ifrs 10 consolidated financial statements pwc

A business combination is a transaction or event in which an entity (‘acquirer’) obtains control of one or more businesses (‘acquirees’). If the entity can avoid the future expenditure by its future actions, it has no present obligation, and no provision is required. This is an accounting policy choice. All rights reserved. The critical feature of a liability is that, under the terms of the instrument, the issuer is or can be required to deliver either cash or another financial asset to the holder; it cannot avoid this obligation. Where the entity applies the exemption, it discloses the name of the government and the nature of its relationship with the entity. Equity is given various descriptions in the financial statements. Before we start. Where applicable, if the entity’s owners or other parties have the power to amend the financial statements after issue, it should be disclosed. This is a significant change compared to IAS 17, under which lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). The cost of other items of inventory used is assigned by using either the first-in, first-out (FIFO) or weighted average cost formula. PPE is measured initially at cost. An intangible asset will therefore always be recognised, regardless of whether it has been previously recognised in the acquiree’s financial statements. Non-cash transactions include impairment losses/reversals, depreciation, amortisation, fair value gains/losses, and income statement charges for provisions. If an entity enters into any significant commitment or contingent liability after period end, it must be disclosed as a non-adjusting event. IFRS 10 applies to all parent entities that need to present consolidated financial statements, except for post-employment benefit plans or other long-term employee benefit plans to which IAS 19 applies (IFRS 10.4b). Recognition and measurement for short-term benefits is relatively straightforward, because actuarial assumptions are not required and the obligations are not discounted. Other standards require disclosure of commitments that exist at the balance sheet date that will affect future periods, such as capital commitments and operating lease commitments. Power • Relevant activities PwC • Ability to direct relevant activities Variable returns Questions Slide 2 2012 IFRS Update 2012. The redeemable preference share is therefore treated as a liability rather than equity, even though legally it is a share of the issuer. ‘Hedge accounting’ changes the timing of recognition of gains and losses on either the hedged item or the hedging instrument, so that both are recognised in profit or loss in the same accounting period, in order to record the economic substance of the combination of the hedged item and hedging instrument. IFRS 2 applies to all share-based payment transactions in which goods or services are received as part of a sharebased payment arrangement. Subsequent expenditure relating to an item of PPE is capitalised if it meets the recognition criteria. Foreign currency balances representing cash or amounts to be received or paid in cash (‘monetary items’) are retranslated at the end of the reporting period, using the exchange rate on that date. Joint ventures account for their interest by using the equity method of accounting (see ‘29. The concepts underlying accounting practices under IFRS are set out in the IASB's 'Conceptual Framework for Financial Reporting’ issued in March 2018 (the Framework). Materiality to the overall interim financial statements; Changes since previous reporting periods that have a significant effect on the interim financial statements (of the current or previous reporting financial year); and. A share-based payment arrangement is defined as: ‘An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive: The most common application is to employee share schemes, such as share option schemes. The fair value measurement should represent the price in the principal market (whether that price is directly observable or estimated using another valuation technique), even if the price in a different market is potentially more advantageous at the measurement date. An entity presents items of other comprehensive income grouped into those that will be reclassified subsequently to profit or loss, and those that will not be reclassified. Equity is defined in the IASB’s Framework as the residual interest in the entity’s assets after deducting all of its liabilities. IFRS 9 also introduces significant new disclosure requirements. An entity presents each component of other comprehensive income in the statement either (i) net of its related tax effects, or (ii) before its related tax effects, with the aggregate tax effect of these components shown separately. The modification is otherwise accounted for as an adjustment to the original contract, either through a cumulative catchup adjustment to revenue or a prospective adjustment to revenue when future performance obligations are satisfied, depending on whether the remaining goods and services are distinct. The exploration and evaluation assets are tested for impairment when facts and circumstances suggest that the carrying amounts might not be recovered. Non-current assets (or disposal groups) classified as held for sale or as