Part 2

Insights into IFRS, 14th Edition 2017-18
1. Background
1.1 Introduction
1.2 Conceptual Framework
2. General issues
2.1 Form and components of financial statements
2.2 Changes in equity
2.3 Statement of cash flows
2.4 Fair value measurement
2.5 Consolidation
2.6 Business combinations
2.7 Foreign currency translation
2.8 Accounting policies, errors and estimates
2.9 Events after the reporting date
2.10 Hyperinflation
3. Statement of financial position
3.1 General
3.2 Property, plant and equipment
3.3 Intangible assets and goodwill
3.4 Investment property
3.5 Associates and the equity method
3.6 Joint arrangements
3.7 [Not used]
3.8 Inventories
© 2017 KPMG IFRG Limited, a U.K. company, limited by guarantee. All rights reserved.
Page 1 / 37
3.9 Biological assets
3.10 Impairment of non-financial assets
3.11 [Not used]
3.12 Provisions, contingent assets and liabilities
3.13 Income taxes
4. Statement of profit or loss and OCI
4.1 General
4.2 Revenue
4.2A Revenue: IFRS 15
4.3 Government grants
4.4 Employee benefits
4.5 Share-based payments
4.6 Borrowing costs
5. Special topics
5.1 Leases
5.1A Leases: IFRS 16
5.2 Operating segments
5.3 Earnings per share
5.4 Non-current assets held for sale and discontinued operations
5.5 Related party disclosures
5.6 Investment entities
5.7 Non-monetary transactions
5.8 Accompanying financial and non-financial information
5.9 Interim financial reporting
5.10 Disclosure of interests in other entities
5.11 Extractive activities
Page 2 / 37
5.12 Service concession arrangements
5.13 Common control transactions and Newco formations
6. First-time adoption of IFRS
6.1 First-time adoption of IFRS
6.2 Regulatory deferral accounts and first-time adoption of IFRS
7. Financial instruments
7.1 Scope and definitions
7.2 Derivatives and embedded derivatives
7.3 Equity and financial liabilities
7.4 Classification of financial assets and financial liabilities
7.5 Recognition and derecognition
7.6 Measurement and gains and losses
7.7 Hedge accounting
7.8 Presentation and disclosures
Applying different versions of IFRS 9
7A.1 Scope and definitions
7A.2 Derivatives and embedded derivatives
7A.3 Equity and financial liabilities
7A.4 Classification of financial assets
7A.5 Classification of financial liabilities
7A.6 Recognition and derecognition
7A.7 Measurement
7A.8 Impairment
7A.9 Hedge accounting
7A.10 Presentation and disclosure
Page 3 / 37
7A.11 Transition to IFRS 9
7B Financial instruments: IFRS 9 (2009)
7B.1 Applying IFRS 9 (2009)
8 Insurance
8.1 Insurance contracts
8.1A Insurance contracts: IFRS 17
Appendices and index

Appendix I: Currently effective requirements and forthcoming requirements
Appendix II: Table of concordance
Appendix III: List of examples
Index
Embedding the change

With the effective dates for new standards on revenue and financial instruments upon us, your implementation project is
probably well-advanced. It is a significant effort for companies of all sectors and sizes, requiring complex new estimates
and judgements to be made.
Now the focus needs to shift to embedding those changes into business as usual and taking investors by the hand to
explain how the changes impact your company's track record, disclosures and potential for earnings surprises. And more
change is on the way. The new leases standard is only a year away. It too requires a huge effort - but many companies
are ahead of where they were at a comparable time in their preparations for revenue. This is encouraging, but of course a
lot more work remains to be done and no one can afford to become complacent.
Meanwhile, after some 20 years of discussion, the insurance industry has a new standard to prepare for. Their new
accounting requirements will bring greater transparency and comparability for investors and analysts - and provide a good
opportunity for insurers to streamline their activities and thereby achieve efficiencies.
Financial reporting is not just about technical compliance, though. The IASB has been very clear that better
communication is one of its guiding principles. So companies need to ensure that, through a focus on effective
presentation and disclosures, their reporting provides robust and transparent communication that is of real value to
stakeholders.
Through so much change, we are also moving with the times. I am delighted that Insights into IFRS is now available
electronically as well as in hard copy. The e-book version can be personalised, bookmarked and annotated - giving you
more control over how you access and use the material. Whichever way you choose to read it, I hope the mix of in-depth
guidance on the existing standards and thorough analysis of the new ones helps you to embed the change.
Mark Vaessen, Global IFRS Leader
KPMG International Standards Group
About this publication

Page 4 / 37
Insights into IFRS , now in its 14th edition, emphasises the application of IFRS in practice and explains the conclusions
that we have reached on many interpretative issues. Based on actual questions that have arisen in practice around the
world, Insights into IFRS includes many illustrative examples to elaborate or clarify the practical application of IFRS.
Insights into IFRS is an interpretative guide to IFRS that builds on those standards and should be read alongside them.
ORGANISATION OF THE TEXT
This publication is organised into topics and is presented in two volumes.
Volume 1 includes separate sections dealing with:
• general issues such as business combinations and fair value measurement;
• specific items in the statement of financial position and statement of profit or loss and OCI;
• special topics such as leases; and
• issues relevant to those making the transition to IFRS.
Volume 2 includes separate sections dealing with:
• financial instruments (including different versions of the new standard);
• insurance contracts; and
• fair value measurement (the guidance included in Volume 1 is reproduced in Volume 2).
Both volumes include the following Appendices.
• Appendix I: List of standards and interpretations that comprise the currently effective
requirements and the forthcoming requirements.
• Appendix II: Table of concordance showing how the guidance that was included in the 13th
edition has moved.
• Appendix III: List of examples.
Paragraphs dealing with separate financial statements are indicated by an in the outer margin.
STANDARDS AND INTERPRETATIONS
This 14th edition of Insights into IFRS reflects IFRS in issue at 1 August 2017. The guidance differentiates between
currently effective requirements, forthcoming requirements and possible future developments .
Currently effective requirements

