www.pwc.com/ifrs IFRS pocket guide www.pwc.com/ifrs IFRS pocket guide 2011 2011 FSC ISBN Introduction Introduction This pocket guide provides a summary of the recognition and measurement requirements of International Financial Reporting Standards (IFRS) issued up to August 2011. It does not address in detail the disclosure requirements; these can be found in the PwC publication ‘IFRS disclosure checklist 2011’. The information in this guide is arranged in six sections: • Accounting principles. • Income statement and related notes. • Balance sheet and related notes. • Consolidated and separate financial statements. • Other subjects. • Industry-specific topics. More detailed guidance and information on these topics can be found in the ‘IFRS manual of accounting 2012’ and other PwC publications. A list of PwC’s IFRS publications is provided on the inside front and back covers. IFRS pocket guide 2011 Contents Contents Accounting rules and principles 1 1. Introduction 1 2. Accounting principles and applicability of IFRS 1 3. First-time adoption of IFRS – IFRS 1 2 4. Presentation of financial statements – IAS 1 3 5. Accounting policies, accounting estimates and errors – IAS 8 6 6. Financial instruments – IFRS 9, IFRS 7, IAS 32, IAS 39 8 7. Foreign currencies – IAS 21, IAS 29 17 8. Insurance contracts – IFRS 4 18 9. Revenue – IAS 18, IAS 11, IAS 20 19 10. Segment reporting – IFRS 8 21 11. Employee benefits – IAS 19 22 12. Share-based payment – IFRS 2 25 13. Taxation – IAS 12 26 14. Earnings per share – IAS 33 28 Balance sheet and related notes 29 15. Intangible assets – IAS 38 29 16. Property, plant and equipment – IAS 16 30 17. Investment property – IAS 40 31 18. Impairment of assets – IAS 36 32 19. Lease accounting – IAS 17 34 20. Inventories – IAS 2 35 21. Provisions and contingences – IAS 37 35 22. Events after the reporting period and financial commitments – IAS 10 38 23. Share capital and reserves 38 i IFRS pocket guide 2011 Contents Consolidated and separate financial statements 40 24. Consolidated and separate financial statements – IAS 27 40 24A. Consolidated financial statements – IFRS 10 41 25. Business combinations – IFRS 3 42 26. Disposals of subsidiaries, businesses and non-current assets – IFRS 5 44 27. Associates – IAS 28 46 28. Joint ventures – IAS 31 47 28A. Joint arrangements – IFRS 11 48 Other subjects 49 29. Related-party disclosures – IAS 24 49 30. Cash flow statements – IAS 7 50 31. Interim reports – IAS 34 51 32. Service concession arrangements – SIC 29, IFRIC 12 52 33. Retirement benefit plans – IAS 26 53 34. Fair value measurement – IFRS 13 54 Industry-specific topics 55 35. Agriculture – IAS 41 55 35. Extractive industries – IFRS 6 55 Index by standards and interpretation 57 IFRS pocket guide 2011 ii Accounting rules and principles Accounting rules and principles 1 Introduction There have been major changes in financial reporting in recent years. Most obvious is the continuing adoption of IFRS worldwide. Many territories have been using IFRS for some years, and more are planning to come on stream from 2012. For the latest information on countries’ transition to IFRS, visit pwc.com/usifrs and see ‘Interactive IFRS adoption by country map’. An important recent development is the extent to which IFRS is affected by politics. The issues with Greek debt, the problems in the banking sector and the attempts of politicians to resolve these questions have resulted in pressure on standard-setters to amend their standards, primarily those on financial instruments. This pressure is unlikely to disappear, at least in the short term. The IASB is working hard to respond to this; we can therefore expect a continued stream of changes to the standards in the next few months and years. 2 Accounting principles and applicability of IFRS The IASB has the authority to set IFRSs and to approve interpretations of those standards. IFRSs are intended to be applied by profit-orientated entities. These entities’ financial statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. These users include shareholders, creditors, employees and the general public. A complete set of financial statements includes a: • balance sheet (statement of financial position); • statement of comprehensive income; • statement of cash flows; • a description of accounting policies; and • notes to the financial statesments. Notes to the financial statements. The concepts underlying accounting practices under IFRS are set out in the IASB’s ‘Conceptual Framework for Financial Reporting’ issued in September 2010 (the Framework). It supersedes the ‘Framework for the preparation and presentation of financial statements’ (the Framework (1989)). IFRS pocket guide 2011 1 Accounting rules and