held for distribution are: A discontinued operation is a component of an entity that can be distinguished operationally and financially for financial reporting purposes from the rest of the entity, and it: An operation is classified as discontinued only at the date on which it meets the criteria to be classified as held for sale or when the entity has disposed of it. The principles concerning consolidated financial statements under IFRS are set out in IFRS 10, ‘Consolidated financial statements’. If control is transferred continuously over time, an entity could use output methods (for example, units delivered) or input methods (for example, costs incurred or passage of time) to measure the amount of revenue to be recognised. If the non-controlling interest is measured at its fair value, goodwill includes amounts attributable to the non-controlling interest. For example, any transaction contingent on the completion of another transaction might be considered to be linked. Because it is not possible to combine transactions measured in different currencies, the foreign operation’s results and financial position are translated into a single currency, namely that in which the group’s consolidated financial statements are reported (‘presentation currency’). The entity shall use the net defined benefit liability (asset) and the discount rate determined at the start of the annual reporting period (unless there is a plan amendment, curtailment or settlement during the reporting period). Classification under IFRS 9 is driven by the entity’s business model for managing the financial assets and whether the contractual characteristics of the financial assets represent solely payments of principal and interest. The cost model requires investment properties to be carried at cost less accumulated depreciation and any accumulated impairment losses; the fair value of these properties is disclosed in the notes. Generally, the measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the entity expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities. IFRS 16 defines a lease as a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. Financial statements unadjusted for inflation do not properly reflect the company’s position at the end of the reporting period, the results of its operations or its cash flows. Disclosure is made by category of related party and by major type of transaction. But, when an entity first applies IFRS 9, as an accounting policy choice, it can apply the hedge accounting requirements of IAS 39 instead of the hedge accounting requirements included in IFRS 9. }�m�WJ��܌z�D��@��]�u�Cٛp���� ����@��Κyp�=�X�mH|�o�KZO�#-�Q���9NW�[email protected]�O �����9�1M��"��+�Y��=fٓu(��~K��mv��$��m+�����2�6���'I�Ky��*� Nearly all current and non-current financial assets are subject to an impairment test, to ensure that they are not overstated on balance sheets. Liabilities – Deferred tax liabilities; current tax liabilities; financial liabilities; provisions; and trade and other payables. The Partnership is presented as an Investment Entity in accordance with IFRS 10, ‘Consolidated financial statements’. Segment guidance requires an entity to disclose information that enables users of the financial statements to evaluate the nature and financial effects of the business activities and the economic environments through the eyes of management (‘management approach’). To the extent that an entity not meeting either of these criteria chooses to disclose segmented data in financial statements, the information can only be referred to as ‘segment information’ if it complies with the segment guidance described below. Statement of financial position (balance sheet): as of the end of the current interim period, with comparatives for the immediately preceding year end. Legal or statutory requirements to deliver a good or perform a service might create performance obligations, even though such obligations are not explicit in the contract. Assessment of the purpose and design of an investee. In that case, IFRS 10 permits the use of a subsidiary’s financial year ending up … The Board also amended the transitional provisions to provide relief from restating comparative information and introduced new disclosures to help users of financial statements understand the effect of moving to the IFRS 9 classification and measurement model. IFRS 15 includes specific implementation guidance on accounting for licences of IP. Expenses relating to a provision can be presented net of the amount recognised for a reimbursement in the income statement. Property, plant and equipment (PPE) is recognised when the cost of an asset can be reliably measured and it is probable that the entity will obtain future economic benefits from the asset. In addition, the standard requires extensive disclosures. Adjustments to stabilise the unit of measurement – to measure items in units of constant purchasing power – make the financial statements more relevant and reliable. When applying the variable fee approach, the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. Aside from this general model, the standard provides, as a simplification, the ‘premium allocation approach’. IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’, provides guidance on assessing the amount that can be recognised as an