The main text is based on those standards that are required to be applied by an entity with an annual reporting period
beginning on 1 January 2017 - i.e. an entity with an annual reporting date of 31 December 2017. These requirements are
referred to as the currently effective requirements .
This publication does not consider the requirements of IAS 26 Accounting and Reporting by Retirement Benefit Plans . In
addition, this publication does not address the requirements included in the IFRS for Small and Medium-sized Entities
Page 5 / 37
(IFRS for SMEs), which was published in July 2009, other than in a brief overview of the IFRS for SMEs in chapter 1.1.
Forthcoming requirements
A currently effective requirement may be subject to change by a new requirement that has been issued at 1 August 2017,
but is not yet effective for an annual reporting period ending on 31 December 2017. These new requirements are referred to
as forthcoming requirements .
This edition contains detailed guidance on the new financial instruments standard - IFRS 9 Financial Instruments . Section
7A focuses on the full 2014 version of the standard, while section 7B focuses on the classification and measurement
requirements of the 2009 version. An introduction to these sections explains how to locate guidance for different versions
of IFRS 9.
In addition, the following chapters relate entirely to forthcoming requirements.
4.2A IFRS 15 Revenue from Contracts with Customers
5.1A IFRS 16 Leases
8.1A IFRS 17 Insurance Contracts
Future developments
For some topics, we anticipate changes to IFRS in issue at 1 August 2017 - typically as a result of an IASB project.
These changes are referred to as future developments .
REFERENCES
Currently effective Our discussion of the current requirements of IFRS and our related interpretations are
requirements referenced to the 2017 IFRS Consolidated volumes without early application ('Blue Book').
References in square brackets after the text identify the relevant paragraphs of the
standards or other literature - e.g. IFRS 1.7 is paragraph 7 of IFRS 1; IAS 18.IE3 is paragraph 3
of the IAS 18 illustrative examples; and IFRS 13.EM.02-13.13 is paragraph 13 of the
educational material on fair value measurement (IFRS 13) issued in February 2013.
Forthcoming requirements The forthcoming requirements are referenced to the 2017 IFRS Consolidated volumes with
full early application ('Red Book'), except for IFRS 17 Insurance Contracts and IFRIC 23
Uncertainty over Income Tax Treatments that were issued after the Red Book 2017 was
published.
IFRS Interpretations References to IFRS Interpretations Committee decisions and IASB tentative decisions,
Committee decisions and addressed in their publications IFRIC Update and IASB Update , respectively, are also
IASB tentative decisions referenced - e.g. IU 03-11 is IFRIC Update March 2011; and IASBU 05-09 is IASB Update
May 2009.
E-BOOK EDITION
Insights into IFRS is also now available as an e-book on ProViewTM. It makes your most complex searches efficient, lets
Page 6 / 37
you make notes, highlight text, bookmark text, share content (via email or PDF) and review your browsing history. But
perhaps best of all is that your annotations will be automatically transferred to subsequent editions of Insights .
For more information on accessing your personal e-book, speak to your usual KPMG contact.
KEEPING IN TOUCH
For the latest on IFRS, visit kpmg.com/ifrs. To join the conversation, follow KPMG IFRS on LinkedIn.
Whether you are new to IFRS or a current user, you can find digestible summaries of recent developments, detailed
guidance on complex requirements, and practical tools such as illustrative disclosures and checklists.
IFRS news The latest need-to-know information on IFRS
IFRS toolkit Insights into IFRS
Guides to financial statements
• Illustrative IFRS disclosures
• Disclosure checklist
Newly effective standards
Fair value measurement: Questions and Answers
Major new standards Financial instruments
Revenue from contracts with customers
Leases
Insurance contracts
Amendments to existing Business combinations and consolidation

standards
Presentation and disclosure
Sectors IFRS for banks
Insurance contracts
New standards: Are you good to go?
• Aerospace and defence
• Airlines
• Banks
• Construction
• Food, drink and consumer goods
Page 7 / 37
• Insurers
• Investment management
• Media
• Pharma
• Real estate
• Retail
• Technology
For access to an extensive range of accounting, auditing and financial reporting guidance and literature, visit KPMG's
Accounting Research Online. This web-based subscription service can be a valuable tool for anyone who wants to stay
informed in today's dynamic environment. For a free 30-day trial, go to aro.kpmg.com and register today.
Abbreviations
The following abbreviations are used often within this publication.
CDO Collateralised debt obligation
CDS Credit default swap
CEO Chief Executive Officer
CGU Cash-generating unit
CODM Chief operating decision maker
COO Chief Operating Officer
CPI Consumer price index
DPF Discretionary participation feature
E&E Exploration and evaluation
EBIT Earnings before interest and taxes
EBITDA Earnings before interest, taxes, depreciation and amortisation
EPS Earnings per share
ESPP Employee share purchase plan
EU European Union
FASB US Financial Accounting Standards Board
FIFO First-in, first-out
Page 8 / 37
GAAP Generally accepted accounting principles/practices
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO Initial public offering
IT Information technology
LIBOR London interbank offered rate
LIFO Last-in, first-out
NCI Non-controlling interests
Newco New entity
NRV Net realisable value
OCI Other comprehensive income
R&D Research and development
REACH Regulation for the Registration, Evaluation and Authorisation of CHemicals in the European Union
SIC Standing Interpretations Committee
SPPI Solely payments of principal and interest
WACC Weighted-average cost of capital
Acknowledgements
This publication was made possible by the invaluable input of many people working in KPMG member firms worldwide.
The overview of the requirements of IFRS and the interpretative positions described reflect the work of both current and
former members of the KPMG International Standards Group, for which the authors and editors are grateful.
Current members of the International Standards Group and a panel of reviewers from KPMG member firms around the
world generously contributed their time for exhaustive and challenging reviews of this edition. A list of contributors to this
edition who we would like to thank is included below.
KPMG MEMBER FIRMS' CONTRIBUTORS
Principal editors
Suzanne Arnold United Kingdom
Stacy Brown United Kingdom
Irina Ipatova United Kingdom
Authors and principal contributors
Page 9 / 37
Angie Ah Kun South Africa
Kimber Bascom United States
Rodrigo Bauce Brazil
Ewa Bialkowska United Kingdom
Jim Calvert Ireland
Peter Carlson Australia
Matthew Cook United Kingdom
Robert de Boer The Netherlands
Bryce Ehrhardt United States
Alan Goad United States
Audrey Hamm Switzerland
Hakob Harutyunyan Armenia
Kim Heng Australia
Martijn Huiskers The Netherlands
Ramon Jubels Brazil
Prabhakar Kalavacherla United States
Gabriela Kegalj Canada
Hagit Keren United Kingdom
Joachim Kölschbach Germany
Kiary Kwong Hong Kong
Shandhir Lachman United Kingdom
Wolfgang Laubach Germany
Jee Won Lee Korea (Republic of)
Sylvie Leger Canada
David Littleford United Kingdom
Colin Martin United Kingdom
Hirotaka Matsuo Japan
Mike Metcalf United Kingdom
Desislava Miteva United Kingdom
Mark Northan United States
Page 10 / 37
Brian O'Donovan United Kingdom
Frank Richter Germany
Andrea Schriber United Kingdom
Anne Schurbohm Germany
Agnieszka Sekita United Kingdom
Chris Spall United Kingdom
Sanel Tomlinson Hong Kong
Anisa Vallee South Africa
Fred Versteeg The Netherlands
Ido Vexelbaum United Kingdom
Avi Victor Romania
Nicolas Vigneron France
Anthony Voigt United Kingdom
Guy Zmora Israel
PANEL OF REVIEWERS
IFRS Panel
Archana Bhutani India
Reinhard Dotzlaw Canada
Ramon Jubels Brazil
Prabhakar Kalavacherla United States
Dick Korf The Netherlands
Michael Sten Larsen Denmark
Andrew Marshall United Kingdom
Reyaz Mihular Sri Lanka
Catherine Morley Hong Kong
Emmanuel Paret France
Tara Smith South Africa
Hirotaka Tanaka Japan
Mark Vaessen (Global IFRS Leader) United Kingdom
Page 11 / 37
Business Combinations and Consolidation Topic Team

Mahesh Balasubramanian Bahrain
Hanne Böckem Germany
Peter Carlson (Deputy leader) United Kingdom
Heather de Jongh South Africa
Ralph Menschel Mexico
Mike Metcalf (Leader) United Kingdom
Paul Munter United States
Claus Nielsen Russia
Andrea Schriber United Kingdom
Marilyn Stitt Canada
Hirotaka Tanaka Japan
Jim Tang Hong Kong
Michael Voogt Australia
Employee Benefits Topic Team

