IFRS session 1-5

[IFRS Intro] Since when must EU listed companies use IFRS, and for which accounts?

Since 2005, for their CONSOLIDATED financial statements, under EU Regulation 1606/2002 (19 July 2002).

[IFRS Intro] Which accounting framework does the USA apply instead of IFRS?

US GAAP (similar to IFRS in many aspects).

[IFRS Intro] IAS vs IFRS: what is the difference in naming?

IAS = International Accounting Standards issued 1973-2000. IFRS = International Financial Reporting Standards issued from 2001 onwards.

[IFRS Intro] SIC vs IFRIC: what are they?

Interpretations of the standards. SIC = Standing Interpretations Committee (old, before 2001). IFRIC = IFRS Interpretations Committee (from 2001).

[IFRS Intro] Who writes IFRS standards?

The IASB (International Accounting Standards Board), supervised by the IFRS Foundation Trustees and the Monitoring Board. The Interpretations Committee clarifies the standards.

[IFRS Intro] What is the IASB due process (steps to issue a new standard)?

1) Research (explore the issue) 2) Discussion Paper (ideas set out) 3) Comment letters received 4) Project moves to standard-setting phase 5) Exposure Draft (draft standard) published for comments 6) New standard issued.

[IFRS Intro] What is an Exposure Draft?

The draft version of a new standard published by the IASB for public comment before the final standard is issued.

[IFRS Intro] Which websites help you keep up to date with IFRS?

www.ifrs.org (IASB / IFRS Foundation), IAS Plus (Deloitte, www.iasplus.com) and Deloitte IFRS e-learning modules.

[Conceptual Framework] What are the 2 FUNDAMENTAL qualitative characteristics of useful financial information?

1) Relevance (includes materiality) 2) Faithful representation.

[Conceptual Framework] What are the 4 ENHANCING qualitative characteristics?

Comparability, Verifiability, Timeliness, Understandability.

[Conceptual Framework] Define relevance.

Information that is capable of making a difference in the decisions made by users.

[Conceptual Framework] Define materiality.

Information is material if omitting it or misstating it could influence the decisions users make on the basis of the financial statements. It is an entity-specific aspect of relevance.

[Conceptual Framework] Materiality example: profit €10m. Is a forgotten €2,000 invoice material? A forgotten €3m lawsuit?

€2,000 invoice: NOT material (no investor would change their decision). €3m lawsuit: MATERIAL (profit would be 30% lower, investors would see the company differently).

[Conceptual Framework] Define faithful representation.

Information should faithfully represent the economic substance of what it depicts, not just its legal form (complete, neutral, free from error).

[Conceptual Framework] Define comparability.

Information that enables users to identify and understand similarities in, and differences among, items (between entities and over time).

[Conceptual Framework] Define verifiability.

Different knowledgeable and independent observers could reach consensus that a particular depiction is a faithful representation.

[Conceptual Framework] Define timeliness.

Having information available to decision-makers in time to be capable of influencing their decisions.

[Conceptual Framework] Define understandability.

Classifying, characterising and presenting information clearly and concisely makes it understandable.

[Conceptual Framework] What does 'substance over form' mean? Give 3 IFRS examples.

Accounting follows the economic reality rather than the legal form. Examples: identification of leases (IFRS 16), consolidation incl. special purpose entities (IFRS 10), revenue recognition (IFRS 15).

[Conceptual Framework] List the 4 driving principles of IFRS.

1) Substance over form and principle-based standards 2) Systematic recognition of items (derivatives, share-based payments, deferred taxes, leases, DB obligations…) 3) More frequent use of fair value 4) No standard reporting format but extensive presentation and disclosure requirements.

[Conceptual Framework] Give 4 items for which IFRS uses fair value more often.

Financial instruments, investment property, items acquired/assumed in a business combination, biological assets.

[IAS 1 Presentation] What is the objective of financial statements (IAS 1)?

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. They also show the results of management's stewardship of resources.

[IAS 1 Presentation] What does a complete set of financial statements comprise under IAS 1?

1) Statement of financial position 2) Statement of profit or loss and OCI (1 or 2 statements) 3) Statement of changes in equity 4) Statement of cash flows 5) Notes (material accounting policy information + explanations) + comparative information for the preceding period.

[IAS 1 Presentation] When is a THIRD statement of financial position (beginning of the preceding period) required?

