meanings specified in those IFRSs:
control of an investee
equity method
power
protective rights
relevant activities
separate financial statements
significant influence.
Appendix B
Application guidance
This appendix is an integral part of the IFRS. It describes the
application of paragraphs 127 and has the same authority as
the other parts of the IFRS.
B1 The examples in this appendix portray hypothetical
situations. Although some aspects of the examples
may be present in actual fact patterns, all relevant facts
and circumstances of a particular fact pattern would
need to be evaluated when applying IFRS 11.
Joint arrangements
Contractual arrangement (paragraph 5)
B2 Contractual arrangements can be evidenced in several
ways. An enforceable contractual arrangement is often,
but not always, in writing, usually in the form of a
contract or documented discussions between the
parties. Statutory mechanisms can also create
enforceable arrangements, either on their own or in
conjunction with contracts between the parties.
B3 When joint arrangements are structured through a
separate vehicle (see paragraphs B19B33), the
contractual arrangement, or some aspects of the
contractual arrangement, will in some cases be
incorporated in the articles, charter or by-laws of the
separate vehicle.
B4 The contractual arrangement sets out the terms upon
which the parties participate in the activity that is the
subject of the arrangement. The contractual
arrangement generally deals with such matters as:
a. the purpose, activity and duration of the joint
arrangement.
b. how the members of the board of directors, or
equivalent governing body, of the joint
arrangement, are appointed.
c. the decision-making process: the matters
requiring decisions from the parties, the
voting rights of the parties and the required
level of support for those matters. The
decision-making process reflected in the
contractual arrangement establishes joint
control of the arrangement (see paragraphs
B5B11).
d. the capital or other contributions required of the
parties.
e. how the parties share assets, liabilities,
revenues, expenses or profit or loss relating to
the joint arrangement.
Joint control (paragraphs 713)
B5 In assessing whether an entity has joint control of an
arrangement, an entity shall assess first whether all the
parties, or a group of the parties, control the
arrangement. IFRS 10 defines control and shall be
used to determine whether all the parties, or a group of
the parties, are exposed, or have rights, to variable
returns from their involvement with the arrangement
and have the ability to affect those returns through
their power over the arrangement. When all the parties,
or a group of the parties, considered collectively, are
able to direct the activities that significantly affect the
returns of the arrangement (ie the relevant activities),
the parties control the arrangement collectively.
B6 After concluding that all the parties, or a group of the
parties, control the arrangement collectively, an entity
shall assess whether it has joint control of the
arrangement. Joint control exists only when decisions
about the relevant activities require the unanimous
consent of the parties that collectively control the
arrangement. Assessing whether the arrangement is
jointly controlled by all of its parties or by a group of
the parties, or controlled by one of its parties alone,
can require judgement.
B7 Sometimes the decision -making process that is agreed
upon by the parties in their contractual arrangement
implicitly leads to joint control. For example, assume
two parties establish an arrangement in which each has
50 per cent of the voting rights and the contractual
arrangement between them specifies that at least 51
per cent of the voting rights are required to make
decisions about the relevant activities. In this case, the
parties have implicitly agreed that they have joint
control of the arrangement because decisions about the
relevant activities cannot be made without both parties
agreeing.
B8 In other circumstances, the contractual arrangement
requires a minimum proportion of the voting rights to make
decisions about the relevant activities. When that minimum
required proportion of the voting rights can be achieved by
more than one combination of the parties agreeing
together, that arrangement is not a joint arrangement unless
the contractual arrangement specifies which parties (or
combination of parties) are required to agree unanimously
to decisions about the relevant activities of the
arrangement.
 Application examples
Example 1
Assume that three parties establish an arrangement: A
has 50 per cent of the voting rights in the
arrangement, B has 30 per cent and C has 20 per cent.
The contractual arrangement between A, B and C
specifies that at least 75 per cent of the voting rights
are required to make decisions about the relevant
activities of the arrangement. Even though A can
block any decision, it does not control the
arrangement because it needs the agreement of B. The
terms of their contractual arrangement requiring at
least 75 per cent of the voting rights to make
decisions about the relevant activities imply that A
and B have joint control of the arrangement because
decisions about the relevant activities of the