Kees Bergwerff The Netherlands
Zola Beseti South Africa
Rodrigo Corominas Mexico
Regina Croucher United States
Barbara Griessner United Kingdom
Kim Heng (Leader) Australia
Sarah Inglis Australia
Gale Kelly Canada
Michael Sten Larsen Denmark
Takanobu Miwa Japan
Balasubramanian Sundaresan India
Anthony Voigt United Kingdom
Financial Instruments Topic Team

Aram Asatryan Russia
Page 12 / 37
Ewa Bialkowska United Kingdom
Jean-François Dandé France
Derrick Day China
Simon Fishley Brazil
Erik Hoogcarspel The Netherlands
Gale Kelly Canada
Colin Martin (Deputy leader) United Kingdom
Mark Northan (Deputy leader) United States
Toshihiro Ozawa Japan
Tara Smith South Africa
Chris Spall (Leader) United Kingdom
Patricia Stebbens Australia
Venkataramanan Vishwanath India
Danny Vitan Israel
Andreas Wolsiffer Germany
Income Taxes Topic Team

Syed Anjum Pakistan
Yen San Chan Singapore
Kayreen Handley United States
Yuki Hayashi Japan
Tomasz Książek Poland
Benoit Lebrun France
Jesus Luna Mexico
Agnes Lutukai Nigeria
Cheryl Robinson Canada
Anne Schurbohm Germany
Sanel Tomlinson (Leader) Hong Kong
Fred Versteeg (Deputy leader) The Netherlands
Insurance Contracts Topic Team

Jennifer Austin United States
Page 13 / 37
Erik Bleekrode The Netherlands
Dana Chaput Canada
Danny Clark United Kingdom
Paolo Colciago Italy
Gerdus Dixon South Africa
Frank Dubois Singapore
Bhavesh Gandhi Kuwait
Alan Goad (Deputy leader) United States
Scott Guse Australia
Joachim Kölschbach (Leader) Germany
Viviane Leflaive France
Csilla Leposa Hungary
Luciene Magalhaes Brazil
Chris Spall United Kingdom
Mary Trussell (Deputy leader) Germany
Leases Topic Team

Kimber Bascom (Leader) United States
Zola Beseti South Africa
Archana Bhutani India
Judit Boros Hungary
Úna Curtis Ireland
Karine Dupré France
Ramon Jubels (Deputy leader) Brazil
Sylvie Leger Canada
Andrew Marshall United Kingdom
Brian O'Donovan (Deputy leader) United Kingdom
Yen San Chan Singapore
Julie Santoro United States
Patricia Stebbens Australia
Page 14 / 37
Mag Stewart Canada
Beth Zhang China
Presentation Topic Team

Jan Aastveit Norway
Matthew Cook United Kingdom
Holger Erchinger United States
Yoshiaki Hasegawa Japan
Se Bong Hur Korea (Republic of)
Gabriela Kegalj (Deputy leader) Canada
Wietse Koster The Netherlands
David Littleford (Leader) United Kingdom
Esther Pieterse South Africa
Luis Preciado Mexico
Ruchi Rastogi India
Edith Schwager France
Agnieszka Sekita United Kingdom
Revenue Recognition and Provisions Topic Team

Brian Allen United States
Eric Damotte Spain
Lise du Randt South Africa
Laura Galbiati Switzerland
Kim Heng Australia
Ramon Jubels Brazil
Prabhakar Kalavacherla (Leader) United States
Reinhard Klemmer Singapore
David Littleford United Kingdom
Vijay Mathur India
Allison McManus Canada
Brian O'Donovan (Deputy leader) United Kingdom
Anne Schurbohm (Deputy leader) Germany
Page 15 / 37
Sachiko Tsujino Japan
Valuations and Impairment Topic Team

Kellie Adkins United States
Jim Calvert (Deputy leader) Ireland
Marc Castedello Germany
Robert de Virion Poland
Raphael Jacquemard France
Martin Friedhoff Hong Kong
Joe Funiciello Canada
Reinhard Klemmer Singapore
Wolfgang Laubach (Leader) Germany
Sylvie Leger (Deputy leader) Canada
Graham McLeish South Africa
Mahesh Narayanasami United States
Tomoo Nishigori Japan
Nirav Patel India
Jean-Florent Rerolle France
Kuldip Singh Panama
Orazio Vagnozzi Italy
Thanks to Jillian Eckard and Emily Zhou from Babson College (United States) for their assistance.
Page 16 / 37
1. Background
1.1 Introduction

Page 17 / 37
1.1 Introduction
1.1.10 International Financial Reporting Standards Foundation
1.1.20 Monitoring Board
1.1.30 International Accounting Standards Board
1.1.40 Formation
1.1.50 Composition
1.1.60 IFRS Interpretations Committee
1.1.70 IFRS Advisory C ouncil
1.1.80 Other advisory groups
1.1.90 International Financial Reporting Standards
1.1.100 Definition
1.1.110 New standards and amendments
1.1.120 Implementation and maintenance
1.1.130 Interpretations
1.1.140 Annual improvements process
1.1.150 Rejection notices
1.1.160 Post-implementation review
1.1.170 Compliance with IFRS
1.1.180 General
1.1.190 Fair presentation
1.1.200 Private entities
1.1.210 IFRS for small and medium-sized entities
CURRENTLY EFFECTIVE REQUIREMENTS
This publication reflects IFRS in issue at 1 August 2017, and the currently effective requirements cover annual periods
beginning on 1 January 2017.
The requirements related to this topic are derived from the following.
Page 18 / 37
STANDARD/REFERENCE TITLE
Constitution IFRS Foundation Constitution
Due Process Handbook IASB and IFRS Interpretations Committee Due Process Handbook
Preface Preface to International Financial Reporting Standards
IAS 1 Presentation of Financial Statements
FORTHCOMING REQUIREMENTS AND FUTURE DEVELOPMENTS
For this topic, there are no forthcoming requirements or future developments.
1.1.10 INTERNATIONAL FINANCIAL REPORTING STANDARDS FOUNDATION
1.1.10.10 The objectives of the International Financial Reporting Standards Foundation (IFRS Foundation), as stated in its
constitution, are to:
• develop, in the public interest, a single set of high-quality, understandable, enforceable and
globally accepted financial reporting standards based on clearly articulated principles.
These standards require high quality, transparent and comparable information in financial
statements and other financial reporting to help investors, other participants in the world's
capital markets and other users of financial information to make economic decisions;
• promote the use and rigorous application of those standards;
• consider the needs of a range of sizes and types of entities operating in diverse economic
settings; and
• promote and facilitate the adoption of IFRS by convergence of national accounting standards
with IFRS. [Constitution 2]
Page 19 / 37
1.1.10.20 The Trustees of the IFRS Foundation (Trustees) are responsible for the governance of the IFRS Foundation. The
Trustees are required to act in the public interest in all matters. The 22 Trustees comprise:
• six Trustees appointed from the Asia/Oceania region;
• six Trustees appointed from Europe;
• six Trustees appointed from the Americas;
• one Trustee appointed from Africa; and
• three Trustees appointed from any area, subject to maintaining the overall geographic
balance. [Constitution 3-4, 6]
1.1.10.30 The responsibilities of the Trustees, among others, include:
• appointing the members of the IASB (see 1.1.30), the IFRS Interpretations Committee (see
1.1.60) and the IFRS Advisory Council (see 1.1.70);
• funding the IFRS Foundation and the IASB;
• approving the budget of the IFRS Foundation;
• reviewing compliance with the operating procedures, consultative arrangements and due
process;
• approving amendments to the IFRS Foundation Constitution after a due process, including
consultation with the IFRS Advisory Council and publication of an exposure draft for public
comment; and
• fostering and reviewing the development of educational programmes and materials that are
consistent with the IFRS Foundation's objectives. [Constitution 15]
1.1.10.40 The Trustees' Due Process Oversight Committee (DPOC) is responsible for overseeing the due process
procedures of the IASB and the IFRS Interpretations Committee. The DPOC meets regularly with the IASB, the IFRS
Interpretations Committee and the IFRS Foundation staff. [Due Process Handbook 2.2, 2.9]
Page 20 / 37
1.1.20 MONITORING BOARD
1.1.20.10 The Monitoring Board, comprising capital market authorities with responsibility for setting reporting requirements
for listed entities, is a formal link between the Trustees and public authorities. The objective of the Monitoring Board is to
enhance the public accountability of the IFRS Foundation, while at the same time maintaining the operational
independence of the IFRS Foundation and the IASB. [Constitution 18]
1.1.20.20 The Monitoring Board is responsible for overseeing the Trustees' fulfilment of their constitutional duties. Specific
responsibilities of the Monitoring Board include:
• participating in the nomination process for Trustees of the IFRS Foundation and approving
the appointment of Trustees; and
• meeting with the Trustees, or a subgroup of the Trustees, at least once annually. [Constitution
19]
1.1.20.30 The membership of the Monitoring Board is institutional and comprises representatives of the:
• European Commission;
• Growth and Emerging Markets Committee of the International Organization of Securities