When the entity applies an accounting policy retrospectively, makes a retrospective restatement, or reclassifies items in its financial statements.

[IAS 1 Presentation] Are the directors' report and alternative performance measures (e.g. EBITDA, adjusted results) within the scope of IFRS?

No. Reports and statements presented outside the financial statements are outside the scope of IFRS.

[IAS 1 Presentation] Does IAS 1 impose a fixed format for the balance sheet?

No. It only defines minimum line items; additional line items, headings and subtotals are added when relevant to understand the financial position.

[IAS 1 Presentation] Can an entity present 'extraordinary items' under IFRS?

No. Extraordinary items are prohibited in the P&L/OCI statement and in the notes.

[IAS 1 Presentation] What 2 formats can be used to present comprehensive income?

(a) a single statement of comprehensive income, or (b) two statements: a statement of profit or loss + a second statement starting with profit or loss and showing other comprehensive income (OCI).

[IAS 1 Presentation] What is Other Comprehensive Income (OCI)?

Items of income and expense that are not recognised in profit or loss but directly in equity as required by other IFRS (e.g. revaluation surplus, FVOCI changes, actuarial remeasurements).

[IAS 1 Presentation] Expenses can be analysed by nature or by function. What is the difference?

By nature: raw materials, employee costs, depreciation… By function: cost of sales, distribution, administrative expenses. If presented by function, the entity must also disclose depreciation/amortisation and employee benefits expense by nature.

[IAS 1 Presentation] What does the statement of changes in equity show?

How each component of equity changed during the period: total comprehensive income, effects of changes in accounting policies, share issues, dividends paid; with a reconciliation of opening and closing balances of each component.

[IAS 1 Presentation] What is the purpose of the statement of cash flows?

To give users a basis to assess the entity's ability to generate cash and cash equivalents and its needs to use those cash flows. (Not required under BE GAAP.)

[IAS 1 Presentation] What must the notes to the financial statements contain?

Basis of preparation and material accounting policy information; disclosures required by IFRS not presented elsewhere; other information relevant to understand the statements (e.g. bank covenants, climate-related assumptions, capital management).

[IAS 1 Presentation] What are 'key judgements' that must be disclosed?

The judgements made by management in applying accounting policies that have the most significant effect on amounts recognised (e.g. a subsidiary fully consolidated although not more than 50% of shares are held).

[IAS 1 Presentation] What are 'major sources of estimation uncertainty'?

Assumptions about the future with a significant risk of a material adjustment to carrying amounts of assets/liabilities within the next financial year. Disclose nature, sensitivity, range of outcomes, changes to past assumptions. Examples: DTA recovery, provisions (pensions, litigation, environmental), impairment.

[IAS 1 Presentation] Is boilerplate disclosure IFRS compliant?

No. Disclosures must be specific to the entity and its circumstances.

[IAS 1 Presentation] Which IFRS Practice Statement helps entities decide on additional disclosures?

IFRS Practice Statement 2: Making Materiality Judgements.

[IFRS 18 Presentation] When is IFRS 18 effective, and what does it replace?

Annual periods starting on or after 1 January 2027 (applied retrospectively: comparatives restated). It replaces IAS 1 for the presentation of financial statements, mainly changing the P&L structure.

[IFRS 18 Presentation] What are the 5 categories of the P&L under IFRS 18?

Operating, Investing, Financing, Income taxes, Discontinued operations.

[IFRS 18 Presentation] What are the 2 new mandatory subtotals under IFRS 18?

1) Operating profit or loss 2) Profit or loss before financing and income taxes.

[IFRS 18 Presentation] Under IFRS 18, why is the operating category called a 'residual' category?

Because income/expenses are first tested against the investing and financing categories; everything that does not belong there (and is not tax or discontinued operations) falls into operating.

[IFRS 18 Presentation] What goes into the INVESTING category (IFRS 18)?

Income/expenses from associates, joint ventures and unconsolidated subsidiaries; from cash and cash equivalents; and from assets that generate a return individually and largely independently of other resources.

[IFRS 18 Presentation] What goes into the FINANCING category (IFRS 18)?

Income/expenses from liabilities arising from transactions that involve only the raising of finance (e.g. bank loans, bonds) + interest expense and effects of interest rate changes on other liabilities (e.g. lease liabilities, defined benefit pension liabilities).

