ias

Audit

Audit.Tax.Consulting.Financial Advisory.

IFRSs in yourpocket 2006

An IAS Plus guide

About this publication

This publication contains general information only and is not intended to be comprehensive nor to provide specificaccounting, business, financial, investment, legal, tax or otherprofessional advice or services. This publication is not asubstitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business.Before making any decision or taking any action that mayaffect you or your business, you should consult a qualifiedprofessional advisor. Whilst every effort has been made toensure the accuracy of the information contained in thispublication, this cannot be guaranteed, and neither Deloitte Touche Tohmatsu nor any related entity shall have any liability to any person or entity that relies on theinformation contained in this publication. Any such reliance is solely at the user’s risk.

© 2006 Deloitte Touche Tohmatsu

All rights reserved

Designed and produced by The Creative Studio at Deloitte,London. 14802B

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Foreword

1

ForewordIn 2005, thousands of companies around the world – particularly in Europeand the Asia-Pacific area – switched from their national accounting standardsto International Financial Reporting Standards (IFRSs). This “big bang”adoption took a lot of hard work on the part of the preparers of financialstatements, their auditors and others. Early indications are that the effort was well worthwhile from the perspective of investors, lenders and fundmanagers, who acknowledge that IFRSs have provided valuable new insightsinto companies’ financial condition and performance. And since financialmarkets attract seekers and providers of capital across political borders, thefinancial statement comparability that IFRSs provide is another major benefitfrom the perspective of the user of financial statements.

There is wide recognition among stakeholders that it will take time for thecapital markets to become 'fluent' in the application of the IFRS language.Some European preparers, concerned about the pace of continuing change,are calling for a period of stability, so the streamlining of convergence plansrecently announced by the IASB and the FASB should be welcome news.

To help our clients and our people step up to IFRSs, we have formed aGlobal IFRS Office headed by Ken Wild. Ken and his team oversee thedevelopment of most of our IFRS materials, prepare our responses to IASBand IFRIC proposals, and are the final arbiters of IFRS-related technicalquestions. We have also formed seven regional IFRS Centres of Excellence– in Copenhagen, Hong Kong, Johannesburg, London, Melbourne, Parisand Washington, to provide IFRS assistance to our practice offices in nearly150 countries. We also have a network of IFRS specialists in most of theDeloitte member firms, who deal with IFRS issues on a day-to-day basis.Our Firm’s policies on IFRS proposals and technical questions aredetermined by a team comprising the leaders of the seven regionalCentres plus Ken.

This is the fifth edition of our IFRSs in your Pocket booklet. Over 60,000printed copies of the prior edition were distributed in over 70 countries,and tens of thousands more have been downloaded in electronic formfrom www.iasplus.com. I am confident that this new edition will proveeven more popular and useful as IFRSs find their way into more countries,classrooms and financial reports.

Steve AlmondGlobal Managing Partner, AuditDeloitte Touche Tohmatsu

Deloitte IFRS publications You can find links to many Deloitte IFRS-related publications atwww.iasplus.com/dttpubs/pubs.htm. Here are a few:

www.iasplus.com Daily news updates on IASB developments as (our IFRS website) well as summaries of standards and

interpretations and reference materials for download.

IAS Plus newsletter A quarterly newsletter on recent developmentsin International Financial Reporting Standardsand accounting updates for individualcountries. Plus special editions. To subscribe,visit our IAS Plus website.

Deloitte’s IFRS e-Learning IFRS training materials, modules for e-Learning each IAS and IFRS and the Framework, with

self-tests, available without charge at www.iasplus.com

Model IFRS financial Based on IFRSs effective for 2005. Also a statements presentation and disclosure checklist.

IFRS financial Guidance on drafting IFRS financial statements statements 2005: both for first-time adopters and those already Key considerations applying IFRSs.for preparers

Interim financial Includes a model interim financial report andreporting: IAS 34 compliance checklist.A guide to IAS 34

Comparisons of IFRSs Australia, Canada, China, Denmark, Germany, and local GAAP New Zealand, Singapore, United States, and

others.

IFRSs in your pocket Not just this booklet in English, but alsotranslations into other languages.

First-time adoption: Application guidance for the “stable platform” A guide to IFRS 1 standards effective in 2005.

Share-based payment: Guidance on applying IFRS 2 to many common A guide to IFRS 2 share-based payment transactions.

Business combinations: Supplements the IASB’s own guidance for A guide to IFRS 3 applying the new standard.

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Contents

3

Why IFRSs? Why now?

2

ContentsPage

Abbreviations 4

Our IAS Plus website 5

IASB structure 6

IASB contact information 7

IASB chronology 8

Use of IFRSs around the world 11

Members of the IASB 19

Effective dates of recent pronouncements 22

Summaries of current Standards 24

Current IASB agenda projects 81

IASB’s active research topics 86

Interpretations 88

Deloitte’s IFRS e-learning 90

Website addresses 91

Subscribe to our IAS Plus newsletter 92

About Deloitte 93

Why IFRSs? Why now? A common financial language, applied consistently, will enable investors tocompare the financial results of companies operating in differentjurisdictions more easily and provide more opportunity for investment anddiversification. The removal of a major investment risk – the concern thatthe nuances of different national accounting regimes have not been fullyunderstood – should reduce the cost of capital and open newopportunities for diversification and improved investment returns.This point is particularly relevant at a time when companies, countries andindividuals are increasingly dependent upon capital markets to provide asecure retirement for their employees.

For auditors, a single set of accounting standards should enableinternational audit firms to standardise training and better assure thequality of their work on a global basis. An international approach foraccounting should also permit international capital to flow more freely,enabling audit firms and their clients to develop consistent global practiceto accounting problems and thus further enhancing consistency. Finally, forregulators, the confusion associated with needing to understand variousreporting regimes would be reduced.

The logic behind the case for international standards is clear. I amheartened by the fact that our consultations reveal that there still remainsbroad support in Europe and elsewhere for the objective of internationalstandards.

Sir David TweedieChairman, International Accounting Standards BoardRemarks to the Economic and Monetary Affairs Committeeof the European Parliament31 January 2006

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Abbreviations

4

Our IAS Plus website

5

Abbreviations ARC Accounting Regulatory Committee of the EC

CESR Committee of European Securities Regulators

EC European Commission

EEA European Economic Area (EU 25 + 3 countries)

EFRAG European Financial Reporting Advisory Group

EITF Emerging Issues Task Force (of FASB)

EU European Union (25 countries)

FASB Financial Accounting Standards Board (US)

FEE European Accounting Federation

GAAP Generally Accepted Accounting Principle(s)

IAS(s) International Accounting Standard(s)

IASB International Accounting Standards Board

IASC International Accounting Standards Committee

IASCF IASC Foundation (parent body of the IASB)

IFAC International Federation of Accountants

IFRIC International Financial Reporting Interpretations Committeeof the IASB, and interpretations issued by that committee

IFRS(s) International Financial Reporting Standard(s)

IOSCO International Organization of Securities Commissions

SAC Standards Advisory Council (advisory to the IASB)

SEC Securities and Exchange Commission (US)

SIC Standing Interpretations Committee of the IASC, andinterpretations issued by that committee

SME(s) Small and medium-sized entity(ies)

Our IAS Plus website

Deloitte’s www.iasplus.com website provides, without charge,comprehensive information about international financial reporting ingeneral and IASB activities in particular. Unique features include:

• daily news about financial reporting globally;

• summaries of all Standards, Interpretations and proposals;

• many IFRS-related publications available for download;

• model IFRS financial statements and checklists;

• an electronic library of several hundred IFRS resources;

• all Deloitte Touche Tohmatsu comment letters to the IASB;

• links to several hundred international accounting websites;

• e-learning modules for each IAS and IFRS – at no charge;

• complete history of adoption of IFRSs in Europe; and

• updates on national accounting standards development.