Commissions (IOSCO);
• Board of the IOSCO;
• Japanese Financial Services Agency;
• US Securities and Exchange Commission;
• Brazilian Securities and Exchange Commission;
• Korean Financial Services Commission;
• Ministry of Finance of the People's Republic of China; and
• as an observer, the Basel Committee on Banking Supervision. [Constitution 21]
1.1.20.40 The Monitoring Board reconsiders its composition from time to time relative to its objectives. From 2013,
membership of the Monitoring Board requires the domestic use of IFRS in the relevant jurisdiction and a financial
contribution by the jurisdiction to the setting of IFRS. At the same time, membership was expanded to include a
maximum of four additional permanent members chosen from major emerging markets. Also, two rotating seats for
members from all other markets will be created and filled following a selection process to be initiated by the Monitoring
Board in consultation with IOSCO. [Constitution 22]
1.1.30 INTERNATIONAL ACCOUNTING STANDARDS BOARD
Page 21 / 37
1.1.40 Formation
1.1.40.10 The IASB started operations in April 2001 as the successor to the International Accounting Standards
Committee (IASC). The IASB is the standard-setting body of the IFRS Foundation.
1.1.50 Composition
1.1.50.10 The IASB normally has 14 members comprising professionals from a range of functional backgrounds, up to
three of whom can be part-time. The geographic composition guidelines for IASB membership are:
• four members from Europe;
• four members from the Americas;
• four members from the Asia/Oceania region;
• one member from Africa; and
• one member from any area, subject to maintaining the overall geographic balance.
[Constitution 24, 26]
1.1.50.20 Members who were appointed before 2 July 2009 were appointed for a term of five years, which is renewable
once for an additional five years. Members who were appointed after 2 July 2009 were appointed for a term of five years,
which may be renewable for an additional three years, with the possibility of renewal up to a maximum of five years, in line
with procedures developed by the Trustees for such renewals. The terms may not exceed 10 years in total length of
service as a member of the Board. [Constitution 30]
1.1.60 IFRS INTERPRETATIONS COMMITTEE
1.1.60.10 The IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee or
IFRIC), was reconstituted in December 2001 as the successor to the Standing Interpretations Committee (SIC) and
comprises 14 voting members, appointed for a renewable period of three years. The Committee comprises a group of
people representing a combination of technical expertise and diversity of international business and market experience in
the practical application of IFRS. [Constitution 38-42]
1.1.60.20 The Committee interprets the application of IFRS and provides guidance on financial reporting issues not
specifically addressed in IFRS. It also undertakes other tasks at the request of the IASB (see 1.1.120-150). [Constitution 42]
1.1.70 IFRS ADVISORY COUNCIL
1.1.70.10 The IFRS Advisory Council (formerly the Standards Advisory Council) advises the IASB on agenda priorities and
current projects. The Council has 30 or more members, with a diversity of geographic and professional backgrounds,
appointed for a renewable term of three years. It meets at least twice a year. [Constitution 43-45]
Page 22 / 37
1.1.80 OTHER ADVISORY GROUPS
1.1.80.10 The IASB has a number of other advisory groups that it works with in order to obtain input from parties
representing a wide range of backgrounds and geographic regions.
1.1.80.20 These formal advisory groups are:
• Transition Resource Group for Revenue Recognition (see chapter 4.2A);
• IFRS Transition Resource Group for Impairment of Financial Instruments (see section 7A);
• Capital Markets Advisory Committee (users of financial statements);
• Financial Crisis Advisory Group (dormant);
• Global Preparers Forum;
• Emerging Economies Group;
• SME Implementation Group;
• Accounting Standards Advisory Forum (national accounting standard setters and regional
bodies associated with accounting standard setting); and
• working groups for major agenda projects, currently comprising:
- Consultative Group for Rate Regulation;
- Effects Analysis Consultative Group;
- Financial Instruments Working Group;
- Leases Accounting Working Group;
- Insurance Working Group;
- Valuation Expert Group;
- Shariah-Compliant Instruments and Transactions; and
- IFRS Taxonomy Consultative Group.
1.1.90 INTERNATIONAL FINANCIAL REPORTING STANDARDS
1.1.100 Definition
1.1.100.10 'International Financial Reporting Standards' (IFRS) is the term used to indicate the whole body of IASB
Page 23 / 37
authoritative literature, and includes:
• IFRS issued by the IASB;
• International Accounting Standards (IAS) issued by the IASC, or revisions thereof issued by
the IASB;
• Interpretations of IFRS and IAS developed by the IFRS Interpretations Committee and
approved for issue by the IASB; and
• Interpretations of IAS developed by the SIC and approved for issue by the IASB or IASC.
[IAS 1.7, Preface 5]
1.1.100.20 IFRS is designed for use by profit-oriented entities. The International Public Sector Accounting Standards
issued by the International Public Sector Accounting Standards Board are developed for use by public sector entities.
Notwithstanding this, entities engaged in not-for-profit activities may find IFRS useful, and may follow it if doing so is
considered appropriate. [Preface 9]
1.1.100.30 IFRS is not limited to a particular legal framework. Therefore, financial statements prepared under IFRS often
contain supplementary information required by local statute or listing requirements.
1.1.100.40 IFRS comprises a series of bold-type and plain-type paragraphs. Generally, the bold-type paragraphs outline
the main principle and the plain-type paragraphs provide further explanation. Bold and plain-type paragraphs have equal
authority. [Preface 13]
1.1.100.50 Many IFRSs contain appendices. A statement at the top of each appendix clarifies its status. If an appendix is
illustrative only and not an integral part of the standard, then it does not have the same status as the standard itself.
However, in our view the guidance in an appendix should generally be followed unless it conflicts with the requirements of
an IFRS, or when such guidance merely represents an illustrative example and it is clear that a standard or requirement
can be complied with in different ways. For example, Appendix A of IAS 7 presents interest paid as part of operating
activities, whereas the standard itself states that interest paid may be classified as part of either operating or financing
activities (see 2.3.50.20).
1.1.110 New standards and amendments
1.1.110.10 An IASB project usually goes through two phases described in the diagram below:
• research; and
• standard development.
Page 24 / 37
1.1.110.20 The research focuses on defining more clearly the problems that a new project is seeking to resolve and on
understanding the root causes for any issues identified. The results of the research phase are published in a discussion
paper, which is open for public comment for at least 120 days. During the research phase, the IASB can also issue
research papers prepared by the IASB staff or other standard setters, and requests for information to seek views from
constituents. [Due Process Handbook 4.6-4.19, 5.5]
1.1.110.30 The decision to take a project to the standard-development phase is made only after considering the results of
the research phase. Therefore, not every research project will lead to a standard-level project. To make this decision, the
IASB considers the following criteria:
• whether there is a deficiency that needs to be resolved;
• the importance of the issue to users;
• entities to be affected; and
• how pervasive the issue is for entities. [Due Process Handbook 5.1-5.4]