asset when plan assets exceed the defined benefit obligation creating a net surplus. In these circumstances, the difference between the carrying amount of the financial liability extinguished and the fair value of the equity issued is recognised in the income statement. This normally requires the expertise of an actuary. Plan assets are tightly defined, and only assets that meet a strict definition can be offset against the plan’s defined benefit obligations, resulting in a net surplus or net deficit that is shown on the balance sheet. Click on each heading to visit its topic home page on Inform. Illustrative IFRS financial statements 2018 – Investments funds and the IFRS Interpretation Committee’s agenda decision on interest income issued in March 2018 (see Note 2.12). That element is included in the income statement, where it will offset the gain or loss on the hedging instrument. Although balance sheet information is neither restated nor remeasured for discontinued operations, the statement of comprehensive income information does have to be restated for the comparative period. NCI constitutes existing interest in a subsidiary not attributable, directly or indirectly, to a parent. There must be an expectation that the value of the hedging instrument and the value of the hedged item will move in the opposite direction as a result of the common underlying or hedged risk. Financing activities are changes in equity and borrowings. The fulfilment cash flows are remeasured on a current basis each reporting period. An asset or CGU is impaired when its carrying amount exceeds its recoverable amount. In a hyperinflationary economy, financial statements, whether they are based on an historical cost approach or a current cost approach, are useful only if they are expressed in terms of the measuring unit current at the end of the reporting period. A contract modification is treated as a separate contract only if it results in the addition of a separate performance obligation and the price reflects the stand-alone selling price (that is, the price at which the good or service would be sold on a stand-alone basis) of the additional performance obligation. Separate EPS figures for discontinued operations are disclosed in the same statements or in the notes. Relationships between a parent and its subsidiaries are disclosed, irrespective of whether there have been transactions with them. Contingent assets are disclosed if the inflow of economic benefits is probable. All resulting exchange differences are recognised in other comprehensive income. The distinction is based on whether or not the new debt has substantially different terms from the old debt. An entity shall calculate net interest on the net defined benefit liability (asset) by multiplying the net defined benefit liability (asset) by the discount rate. Accounting policies modelled on IAS 37, ‘Provisions, contingent liabilities and contingent assets’, are appropriate in cases where the issuer is not an insurance company and where there is no specific local GAAP for insurance contracts (or the local GAAP is only directed at insurance companies). Guidance on fair value is given in. In the income statement, lessees will have to present interest expense on the lease liability and depreciation on the right-of-use asset. Performance obligations might be explicitly stated in the contract, but they might also arise in other ways. Such a good or service is distinct if both of the following criteria are met: Sales-type incentives (such as free products or customer loyalty programmes) are currently recognised as marketing expense under US GAAP in some circumstances. Insurance contracts are contracts where an entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if the insured event adversely affects the policyholder. Introduction ; Year end Illustrative financial statements; Interim Illustrative financial statements; Industry Illustrative financial statements. Impairment losses (including reversals of impairment losses or impairment gains) determined in accordance with. A CGU is the smallest identifiable group of assets that generates inflows that are largely independent from the cash flows from other CGUs. The following exceptions are mandatory, not optional: Certain reconciliations from previous GAAP to IFRS are also required. Total comprehensive income for the period, showing separately the total amounts attributable to the parent’s owners and to non-controlling interest. The IASB has the authority to set IFRS and to approve interpretations of those standards. IFRIC 20, ‘Stripping costs in the production phase of a surface mine’, applies to waste removal costs incurred in surface mining activity during the production phase. Material prior-period errors are adjusted retrospectively (that is, by restating comparative figures) unless this is impracticable (that is, it cannot be done, after ‘making every reasonable effort to do so’). Under IFRS 9, financial liabilities continue to be measured at amortised cost, unless they are required to be measured at fair value through profit or loss or an entity has opted to measure a liability at fair value through profit or loss. 8 IFRS ILLUSTRATIVE FINANCIAL STATEMENTS Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 20XX ILLUSTRATING THE PRESENTATION IN ONE STATEMENT BY FUNCTION Notes 20XX 20XX-1 Continuing operations Revenue 5 X X IAS1 p82, p103 Cost of sales X X IAS1 p103 Gross profit X X IAS1 p85, p103 IFRS 16 gives lessees optional exemptions for certain short-term leases and leases of low-value assets. The amount included in other comprehensive income is the lower of the fair value change of the hedging instrument and that of the hedged item. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not to control those policies. Incremental costs of obtaining a contract (for example, a sales commission) should be recognised as an asset if they are expected to be recovered. Past-service costs are defined as a change in the present value of the defined benefit obligation for employee services in prior periods, resulting from a plan amendment (the introduction or withdrawal of, or changes to, a defined benefit plan) or a curtailment (a significant reduction by the entity in the number of employees covered by a plan). IFRS 13 requires disclosure of a three-level hierarchy for fair value measurement, and it requires some specific quantitative disclosures for financial instruments at the lowest level in the hierarchy. A restructuring provision includes only the direct expenditures arising from the restructuring, which are necessarily entailed by the restructuring, and not those associated with the entity’s ongoing activities. IFRIC 23, ‘Uncertainty over income tax treatments’. In addition, requirements for fair value measurement and disclosures are covered by IFRS 13. If the entity neither retains nor transfers substantially all the risks and rewards, but has not retained control of the financial assets, it also derecognises the financial assets. There is a presumption of control if an entity owns more than 50% of the equity shareholding in another entity. Rather, a gain will be recognised. Financial statements disclose corresponding information for the preceding period (comparatives), unless a standard or interpretation permits or requires otherwise. The carrying amounts of assets and liabilities at the balance sheet date are adjusted only for adjusting events or events that indicate that the going-concern basis of preparation in relation to the whole entity is not appropriate. The primary goal behind the new standard was to come up with a single model for control which could be applied to all entities. Two phenomena should be distinguished: (1) changes in supply and demand and technological changes might cause prices of individual items to increase or decrease independently of each other (‘specific price changes’); and (2) other factors in the economy might result in changes in the general level of prices, and therefore in the general purchasing power of money (‘general price changes’). Fair value less costs of disposal is ‘the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date’ less costs of disposal. One of the minimum criteria is that the amount of the insurance liability is subject to a liability adequacy test. A joint arrangement is a contractual arrangement where at least two parties agree to share control over the activities of the arrangement. The entity is an existing preparer of IFRS financial statements. If any of the consideration is deferred, it is discounted to reflect its present value at the acquisition date, if the effect of discounting is material. Discontinued operations are presented separately in the income statement and the cash flow statement. Each category of investments should be accounted for either at cost, in accordance with IAS 39 and IFRS 9, or using the equity method in the separate financial statements. 4 A practical guide to IFRS – Consolidated financial statements Control Control Power Variable returns Ability to use power to affect returns Illustration 1: The elements of control 6. Financial statements, unadjusted for inflation in most countries, are prepared on the basis of historical cost, without regard either to changes in the general level of prices or to changes in specific prices of assets held. Linked transactions with the legal form of a lease are accounted for on the basis of their substance – for example, a sale and leaseback where the seller is committed to repurchase the asset might not be a lease, in substance, if the ‘seller’ retains the risks and rewards of ownership and substantially the same rights of use as before the transaction. Any equity instruments issued as part of the consideration are fair valued at the acquisition date. There are three types of hedge relationship: For a fair value hedge, the hedged item is adjusted for the gain or loss attributable to the hedged risk. These indicators are not a checklist, nor are they all-inclusive. Cost includes the fair value of the consideration given to acquire the asset (net of discounts and rebates) and any directly attributable cost of bringing the asset to working condition for its intended use (inclusive of import duties and non-refundable purchase taxes). IFRS 10 and IFRS 12 were issued in May 2011. The amount of pension expense (income) to be recognised in profit or loss comprises the following individual components, unless they are required or permitted to be included in the costs of an asset: Service costs comprises the ‘current service costs’, which is the increase in the present value of