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IASB contact information

7

IASB structure

6

IASB contact informationInternational Accounting Standards Board30 Cannon Street, London EC4M 6XH, United Kingdom

General enquiries

• Telephone: +44 20 7246 6410

• Fax: +44 20 7246 6411

• General e-mail: [email protected]

• Office hours: Monday-Friday 08:30-18:00 London time

• Website: www.iasb.org

Publications Department orders and enquiries

• Telephone: +44 20 7332 2730

• Fax: +44 20 7332 2749

• Publications e-mail: [email protected]

• Office hours: Monday-Friday 09:30-17:30 London time

Board Chairman and Vice Chairman, and TechnicalDirectors

Sir David Tweedie IASB Chairman [email protected]

Thomas E. Jones IASB Vice Chairman [email protected]

Elizabeth Hickey Director of Technical Activities [email protected]

Wayne S. Upton Director of Research [email protected]

Paul Pacter Director of Standards for SMEs [email protected]

IASB structure

IASC Foundation22 Trustees, Appoint, Oversee, Raise Funds

Board 12 Full-time and Two Part-timeMembers

Set Technical Agenda, Approve Standards,Exposure Drafts, Interpretations

Standards AdvisoryCouncil

40 Members

Working GroupsFor Major Agenda Projects

AppointsReports toAdvises

Changes to IASB structure adopted as of 1 July 2005

In June 2005, the IASC Foundation trustees made some importantchanges to the IASB structure, including:

• increased the vote for exposure drafts, Standards and Interpretationsfrom a simple majority to nine out of the fourteen IASB members;

• dropped the requirement for ‘liaison Board members’ to seven nationalstandard-setters;

• added SMEs and emerging economies to IASB’s objectives;

• eased the required mix of backgrounds on the IASB – from fivepractising auditors, three preparers, three users and one academician,to “an appropriate mix of practical experience among auditors,preparers, users and academics”, including at least one with recentexperience in each of those fields;

• created the position of independent chairman of the Standards AdvisoryCouncil;

• gave trustees the right to comment on and make suggestions about theIASB's agenda, but not authority to decide the agenda; and

• increased the number of trustees from 19 to 22.

International FinancialReporting InterpretationsCommittee 12 Members


Chronology

9

Chronology

8

1998 IFAC/IASC membership expands to 140 accountancy bodies in101 countries.

IASC completes the core standards with approval of IAS 39.

1999 G7 Finance Ministers and International Monetary Fund urgesupport for IASs to “strengthen the international financialarchitecture”.

IASC Board unanimously approves restructuring into 14-memberboard (12 full-time) under an independent board of trustees.

2000 IOSCO recommends that its members allow multinational issuersto use IASC standards in cross-border offerings and listings.

Ad hoc nominating committee is formed, chaired by US SECChairman Arthur Levitt, to nominate the Trustees who willoversee the new IASB structure.

IASC member bodies approve IASC’s restructuring and a newIASC Constitution.

Nominating committee announces initial Trustees.

Trustees name Sir David Tweedie (chairman of the UK AccountingStandards Board) as the first Chairman of the restructuredInternational Accounting Standards Board.

2001 Members and new name of IASB announced. IASC Foundationformed. On 1 April 2001, the new IASB assumes its standard-setting responsibilities from the IASC. Existing IASs and SICsadopted by IASB.

IASB moves into its new offices at 30 Cannon Street, London.

IASB meets with chairs of its eight liaison national accountingstandard-setting bodies to begin coordinating agendas andsetting out convergence goals.

2002 SIC is renamed as the International Financial ReportingInterpretations Committee (IFRIC) with a mandate not only tointerpret existing IASs and IFRSs but also to provide timelyguidance on matters not addressed in an IAS or IFRS.

Europe requires IFRSs for listed companies starting 2005.

IASB and FASB issue joint agreement on convergence.

IASB chronology1973 Agreement to establish IASC signed by representatives of the

professional accountancy bodies in Australia, Canada, France,Germany, Japan, Mexico, Netherlands, United Kingdom/Irelandand United States.

Steering committees appointed for IASC’s first three projects.

1975 First final IAS published: IAS 1 (1975) Disclosure of AccountingPolicies, and IAS 2 (1975) Valuation and Presentation ofInventories in the Context of the Historical Cost System.

1982 The IASC Board is expanded to up to 17 members, including13 country members appointed by the Council of theInternational Federation of Accountants (IFAC) and up to 4 representatives of organisations with an interest in financialreporting. All members of IFAC are members of IASC. IFACrecognises and will look to IASC as the global accountingstandard setter.

1989 European Accounting Federation (FEE) supports internationalharmonisation and greater European involvement in IASC. IFACadopts a public sector guideline to require government businessenterprises to follow IASs.

1994 Establishment of IASC Advisory Council approved, withresponsibilities for oversight and finances.

1995 European Commission supports the agreement between IASCand International Organization of Securities Commissions(IOSCO) to complete core standards and concludes that IASsshould be followed by European Union multinationals.

1996 US SEC announces its support of the IASC’s objective to develop,as expeditiously as possible, accounting standards that could be used in preparing financial statements for the purpose ofcross-border offerings.

1997 Standing Interpretations Committee (SIC) is formed. 12 votingmembers. Mission to develop interpretations of IASs for finalapproval by the IASC.

Strategy Working Party is formed to make recommendationsregarding the future structure and operation of IASC.


IFRSs around the world

11

Chronology

10

Use of IFRSs around the worldUse of IFRSs for domestic reporting by listed companiesas of February 2006

Required Requiredfor some for alldomestic domestic

IFRSs not IFRSs listed listedLocation permitted permitted companies companies

Albania No stock exchange. Companies use Albanian GAAP.

Argentina X

Armenia X

Aruba X

Austria X (a)

Australia X (b)

Bahamas X

Bahrain Banks

Barbados X

Bangladesh X

Belgium X (a)

Belize No stock exchange. Companies may use IFRSs.

Benin X

Bermuda X

Bolivia X

Botswana X

Brazil X

Brunei Darussalam X

Bulgaria X

Burkina Faso X

Cambodia No stock exchange. Companies may use IFRSs.

Cayman Islands X

Canada X

Chile X

China X

Cote D’Ivoire X

2003 First final IFRS and first IFRIC draft Interpretation published.

Improvements project completed – major revisions to 14 IASs.

2004 Extensive discussions about IAS 39 in Europe, leading to ECendorsement with two sections of IAS 39 ‘carved out’.

Webcasting of IASB meetings begins.

First IASB discussion paper and first final IFRIC Interpretation.

IFRSs 2 through 6 are published.

2005 IASB Board member becomes IFRIC chairman.

Constitutional changes (see page 6).

US SEC ‘roadmap’ to eliminating IFRS-US GAAP reconciliation.

EC eliminates fair value option IAS 39 ‘carve out’

Meetings of Working Groups opened to public.

IFRS 7 is published.



13


12



Israel X

Italy X (a)

Jamaica X

Japan X

Jordan X

Kazakhstan Banks

Kenya X

Korea (South) X

Kuwait X

Kyrgyzstan X

Laos X

Latvia X (a)

Lebanon X

Liechtenstein X (a)

Lesotho X

Lithuania X (a)

Luxembourg X (a)

Macedonia X

Malawi X

Mali X

Malta X (a)

Malaysia X

Mauritius X

Mexico X

Moldova X

Myanmar X

Namibia X

Netherlands X (a)

NL Antilles X

Nepal X

New Zealand 2007 (b)



Colombia X

Costa Rica X

Croatia X

Cyprus X (a)

Czech Rep. X (a)

Denmark X (a)

Dominica X

Dominican Rep. X

Ecuador X

Egypt X

El Salvador X

Estonia X (a)

Finland X (a)

Fiji X

France X (a)

Germany X (a)

Georgia X

Ghana X

Gibraltar X

Greece X (a)

Guam No stock exchange. Companies use US GAAP.