arrangement cannot be made without both A and B
agreeing
Example 2
Assume an arrangement has three parties: A has 50
per cent of the voting rights in the arrangement and B
and C each have 25 per cent. The contractual
arrangement between A, B and C specifies that at least
75 per cent of the voting rights are required to make
decisions about the relevant activities of the
arrangement. Even though A can block any decision,
it does not control the arrangement because it needs
the agreement of either B or C. In this example, A, B
and C collectively control the arrangement. However,
there is more than one combination of parties that can
agree to reach 75 per cent of the voting rights (ie
either A and B or A and C). In such a situation, to be a
joint arrangement the contractual arrangement
between the parties would need to specify which
combination of the parties is required to agree
unanimously to decisions about the relevant activities
of the arrangement.
Example 3
Assume an arrangement in which A and B each have
35 per cent of the voting rights in the arrangement
with the remaining 30 per cent being widely
dispersed. Decisions about the relevant activities
require approval by a majority of the voting rights. A
and B have joint control of the arrangement only if
the contractual arrangement specifies that decisions
about the relevant activities of the arrangement
require both A and B agreeing.
B9 The requirement for unanimous consent means that any
party with joint control of the arrangement can prevent any
of the other parties, or a group of the parties, from making
unilateral decisions (about the relevant activities) without
its consent. If the requirement for unanimous consent
relates only to decisions that give a party protective rights
and not to decisions about the relevant activities of an
arrangement, that party is not a party with joint control of
the arrangement.
B10 A contractual arrangement might include clauses on the
resolution of disputes, such as arbitration. These provisions
may allow for decisions to be made in the absence of
unanimous consent among the parties that have joint
control. The existence of such provisions does not prevent
the arrangement from being jointly controlled and,
consequently, from being a joint arrangement.
B11 When an arrangement is outside the scope of IFRS 11, an
entity accounts for its interest in the arrangement in
accordance with relevant IFRSs, such as IFRS 10, IAS 28
(as amended in 2011) or IFRS 9.
Types of joint arrangement (paragraphs
1419)
B12 Joint arrangements are established for a variety of
purposes (eg as a way for parties to share costs and
risks, or as a way to provide the parties with access to
new technology or new markets), and can be
established using different structures and legal forms.
B13 Some arrangements do not require the activity that is
the subject of the arrangement to be undertaken in a
separate vehicle. However, other arrangements involve
the establishment of a separate vehicle.
B14 The classification of joint arrangements required by
this IFRS depends upon the parties rights and
obligations arising from the arrangement in the normal
course of business. This IFRS classifies joint
arrangements as either joint operations or joint
ventures. When an entity has rights to the assets, and
obligations for the liabilities, relating to the
arrangement, the arrangement is a joint operation.
When an entity has rights to the net assets of the
arrangement, the arrangement is a joint venture.
Paragraphs B16 B33 set out the assessment an entity
carries out to determine whether it has an interest in a
joint operation or an interest in a joint venture.
Classification of a joint arrangement
B15 As stated in paragraph B14, the classification of joint
arrangements requires the parties to assess their rights
and obligations arising from the arrangement. When
making that assessment, an entity shall consider the
following:
a. the structure of the joint arrangement (see paragraphs
B16B21).
b. when the joint arrangement is structured through a
separate vehicle:
i. the legal form of the separate vehicle (see
paragraphs B22B24);
ii. the terms of the contractual arrangement (see
paragraphs B25B28); and
iii. when relevant, other facts and circumstances
(see paragraphs B29B33).
 Structure of the joint arrangement
Joint arrangements not structured through a
separate vehicle
B16 A joint arrangement that is not structured through a B22
separate vehicle is a joint operation. In such cases, the
contractual arrangement establishes the parties rights to
the assets, and obligations for the liabilities, relating to the
arrangement, and the parties rights to the corresponding
revenues and obligations for the corresponding expenses.
B17 The contractual arrangement often describes the nature of
the activities that are the subject of the arrangement and
how the parties intend to undertake those activities B23
together. For example, the parties to a joint arrangement
could agree to manufacture a product together, with each
party being responsible for a specific task and each using
its own assets and incurring its own liabilities. The
contractual arrangement could also specify how the
revenues and expenses that are common to the parties are