principles 3 First-time adoption of IFRS – IFRS 1 An entity moving from national GAAP to IFRS should apply the requirements of IFRS 1. It applies to an entity’s first IFRS financial statements and the interim reports presented under IAS 34, ‘Interim financial reporting’, that are part of that period. The basic requirement is for full retrospective application of all IFRSs effective at the reporting date. However, there are a number of optional exemptions and mandatory exceptions to the requirement for retrospective application. The exemptions cover standards for which the IASB considers that retrospective application could prove too difficult or could result in a cost likely to exceed any benefits to users. The exemptions are optional. Any, all or none of the exemptions may be applied. The optional exemptions relate to: • business combinations; • deemed cost; • employee benefits; • cumulative translation differences; • compound financial instruments; • assets and liabilities of subsidiaries, associates and joint ventures; • designation of previously recognised financial instruments; • share-based payment transactions; • fair value measurement of financial assets or financial liabilities at initial recognition; • insurance contracts; • decommissioning liabilities included in the cost of property, plant and equipment; • leases; • service concession arrangements; • borrowing costs; • investments in subsidiaries, jointly controlled entities and associates; • transfers of assets from customer; • extinguishing financial liabilities with equity instruments; and • severe hyperinflation. The exceptions cover areas in which retrospective application of the IFRS requirements is considered inappropriate. The following exceptions are mandatory, not optional: 2 IFRS pocket guide 2011 Accounting rules and principles • hedge accounting; • estimates; and • non-controlling interests. Comparative information is prepared and presented on the basis of IFRS. Almost all adjustments arising from the first-time application of IFRS are against opening retained earnings of the first period that is presented on an IFRS basis. Certain reconciliations from previous GAAP to IFRS are also required. 4 Presentation of financial statements – IAS 1 The objective of financial statements is to provide information that is useful in making economic decisions. IAS 1’s objective is to ensure comparability of presentation of that information with the entity’s financial statements of previous periods and with the financial statements of other entities. Financial statements are prepared on a going concern basis unless management intends either to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Management prepares its financial statements, except for cash flow information, under the accrual basis of accounting. There is no prescribed format for the financial statements. However, there are minimum disclosures to be made in the primary statements and the notes. The implementation guidance to IAS 1 contains illustrative examples of acceptable formats. Financial statements disclose corresponding information for the preceding period (comparatives) unless a standard or interpretation permits or requires otherwise. Statement of financial position (balance sheet) The statement of financial position presents an entity’s financial position at a specific point in time. Subject to meeting certain minimum presentation and disclosure requirements, management may use its judgement regarding the form of presentation, such as whether to use a vertical or a horizontal format, which sub-classifications to present and which information to disclose in the primary statement or in the notes. IFRS pocket guide 2011 3 Accounting rules and principles The following items, as a minimum, are presented on the face of the balance sheet: • Assets – property, plant and equipment; investment property; intangible assets; financial assets; investments accounted for using the equity method; biological assets; deferred tax assets; current tax assets; inventories; trade and other receivables; and cash and cash equivalents. • Equity – issued capital and reserves attributable to the parent’s owners; and non-controlling interest. • Liabilities – deferred tax liabilities; current tax liabilities; financial liabilities; provisions; and trade and other payables. • Assets and liabilities held for sale – the total of assets classified as held for sale and assets included in disposal groups classified as held for sale; and liabilities included in disposal groups classified as held for sale in accordance with IFRS 5, ‘Non-current assets held for sale and discontinued operations’. Current and non-current assets and current and non-current liabilities