Guatemala X

Guyana X

Haiti X

Honduras X

Hong Kong X (c)

Hungary X (a)

Iceland X (a)

India X

Indonesia X

Ireland X (a)



15


14



Trinidad and Tobago X

Tunisia X

Turkey X

Uganda X

Ukraine X

United Arab Banks and Emirates some others

United Kingdom X (a)

United States X

Uruguay X (d)

Uzbekistan X

Venezuela X

Vietnam X

Yugoslavia X

Zambia X

Zimbabwe X

(a) Audit report refers to IFRSs as adopted by the EU.

(b) Compliance with IFRSs is stated in a note.

(c) IFRSs adopted virtually in full as national GAAP.

(d) By law, all companies must follow IFRSs existing at 19 May 2004.The auditor’s report refers to conformity with Uruguayan GAAP.

Use of IFRSs in Europe

European Accounting Regulation effective from 2005

Listed companies To implement a “financial reporting strategy” adoptedby the European Commission in June 2000, the European Union in 2002approved an Accounting Regulation requiring all EU companies listed on aregulated market (about 8,000 companies in total) to follow IFRSs in theirconsolidated financial statements starting in 2005. In two limited cases,member States were allowed to exempt certain companies temporarilyfrom the IFRS requirement – but only until 2007: (a) companies that arelisted both in the EU and on a non-EU exchange and that currently use USGAAP as their primary accounting standards, and (b) companies that have



Niger X

Norway X (a)

Oman X

Pakistan X

Panama X

Papua New Guinea X

Peru X

Philippines X (c)

Poland X (a)

Portugal X (a)

Romania All large companies

Russian X Proposed Federation phase-in

starting 2006

Saudi Arabia X

Singapore X (c)

Slovenia X (a)

Slovak Rep. X (a)

South Africa X

Spain X

Sri Lanka X

Sweden X (a)

Syria X

Swaziland X

Switzerland X

Taiwan X

Tajikistan X

Tanzania X

Thailand X

Togo X



17


16

• Proposed new Directive on Statutory Audit of Annual Accounts andConsolidated Accounts. The new Directive would replace the current8th Directive and amend the 4th and 7th Directives. Among otherthings, the proposal would adopt International Standards on Auditingthroughout the EU and would require Member States to form auditoroversight bodies.

• Amendments to EU directives that establish the collective responsibilityof board members for a company’s financial statements.

• A new European Group of Auditors’ Oversight Bodies (EGAOB) formedby the EC in late 2005.

• A plan for cooperation on overlapping enforcement issues, includingfinancial reporting, agreed to in late 2005 by the European groups ofbank regulators, insurance regulators and securities regulators.

• A plan under development by CESR to make published financial reportsof listed companies available electronically throughout Europe.

Use of IFRSs in the United States

SEC recognition of IFRSs

Of the approximately 13,000 companies whose securities are registeredwith the US Securities and Exchange Commission, over 1,200 are non-UScompanies. If these foreign companies submit IFRS or local GAAP financialstatements rather than US GAAP, a reconciliation of earnings and netassets to US GAAP figures is required. Prior to 2005, there were about50 IFRS filers with the SEC. Another 350 European companies listed in theUnited States have switched to IFRSs in their SEC filings for 2005. In 2005,the SEC announced a ‘roadmap’ aimed toward eliminating thereconciliation requirement for foreign IFRS filers by 2009, or possiblyearlier, based on the SEC’s review of IFRS filings in 2005 and 2006.

IFRS-US GAAP convergence

In October 2002, the IASB and the US Financial Accounting Standards Boardembarked on a joint programme to converge US GAAP and IFRSs to themaximum extent possible. Activities that are part of that programme include:

• twice-yearly joint meetings;

• aligned agendas;

• joint staffing of all major projects;

• short-term convergence projects;

• convergence inventory of every single difference with a plan toeliminate as many as possible; and

• coordination of the activities of their respective interpretative bodies –EITF and IFRIC.

only publicly-traded debt securities. Non-EU companies listed on EUexchanges can continue to use their national GAAPs until 2007. The IFRSrequirement applies not only in the 25 EU countries but also in the threeEuropean Economic Area countries. Most large companies in Switzerland(not an EU or EEA member) already use IFRSs.

Unlisted companies EU Member States may extend the IFRS requirementto non-listed companies and to company-only statements. The tentativeplans of the 28 EU/EEA countries regarding the use of IFRSs in theconsolidated financial statements of unlisted companies are as follows:

IFRSs required Cyprus, Malta, Slovakia

IFRSs permitted Austria, Belgium, Czech Republic, Denmark, Estonia,Finland, France, Germany, Greece, Hungary, Iceland,Italy, Ireland, Liechtenstein, Luxembourg, Netherlands,Norway, Portugal, Slovenia, Spain, Sweden, UnitedKingdom

IFRSs prohibited Latvia, Lithuania, Poland

Endorsement of IFRSs for use in Europe

Under the EU Accounting Regulation, IFRSs must be individually endorsedfor use in Europe. The endorsement process involves the following steps:

• EU translates the IFRSs into all European languages;

• the private-sector European Financial Reporting Advisory Group (EFRAG)gives its views to the European Commission (EC);

• the EC’s Accounting Regulatory Committee makes an endorsementrecommendation; and

• the 25-member EC formally votes to endorse.

By the end of February 2006, the EC had voted to endorse all IASs, IFRSs 1through 7, and all Interpretations except IFRICs 7, 8 and 9 – but with one carve-out from IAS 39 Financial Instruments: Recognition andMeasurement. The carve-out allows use of fair value hedge accounting for interest rate hedges of core deposits on a portfolio basis.

Enforcement of IFRSs in Europe

European securities markets are regulated by individual member states, subjectto certain regulations adopted at the EU level. EU-wide regulations include:

• Standards adopted by the Committee of European Securities Regulators(CESR), a consortium of national regulators. Standard No. 1,Enforcement of Standards on Financial Information in Europe, sets out21 high level principles that EU member states should adopt inenforcing IFRSs. Proposed Standard No. 2, Coordination of EnforcementActivities, proposes guidelines for implementing Standard No. 1.


Members of the IASB

19


18

Members of the IASB Sir David Tweedie, Chairman Sir David became the first IASB Chairmanon 1 January 2001, having served from 1990-2000 as the first full-timeChairman of the UK Accounting Standards Board. Before that, he wasnational technical partner for KPMG and was a professor of accounting inhis native Scotland. He has worked on international standard setting issuesboth as the first Chairman of the G4+1 and as a member of the IASC.Term expires 30 June 2006. IASC Foundation Trustees have announcedthat he will be reappointed for an additional five years.

Thomas E. Jones, Vice-Chairman As the former Principal FinancialOfficer of Citicorp and Chairman of the IASC Board, Tom Jones bringsextensive experience in standard setting and the preparation of financialaccounts for financial institutions. A British citizen, Mr. Jones has workedin Europe and the US. Term expires 30 June 2009.

Mary E. Barth As a part-time Board member, Mary Barth, a US citizen,retains her position as Senior Associate Dean of the Graduate School ofBusiness at Stanford University. Professor Barth was previously a partner atArthur Andersen. Term expires 30 June 2009.