[BE GAAP vs IFRS] IFRS vs BE GAAP: substance vs form?

IFRS: substance over form. BE GAAP: legal form often prevails (e.g. lease classification, debt/equity classification).

[BE GAAP vs IFRS] IFRS vs BE GAAP: role of taxation?

IFRS is independent from tax. BE GAAP is strongly influenced by tax: the accounting profit of separate FS is the basis for taxable profit (tax-driven depreciation, capitalisation, provisions…). This is a barrier to convergence.

[BE GAAP vs IFRS] IFRS vs BE GAAP: measurement philosophy?

IFRS: more fair value. BE GAAP: prudence principle for creditor protection, mostly historical cost, unrealised exchange gains deferred.

[BE GAAP vs IFRS] Name 4 standards NOT addressed under BE GAAP.

E.g. IAS 7 Cash flows, IAS 12 Deferred taxes, IAS 33 EPS, IAS 34 Interim reporting, IAS 40 Investment property, IAS 41 Agriculture, IFRS 2 Share-based payments, IFRS 5 Held for sale, IFRS 8 Segments, IFRS 17 Insurance.

[BE GAAP vs IFRS] Give 3 presentation differences of BE GAAP compared to IFRS.

Standard format (no cash flow statement, no SOCE, no statement of comprehensive income, fewer disclosures); provisions always non-current; non-recurring items in operating/financial result; no separate presentation of held-for-sale assets; construction contracts in inventories; investment property not separate.

[IFRS 1 First-time Adoption] What is the 'date of transition to IFRS'?

The beginning of the earliest period for which full comparative IFRS information is presented. E.g. first IFRS FS at 31/12/2025 with one comparative year → date of transition = 1 January 2024.

[IFRS 1 First-time Adoption] What is the opening IFRS statement of financial position?

The balance sheet prepared at the date of transition to IFRS; the starting point for subsequent IFRS accounting.

[IFRS 1 First-time Adoption] Which version of IFRS does a first-time adopter apply?

Each IFRS effective at the reporting date of its first IFRS financial statements (e.g. 31/12/2025), applied retrospectively, except for optional exemptions and mandatory exceptions.

[IFRS 1 First-time Adoption] What 4 actions are required for the opening IFRS balance sheet?

1) Recognise all assets/liabilities required by IFRS 2) Derecognise items IFRS does not permit 3) Reclassify items under IFRS (liabilities, equity…) 4) Measure all recognised items under IFRS.

[IFRS 1 First-time Adoption] Where are IFRS 1 transition adjustments recognised?

Directly in retained earnings (or another equity category) at the date of transition (unless exceptions).

[IFRS 1 First-time Adoption] Which reconciliations does IFRS 1 require to explain the transition?

Reconciliation of equity (previous GAAP vs IFRS) at the date of transition and at the end of the latest period under previous GAAP + reconciliation of total comprehensive income for the latest period under previous GAAP.

[IAS 16 PP&E] Define Property, Plant and Equipment (IAS 16).

Tangible assets that (1) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and (2) are expected to be used during more than one period.

[IAS 16 PP&E] Which 3 principal issues does IAS 16 deal with?

1) What constitutes cost at initial recognition 2) Measurement after recognition 3) Accounting for subsequent expenditure and disposal.

[IAS 16 PP&E] What are the recognition criteria for PP&E?

Recognised if and only if (1) it is probable that future economic benefits will flow to the entity and (2) the cost can be measured reliably. Same criteria as for any asset under the Framework.

[IAS 16 PP&E] What are the 3 components of the cost of PP&E?

1) Purchase price + import duties + non-refundable purchase taxes, less trade discounts and rebates 2) Directly attributable costs to bring the asset to the location and condition to operate as intended by management 3) Initial estimate of dismantling, removal and site restoration costs.

[IAS 16 PP&E] Give 5 examples of directly attributable costs (capitalised) for PP&E.

Employee benefits arising directly from construction/acquisition, site preparation, initial delivery and handling, installation and assembly, professional fees (and testing costs).

[IAS 16 PP&E] Give 5 examples of costs EXCLUDED from the cost of PP&E.

Opening a new facility; introducing a new product (advertising/promotion); doing business in a new location or with new customers (incl. staff training); administration and general overheads; initial operating losses / underused capacity; relocation or reorganisation costs; refundable VAT.

