Illustrative disclosures Guide to annual financial statements IFRS® October 2016 kpmg.com/ifrs Contents About this guide 2 Independent auditors’ report 5 Consolidated financial statements 12 Financial highlights 13 Consolidated statement of financial position 14 Consolidated statement of profit or loss and other comprehensive income 16 Consolidated statement of changes in equity 18 Consolidated statement of cash flows 20 Notes to the consolidated financial statements 22 Appendices I New standards or amendments for 2016 and forthcoming requirements 150 II Presentation of comprehensive income – Two‑statement approach 152 III Statement of cash flows – Direct method 154 IV Example disclosures for entities that early adopt Disclosure Initiative (Amendments to IAS 7) 155 V Example disclosures for entities that early adopt IFRS 9 Financial Instruments (2014) 158 VI Other disclosures not illustrated in the consolidated financial statements 220 Keeping in touch 226 Acknowledgements 228 Notes Basis of preparation 22 Other information 118 1. Reporting entity 22 37. Operating leases 118 2. Basis of accounting 22 38. Commitments 119 3. Functional and presentation currency 22 39. Contingencies 119 4. Use of judgements and estimates 22 40. Related parties 120 41. Subsequent events 123 Performance for the year 24 5. Operating segments 24 Accounting policies 124 6. Discontinued operation 31 42. Basis of measurement 124 7. Revenue 33 43. Correction of errors 125 8. Income and expenses 34 44. Significant accounting policies 126 9. Net finance costs 36 45. Standards issued but not yet effective 142 10. Earnings per share 37 Employee benefits 39 11. Share‑based payment arrangements 39 12. Employee benefits 42 Income taxes 47 13. Income taxes 47 Alternative performance measure 54 14. Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) 54 Assets 55 15. Biological assets 55 16. Inventories 59 1 7. Trade and other receivables 60 18. Cash and cash equivalents 61 19. Disposal group held for sale 62 20. Property, plant and equipment 64 21. Intangible assets and goodwill 67 22. Investment property 72 23. Equity‑accounted investees 73 24. Other investments, including derivatives 75 Equity and liabilities 76 25. Capital and reserves 76 26. Capital management 80 27. Loans and borrowings 81 28. Trade and other payables 84 29. Deferred income/revenue 85 30. Provisions 86 Financial instruments 88 31. Financial instruments – Fair values and risk management 88 Group composition 109 32. List of subsidiaries 109 33. Acquisition of subsidiary 110 34. NCI 114 35. Acquisition of NCI 116 36. Loan covenant waiver 117 2 | Guide to annual financial statements – Illustrative disclosures About this guide This guide has been produced by the KPMG International Standards Group (part INTRODUCTION of KPMG IFRG Limited) and the views expressed herein are those of the KPMG International Standards Group. It is intended to help preparers in the preparation and presentation of financial statements in accordance with IFRS by illustrating one possible format for financial statements for a fictitious multinational corporation involved in general business. This hypothetical corporation (the ‘Group’) has been applying IFRS for some time – i.e. it is not a first‑time adopter of IFRS. For more information on adopting IFRS for the first time, see Chapter 6.1 in the 13th edition 2016/17 of our publication Insights into IFRS. Standards covered This guide reflects standards and interpretations that have been issued by the IASB as at 15 August 2016 and that are required to be applied by an entity with an annual period beginning on 1 January 2016 (‘currently effective Auditors’ report Auditors’ requirements’). With the exception of Appendices IV and V, the early adoption of standards or amendments to standards that are effective for annual periods beginning after 1 January 2016 (‘forthcoming requirements’) is not illustrated. This guide does not illustrate the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 4 Insurance Contracts, IFRS 6 Exploration for and Evaluation of Mineral Resources, IFRS 14 Regulatory Deferral Accounts, IAS 26 Accounting and Reporting by Retirement Benefit Plans, IAS 27 Separate Financial Statements, IAS 29 Financial Reporting in Hyperinflationary Economies or IAS 34 Interim Financial Reporting. IAS 34 requirements are illustrated in our Guide to condensed interim financial statements – Illustrative disclosures. IFRS and its interpretation change over time. Accordingly, this guide should not be used as a substitute for referring to the standards and other relevant Primary statements Primary interpretative guidance. Preparers should also consider applicable legal and regulatory requirements. This