Hans-Georg Bruns Mr. Bruns has served as the Chief Accounting Officerfor Daimler Chrysler and has been head of a principal working group of hishome country’s German Accounting Standards Committee. He wasresponsible for addressing the accounting issues related to the DaimlerChrysler merger. Term expires 30 June 2006.

Anthony T. Cope Mr. Cope, a British citizen, joined the US FASB in 1993.Prior to that, he worked as a financial analyst in the United States for30 years. As a member of the IASC Strategy Working Party, he was closelyinvolved with the IASC’s restructuring, and served as FASB’s observer at IASCBoard meetings for the IASC’s last five years. Term expires 30 June 2007.

Jan Engstrom Jan Engstrom, a Swedish citizen, held senior financial andoperating positions with the Volvo Group, including serving on themanagement board and as Chief Financial Officer. He also was ChiefExecutive Officer of Volvo Bus Corporation. Term expires 30 June 2009.

Robert P. Garnett Mr. Garnett was the Executive Vice President of Financefor Anglo American plc, a South African company listed on the LondonStock Exchange. He has worked as a preparer and analyst of financialstatements in his native South Africa. He serves as Chairman of IFRIC. Termexpires 30 June 2010.

Use of IFRSs in Canada

Currently, domestic Canadian companies listed in the United States areallowed to use US GAAP for domestic reporting, but not IFRSs. All otherCanadian companies must use Canadian GAAP. Foreign issuers in Canadaare permitted to use IFRSs or a limited group of non-Canadian nationalGAAPs. In January 2006, the Accounting Standards Board of Canadaannounced a plan to replace Canadian GAAP with IFRSs for listedcompanies over the next five years.

Use of IFRSs in Asia-Pacific

Asia-Pacific jurisdictions are taking a variety of approaches towardconvergence of GAAP for domestic companies with IFRSs.

Requirement for IFRSs in place of national GAAP

Only Bangladesh requires IFRSs for all domestic listed companies.

All national standards are virtually word-for-word IFRSs

Australia, Hong Kong, New Zealand and the Philippines are taking thisapproach. Effective dates and transitions may differ from IFRSs. Australiaand New Zealand have eliminated some accounting policy options andadded some disclosures and guidance.

Nearly all national standards are word-for-word IFRSs

Singapore has adopted most IFRSs word for word, but has modifiedseveral including IASs 16, 17, 39 and 40.

Some national standards are close to word-for-word IFRSs

India, Malaysia, Pakistan, Sri Lanka and Thailand have adopted selectedIFRSs quite closely, but significant differences exist in other nationalstandards, and there are time lags in adopting new or amended IFRSs.

IFRSs are looked to in developing national GAAP

This is done to varying degrees in China, Indonesia, Japan, Korea, Taiwanand Vietnam, but significant differences exist. In February 2006, Chinaadopted a new Basic Standard and 38 new Chinese Accounting Standardsconsistent with IFRSs with few exceptions.

Some domestic listed companies may use IFRSs

This is true in China, Hong Kong, Laos and Myanmar.


Members of the IASB

21

Members of the IASB

20

IASB members are appointed for terms of up to five years, renewableonce. There must be an “appropriate mix of practical experienceamong auditors, preparers, users, and academics”, including at leastone with recent experience in each of those fields There is noprescribed geographical mix. Twelve members serve full time andtwo serve part time.

Gilbert Gelard Having been a partner at KPMG in his native France,Gilbert Gelard has extensive experience with French industry. Mr. Gelardspeaks eight languages and has been a member of the French standard-setting body (CNC). He also was a member of the former IASC Board.Term expires 30 June 2010.

James J. Leisenring Jim Leisenring has worked on issues related toaccounting standard setting over the last three decades, as the ViceChairman and more recently as Director of International Activities of theFASB in his home country. While at the FASB, Mr. Leisenring served forseveral years as the FASB’s observer at meetings of the former IASC Board.Term expires 30 June 2010.

Warren McGregor Mr. McGregor developed an intimate knowledge ofstandard setting issues with his work over 20 years at the AustralianAccounting Research Foundation, where he ultimately became the ChiefExecutive Officer. Term expires 30 June 2006.

Patricia O’Malley Ms. O’Malley was the first full-time Chair of theAccounting Standards Board of Canada. She has worked on issues relatedto global standard setting since 1983 and brings broad experience onwork with financial instruments. Before joining the Canadian Board,Ms. O’Malley was a Technical Partner at KPMG in Canada. Term expires30 June 2007.

John T. Smith As a part-time member of the Board, Mr. Smith continuesto be a partner at Deloitte & Touche (USA). He was a member of theFASB’s Emerging Issues Task Force, Derivatives Implementation Group, and Financial Instruments Task Force. He served on the IASC Task Force on Financial Instruments and chaired the IASC’s IAS 39 ImplementationGuidance Committee. He was a member of the IASC, SIC and IFRIC. Term expires 30 June 2007.

Geoffrey Whittington Mr. Whittington was the PricewaterhouseCoopersProfessor of Financial Accounting at Cambridge University. Previously hewas a member of the UK Monopolies and Merger Commission and amember of the UK Accounting Standards Board in his native England.Term expires 30 June 2006. Professor Whittington has announced that hewill not seek reappointment.

Tatsumi Yamada Tatsumi Yamada was a partner at ChuoAoyama AuditCorporation (a member firm of PricewaterhouseCoopers) in Tokyo.He brings extensive experience with international standard setting as aJapanese member of the former IASC Board between 1996 and 2000.Term expires 30 June 2006.


Recent pronouncements

23

Recent pronouncements

22

2005 amendment to IAS 21for net investment in aforeign entity

2005 revisions to IAS 39 forfair value option andguarantees

New Interpretation

IFRIC 1 Changes in ExistingDecommissioning, Restorationand Similar Liabilities

IFRIC 2 Members’ Shares in Co-operative Entities and SimilarInstruments

IFRIC 3 Emission Rights

IFRIC 4 Determining whether anArrangement contains a Lease

IFRIC 5 Rights to Interests arisingfrom Decommissioning,Restoration and EnvironmentalRehabilitation Funds

IFRIC 6 Liabilities arising fromParticipating in a Specific Market– Waste Electrical and ElectronicEquipment

IFRIC 7 Applying theRestatement Approach underIAS 29 Financial Reporting inHyperinflationary Economies

IFRIC 8 Scope of IFRS 2

IFRIC 9 Reassessment ofEmbedded Derivatives

Annual periods beginning onor after 1 January 2006

Annual periods beginning onor after 1 January 2006

Effective date

Annual periods beginning on orafter 1 September 2004

Annual periods beginning on orafter 1 January 2005

[Withdrawn]



Annual periods beginning on orafter 1 December 2005

Annual periods beginning on orafter 1 March 2006

Annual periods beginning on orafter 1 May 2006

Annual periods beginning on orafter 1 June 2006

*Earlier application of all of these Standards is encouraged, with certainrestrictions in the cases of IFRS 3 and the revisions to IASs 36 and 38.

Effective dates of recentpronouncements

New or revised IFRS

IFRS 1 First-time Adoption ofInternational Financial ReportingStandards

IFRS 2 Share-based Payment

IFRS 3 Business Combinations

IFRS 4 Insurance Contracts

IFRS 5 Non-current Assets Heldfor Sale and DiscontinuedOperations

IFRS 6 Exploration for andEvaluation of Mineral Resources(and concurrent amendments toIFRS 1 and IASs 16 and 38)

IFRS 7 Financial Instruments:Disclosures (and concurrentamendment to IAS 1 to addcapital disclosures)

2003-2004 revisions to IASs 1, 2,8, 10, 16, 17, 21, 24, 27, 28,31, 32, 33, 39, 40

2004 revisions to IASs 36 and 38

2004 revision to IAS 19 onreporting actuarial gains andlosses in equity and expandeddisclosure requirements

Effective date*

First IFRS financial statements fora period beginning on or after1 January 2004


Business combinations for whichthe agreement date is on or after31 March 2004

Annual periods beginning on orafter 1 January 2005 (thefinancial guarantee amendmentin 2005 is effective 1 January2006)





1 April 2004 (or earlier date ofadoption of IFRS 3)



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• Identifies the qualitative characteristicsthat make information in financialstatements useful. The Frameworkidentifies four principal qualitativecharacteristics: understandability,relevance, reliability and comparability.