to be shared among them. In such a case, each joint
operator recognises in its financial statements the assets
and liabilities used for the specific task, and recognises its
share of the revenues and expenses in accordance with the
contractual arrangement.
B18 In other cases, the parties to a joint arrangement might
agree, for example, to share and operate an asset together.
In such a case, the contractual arrangement establishes the
parties rights to the asset that is operated jointly, and how
output or revenue from the asset and operating costs are
shared among the parties. Each joint operator accounts for B24
its share of the joint asset and its agreed share of any
liabilities, and recognises its share of the output, revenues
and expenses in accordance with the contractual
arrangement.
Joint arrangements structured through a
separate vehicle
B19 A joint arrangement in which the assets and liabilities
relating to the arrangement are held in a separate vehicle B25
can be either a joint venture or a joint operation.
B20 Whether a party is a joint operator or a joint venturer
depends on the partys rights to the assets, and obligations
for the liabilities, relating to the arrangement that are held
in the separate vehicle. B26
B21 As stated in paragraph B15, when the parties have
structured a joint arrangement in a separate vehicle, the
parties need to assess whether the legal form of the
separate vehicle, the terms of the contractual arrangement
and, when relevant, any other facts and circumstances give
them:
(a) rights to the assets, and obligations for the
liabilities, relating to the arrangement (ie the
arrangement is a joint operation); or
(b) rights to the net assets of the arrangement (ie the
arrangement is a joint venture).
The legal form of the separate vehicle
The legal form of the separate vehicle is relevant when
assessing the type of joint arrangement. The legal form
assists in the initial assessment of the parties rights to
the assets and obligations for the liabilities held in the
separate vehicle, such as whether the parties have
interests in the assets held in the separate vehicle and
whether they are liable for the liabilities held in the
separate vehicle.
For example, the parties might conduct the joint
arrangement through a separate vehicle, whose legal
form causes the separate vehicle to be considered in its
own right (ie the assets and liabilities held in the
separate vehicle are the assets and liabilities of the
separate vehicle and not the assets and liabilities of the
parties). In such a case, the assessment of the rights
and obligations conferred upon the parties by the legal
form of the separate vehicle indicates that the
arrangement is a joint venture. However, the terms
agreed by the parties in their contractual arrangement
(see paragraphs B25B28) and, when relevant, other
facts and circumstances (see paragraphs B29B33) can
override the assessment of the rights and obligations
conferred upon the parties by the legal form of the
separate vehicle.
The assessment of the rights and obligations conferred
upon the parties by the legal form of the separate
vehicle is sufficient to conclude that the arrangement is
a joint operation only if the parties conduct the joint
arrangement in a separate vehicle whose legal form
does not confer separation between the parties and the
separate vehicle (ie the assets and liabilities held in the
separate vehicle are the parties assets and liabilities).
Assessing the terms of the contractual
arrangement
In many cases, the rights and obligations agreed to by
the parties in their contractual arrangements are
consistent, or do not conflict, with the rights and
obligations conferred on the parties by the legal form
of the separate vehicle in which the arrangement has
been structured.
In other cases, the parties use the contractual
arrangement to reverse or modify the rights and
obligations conferred by the legal form of the separate
vehicle in which the arrangement has been structured.
Application example
Example 4
Assume that two parties structure a joint arrangement
in an incorporated entity. Each party has a 50 per cent
ownership interest in the incorporated entity. The
incorporation enables the separation of the entity from
its owners and as a consequence the assets and B27 The following table compares common terms in contractual
liabilities held in the entity are the assets and arrangements of parties to a joint operation and common
liabilities of the incorporated entity. In such a case, terms in contractual arrangements of parties to a joint
the assessment of the rights and obligations conferred venture. The examples of the contractual terms provided in
upon the parties by the legal form of the separate the following table are not exhaustive.
vehicle indicates that the parties have rights to the net
assets of the arrangement.
However, the parties modify the features of the
corporation through their contractual arrangement
so that each has an interest in the assets of the
incorporated entity and each is liable for the
liabilities of the incorporated entity in a specified
proportion. Such contractual modifications to the
features of a corporation can cause an arrangement
to be a joint operation.

