fs disclosures interim & segment reporting

Institute of Chartered Accountants of Nigeria (ICAN)

IFRS Certification Technical Programme

Financial Statements – Disclosures (Interim Financial Reporting and Operating Segments)

Interim reporting

ICAN IFRS Certification Technical Training Programme

Content

Introduction

Recognition and measurement

Disclosure


Interim financial reporting

Introduction

Interim financial reporting - Introduction

• Requirement to publish interims?

- None in IFRS

- May be required by local regulator

• IAS 34 sets out minimum content

• 60 day timeframe recommended

• Condensed financial statements


Principles of IAS 1

Interim financial reporting – Recognition and measurement

• Fundamental principles of IAS 1

Going concern Accruals basis Offsetting

Fair presentation Materiality Aggregation


Same accounting policies

• Same accounting policies as in most recent annual financial statements

• Unless entity:

- plans to change policy before year-end

- is required (eg by a new standard) to change policy before year-end



Discrete period and estimates

• Interim period = discrete period

• Assets and liabilities should meet recognition criteria at interim date

• Greater use of estimates in interims



Examples and special cases

• Provisions, year-end bonuses and holiday pay

• Tax

• Revaluations

• Impairment and IFRIC 10



Provisions, year-end bonuses and holiday pay

• Same criteria for recognising a provision

• Year-end bonus provision recognised if:

- legal or constructive obligation

- reliable estimate

• Accumulating holiday pay



Tax

• Estimate an average annual effective rate

• Apply this to pre-tax interim income

Example:

An entity reports quarterly. It earns 10,000 pre-tax each quarter.

Tax rate is 20% on first 20,000 and 30% on rest.

How much tax is reported in each quarter?



Tax - example

Q1 Q2 Q3 Q4 Annual

Earnings 10,000 10,000 10,000 10,000 40,000

Tax expense 2,500 2,500 2,500 2,500 10,000

Q1 Q2 Q3 Q4 Annual

Earnings 10,000 10,000 10,000 10,000 40,000

Tax expense 2,000 2,000 3,000 3,000 10,000

Which of the following is the correct answer?



Revaluations

• Material changes in fair value should be reflected in the interim report

• Directors’ estimate vs independent valuation?

Example:

A property is carried at fair value under IAS 16 .

It is valued at 100m at start of year, 110m at interim date,

then sold in second half of the year for 104m.

Is there a 4m profit on disposal or a 6m loss?

A: 6m loss



IFRIC 10

Impairment

• A retailer has goodwill relating to a shop.

• In first half, competitor opens a store, shop becomes loss making, goodwill is impaired.

• In second half, competitor shuts down, retailer’s shop recovers.

• Should impairment be reversed?

A: No



Condensed statement of financial position

Condensed statement of financial position

Primary statements

Condensed statement of

cash flows

Condensed statement of

cash flows

Condensed statement of comprehensive income

(EPS)

Condensed statement of comprehensive income

(EPS)

Condensed statement of changes in equity

Condensed statement of changes in equity


Interim financial reporting – Disclosure

Financial position

As at As at

30 Jun 31 Dec

2012 2011 As at 31 Dec 2007

Periods to be presented and comparatives

Comprehensive income

3m 3m 6m 6m

Ending ending ending ending

30 Jun 30 Jun 30 Jun 30 Jun

2012 2011 2012 2011

Cash flow

6m 6m

ending ending

30 Jun 30 Jun

2012 2011

Changes in equity

6m ending 6m ending

30 Jun 30 Jun

2012 2011


Interim financial reporting – Disclosures

Notes

• Segmental reporting

• Business combinations

• Accounting policies

• Seasonality

• Items of unusual nature, size or incidence

• Changes in estimates

• Issue and repayment of debt and equity

• Dividends paid

• Post balance sheet events

• Changes in contingent assets or liabilities

IAS 34 requires minimum note disclosures:



Segmental reporting

If IFRS 8 applies:

• Revenues from external customers

• Intersegment revenues

• Segment result

• Total assets for which there has been a material change

• Changes in segments or the basis of measurement of segment profit

• A reconciliation of segment results to the result before tax and discontinued operations



Business combinations

• Details of acquiree, date of acquisition, how and why control obtained

• Fair value of consideration

• Fair value of assets and liabilities acquired

• Factors making up goodwill

• Revenue and profits of acquiree since acquisition and as if acquisition date was at start of financial year