1.1.110.40 Minor or narrow-scope amendments to standards do not require a research phase before being added to the
standard-development agenda. [Due Process Handbook 5.8]
1.1.110.50 Once a project has reached the standard-development phase, the IASB issues for public comment an
exposure draft, which sets out a specific proposal in the form of a proposed IFRS (or amendment to an IFRS). The IASB
normally allows a minimum period of 120 days for comment on an exposure draft, although a shorter period of no less than
30 days may be set for some narrow and urgent matters with approval of the Trustees' Due Process Oversight Committee.
[Due Process Handbook 6.1-6.7]
1.1.110.60 The IASB analyses responses, including input from outreach and/or roundtables, and redeliberates its
proposals. Final standards (amendments) are accompanied by a project summary and a feedback statement. Issuing an
exposure draft or final standard (amendment) requires a positive vote by 9 out of 14 IASB members. [Due Process Handbook
3.14-3.15, 6.19-6.23, 6.38]
1.1.110.70 The IASB consults with the Trustees and the IFRS Advisory Council in developing and pursuing its technical
agenda. In addition, the IASB carries out a public consultation every five years from the date of the most recent agenda
consultation. The most recent public agenda consultation was launched in August 2015 and the feedback statement was
published in November 2016. [Constitution 36(d)]
1.1.120 Implementation and maintenance
Page 25 / 37
1.1.120.10 The IASB and the IFRS Interpretations Committee are responsible for the maintenance of IFRS. If an issue
arises in relation to the application of IFRS - e.g. diverging interpretations or practices - then a party with an interest in
financial reporting generally refers this issue to the Committee.
1.1.120.20 The Committee addresses issues:
• that are widespread and have a material effect on those affected;
• that indicate divergence in practice;
• that can be resolved efficiently within the confines of existing IFRS and the Conceptual
Framework for Financial Reporting (Conceptual Framework); and
• that are sufficiently narrow in scope that they can be addressed in an efficient manner, but
not so narrow that it is not cost effective. [Due Process Handbook 5.14, 5.16-5.17]
1.1.120.30 To address an issue referred to it, the Committee may issue an interpretation or propose to the IASB amending
a standard. If the Committee decides not add the issue to its work programme, then it publishes a rejection notice (see
1.1.150). [Due Process Handbook 5.19, 5.22]
1.1.130 Interpretations
1.1.130.10 The development of a draft interpretation takes place in public meetings. A draft interpretation is issued if no
more than four IFRS Interpretations Committee members and no more than three IASB members object. Draft
interpretations are usually exposed for public comment for no less than 90 days. The matter is then redeliberated by the
Committee. A final interpretation is issued if no more than four Committee members object and the IASB approves it,
subject to the normal IASB voting requirements for an IFRS. The Committee addresses effective dates and transitional
requirements of interpretations on an interpretation-by-interpretation basis. [Due Process Handbook 7]
1.1.140 Annual improvements process
1.1.140.10 Some proposed amendments to standards or interpretations that are sufficiently minor or narrow in scope can
be packaged together and exposed in one document even though the amendments are unrelated. Such amendments are
called 'annual improvements'. [Due Process Handbook 6.10]
1.1.140.20 The IASB involves the IFRS Interpretations Committee in the process for exposing annual improvements. [Due
Process Handbook 5.19]
1.1.140.30 Amendments made in the annual improvements process typically clarify IFRS or correct a relatively minor
unintended consequence - e.g. a conflict in existing standards. Annual improvements are not intended to introduce new
principles or make changes to existing ones. [Due Process Handbook 6.11-6.14]
1.1.140.40 An exposure draft of proposed improvements is usually published by the IASB for comment in the second half
of each year, with a minimum comment period of 90 days. The Board addresses effective dates, early application and
Page 26 / 37
transitional requirements on an amendment-by-amendment basis. [Due Process Handbook 6.15]
1.1.150 Rejection notices
1.1.150.10 If the IFRS Interpretations Committee decides not to add an item to its agenda, then it publishes a tentative
rejection notice with a comment period of normally no less than 60 days. Rejection notices are non-authoritative but are
generally seen as additional guidance. The IASB does not ratify rejection notices. [Due Process Handbook 5.22]
1.1.160 Post-implementation review
1.1.160.10 The IASB is required to conduct a post-implementation review of each new standard or major amendment. A
post-implementation review normally takes place after a new standard or major amendment has been applied
internationally for two years. The IASB may also decide to conduct a post-implementation review in response to changes
in the financial reporting environment and regulatory requirements, or in response to concerns about the quality of an IFRS
that have been expressed by the IFRS Advisory Council, the IFRS Interpretations Committee, standard setters or
interested parties. [Due Process Handbook 6.52-6.53]
1.1.160.20 Each review is performed in two phases. The first phase involves an initial identification and assessment of the
matters to be examined, and includes a public consultation in the form of a request for information. In the second phase,
the IASB considers information gathered through consultation activities, including comments in response to the request for
information. Based on the results of the review, the IASB presents its findings and sets out the steps it plans to take. [Due
Process Handbook 6.54]
1.1.170 COMPLIANCE WITH IFRS
1.1.180 General
1.1.180.10 Any entity claiming that a set of financial statements is in compliance with IFRS complies with all such
standards and related interpretations. An entity is not allowed to claim that its financial statements are, for example,
'materially' in compliance with IFRS, or that it has complied with 'substantially all' requirements of IFRS. Compliance with
IFRS encompasses disclosure as well as recognition and measurement requirements. [IAS 1.16]
1.1.180.20 The IASB does not carry out any inquiry or enforcement role regarding the application of its standards. This is
often undertaken by local regulators and/or stock exchanges.
1.1.190 Fair presentation
1.1.190.10 The overriding requirement of IFRS is for the financial statements to give a fair presentation (often referred to as
a 'true and fair view'). [IAS 1.15]
Page 27 / 37
1.1.190.20 'Fair presentation' is 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 as set out in the
Conceptual Framework (see chapter 1.2). Compliance with IFRS, including additional disclosure when necessary, is
presumed to result in a fair presentation. [IAS 1.15]
1.1.190.30 If compliance with a requirement of an IFRS would be so misleading that it would conflict with the objective of
financial reporting set out in the Conceptual Framework (see 1.2.15.10), then an entity departs from the required treatment
to give a fair presentation, unless the relevant regulator prohibits such an override. If an override cannot be used because it
is prohibited by the regulator, then additional disclosure is required in the notes to the financial statements to reduce the
perceived misleading impact of compliance to the maximum extent possible. [IAS 1.19-24]
1.1.190.40 The use of a true and fair override is very rare under IFRS. In the extremely rare case of an override, extensive
disclosures are required, including the particulars of the departure, the reasons for the departure and its effect. [IAS 1.19-21]