• Defines the basic elements of financialstatements and the concepts forrecognising and measuring them infinancial statements. Elements directlyrelated to financial position (balancesheet) are assets, liabilities and equity.Elements directly related to performance(income statement) are income andexpenses.

IFRS 1 First-time Adoption of International Financial ReportingStandards

Effective date First IFRS financial statements for a periodbeginning on or after 1 January 2004.

Objective To prescribe the procedures when an entityadopts IFRSs for the first time as the basis forpreparing its general-purpose financialstatements.

Summary • Overview for an entity that adopts IFRSs for the first time in its annual financial statements for the year ended 31 December 2005.

• Select its accounting policies based onIFRSs in force at 31 December 2005.

• Prepare at least 2005 and 2004 financialstatements and restate retrospectively theopening balance sheet (first period forwhich full comparative financialstatements are presented) by applying theIFRSs in force at 31 December 2005:

– since IAS 1 requires at least one year ofcomparative prior period financialinformation, the opening balance sheetwill be 1 January 2004 if not earlier;and

Summaries of currentStandardsOn pages 24-80, we summarise the provisions of all International FinancialReporting Standards in issue at 1 March 2006, as well as the Preface toIFRSs and the Framework for the Preparation and Presentation of FinancialStatements. These summaries are intended as general information and arenot a substitute for reading the entire Standard.

Preface to International Financial Reporting Standards

Adoption Adopted by the IASB in May 2002.

Summary Covers, among other things:

• the objectives of the IASB;

• the scope of IFRSs;

• due process for developing IFRSs andInterpretations;

• equal status of “black letter” and “greyletter” paragraphs;

• policy on effective dates; and

• use of English as the official language.

Framework for the Preparation and Presentation ofFinancial Statements

Adoption Approved by the IASC Board in April 1989.

Adopted by the IASB in April 2001.

Summary The Framework:

• Defines the objective of general purposefinancial statements. The objective is toprovide information about the financialposition, performance and changes infinancial position of an entity that is usefulto a wide range of users in makingeconomic decisions.


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• In principle, transactions in which goodsor services are received as considerationfor equity instruments of the entity shouldbe measured at the fair value of the goodsor services received. Only if the fair valueof the goods or services cannot bemeasured reliably would the fair value ofthe equity instruments granted be used.

• For transactions with employees andothers providing similar services, the entityis required to measure the fair value of theequity instruments granted, because it istypically not possible to estimate reliablythe fair value of employee servicesreceived.

• For transactions measured at the fair valueof the equity instruments granted (such astransactions with employees), fair valueshould be estimated at grant date.

• For transactions measured at the fair valueof the goods or services received, fairvalue should be estimated at the date ofreceipt of those goods or services.

• For goods or services measured byreference to the fair value of the equityinstruments granted, IFRS 2 specifies that,in general, vesting conditions, exceptmarket conditions, are not taken intoaccount when estimating the fair value ofthe shares or options at the relevantmeasurement date (as specified above).Instead, vesting conditions are taken intoaccount by adjusting the number of equityinstruments included in the measurementof the transaction amount so that,ultimately, the amount recognised forgoods or services received as considerationfor the equity instruments granted isbased on the number of equityinstruments that eventually vest.

• IFRS 2 requires the fair value of equityinstruments granted to be based onmarket prices, if available, and to take intoaccount the terms and conditions onwhich those equity instruments were

– if a 31 December 2005 adopter reportsselected financial data (but not fullfinancial statements) on an IFRS basisfor periods prior to 2004, in addition tofull financial statements for 2004 and2005, that does not change the factthat its opening IFRS balance sheet is asof 1 January 2004.

Interpretations None.

Useful Deloitte First-time adoption: A guide to IFRS 1publication

Application guidance for the “stable platform”Standards effective in 2005. Available fordownload at www.iasplus.com/dttpubs/pubs.htm

IFRS 2 Share-based Payment

Effective date Annual periods beginning on or after 1 January2005.

Objective To prescribe the accounting for transactions inwhich an entity receives or acquires goods orservices either as consideration for its equityinstruments or by incurring liabilities foramounts based on the price of the entity’sshares or other equity instruments of the entity.

Summary • All share-based payment transactionsmust be recognised in the financialstatements, using a fair valuemeasurement basis.

• An expense is recognised when the goodsor services received are consumed.

• The same recognition and measurementstandards apply to both public and non-public companies.


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• Purchase method is used for all businesscombinations. The uniting (pooling) ofinterests method that was used under IAS22 in certain circumstances is prohibited.

• Steps in applying the purchase method:

1. Identify the acquirer. The acquirer is thecombining entity that obtains control ofthe other combining entities orbusinesses.

2. Measure the cost of the combination.The cost is the total of (a) the fairvalues, at date of exchange, of theassets given, liabilities incurred orassumed, and equity instruments issuedby the acquirer, plus (b) any costsdirectly attributable to the businesscombination. Cost is measured at thedate of exchange.

3. Allocate, as of the acquisition date, thecost of the combination to the assetsacquired and liabilities and contingentliabilities assumed. To do this, theacquiring entity will recognise theidentifiable assets, liabilities andcontingent liabilities of the acquireeexisting at the acquisition date at theirfair value if fair value can be measuredreliably. Any minority interest in theacquiree is stated at the minority’sproportion of the net fair value of theacquiree’s identifiable assets, liabilitiesand contingent liabilities.

• If the initial accounting for a businesscombination can be determined onlyprovisionally by the end of the firstreporting period, account for thecombination using provisional values.Recognise adjustments to provisionalvalues within 12 months as restatements.No adjustments after 12 months except tocorrect an error – not to change anestimate.

granted. In the absence of market prices,fair value is estimated using a valuationmodel to estimate what the price of thoseequity instruments would have been onthe measurement date in an arm’s lengthtransaction between knowledgeable,willing parties. IFRS 2 does not specifywhich particular valuation model shouldbe used.

Interpretations IFRIC 8 Scope of IFRS 2

Clarifies that IFRS 2 applies to share-basedpayment transactions in which the entity cannotspecifically identify some or all of the goods orservices received. The entity should measure theunidentifiable goods or services received (or tobe received) as the difference between the fairvalue of the share-based payment and the fairvalue of any identifiable goods or servicesreceived (or to be received).

Useful Deloitte Share-based payment: A guide to IFRS 2publication

Guidance on applying IFRS 2 to many commonshare-based payment transactions. Available fordownload at www.iasplus.com/dttpubs/pubs.htm

IFRS 3 Business Combinations

Effective date Business combinations on or after 31 March 2004.

Objective To prescribe the financial reporting by an entitywhen it undertakes a business combination.

Summary • A business combination is the bringingtogether of separate entities or businessesinto one reporting entity.

• IFRS 3 does not apply to formation of ajoint venture, combinations of entities orbusinesses under common control, orbusiness combinations involving two ormore mutual entities.


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• Requires a test for the adequacy ofrecognised insurance liabilities and animpairment test for reinsurance assets.

• Insurance liabilities may not be offsetagainst related reinsurance assets.

• Accounting policy changes are restricted.