[IAS 16 PP&E] Rainsburg buys computers: invoice, 10% import duty, refundable VAT 2%, €25k training, €30k installation, €15k network replacement. What is capitalised?

Capitalised: purchase price, import duty, installation (€30k). Not capitalised: refundable VAT, training (€25k), network replacement (not needed to bring the computers into working condition; may be a separate asset).

[IAS 16 PP&E] How is PP&E measured if payment is deferred beyond normal credit terms?

At the cash price equivalent. The difference between the cash price and the total payments is recognised as interest expense over the credit period.

[IAS 16 PP&E] How is PP&E acquired in exchange for a non-monetary asset measured?

At fair value, unless the fair value of neither the asset received nor the asset given up is reliably measurable → then at the carrying amount of the asset given up.

[IAS 16 PP&E] What is component accounting (IAS 16)?

Each significant part of an item of PP&E with a different useful life or depreciation pattern is recognised and depreciated separately (e.g. crane parts, aircraft engine vs body).

[IAS 16 PP&E] How are day-to-day servicing costs (repair & maintenance) treated?

Expensed in P&L as incurred (labour, consumables, small parts). If an expenditure only restores the original performance, it cannot be capitalised.

[IAS 16 PP&E] How is a major replacement treated (e.g. truck tyres every 3 years)?

Capitalised if recognition criteria are met, and the carrying amount of the replaced part is derecognised.

[IAS 16 PP&E] What 2 measurement models are allowed after recognition under IAS 16?

1) Cost model: cost - accumulated depreciation - accumulated impairment losses 2) Revaluation model: fair value at revaluation date - subsequent accumulated depreciation and impairment (only if FV is reliable; regular revaluations; for the entire class of assets).

[IAS 16 PP&E] Revaluation model: how is a revaluation INCREASE recognised?

In OCI, accumulated in equity as revaluation surplus; except to the extent it reverses a previous revaluation decrease of the same asset recognised in P&L → then in P&L.

[IAS 16 PP&E] Revaluation model: how is a revaluation DECREASE recognised?

In P&L; except to the extent of any credit balance in the revaluation surplus for that asset → then debited to OCI/revaluation surplus first.

[IAS 16 PP&E] Land bought €60m, revalued to €70m (year 1) then €55m (year 2). Entries?

Year 1: +€10m in OCI (revaluation surplus). Year 2: -€10m in OCI (reverse the surplus) and -€5m in P&L.

[IAS 16 PP&E] Why is an asset depreciated?

Because its future economic benefits are consumed mainly through use. Depreciation recognises the benefits consumed in each period as an expense.

[IAS 16 PP&E] What is the depreciable amount?

Cost (or revalued amount) less residual value, allocated on a systematic basis over the useful life.

[IAS 16 PP&E] Define residual value.

The estimated amount the entity would currently obtain from disposal of the asset, after deducting estimated costs of disposal, if the asset were already of the age and condition expected at the end of its useful life.

[IAS 16 PP&E] Define useful life.

The period over which an asset is expected to be available for use, or the number of production units expected to be obtained from it.

[IAS 16 PP&E] How often are residual value and useful life reviewed, and how is a revision accounted for?

At least at each financial year-end. A revision is a change in accounting estimate (IAS 8) applied prospectively (no restatement of the past).

[IAS 16 PP&E] What happens if residual value exceeds carrying amount?

Depreciation charge becomes zero (no reversal of past depreciation) until residual value falls below carrying amount.

[IAS 16 PP&E] Cost 100, life 5 yrs, RV 20. In year 3 total life revised to 7 yrs and RV to 10. Depreciation years 1-3?

Y1 = (100-20)/5 = 16; Y2 = 16; Y3: carrying amount 68, depreciable amount 68-10 = 58, remaining life 5 yrs → 58/5 = 11.6.

[IAS 16 PP&E] When does depreciation start and stop?

Starts when the asset is available for use (capable of operating as intended), even if not yet used. It does NOT stop when the asset is idle or retired from active use; it stops when classified as held for sale (IFRS 5) or derecognised.

[IAS 16 PP&E] How are land and buildings depreciated?

Accounted for separately even if acquired together. Land is not depreciated (unlimited useful life) except e.g. quarries; buildings are depreciated.

[IAS 16 PP&E] When is PP&E derecognised and how is the gain/loss computed?