1.1.200 PRIVATE ENTITIES
1.1.200.10 An entity that claims compliance with IFRS applies all IFRSs (see 1.1.90, 170). However, as an alternative, a
private entity without public accountability (see 1.1.210.30) may consider applying the IFRS for Small and Medium-sized
Entities (the IFRS for SMEs).
1.1.210 IFRS FOR SMALL AND MEDIUM-SIZED ENTITIES
1.1.210.10 In July 2009, the IASB published the IFRS for SMEs. The standard is intended to facilitate financial reporting
by private entities that want to use international standards. In 2015, the IASB published amendments to the IFRS for
SMEs, which is effective for annual periods beginning on or after 1 January 2017. The amendments align the IFRS for
SMEs with IFRS developments since the standard was issued in 2009, but without adding complexity.
1.1.210.20 The IFRS for SMEs is a stand-alone document organised by topic. It does not follow the numbering of full
IFRS; it also does not contain cross-references to full IFRS, except for IAS 39. The IFRS for SMEs contains reduced
guidance as compared with full IFRS; therefore, even when the general principles in the IFRS for SMEs appear to be the
same as full IFRS, differences in application may result. Financial statements prepared under the IFRS for SMEs cannot
claim compliance with IFRS.
1.1.210.30 The IFRS for SMEs is applicable for entities that publish general purpose financial statements for external
users and that do not have public accountability. An entity has public accountability if it files (or is in the process of filing)
financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of
instruments in a public market, or if it holds assets in a fiduciary capacity for a broad group of outsiders - e.g. a bank or
insurance company. There are no quantitative thresholds to qualify as an SME.
Page 28 / 37
1.2.10 Introduction
1.2.15 Objective of general purpose financial reporting
1.2.17 Qualitative characteristics of useful financial information
1.2.18 Materiality
1.2.20 The elements of financial statements
1.2.30 Definitions
1.2.40 Recognition criteria
1.2.50 Matching
1.2.55 Measurement basis
1.2.60 Executory contracts
1.2.70 Going concern
1.2.75 Disclosure related to going concern
1.2.80 Transactions with shareholders
1.2.90 Future developments
CURRENTLY EFFECTIVE REQUIREMENTS
This publication reflects IFRS in issue at 1 August 2017, and the currently effective requirements cover annual periods
beginning on 1 January 2017.
The requirements related to this topic are derived from the following.
STANDARD TITLE
CF Conceptual Framework for Financial Reporting
FORTHCOMING REQUIREMENTS
For this topic, there are no forthcoming requirements.
FUTURE DEVELOPMENTS
This topic is subject to future developments that may affect several aspects of the Conceptual Framework for Financial
Reporting . See 1.2.90.
Page 29 / 37
1.2.10 INTRODUCTION
1.2.10.10 The Conceptual Framework provides a broad discussion of the concepts that underlie the preparation and
presentation of financial statements. It discusses the objective of general purpose financial reporting; the qualitative
characteristics of useful financial information; the underlying assumption of financial statements; and, perhaps more
important, it discusses the elements of financial statements, including assets, liabilities, equity, income and expenses,
providing definitions and recognition criteria. The Conceptual Framework also discusses in broad terms the measurement
of assets and liabilities and the concepts of capital and capital maintenance.
1.2.10.20 The IASB and the IFRS Interpretations Committee use the Conceptual Framework when developing new or
revised IFRSs and interpretations or amending existing IFRSs. The Conceptual Framework also provides a point of
reference for preparers of financial statements in the absence of specific guidance in IFRS on a particular subject (see
2.8.20). The purpose of this chapter is to highlight some of the Conceptual Framework's key principles. [CF.Purpose and
status, IAS 8.11]
1.2.15 OBJECTIVE OF GENERAL PURPOSE FINANCIAL REPORTING
1.2.15.10 The objective of general purpose financial reporting is to provide financial information about the reporting entity
that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources
to the entity. [CF.OB2]
1.2.17 QUALITATIVE CHARACTERISTICS OF USEFUL FINANCIAL INFORMATION
1.2.17.10 The purpose of the qualitative characteristics of financial information outlined in the Conceptual Framework is to
identify the types of information that are likely to be most useful to existing and potential investors, lenders and other
creditors for making decisions about the reporting entity on the basis of information in its financial report. [CF.QC1]
1.2.17.20 The qualitative characteristics are categorised as follows.
Page 30 / 37
1.2.17.30 Relevance and faithful representation are fundamental qualitative characteristics that underpin the usefulness of
financial information. The usefulness of financial information is enhanced if it is comparable, verifiable, timely and
understandable. [CF.QC4]
1.2.17.40 Cost is a pervasive constraint on the information that can be provided. Therefore, it is important that costs
incurred in providing information are justified by the benefits of reporting that information. [CF.QC35]
1.2.18 Materiality
1.2.18.10 IFRS does not apply to items that are 'immaterial'. The Conceptual Framework refers to materiality as an entity-
specific aspect of relevance. Information is material if omitting it or misstating it could influence decisions that users make
on the basis of financial information about a specific reporting entity. Materiality depends on the size and nature of the
omission or misstatement judged in the surrounding circumstances. Either the size or the nature of the item, or a
combination of both, could be the determining factor. Consideration of materiality is relevant to judgements regarding both
the selection and application of accounting policies, and to the omission or disclosure of information in the financial
statements. [CF.QC11, BC3.18, IAS 1.7, 31, 8.5, 8]
1.2.18.20 Materiality is a factor when making judgements about disclosure. For example, materiality affects when items
may be aggregated, and the use of additional line items, headings and subtotals (see 3.1.10.30-50). If an IFRS does not
explicitly specify the positioning of a disclosure, then materiality is relevant: an item may be sufficiently material to warrant
disclosure on the face of the financial statements, or may only require disclosure in the notes to the financial statements.
Materiality may mean that a specific disclosure requirement in a standard or an interpretation is not provided if the
information resulting from that disclosure is not material. This is the case even if the IFRS contains a list of specific
requirements or describes them as minimum requirements. In our view, the materiality of a disclosure item should not be
determined solely by the materiality of the related financial statement line item. When making judgements about the
materiality of disclosure, an entity considers the objectives of the disclosure and its relevance to the users together with
the surrounding circumstances, including the consideration of qualitative factors. [IAS 1.30-31, 86]
1.2.18.30 An entity cannot aggregate material items that have different natures or functions and it is not permitted to
obscure material information with immaterial information because this reduces the understandability of its financial
statements. [IAS 1.29, 30A-31]
1.2.18.40 Accounting policies in accordance with IFRS do not need to be applied when their effect is immaterial. [IAS 8.8]
1.2.18.50 Financial statements do not comply with IFRS if they contain either material errors, or immaterial errors that are
Page 31 / 37
made intentionally to achieve a particular presentation of an entity's financial position, financial performance or cash flows.
[IAS 8.8, 41]
1.2.20 THE ELEMENTS OF FINANCIAL STATEMENTS
1.2.30 Definitions
1.2.30.10 In developing new standards and interpretations, the IASB and the IFRS Interpretations Committee rely on the
following definitions of assets and liabilities, which are key elements of the financial statements.
• An 'asset' is a resource controlled by the entity as a result of past events, from which future
economic benefits are expected to flow to the entity.
• 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. [CF4.4]
1.2.30.20 The definitions of equity, income and expenses are derived from the definitions of assets and liabilities.
• 'Equity' is the residual interest in the assets of the entity after deducting all of its liabilities.
• 'Income' is an increase in economic benefits during the period in the form of inflows or
enhancements of assets or decreases in liabilities that result in increases in equity, other
than those related to contributions from equity participants.
• 'Expenses' are decreases in economic benefits during the period in the form of outflows or
depletions of assets or increases in liabilities that result in decreases in equity, other than
those related to distributions to equity participants. [CF4.4, 4.25]
1.2.30.30 The Conceptual Framework's emphasis on assets and liabilities, and the resulting influence that this has had on
standard setting in general, means that any entity analysing how to account for a transaction needs to consider this focus
on the statement of financial position. [CF4.25]
1.2.40 Recognition criteria
1.2.40.10 An item that meets the definition of an element of the financial statements - i.e. an asset, liability, income or
expense - is recognised when:
• it is probable that any future economic benefits associated with the item will flow to or from
the entity; and
• the item has a cost or value that can be measured reliably. [CF4.38]
1.2.40.20 The term 'probable' is not defined in the Conceptual Framework, nor is it generally defined in the standards when
Page 32 / 37
it is used. However, IAS 37 specifies that, for the purposes of that standard, probable means 'more likely than not' (see
3.12.30.10). [IAS 37.23]
1.2.40.30 Contingent assets are not recognised in the statement of financial position because this may result in the
recognition of income that may never be realised (see 3.12.107). Contingent liabilities are not recognised in the statement of
financial position, except for certain items assumed in a business combination (see 2.6.650.30-70). However, their
disclosure may be required (see 3.12.875-876). [IFRS 3.23, IAS 37.27-35]
1.2.50 Matching
1.2.50.10 A typical objective in preparing financial statements is to match revenues and expenses. Matching historically
has had a significant influence on the preparation of financial statements; however, it has been de-emphasised in recent
standard setting because the predominance of the balance sheet approach has grown. Accordingly, expenses (revenues)
may be deferred in the statement of financial position only if they meet the definition of an asset (liability). [CF4.50]
EXAMPLE 1 - ASSET VS EXPENSE RECOGNITION