• New disclosures are required.


IFRS 5 Non-current Assets Held for Sale and DiscontinuedOperations


Objective To prescribe the accounting for assets held forsale and the presentation and disclosure ofdiscontinued operations.

Summary • Introduces the classification ‘held for sale’and the concept of a disposal group (agroup of assets to be disposed of in asingle transaction, including any relatedliabilities also transferred).

• Assets or disposal groups held for sale aremeasured at the lower of carrying amountand fair value less costs to sell.

• Such assets or disposal groups are notdepreciated.

• An asset classified as held for sale, and theassets and liabilities in a disposal groupclassified as held for sale, are presentedseparately on the face of the balance sheet.

• A discontinued operation is a componentof an entity that either has been disposedof or is classified as held for sale and (a)represents a separate major line of businessor major geographical area of operations,(b) is part of a single co-ordinated plan todispose of a separate major line of businessor geographical area of operations, or (c) isa subsidiary acquired exclusively with a viewto resale.

• Goodwill is initially measured as the excessof cost of business combination over theacquirer’s interest in the net fair value ofthe acquiree’s identifiable assets, liabilitiesand contingent liabilities.

• Goodwill and other intangible assets withindefinite lives are not amortised, but theymust be tested for impairment at leastannually. IAS 36 provides guidance forimpairment testing.

• If the acquirer’s interest in the net fairvalue of the acquiree’s identifiable assets,liabilities and contingent liabilities exceedsthe cost, the excess (previously known asnegative goodwill) is recognised as animmediate gain.

• Minority interest is reported within equityin the balance sheet. (The Board hasrecently begun using the term “non-controlling interest” in place of minorityinterest.)


Useful Deloitte Business combinations: A guide to IFRS 3publication

Supplements the IASB’s own guidance forapplying this Standard. Available for downloadat www.iasplus.com/dttpubs/pubs.htm

IFRS 4 Insurance Contracts


Objective To prescribe the financial reporting for insurancecontracts until the IASB completes the secondphase of its project on insurance contracts.

Summary • Insurers are exempted from applying theIASB Framework and certain existing IFRSs.

• Catastrophe reserves and equalisationprovisions are prohibited.


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IFRS 7 Financial Instruments: Disclosures

Effective date Annual periods beginning on or after 1 January2007. Supersedes IAS 30 and the disclosurerequirements of IAS 32.

Objective To prescribe disclosures that enable financialstatement users to evaluate the significance offinancial instruments to an entity, the natureand extent of their risks, and how the entitymanages those risks.

Summary • IFRS 7 requires disclosure of informationabout the significance of financialinstruments for an entity’s financialposition and performance. These include:

– balance sheet disclosures, includinginformation about financial assets andfinancial liabilities by category, specialdisclosures when the fair value option isused, reclassifications, derecognitions,pledges of assets, embeddedderivatives, and breaches of terms ofagreements;

– income statement and equitydisclosures, including informationabout recognised income, expenses,gains, and losses; interest income andexpense; fee income; and impairmentlosses; and

– other disclosures, including informationabout accounting policies, hedgeaccounting, and the fair values of eachclass of financial asset and financialliability.

• IFRS 7 requires disclosure of informationabout the nature and extent of risksarising from financial instruments:

– qualitative disclosures about exposuresto each class of risk and how thoserisks are managed; and

• An entity is required to present as a singleamount on the face of the incomestatement the sum of the profit or loss ofdiscontinued operations for the periodand the gain or loss arising on the disposalof discontinued operations (or theremeasurement of the assets and liabilitiesof discontinued operations as held forsale). Therefore, the income statement iseffectively divided into two sections –continuing operations and discontinuedoperations.


IFRS 6 Exploration for and Evaluation of Mineral Resources


Objective To prescribe the financial reporting for theexploration for and evaluation of mineralresources until the IASB completes acomprehensive project in this area.

Summary • An entity is permitted to develop itsaccounting policy for exploration andevaluation assets under IFRSs withoutspecifically considering the requirements ofparagraphs 11 and 12 of IAS 8 – whichspecify a hierarchy of sources of IFRS GAAPin the absence of a specific Standard. Thusan entity adopting IFRS 6 may continue touse its existing accounting policies.

• Requires an impairment test when there isan indication that the carrying amount ofexploration and evaluation assets exceedsrecoverable amount.

• Allows impairment to be assessed at alevel higher than the “cash generatingunit” under IAS 36, but measuresimpairment in accordance with IAS 36once it is assessed.



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• The statement of changes in equity mustshow either:

– all changes in equity; or

– changes in equity other than thosearising from transactions with equityholders acting in their capacity asequity holders.

• Financial statements generally to beprepared annually. If the date of the yearend changes, and financial statements arepresented for a period other than oneyear, disclosure thereof is required.

• Current/non-current distinction for assetsand liabilities is normally required. Ingeneral, post-balance sheet events are notconsidered in classifying items as currentor non-current.

• IAS 1 specifies minimum line items to bepresented on the face of the balance sheet,income statement and statement ofchanges in equity, and includes guidancefor identifying additional line items.

• Analysis of expenses in the incomestatement may be given by nature or byfunction. If presented by function,classification by nature must be providedin the notes.

• IAS 1 specifies minimum note disclosures.These must include information about:

– accounting policies followed;

– the judgements that management hasmade in the process of applying theentity’s accounting policies that havethe most significant effect on theamounts recognised in the financialstatements; and

– the key assumptions concerning thefuture, and other key sources ofestimation uncertainty, that have asignificant risk of causing a materialadjustment to the carrying amounts ofassets and liabilities within the nextfinancial year.

– quantitative disclosures aboutexposures to each class of risk,separately for credit risk, liquidity risk,and market risk (including sensitivityanalyses).


Useful Deloitte iGAAP 2006: Financial Instruments: IAS 32, publication IAS 39 and IFRS 7 Explained

2nd edition (February 2006). Guidance on howto apply these complex standards, includingillustrative examples, and interpretations.Information at www.iasplus.com/dttpubs/pubs.htm

IAS 1 Presentation of Financial Statements (revised 2005)

Effective date Annual periods beginning on or after 1 January2005 (1 January 2007 for capital disclosures).

Objective To set out the overall framework for presentinggeneral purpose financial statements, includingguidelines for their structure and the minimumcontent.

Summary • Fundamental principles underlying thepreparation of financial statements,including going concern assumption,consistency in presentation andclassification, accrual basis of accounting,and materiality.

• Assets and liabilities, and income andexpenses, may not be offset unlessoffsetting is permitted or required byanother IFRS.

• Comparative prior-period informationmust be presented for amounts shown inthe financial statements and notes.

• A complete set of financial statementsshould include a balance sheet, incomestatement, statement of changes in equity,cash flow statement, accounting policiesand explanatory notes.


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• For interchangeable items, cost isdetermined on either a FIFO or weightedaverage basis. LIFO is not permitted.

• When inventories are sold, the carryingamount should be recognised as anexpense in the period in which the relatedrevenue is recognised.

• Write-downs to NRV are recognised as anexpense in the period of the write-down.Reversals arising from an increase in NRVare recognised as a reduction of theinventory expense in the period in whichthey occur.


IAS 7 Cash Flow Statements (revised 1992)

Effective date Periods beginning on or after 1 January 1994.

Objective To require the presentation of informationabout historical changes in an entity’s cash andcash equivalents by means of a cash flowstatement that classifies cash flows during theperiod according to operating, investing andfinancing activities.

Summary • Cash flow statement must analysechanges in cash and cash equivalentsduring a period.

• Cash equivalents include investments thatare short term (less than three monthsfrom date of acquisition), readilyconvertible to a known amount of cash,and subject to an insignificant risk ofchanges in value. Generally exclude equityinvestments.