Assessing the terms of the contractual arrangement

Joint operation Joint venture

The terms of the The contractual arrangement The contractual arrangement

contractual arrangement
Rights to assets
Obligations for liabilities
provides the parties to the joint
arrangement with rights to the
assets, and obligations for the
liabilities, relating to the
arrangement.
The contractual arrangement
establishes that the parties to the
joint arrangement share all
interests (eg rights, title or
ownership) in the assets relating
to the arrangement in a specified
proportion (eg in proportion to
the parties ownership interest in
the arrangement or in proportion
to the activity carried out through
the arrangement that is directly
attributed to them).
The contractual arrangement
establishes that the parties to the
joint arrangement share all
liabilities, obligations, costs and
expenses in a specified
proportion (eg in proportion to
the parties ownership interest in
the arrangement or in proportion
to the activity carried out through
the arrangement that is directly
attributed to them).
provides the parties to the joint
arrangement with rights to the net
assets of the arrangement (ie it is
the separate vehicle, not the
parties, that has rights to the
assets, and obligations for the
liabilities, relating to the
arrangement).
The contractual arrangement
establishes that the assets brought
into the arrangement or
subsequently acquired by the
joint arrangement are the
arrangements assets. The parties
have no interests (ie no rights,
title or ownership) in the assets of
the arrangement.
The contractual arrangement
establishes that the joint
arrangement is liable for the
debts and obligations of the
arrangement.
The contractual arrangement
establishes that the parties to the
joint arrangement are liable to the
arrangement only to the extent of
their respective investments in
the arrangement or to their
respective obligations to
contribute any unpaid or
additional capital to the
arrangement, or both.
 Assessing the terms of the contractual arrangement

Joint operation Joint venture

The contractual arrangement The contractual arrangement

establishes that the parties to the states that creditors of the joint
joint arrangement are liable for arrangement do not have rights of
claims raised by third parties. recourse against any party with
respect to debts or obligations of
the arrangement.
Revenues, expenses, profit The contractual arrangement The contractual arrangement
or loss establishes the allocation of establishes each partys share in
revenues and expenses on the the profit or loss relating to the
basis of the relative performance activities of the arrangement.
of each party to the joint
arrangement. For example, the
contractual arrangement might
establish that revenues and
expenses are allocated on the
basis of the capacity that each
party uses in a plant operated
jointly, which could differ from
their ownership interest in the
joint arrangement. In other
instances, the parties might have
agreed to share the profit or loss
relating to the arrangement on the
basis of a specified proportion
such as the parties ownership
interest in the arrangement. This
would not prevent the
arrangement from being a joint
operation if the parties have
rights to the assets, and
obligations for the liabilities,
relating to the arrangement.
Guarantees The parties to joint arrangements are often required to provide
guarantees to third parties that, for example, receive a service from, or
provide financing to, the joint arrangement. The provision of such
guarantees, or the commitment by the parties to provide them, does
not, by itself, determine that the joint arrangement is a joint operation.
The feature that determines whether the joint arrangement is a joint
operation or a joint venture is whether the parties have obligations for
the liabilities relating to the arrangement (for some of which the
parties might or might not have provided a guarantee).