1.2.50.20 A football club may spend five months of the year incurring maintenance expenditure to
prepare the grounds for the oncoming season. If the expenditure could be deferred and recognised at
the same time as the revenue from ticket sales, then the club might avoid showing a loss during those
five months and significant profits later. However, notwithstanding the uneven impact on profit or loss,
the maintenance expenditure is expensed as it is incurred because it does not meet the definition of an
asset.
1.2.55 Measurement basis
1.2.55.10 The Conceptual Framework requires the selection of a basis of measurement for the elements of the financial
statements. IFRS requires financial statements to be prepared on a modified historical cost basis (historical cost
combined with other measurement bases), with a growing emphasis on fair value (see chapter 2.4). [CF4.54-56]
1.2.55.20 The following are examples of assets and liabilities whose carrying amounts are determined with reference to
cost-based measurements subsequent to initial recognition (ignoring adjustments for impairment).
• Property, plant and equipment and intangible assets that are not revalued (see chapters 3.2
and 3.3).
• Investment property that is not measured at fair value (see chapter 3.4).
• Loans and receivables, held-to-maturity investments and financial liabilities other than those
measured at fair value (see 7.6.120).
1.2.55.30 The carrying amounts of the following assets and liabilities are based on fair value measurements subsequent to
Page 33 / 37
initial recognition.
• All derivatives, all financial assets and financial liabilities held for trading or designated as at
fair value through profit or loss, and all financial assets that are classified as available-for-
sale are measured at fair value (see 7.6.120).
• Biological assets are measured at fair value less costs to sell (see 3.9.30).
• Whole classes of property, plant and equipment may be revalued to fair value subject to
certain conditions (see 3.2.300).
• Certain intangible assets may be revalued to fair value (see 3.3.280).
• Investment property may be measured at fair value (see 3.4.140).
1.2.55.40 In addition, the following value-based measurements are an integral part of financial reporting under IFRS.
• Recoverable amount, which is used in impairment testing for many assets (see 3.10.180), is
the higher of an asset's value in use (estimated net future cash flows) and its fair value less
costs of disposal.
• Net realisable value, which is used as a ceiling test to avoid over-valuing inventory, is the
estimated selling price less costs of completion and disposal (see 3.8.330).
• Discounting is inherent in many IFRSs, although the discount rate used varies. For
example, defined benefit plans for employees are discounted using a high-quality corporate
bond rate or government bond rate (see 4.4.510), whereas deferred payments related to the
sale of goods may be discounted using either a market interest rate or a rate of interest that
discounts the nominal amount payable to the current cash selling price (see 4.2.20).
1.2.60 Executory contracts
1.2.60.10 Although the Conceptual Framework does not refer explicitly to executory contracts, they are an integral part of
accounting under IFRS. IAS 37 describes an 'executory contract' as one in which neither party has performed any of its
obligations or both parties have partially performed their obligations to an equal extent. [IAS 37.3]
EXAMPLE 2 - EXECUTORY CONTRACT
1.2.60.15 Company C enters into a contract to buy equipment in six months and agrees to pay 100 at
that time. Initially this is an executory contract because the seller has the obligation to deliver the
equipment and the buyer has the right to receive the equipment, but also has an obligation to pay 100,
and neither party has performed its obligations. [IAS 37.3]
1.2.60.20 Even though the rights and obligations under executory contracts are outside the scope of IAS 39 and they
generally meet the definition and recognition criteria of assets and liabilities, current practice generally is not to recognise
Page 34 / 37
them in the financial statements to the extent that the rights and obligations have equal value, or the rights have a value
greater than that of the obligations. If the unavoidable costs of meeting the obligations exceed the expected economic
benefits, then a provision for an onerous contract is recognised in accordance with IAS 37 (see 3.12.630). For a discussion
of executory contracts in the scope of IAS 39, see 7.1.150. [IAS 37.10, 66-68]
1.2.70 GOING CONCERN
1.2.70.10 Financial statements are prepared on a going concern basis, unless management intends or has no realistic
alternative other than to liquidate the entity or to stop trading. If the going concern assumption is not appropriate, then
IFRS is applied in a manner appropriate to the circumstances. [CF4.1, IAS 1.25]
1.2.70.20 In assessing whether the going concern assumption is appropriate, management assesses all available
information about the future for at least, but not limited to, 12 months from the reporting date. In our view, there is no
general dispensation from the measurement, recognition and disclosure requirements of IFRS even if an entity is not
expected to continue as a going concern. We believe that even if the going concern assumption is not appropriate, IFRS
should be applied accordingly, with particular attention paid to the requirements of IFRS 5 (to the extent that assets are
being held for sale and not abandoned), IAS 32 (with respect to the classification of the entity's debt and equity
instruments), IAS 36 and IAS 37. [IAS 1.26]
1.2.70.30 In the case of an entity in liquidation, all liabilities continue to be recognised and measured in accordance with
the applicable IFRS until the obligations are discharged, cancelled or expire.
EXAMPLE 3 - GOING CONCERN - LIABILITIES ON LIQUIDATION
1.2.70.40 Company C is in liquidation. If C has a financial liability in accordance with IAS 39, then this
financial liability cannot be derecognised until the relevant criteria in IAS 39 are met - i.e. the obligation
specified in the related contract is discharged, cancelled or expires (see 7.5.370).
1.2.70.50 If an entity ceases to be a going concern after the reporting date but before its financial statements are
authorised for issue, then it is not permitted to prepare its financial statements on a going concern basis. [IAS 10.14, 1.25-
26]
1.2.70.60 If a subsidiary is expected to be liquidated and its financial statements are prepared on a non-going concern
basis, but the parent is expected to continue as a going concern, then in our view the consolidated financial statements
should be prepared on a going concern basis. The subsidiary should continue to be consolidated until it is liquidated or
otherwise disposed of.
1.2.75 Disclosure related to going concern
1.2.75.10 An entity discloses material uncertainties related to events or conditions that may cast significant doubt on its
ability to continue as a going concern. In addition to the disclosure of material uncertainties, disclosures are required when
Page 35 / 37
management concludes that there are no material uncertainties but reaching that conclusion involved significant
judgement (a 'close call' scenario). [IAS 1.25, 122, IU 07-14]
1.2.80 TRANSACTIONS WITH SHAREHOLDERS
1.2.80.10 The definitions of income and expense exclude capital transactions with equity participants. Accordingly, such
transactions - e.g. capital contributions from shareholders - are recognised directly in equity, in the same way as the
distributions made to shareholders. However, the position is less clear when the transaction with the shareholder equally
could have been with a third party. [CF4.25]
EXAMPLE 4 - TRANSACTIONS WITH SHAREHOLDERS
1.2.80.20 Company B sells inventory at fair value to a shareholder. In this case, the transaction is
recognised in profit or loss because the transaction price (fair value) indicates that the shareholder is
not acting in its capacity as a shareholder; rather, it is transacting with B in the same way as any other
third party.
1.2.80.30 Alternatively, if B gives the inventory to a shareholder without consideration, then it can be
argued that the shareholder has received a benefit from B in its capacity as a shareholder because an
independent third party would not have been given the inventory for free. We believe that, in the
absence of any other relevant facts, this transaction should be recognised directly in equity as a
distribution to shareholders (see 7.3.600).
1.2.80.40 Changing the facts further, suppose that the shareholder pays considerably more than fair
value for the inventory. In such cases, it may be appropriate to split the transaction into a capital
transaction and a revenue transaction. Proceeds equal to the fair value of the inventory would be
recognised in profit or loss, with the remaining proceeds being recognised directly in equity as a
contribution from shareholders.
1.2.80.50 Generally, IFRS does not discuss the circumstances in which it would be appropriate for a transaction entered
into by a shareholder on behalf of the entity to be recognised in the financial statements of the entity (i.e. attribution).
However, IFRS 2 does require the attribution of expense for certain share-based payment transactions (see 4.5.80.10). In
other instances, judgement is used in determining whether attribution is appropriate. IAS 24 requires attribution for
disclosure purposes in certain circumstances (see 5.5.110).
1.2.80.60 The key point is that transactions with shareholders, or any transactions that are made on behalf of the entity,
are considered carefully, having regard to all of the facts and circumstances, in determining the appropriate accounting.
1.2.90 FUTURE DEVELOPMENTS
1.2.90.10 In 2015, the IASB published Exposure Draft Conceptual Framework for Financial Reporting . The objective of the
Page 36 / 37
exposure draft was to revise the existing Conceptual Framework, including topics that have previously been deemed
'closed' - e.g. prudence and stewardship. The exposure draft covered the following aspects:
• the objective of general purpose financial reporting and the qualitative characteristics of
useful financial information (limited amendments);
• financial statements and the reporting entity;
• the elements of financial statements, including the definitions of assets and liabilities;
• recognition and derecognition;
• measurement;
• presentation and disclosure, including guidance on reporting items in profit or loss vs OCI;
and
• the concepts of capital and capital maintenance.
1.2.90.20 The period for comments on the exposure draft closed in October 2015. The IASB is working on finalising the
revised Conceptual Framework, which is expected in Q4 2017.
1.2.90.30 The IASB is also working on a broad initiative aimed at improving disclosures in the financial statements. The
disclosure initiative covers various areas and includes a number projects (see 2.1.150).
Page 37 / 37