• Covers post balance sheet period too

• Provisional accounting

Extensive IFRS 3, ‘Business combinations’ disclosures:



First time adoption

• IFRS 1 applies to interims

• First IFRS interim report should include:

- full IFRS accounting policies

- IFRS 1 reconciliations between

previous GAAP and IFRS



Top ten common issues

• Statement of compliance with IFRS

• Periods to be presented

• IFRS 1 in year of transition

• Unusual items – nature, size, incidence

• Events material to the current interim period

• Business combinations disclosures

• New standards effective

• Material changes in estimates, e.g. pensions, provisions

• Seasonality

• Related party transactions



Operating segments


Financial information management uses

Segments through the eyes of management

The Core principle

An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Content

Scope and applicability

4 Step approach

Disclosure


Operating segments

Scope and applicability

IFRS 8 applies to entities who:

- Have debt/equity that is being traded publicly; or- Are in the process of filing debt/equity on a public market.

However, other standards refer to the guidance in IFRS 8:

- IFRS 5: Discontinued operations

- IAS 36: Impairment testing- Therefore, all entities need to consider the implications of IFRS 8

23ICAN IFRS Certification Technical Training Programme

Operating segments

Identify the CODM

Identify the operating segments

Present the required information

(and reconcile to primary statements)

Determine the reportable segments

1

3

2

4

24

The road to IFRS 8 – 4 simple steps


Operating segments

Identifying the CODM Chief Operating Decision Maker

Slide 25

Allocates resources

Assesses performance

Function not a title


Operating segments – 4 Simple steps

Identify the CODM





1

3

2

4

26



Operating segments

• Engages in business activities • For example (possible)- Start-up activities- R&D operation- Vertically integrated business- Functional department

• Operating results are regularly reviewed by the CODM to assess performance and make decisions

• An operating segment would regularly have a segment manager who is directly accountable and in regular contact with the CODM

• Has discrete financial information available

• Would require:- Balance sheet?- Revenue only?- Gross Profit?


Operating segments – 4 Simple steps


Identify the CODM





1

3

2

4

28



Operating segments

Determining reportable segments

Slide 29


For the remaining operating segments below 10% threshold,

aggregate with each other if majority of aggregation criteria met

If reportable segments are less than 75% of external revenue

add more reportable segments

Aggregate any operating segments that meet all

aggregation criteria

Identify each operating segment or aggregated operating segment that exceeds 10% threshold


Segments that exceed the threshold 10% of

• Revenue (including internal)• Profit and Loss• Assets

Aggregation Criteria • Aggregation is consistent with the core principal• Segments have similar economic characteristics• Segments similar on five specified criteria (unless two

immaterial segments – then only a majority of the criteria need to be met)

Specified Criteria • Nature of products and services• Natureof production process• Method of distribution• Type or class of customer• Nature of regulatory environment



Determining reportable segments: Concepts

Identify the CODM





1

3

2

4

31



Operating segments

Disclosure considerations

Slide 32

• Disclosure of certain minimum information

Reconciliation of totals to primary financial statements

Measure of profit

Significant other items included in the profit measure or provided to CODM e.g. revenue, interest, depreciation

Measure of assets*

Associates and Capex included in the asset measure or provided to CODM

Measure of liabilities

• Disclosure of information where the information is regularly provided to CODM

No

n-G

AA

P M

easu

res


The road to IFRS 8 – 4 simple steps – disclosures


Slide 33

Entity wide disclosures

Information about products and services

Geographical areas

• Domicile and foreign revenues

• Domicile and foreign non-current assets

Extent of reliance on Major customers

• > 10% entity revenues from single external customer

• This is required even if entity has only one reportable segment.

3/05/2011ICAN IFRS Certification Technical Training Programme



Slide 34

Retrospective application in all of the following situations:

• When adopted• When segment is initially identified as reportable becomes non-reportable• Changes in the organizational structure

3/05/2011ICAN IFRS Certification Technical Training Programme


Case Study


Questions?


The views and opinions expressed in this presentation are those of the author and do not in any way represent the views of the author’s employer or the Institute of Chartered Accountants of Nigeria. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The author does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Contact

Cyril Azobu, FCA

Partner, PwCEnergy Assurance

Tel: +234 1 2711700, 2111Mobile: +234 802 3227 845E-mail: [email protected]

fs disclosures interim & segment reporting

Documents