B28 When the contractual arrangement specifies that
the parties have rights to the assets, and obligations
for the liabilities, relating to the arrangement, they
are parties to a joint operation and do not need to
consider other facts and circumstances (paragraphs
B29B33) for the purposes of classifying the joint
arrangement.
Assessing other facts and
circumstances
B29 When the terms of the contractual arrangement do
not specify that the parties have rights to the assets,
and obligations for the liabilities, relating to the
arrangement, the parties shall consider other facts
and circumstances to assess whether the
arrangement is a joint operation or a joint venture.
B30 A joint arrangement might be structured in a separate
vehicle whose legal form confers separation between the
parties and the separate vehicle. The contractual terms
agreed among the parties might not specify the parties
rights to the assets and obligations for the liabilities, yet
consideration of other facts and
 circumstances can lead to such an arrangement being
classified as a joint operation. This will be the case
when other facts and circumstances give the parties
rights to the assets, and obligations for the liabilities,
relating to the arrangement.
B31 When the activities of an arrangement are primarily
designed for the provision of output to the parties, this
indicates that the parties have rights to substantially all
the economic benefits of the assets of the arrangement.
The parties to such arrangements often ensure their
access to the outputs provided by the arrangement by
preventing the arrangement from selling output to third
parties.
B32 The effect of an arrangement with such a design and
purpose is that the liabilities incurred by the
arrangement are, in substance, satisfied by the cash
flows received from the parties through their purchases
of the output. When the parties are substantially the
only source of cash flows contributing to the continuity
of the operations of the arrangement, this indicates that
the parties have an obligation for the liabilities relating
to the arrangement.
Application example
Example 5
Assume that two parties structure a joint
arrangement in an incorporated entity (entity C) in
which each party has a 50 per cent ownership
interest. The purpose of the arrangement is to
manufacture materials required by the parties for
their own, individual manufacturing processes.
The arrangement ensures that the parties operate
the facility that produces the materials to the
quantity and quality specifications of the parties.
The legal form of entity C (an incorporated entity)
through which the activities are conducted initially
indicates that the assets and liabilities held in
entity C are the assets and liabilities of entity C.
The contractual arrangement between the parties
does not specify that the parties have rights to the
assets or obligations for the liabilities of entity C.
Accordingly, the legal form of entity C and the
terms of the contractual arrangement indicate that
the arrangement is a joint venture.
However, the parties also consider the following
aspects of the arrangement:
The parties agreed to purchase all the
output produced by entity C in a ratio of
50:50. Entity C cannot sell any of the
B33 The following flow chart reflects the assessment an
entity follows to classify an arrangement when the joint
arrangement is structured through a separate vehicle:
output to third parties, unless this is
approved by the two parties to the
arrangement. Because the purpose of the
arrangement is to provide the parties
with output they require, such sales to
third parties are expected to be
uncommon and not material.
The price of the output sold to the
parties is set by both parties at a level
that is designed to cover the costs of
production and administrative expenses
incurred by entity C. On the basis of this
operating model, the arrangement is
intended to operate at a break-even
level.
From the fact pattern above, the following facts and
circumstances are relevant:
The obligation of the parties to purchase
all the output produced by entity C
reflects the exclusive dependence of
entity C upon the parties for the
generation of cash flows and, thus, the
parties have an obligation to fund the
settlement of the liabilities of entity C.
The fact that the parties have rights to
all the output produced by entity C
means that the parties are consuming,
and therefore have rights to, all the
economic benefits of the assets of entity
C.
These facts and circumstances indicate that the
arrangement is a joint operation. The conclusion
about the classification of the joint arrangement
in these circumstances would not change if,
instead of the parties using their share of the
output themselves in a subsequent manufacturing
process, the parties sold their share of the output
to third parties.
If the parties changed the terms of the contractual
arrangement so that the arrangement was able to
sell output to third parties, this would result in
entity C assuming demand, inventory and credit
risks. In that scenario, such a change in the facts
and circumstances would require reassessment of
the classification of the joint arrangement. Such
facts and circumstances would indicate that the
arrangement is a joint venture.
Financial statements of parties to a joint
arrangement (paragraph 22) Accounting for purchases of
assets from a joint operation
Legal form of
the Does the legal form of the B36 When an entity enters into a transaction with a joint
separate
vehicle separate vehicle give the
operation in which it is a joint operator, such as a
parties rights to the assets, purchase of assets, it shall not recognise its share of the
and obligations for the Yes
gains and losses until it resells those assets to a third
liabilities, relating to the
party.
arrangement?
Joint
B37 When such transactions provide evidence of a reduction
operation
No
in the net realisable value of the assets to be purchased
or of an impairment loss of those assets, a joint operator
Terms of the Do the terms of the contractual shall recognise its share of those losses.
contractual arrangement specify that the
arrangement parties have rights to the Yes
assets, and obligations for the
liabilities, relating to the
arrangement?