• Cash flows from operating, investing andfinancing activities must be separatelyreported.

• Cash flows for operating activities arereported using either the direct(recommended) or the indirect method.

• An appendix to IAS 1 provides illustrativebalance sheets, income statements andstatements of changes in equity.

• 2005 amendment requires disclosuresabout the reporting entity’s capitalstructure.

Interpretations SIC 29 Disclosure – Service ConcessionArrangements

Disclosure is required if an entity agrees toprovide services that give the public access tomajor economic or social facilities.

Useful Deloitte IFRS financial statements 2005: Key publication considerations for preparers

Includes consideration of many of the practicalissues faced when preparing financialstatements for 2005. Available for download at www.iasplus.com/dttpubs/pubs.htm

IAS 2 Inventories (revised 2003)


Objective To prescribe the accounting treatment forinventories, including cost determination andexpense recognition.

Summary • Inventories are required to be stated at thelower of cost and net realisable value(NRV).

• Costs include purchase cost, conversioncost (materials, labour and overhead), andother costs to bring inventory to itspresent location and condition, but notforeign exchange differences.

• For inventory items that are notinterchangeable, specific costs areattributed to the specific individual itemsof inventory.


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– in the absence of a directly applicableStandard or Interpretation, look to therequirements and guidance in IASBStandards and Interpretations dealingwith similar and related issues; and thedefinitions, recognition criteria andmeasurement concepts for assets,liabilities, income and expenses in theFramework for the Preparation andPresentation of Financial Statements; and

– management may also consider themost recent pronouncements of otherstandard-setting bodies that use asimilar conceptual framework todevelop accounting standards, otheraccounting literature, and acceptedindustry practices.

• Apply accounting policies consistently tosimilar transactions.

• Make a change in accounting policy only if it is required by a Standard orInterpretation, or it results in reliable andmore relevant information.

• If a change in accounting policy is requiredby a Standard or Interpretation, followthat pronouncement’s transitionrequirements. If none are specified, or ifthe change is voluntary, apply the newaccounting policy retrospectively byrestating prior periods. If restatement isimpracticable, include the cumulativeeffect of the change in profit or loss. If thecumulative effect cannot be determined,apply the new policy prospectively.

• Changes in accounting estimates (forexample, change in useful life of an asset)are accounted for in the current year, orfuture years, or both (no restatement).

• All material errors should be corrected byrestating comparative prior periodamounts and, if the error occurred beforethe earliest period presented, by restatingthe opening balance sheet.


• Cash flows arising from taxes on incomeare classified as operating unless they canbe specifically identified with financing orinvesting activities.

• The exchange rate used for translation oftransactions denominated in a foreigncurrency and the cash flows of a foreignsubsidiary should be the rate in effect atthe date of the cash flows.

• Aggregate cash flows relating toacquisitions and disposals of subsidiariesand other business units should bepresented separately and classified asinvesting activities, with specifiedadditional disclosures.

• Investing and financing transactions thatdo not require the use of cash should beexcluded from the cash flow statement,but they should be separately disclosed.

• Illustrative cash flow statements areincluded in appendices to IAS 7.


IAS 8 Accounting Policies, Changes in Accounting Estimatesand Errors (revised 2003)


Objective To prescribe the criteria for selecting andchanging accounting policies, together with theaccounting treatment and disclosure of changesin accounting policies, changes in estimates,and errors.

Summary • Prescribes a hierarchy for choosingaccounting policies:

– IASB Standards and Interpretations,taking into account any relevant IASBimplementation guidance;


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• An entity must disclose the date itsfinancial statements are authorised forissue.


IAS 11 Construction Contracts (revised 1993)


Objective To prescribe the accounting treatment forrevenue and costs associated with constructioncontracts in the financial statements of thecontractor.

Summary • Contract revenue should comprise theamount agreed in the initial contracttogether with variations in contract work,claims, and incentive payments to theextent that it is probable that they willresult in revenues and can be measuredreliably.

• Contract costs should comprise costs thatrelate directly to the specific contract,costs that are attributable to generalcontract activity and that can bereasonably allocated to the contract,together with such other costs as aredirectly attributable to the customer underthe terms of the contract.

• Where the outcome of a constructioncontract can be estimated reliably, revenueand costs should be recognised byreference to the stage of completion ofcontract activity (the percentage ofcompletion method of accounting).

• If the outcome cannot be estimatedreliably, no profit should be recognised.Instead, contract revenue should berecognised only to the extent that contractcosts incurred are expected to berecovered, and contract costs should beexpensed as incurred.

IAS 10 Events After the Balance Sheet Date (revised 2003)


Objective To prescribe:

• When an entity should adjust its financialstatements for events after the balancesheet date.

• Disclosures about the date when thefinancial statements were authorised forissue, and about events after the balancesheet date.

Summary • Events after the balance sheet date arethose events, both favourable andunfavourable, that occur between thebalance sheet date and the date when thefinancial statements are authorised forissue.

• Adjusting events – adjust the financialstatements to reflect those events thatprovide evidence of conditions that existedat the balance sheet date (such asresolution of a court case after thebalance sheet date).

• Non-adjusting events – do not adjust thefinancial statements to reflect events thatarose after the balance sheet date (such asa decline in market prices after year end,which does not change the valuation ofinvestments at the balance sheet date).

• Dividends proposed or declared on equityinstruments after the balance sheet dateshould not be recognised as a liability atthe balance sheet date. Disclosure isrequired.

• An entity should not prepare its financialstatements on a going concern basis ifevents after the balance sheet dateindicate that the going concernassumption is not appropriate.


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affect either the accounting or thetaxable profit; and

– liabilities arising from undistributedprofits from investments where theentity is able to control the timing ofthe reversal of the difference and it isprobable that the reversal will not occurin the foreseeable future.

• A deferred tax asset must be recognisedfor deductible temporary differences,unused tax losses, and unused tax credits,to the extent that it is probable thattaxable profit will be available againstwhich the deductible temporarydifferences can be utilised, with thefollowing exceptions:

– a deferred tax asset arising from theinitial recognition of an asset/liability,other than in a business combination,which, at the time of the transaction,does not affect either the accounting orthe taxable profit; and

– assets arising from deductibletemporary differences associated withinvestments are recognised only to theextent that it is probable that thetemporary difference will reverse in theforeseeable future.

• Deferred tax liabilities (assets) should bemeasured at the tax rates expected toapply when the liability is settled or theasset is realised, based on tax rates/lawsthat have been enacted or substantivelyenacted by the balance sheet date.

• Discounting of deferred tax assets andliabilities is prohibited.

• Deferred taxes must be presented as non-current items in the balance sheet.

• If it is probable that total contract costswill exceed total contract revenue, theexpected loss should be recognisedimmediately.


IAS 12 Income Taxes (revised 2000)

Effective date Periods beginning on or after 1 January 1998.Certain revisions effective for periods beginningon or after 1 January 2001.

Objective To prescribe the accounting treatment forincome taxes.

To establish the principles and provide guidancein accounting for the current and future incometax consequences related to:

• the future recovery (settlement) ofcarrying amounts of assets (liabilities) in anentity’s balance sheet; and

• current period transactions recognised inthe income statement or directly throughequity.

Summary • Current tax liabilities and assets should berecognised for current and prior periodtaxes, measured at the rates applicable forthe period.

• A temporary difference is a differencebetween the carrying amount of an assetor liability and its tax base.

• Deferred tax liabilities must be recognisedfor the future tax consequences of alltaxable temporary differences with threeexceptions:

– liabilities arising from the initialrecognition of goodwill;

– liabilities arising from the initialrecognition of an asset/liability otherthan in a business combination which,at the time of the transaction, does not


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• Segment information should be based onthe same accounting policies as theconsolidated group or entity.