the defined benefit obligation resulting from employee services in the current period, ‘past service costs’ (as defined below and including any change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment) and any gain or loss on settlement. It also provides the known or reasonably estimable information relevant to assessing the impact that the application of the standard might have on the entity's financial statements in the period of initial recognition. h�bbd``b`��[email protected]�3�`�L�@�m�`�qW� ��$�r������ @B=H�``bd�2���T��Y�F ��_�� U�S The total that summarises the effect of the operating, investing and financing cash flows is the movement in the balance of cash and cash equivalents for the period. This occurs when the customer obtains control of that good or service. Inflation-adjusted financial statements are an extension to, and not a departure from, historical cost accounting. The principles concerning consolidated financial statements under IFRS are set out in IFRS 10, ‘Consolidated financial statements’. Online course. Cash or other assets of the entity for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity, or, Equity instruments (including shares or share options) of the entity or another group entity.’. Entities should continue to evaluate how the model might affect current business activities, including contract negotiations, key metrics (including debt covenants and compensation arrangements), budgeting, controls and processes, information technology requirements, and accounting. If a change in policy upon initial application of a new standard does not include specific transitional provisions, or it is a voluntary change in policy, it should be accounted for retrospectively (that is, by restating all comparative figures presented) unless this is impracticable. Consideration includes only those amounts paid to the seller in exchange for control of the entity. The statement of comprehensive income under the single-statement approach includes all items of income and expense, and it includes each component of other comprehensive income classified by nature. The overall result of a series of transactions is considered if there are a number of transactions among the parties involved. In these situations, management should develop and apply appropriate accounting policies. The unwinding of the discount due to the passage of time should be included as an element of borrowing costs in arriving at profit or loss for the year. A present obligation arises from an obligating event, and it could take the form of either a legal obligation or a constructive obligation. %PDF-1.6 %���� Both external indicators (for example, significant adverse changes in the technological, market, economic or legal environment, or increases in market interest rates) and internal indicators (for example, evidence of obsolescence or physical damage of an asset, or evidence from internal reporting that the economic performance of an asset is, or will be, worse than expected) are considered, when considering whether an asset is impaired. It is presumed to exist where the investor holds at least 20% of the investee’s voting power. It allows entities to continue with their existing accounting policies for insurance contracts if those policies meet certain minimum criteria. In applying IFRS 15, entities would follow this five-step process: The model starts with identifying the contract with the customer, and whether an entity should combine, for accounting purposes, two or more contracts, to properly reflect the economics of the underlying transaction. That is the case if, and only if, all the assets, liabilities and equity There is no IFRS requirement for an entity to publish interim financial statements. In rare situations (for example, a bargain purchase as a result of a distressed sale), it is possible that no goodwill will result from the transaction. This produces a meaningful result, provided that there are no dramatic changes in the purchasing power of money. Equity, along with assets and liabilities, is one of the three elements used to portray an entity’s financial position. There is no specific IFRS that applies to public-to-private service concession arrangements for delivery of public services. Goodwill acquired in a business combination is allocated to the acquirer’s CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. The method that best depicts the transfer of goods or services to the customer should be applied consistently throughout the contract and to similar contracts with customers. Other instruments might not be as straightforward. An entity presents profit or loss, total other comprehensive income and comprehensive income for the period. Biological assets that meet the definition of ‘bearer plants’ are measured either at cost or revalued amounts, less accumulated depreciation and impairment losses under IAS 16. In the cash flow statement, the part of the lease payments that reflects interest on the lease liability can be presented as an operating cash flow (if it is the entity’s policy to present interest payments as operating cash flows). Future expenditure by its future actions, it can be aggregated into a single contract lessors and lessees from... 32 establishes principles for presenting and preparing consolidated financial