Part 2

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Part 2

Uploaded by

Copyright:

Available Formats

Insights into IFRS, 14th Edition 2017-18

Insights into IFRS, 14th Edition 2017-18

1.2 Conceptual Framework

2.1 Form and components of financial statements

2.2 Changes in equity

2.3 Statement of cash flows

2.4 Fair value measurement

2.6 Business combinations

2.7 Foreign currency translation

2.8 Accounting policies, errors and estimates

2.9 Events after the reporting date

3. Statement of financial position

3.2 Property, plant and equipment

3.3 Intangible assets and goodwill

3.4 Investment property

3.5 Associates and the equity method

3.6 Joint arrangements

3.7 [Not used]

3.9 Biological assets

3.10 Impairment of non-financial assets

3.11 [Not used]

3.12 Provisions, contingent assets and liabilities

3.13 Income taxes

4. Statement of profit or loss and OCI

4.2A Revenue: IFRS 15

4.3 Government grants

4.4 Employee benefits

4.5 Share-based payments

4.6 Borrowing costs

5.1A Leases: IFRS 16

5.2 Operating segments

5.3 Earnings per share

5.4 Non-current assets held for sale and discontinued operations

5.5 Related party disclosures

5.6 Investment entities

5.7 Non-monetary transactions

5.8 Accompanying financial and non-financial information

5.9 Interim financial reporting

5.10 Disclosure of interests in other entities

5.11 Extractive activities

5.12 Service concession arrangements

5.13 Common control transactions and Newco formations

6. First-time adoption of IFRS

6.1 First-time adoption of IFRS

6.2 Regulatory deferral accounts and first-time adoption of IFRS

7.1 Scope and definitions

7.2 Derivatives and embedded derivatives

7.3 Equity and financial liabilities

7.4 Classification of financial assets and financial liabilities

7.5 Recognition and derecognition

7.6 Measurement and gains and losses

7.7 Hedge accounting

7.8 Presentation and disclosures

Applying different versions of IFRS 9

7A.1 Scope and definitions

7A.2 Derivatives and embedded derivatives

7A.3 Equity and financial liabilities

7A.4 Classification of financial assets

7A.5 Classification of financial liabilities

7A.6 Recognition and derecognition

7A.9 Hedge accounting

7A.10 Presentation and disclosure

7A.11 Transition to IFRS 9

7B Financial instruments: IFRS 9 (2009)