No

Other facts
and Have the parties designed
circumstances arrangement so that:
(a) its activities primarily aim
to provide the parties Yes
with
an output (ie the parties
have rights to
substantially
all of the economic
benefits of the assets
held
in the separate vehicle)
and
(b) it depends on the parties
on a continuous basis for
setting the liabilities
relating to the activity
conducted through the
arrangement?

No

Joint venture

Accounting for sales or contributions of

assets to a joint operation
B34 When an entity enters into a transaction with a joint
operation in which it is a joint operator, such as a sale
or contribution of assets, it is conducting the
transaction with the other parties to the joint operation
and, as such, the joint operator shall recognise gains
and losses resulting from such a transaction only to the
extent of the other parties interests in the joint
operation.
B35 When such transactions provide evidence of a reduction
in the net realisable value of the assets to be sold or
contributed to the joint operation, or of an impairment
loss of those assets, those losses shall be recognised
fully by the joint operator.
Appendix C
Effective date, transition and withdrawal of other IFRSs

This appendix is an integral part of the IFRS and has the same authority as the other parts of the IFRS.

Effective date

C1 An entity shall apply this IFRS for annual periods beginning on or after 1 January 2013. Earlier application
is permitted. If an entity applies this IFRS earlier, it shall disclose that fact and apply IFRS 10, IFRS 12
Disclosure of Interests in Other Entities, IAS 27 (as amended in 2011) and IAS 28 (as amended in 2011) at
the same time.
C1A Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities:
Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12), issued in June 2012, amended
paragraphs C2C5, C7C10 and C12 and added paragraphs C1B and C12AC12B. An entity shall apply
those amendments for annual periods beginning on or after 1 January 2013. If an entity applies IFRS 11 for
an earlier period, it shall apply those amendments for that earlier period.

Transition
C1B Notwithstanding the requirements of paragraph 28 of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, when this IFRS is first applied, an entity need only present the quantitative
information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the first
annual period for which IFRS 11 is applied (the immediately preceding period). An entity may also
present this information for the current period or for earlier comparative periods, but is not required to do
so.