guide does not consider the requirements of any particular jurisdiction – e.g. IFRS does not require the presentation of separate financial statements for the parent entity. Consequently, this guide includes only consolidated financial statements. What’s new in 2016? This guide includes an updated illustrative auditors’ report, as a result of the adoption of the following revised and new International Standards on Auditing (ISAs), which are effective for audits of financial statements for periods ending on or after 15 December 2016: Notes – ISA 700 (Revised) Forming an Opinion and Reporting on Financial Statements; – ISA 701 Communicating Key Audit Matters in the Independent Auditor’s Report; and – ISA 720 (Revised) The Auditor’s Responsibilities Relating to Other Information. Appendix I provides a comprehensive list of new requirements under IFRS, distinguishing between those that are effective for an entity with an annual period beginning on 1 January 2016, and those with a later effective date. Appendices © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. About this guide | 3 The Group has no transactions that would be affected by the newly effective standard or amendments to standards; therefore, these new requirements are not illustrated in this guide. Note 14 includes a new illustration of an alternative earnings measure (Adjusted EBITDA) presented by the Group, which may be considered an additional subtotal under IAS 1 when certain criteria have been met. The Group has included a reconciliation of this measure with subtotals INTRODUCTION or totals required by IAS 1 Presentation of Financial Statements. Note 45 has been significantly expanded to describe management’s current assessment of the possible impacts that the application of IFRSs 9, 15 and 16 will have on the Group’s consolidated financial statements in the period of initial application. Appendices IV and V provide illustrative disclosures for the early adoption of Disclosure Initiative (Amendments to IAS 7) and IFRS 9 Financial Instruments, respectively. The amended standard and new standard are effective for periods beginning on or after 1 January 2017 and 1 January 2018, respectively. Need for judgement This guide is part of our suite of publications – Guides to financial statements – and specifically ocusesf on compliance with IFRS. Although it is not exhaustive, this guide illustrates the disclosures required by IFRS for one hypothetical corporation, largely without regard to materiality. report Auditors’ The preparation and presentation of financial statements require the preparer to exercise judgement, in terms of the choice of accounting policies, the ordering of notes to the financial statements, how the disclosures should be tailored to reflect the entity’s specific circumstances, and the relevance of disclosures considering the needs of the users. Materiality Specific guidance on materiality and its application to the financial statements is included in paragraphs 29–31 of IAS 1. Materiality is relevant to the presentation and disclosure of the items in the financial statements. Preparers need to consider whether the financial statements include all of the information that is relevant to understanding an entity’s financial position on the reporting date and its financial performance during the reporting period. Primary statements Primary Preparers also need to take care not to reduce the understandability of an entity’s financial statements by obscuring material information with immaterial information or by aggregating material information that is different by nature or function. Individual disclosures that are not material to the financial statements do not have to be presented – even if they are a minimum requirement of a standard. Preparers need to consider the appropriate level of disclosure based on materiality for the reporting period. Step-up in the Investors continue to ask for a step‑up in the quality of business reporting, so entities should be careful not to become buried in compliance to the exclusion of quality of financial relevance. In preparing its financial statements, an entity needs to keep in mind statements its wider responsibilities for reporting this information in the most meaningful Notes way. For more information, see our Better Business Reporting website. Appendices © 2016 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. 4 | Guide to annual financial statements – Illustrative disclosures References and References are included in the left‑hand margin of this guide. Generally, the references relate only to presentation and disclosure requirements. abbreviations IAS 1.82(a) Paragraph 82(a) of IAS 1. [IAS 39.46(a)] INTRODUCTION Paragraph