On disposal (sale, donation) or when no future economic benefits are expected (e.g. scrapped). Gain/loss = net disposal proceeds - carrying amount, recognised in P&L but NOT as revenue.

[IAS 16 PP&E] Define carrying amount.

The amount at which an asset is recognised after deducting accumulated depreciation and accumulated impairment losses (net book value).

[IAS 16 PP&E] Give 4 disclosures specific to revalued PP&E.

Basis and effective date of revaluation, use of an independent valuer, carrying amount under the cost model, amount of revaluation surplus.

[IAS 40 Investment Property] Define investment property (IAS 40).

Property (land and/or building or part of a building) held by the owner or a lessee to earn rentals and/or for capital appreciation, rather than for use in production/supply/administration or sale in the ordinary course of business.

[IAS 40 Investment Property] Investment property vs owner-occupied property: difference?

Investment property: held to earn rentals or for capital appreciation (IAS 40). Owner-occupied: held for use in production/supply of goods or services or administration (IAS 16). Property held for sale in ordinary course = inventory (IAS 2).

[IAS 40 Investment Property] Give 4 examples of investment property.

Land held for long-term capital appreciation; land held for a currently undetermined future use; a building leased out under operating leases; a vacant building held to be leased out; property under construction for future use as investment property.

[IAS 40 Investment Property] How is property under construction for future use as investment property classified?

As investment property from the outset (IAS 40). Redevelopment of existing investment property for continued use as IP also remains IP.

[IAS 40 Investment Property] How is investment property measured initially?

At cost, including transaction costs (e.g. property transfer taxes, professional fees). Excludes start-up costs, abnormal waste and initial operating losses before planned occupancy.

[IAS 40 Investment Property] What accounting policy choice exists after initial recognition (IAS 40)?

Fair value model or cost model, applied to all investment property.

[IAS 40 Investment Property] Fair value model (IAS 40): where are fair value changes recognised?

In profit or loss of the period in which they arise. No depreciation.

[IAS 40 Investment Property] Cost model (IAS 40): how is investment property measured?

As under IAS 16: cost - accumulated depreciation - accumulated impairment losses (fair value still disclosed).

[IAS 40 Investment Property] Give 4 factors that affect the fair value of an investment property.

Condition of the property, location, market rental rates, occupancy rates, lease terms and escalation clauses, operating expenses, supply and demand, externalities (e.g. nearby nuclear plant).

[IAS 40 Investment Property] When can property be transferred to or from investment property?

Only when there is a CHANGE IN USE, supported by evidence. A change in management's intentions alone is not evidence.

[IAS 40 Investment Property] Give the 4 typical evidence of change in use for IAS 40 transfers.

Start of owner-occupation (IP → PP&E); start of development with a view to sale (IP → inventories); end of owner-occupation (PP&E → IP); start of an operating lease to another party (inventories → IP).

[IAS 40 Investment Property] IP at fair value transferred to PP&E or inventory: what is the deemed cost?

Its fair value at the date of change in use.

[IAS 40 Investment Property] Owner-occupied property becomes IP carried at fair value: treatment?

Apply IAS 16 (depreciation, impairment) up to the date of change; any difference between carrying amount and fair value at that date is treated like an IAS 16 revaluation.

[IAS 40 Investment Property] Under the cost model, do transfers change the carrying amount?

No. Transfers between IP, owner-occupied property and inventories do not change the carrying amount.

[IAS 40 Investment Property] When is investment property derecognised?

On disposal (sale or finance lease) or when permanently withdrawn from use with no future benefits expected. Gain/loss = net proceeds - carrying amount in P&L. Disposal date = date the recipient obtains control.

[IAS 38 Intangible Assets] Define an intangible asset (IAS 38).

An identifiable non-monetary asset without physical substance, controlled by the entity as a result of past events, from which future economic benefits are expected to flow.

[IAS 38 Intangible Assets] Give 4 examples of intangible assets.

Computer software, patents, motion picture films, import quotas (also licences, brands, customer relationships acquired).

[IAS 38 Intangible Assets] When is an intangible asset 'identifiable'?

When it is SEPARABLE (can be sold, transferred, licensed, rented or exchanged) OR it arises from CONTRACTUAL OR OTHER LEGAL RIGHTS (even if not transferable or separable).