Joint venturestransition from proportionate consolidation to the

equity method
C2 When changing from proportionate consolidation to the equity method, an entity shall recognise its
investment in the joint venture as at the beginning of the immediately preceding period. That initial
investment shall be measured as the aggregate of the carrying amounts of the assets and liabilities that the
entity had previously proportionately consolidated, including any goodwill arising from acquisition. If the
goodwill previously belonged to a larger cash-generating unit, or to a group of cash-generating units, the
entity shall allocate goodwill to the joint venture on the basis of the relative carrying amounts of the joint
venture and the cash-generating unit or group of cash-generating units to which it belonged.
C3 The opening balance of the investment determined in accordance with paragraph C2 is regarded as the
deemed cost of the investment at initial recognition. An entity shall apply paragraphs 4043 of IAS 28 (as
amended in 2011) to the opening balance of the investment to assess whether the investment is impaired
and shall recognise any impairment loss as an adjustment to retained earnings at the beginning of the
immediately preceding period. The initial recognition exception in paragraphs 15 and 24 of IAS 12 Income
Taxes does not apply when the entity recognises an investment in a joint venture resulting from applying the
transition requirements for joint ventures that had previously been proportionately consolidated.
C4 If aggregating all previously proportionately consolidated assets and liabilities results in negative net assets,
an entity shall assess whether it has legal or constructive obligations in relation to the negative net assets
and, if so, the entity shall recognise the corresponding liability. If the entity concludes that it does not have
legal or constructive obligations in relation to the negative net assets, it shall not recognise the
corresponding liability but it shall adjust retained earnings at the beginning of the immediately preceding
period. The entity shall disclose this fact, along with its cumulative unrecognised share of losses of its joint
ventures as at the beginning of the immediately preceding period and at the date at which this IFRS is first
applied.
C5 An entity shall disclose a breakdown of the assets and liabilities that have been aggregated into the single
line investment balance as at the beginning of the immediately preceding period. That disclosure shall be
prepared in an aggregated manner for all joint ventures for which an entity applies the transition requirements referred
to in paragraphs C2C6.
C6 After initial recognition, an entity shall account for its investment in the joint venture using the equity method in
accordance with IAS 28 (as amended in 2011).
 Joint operationstransition from
the equity method to accounting
for assets and liabilities
C7 When changing from the equity method to accounting
for assets and liabilities in respect of its interest in a
joint operation, an entity shall, at the beginning of the
immediately preceding period, derecognise the
investment that was previously accounted for using the
equity method and any other items that formed part of
the entitys net investment in the arrangement in
accordance with paragraph 38 of IAS 28 (as amended
in 2011) and recognise its share of each of the assets
and the liabilities in respect of its interest in the joint
operation, including any goodwill that might have
formed part of the carrying amount of the investment.
C8 An entity shall determine its interest in the assets and
liabilities relating to the joint operation on the basis of
its rights and obligations in a specified proportion in
accordance with the contractual arrangement. An entity
measures the initial carrying amounts of the assets and
liabilities by disaggregating them from the carrying
amount of the investment at the beginning of the
immediately preceding period on the basis of the
information used by the entity in applying the equity
method.
C9 Any difference arising from the investment previously
accounted for using the equity method together with
any other items that formed part of the entitys net
investment in the arrangement in accordance with
paragraph 38 of IAS 28 (as amended in 2011), and the
net amount of the assets and liabilities, including any
goodwill, recognised shall be:
a. offset against any goodwill relating to the
investment with any remaining difference
adjusted against retained earnings at the
beginning of the immediately preceding
period, if the net amount of the assets and
liabilities, including any goodwill,
recognised is higher than the investment
(and any other items that formed part of
the entitys net investment) derecognised.
b. adjusted against retained earnings at the
beginning of the immediately preceding
period, if the net amount of the assets and
liabilities, including any goodwill,
recognised is lower than the investment
(and any other items that formed part of
the entitys net investment) derecognised.
C10 An entity changing from the equity method to
accounting for assets and liabilities shall provide a
reconciliation between the investment derecognised,
and the assets and liabilities recognised, together with
any remaining difference adjusted against retained
earnings, at the beginning of the immediately preceding
period.
C11 The initial recognition exception in paragraphs 15 and
24 of IAS 12 does not apply when the entity recognises
assets and liabilities relating to its interest in a joint
operation.
Transition provisions in an
entitys separate financial
statements
C12 An entity that, in accordance with paragraph 10 of IAS
27, was previously accounting in its separate financial
statements for its interest in a joint operation as an
investment at cost or in accordance with IFRS 9 shall:
a. derecognise the investment and recognise the assets
and the liabilities in respect of its interest in the
joint operation at the amounts determined in
accordance with paragraphs C7C9.
b. provide a reconciliation between the investment
derecognised, and the assets and liabilities
recognised, together with any remaining difference
adjusted in retained earnings, at the beginning of
the immediately preceding period.
References to the immediately
preceding period
C12A Notwithstanding the references to the immediately
preceding period in paragraphs C2C12, an entity may
also present adjusted comparative information for any
earlier periods presented, but is not required to do so. If
an entity does present adjusted comparative information
for any earlier periods, all references to the
immediately preceding period in paragraphs C2C12
shall be read as the earliest adjusted comparative period
presented
C12B If an entity presents unadjusted comparative
information for any earlier periods, it shall clearly
identify the information that has not been adjusted,
state that it has been prepared on a different basis,
and explain that basis.
C13 The initial recognition exception in paragraphs 15
and 24 of IAS 12 does not apply when the entity
recognises assets and liabilities relating to its
interest in a joint operation in its separate financial
statements resulting from applying the transition
requirements for joint operations referred to in
paragraph C12.
References to IFRS 9
C14 If an entity applies this IFRS but does not yet apply
IFRS 9, any reference to IFRS 9 shall be read as a
reference to IAS 39 Financial Instruments:
Recognition and Measurement.
Withdrawal of other IFRSs
C15 This IFRS supersedes the following IFRSs:
32 IAS 31 Interests in Joint Ventures; and
SIC-13 Jointly Controlled EntitiesNon-Monetary Contributions
by Venturers.