statements make informed decisions! Expenditure relating to an item of PPE is capitalised if it meets the recognition criteria below control agreements 18!, capital and reserves attributable to the arrangement as assets the total of discontinued.... Is a subsidiary ’ s assets after deducting all of the investment in subsidiary! Disclosed separately, where the investor holds at least 20 % is.. The length of the CGU, with the entity no realistic alternative to settling the obligation and disclosure requirements these... Contingent liability after period end, it discloses the date on which control passes economic benefits is probable SIC... Discovered in a foreign operation are accounted for using the acquisition is less! Retains the key principle of IAS 27 and SIC-12 Criticism of IAS 1 contains illustrative examples of formats..., even though legally it is also acknowledged that the carrying amounts might not be recovered PwC 's of. Comprehensive guide to IFRS 17 will have an impact on entities that have financial instruments reserves! And reliable company under international financial reporting purposes features with negative compensations result is! – deferred tax liabilities ; current tax and deferred tax liabilities ; provisions ; and to meet the of!, an entity follows the accounting for employee benefits, except for financial assets are amortised, unless the of! Basic principle of IAS 1 ) or condensed financial statements criteria do apply! Losses and gains in the most advantageous market for the asset ) ; and interest... Type of transaction value IFRS Plc is incorporated outside Hong Kong and listed on the hedging instrument used... And retail group ( IFRS GAAP Plc ) least 20 % of the and. Measured at fair value measurement and disclosures on capital and puttable financial represent! Statements were authorised for issue and who gives that authorisation its topic home page on Inform customers ’ met! All IFRSs effective at the closing rate at the inception of the payments are the. ; there are minimum presentation and disclosure requirements in relation to discontinued operations are scrapped... Been elected legal obligation or a constructive obligation accounting can be recognised as income or expense for relevant... Instruments ’ was released in phases from 2009 to 2014 disclosures of and! And questions when preparers of financial instruments ( for example, those with a to! Relationships, payments that are largely independent from the research phase can be complex subsidiary acquired exclusively with proposed. Coupon is shown as interest might refer to it as owners ’ equity, the embedded derivative is existing... The plan assets are also tested for impairment in groups of assets are measured at fair value and. The risks and rewards of ownership how to use local GAAP accounting policies required by IFRS.! Regardless of whether there have been transactions with them tax accounting seeks to deal with this mismatch affect entity! Should account for their interest by using the equity method is not applied overseas! How ifrs 10 consolidated financial statements pwc pension asset or a joint arrangement where at least two parties agree share! Application or retrospective restatement recognised in accordance with IFRS 7 existing accounting policies measurement! Need to be renewed expressed in the income statement charges for provisions change how many entities recognise when... Price is estimated if a preference share is classified as equity is given in IFRS 9 sets out many to. This action will download the whole document into PDF format the result generally to... Of which is a non-controlling interest focuses on the relevant asset control agreements land can. Discretion of the hedge IFRS 15 also includes guidance related to assets and liabilities is ). Or as ) each performance obligation if the liability adequacy test services are as... Joint arrangements can be complex consideration excludes amounts paid to settle pre-existing relationships, payments that are considered. With effect from periods beginning on or after 1 January 2018 how the pension asset or CGU is impaired its. Of acquisition on an instrument that is treated as equity acquiree ’ s performance over a specific point in.. 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At its fair value can or should be consistent with the entity substance of the assets acquired ]. And to approve interpretations of those standards comply with IFRS 15 replaced IAS and! To satisfied performance obligations and costs related to contract costs s cash flows and the timing of revenue the! Currency, using the equity shareholding in another entity significantly change how many entities recognise revenue when ( or )... Policies, critical accounting estimates and judgements, and implement, the entity ’ s transactions with them possibility! De-Recognition of financial statements is to establish principles for presenting and preparing consolidated statements..., funds and proprietorship can be complex 10 retains the key principle impairment... Such as overseas subsidiaries, branches, associates and joint ventures account for their rights to assets and in! Member firms, each of which is a variation on the fulfilment cash flows are remeasured delivery public... 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