• IAS 14 sets out disclosure requirements forprimary and secondary segments, withconsiderably less disclosure for thesecondary segments.


IAS 16 Property, Plant & Equipment (revised 2003)


Objective To prescribe the principles for the initialrecognition and subsequent accounting forproperty, plant and equipment.

Summary • Items of property, plant and equipmentshould be recognised as assets when it isprobable that the future economicbenefits associated with the asset will flowto the entity, and the cost of the asset canbe measured reliably.

• Initial recognition at cost, which includesall costs necessary to get the asset readyfor its intended use. If payment isdeferred, interest must be recognised.

• Subsequent to acquisition, IAS 16 allows achoice of accounting model:

– cost model: the asset is carried at costless accumulated depreciation andimpairment; or

– revaluation model: the asset is carriedat revalued amount, which is fair valueat revaluation date less subsequentdepreciation and impairment.

• Under the revaluation model, revaluationsmust be carried out regularly. All items ofa given class must be revalued.Revaluation increases are credited toequity.

Interpretations SIC 21 Income Taxes – Recovery of RevaluedNon-Depreciable Assets

Measure the deferred tax liability or asset arisingfrom revaluation based on the tax consequencesfrom the sale of the asset rather than throughuse.

SIC 25 Income Taxes – Changes in the TaxStatus of an Enterprise or its Shareholders

The current and deferred tax consequences ofthe change should be included in net profit orloss for the period unless those consequencesrelate to transactions or events that wererecognised directly in equity.

IAS 14 Segment Reporting (revised 1997)

Effective date Periods beginning on or after 1 July 1998.

Objective To establish principles for reporting financialinformation by line of business and bygeographical area.

Summary • IAS 14 applies to entities whose equity ordebt securities are publicly traded and toentities in the process of issuing securitiesto the public. Also, any entity voluntarilyproviding segment information mustcomply with the requirements of IAS 14.

• An entity must look to its organisationalstructure and internal reporting system forthe purpose of identifying its businesssegments and geographical segments.

• If internal segments are not geographicalor products/service-based, then look tonext lower level of internal segmentationto identify reportable segments.

• Guidance is provided on which segmentsare reportable (generally 10% thresholds).

• One basis of segmentation is primary andthe other secondary.


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IAS 17 Leases (revised 2003)


Objective To prescribe, for lessees and lessors, theappropriate accounting policies and disclosuresto apply in relation to finance and operatingleases.

Summary • A lease is classified as a finance lease if ittransfers substantially all risks and rewardsincidental to ownership. Examples:

– lease covers substantially all of theasset’s life; and/or

– present value of lease payments issubstantially equal to the asset’s fairvalue.

• All other leases are classified as operatingleases.

• A lease of both land and buildings shouldbe split into land and building elements.Land element is generally an operatinglease. Building element is an operating orfinance lease based on the criteria in IAS17. However, separate measurement ofthe land and buildings elements is notrequired if the lessee’s interest in both landand buildings is classified as an investmentproperty under IAS 40 and the fair valuemodel is adopted.

• Finance leases – Lessee’s Accounting:

– recognise asset and liability at the lowerof the present value of minimum leasepayments and the fair value of theasset;

– depreciation policy – as for ownedassets; and

– finance lease payment – apportionedbetween interest and reduction inliability.

• Revaluation decreases are charged firstagainst the revaluation surplus in equityrelated to the specific asset, and anyexcess against profit or loss. When therevalued asset is disposed of, therevaluation surplus in equity remains inequity and is not recycled through profitor loss.

• Components of an asset with differingpatterns of benefits must be depreciatedseparately.

• Depreciation is charged systematically overthe asset’s useful life. The depreciationmethod must reflect the pattern of benefitconsumption. The residual value must bereviewed at least annually and shouldequal the amount the entity would receivecurrently if the asset were already of theage and condition expected at the end ofits useful life. If operation of an item ofproperty, plant and equipment (forexample, an aircraft) requires regularmajor inspections, when each majorinspection is performed, its cost isrecognised in the carrying amount of theasset as a replacement, if the recognitioncriteria are satisfied.

• Impairment of property, plant andequipment must be assessed under IAS36.

• All exchanges of property, plant andequipment should be measured at fairvalue, including exchanges of similaritems, unless the exchange transactionlacks commercial substance or the fairvalue of neither the asset received nor theasset given up is reliably measurable.



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IFRIC 4 Determining whether anArrangement contains a Lease

Arrangements that depend on a specific assetor convey the right to control the use of aspecific asset generally are leases under IAS 17.

IAS 18 Revenue (revised 1993)


Objective To prescribe the accounting treatment forrevenue arising from certain types oftransactions and events.

Summary • Revenue should be measured at the fairvalue of the considerationreceived/receivable.

• Recognition:

– from sale of goods: when significantrisks and rewards have been transferredto buyer, loss of effective control byseller, and amount can be reliablymeasured;

– from sale of services: percentage ofcompletion method; and

– for interest, royalties, and dividends:Recognised when it is probable thateconomic benefits will flow to the entity.

Interest – using the effective interestmethod as set out in IAS 39.

Royalties – on an accrual basis inaccordance with the substance of theagreement.

Dividends – when shareholder’s right toreceive payment is established.

Interpretations SIC 31 Revenue – Barter TransactionsInvolving Advertising Services

Recognise revenue from barter transactionsinvolving advertising services only if substantialrevenue is also received from non-bartertransactions.

• Finance leases – Lessor’s Accounting:

– recognise as a receivable at an amountequal to the net investment in the lease;and

– recognise finance income based on apattern reflecting a constant periodic rateof return on the lessor’s net investment.

• Operating leases – Lessee’s Accounting:

– recognise lease payments as anexpense in the income statement on astraight-line basis over the lease term,unless another systematic basis is morerepresentative of the pattern of benefit.

• Operating leases – Lessor’s Accounting:

– assets held for operating leases shouldbe presented in the lessor’s balancesheet according to the nature of theasset; and

– lease income should be recognised on astraight-line basis over the lease term,unless another systematic basis is morerepresentative of the pattern of benefit.

• Lessors must spread initial direct costs overthe lease term (immediate expensingprohibited).

• Accounting for sale and leasebacktransactions depends on whether theseare essentially finance or operating leases.

Interpretations SIC 15 Operating Leases – Incentives

Lease incentives (such as rent-free periods)should be recognised by both the lessor and thelessee as a reduction of rental income andexpense, respectively, over the lease term.

SIC 27 Evaluating the Substance ofTransactions Involving the Legal Form of aLease

If a series of transactions involves the legal formof a lease and can only be understood withreference to the series as a whole, then theseries should be accounted for as a singletransaction.


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• Under defined benefit plans, a liability isrecognised in the balance sheet equal tothe net of:

– the present value of the defined benefitobligation (the present value ofexpected future payments required tosettle the obligation resulting fromemployee service in the current andprior periods);

– deferred actuarial gains and losses anddeferred past service cost; and

– the fair value of any plan assets at thebalance sheet date.

• Actuarial gains and losses may be (a) recognised immediately in profit orloss, (b) deferred up to a maximum, withany excess amortised in profit or loss (the“corridor approach”), or (c) recognisedimmediately directly in equity.

• Plan assets include assets held by a long-term employee benefit fund andqualifying insurance policies.

• For group plans, the net cost is recognisedin the separate financial statements of theentity that is legally the sponsoringemployer unless a contractual agreementor stated policy for allocating the costexists.

• Long-term employee benefits should berecognised and measured the same wayas post-employment benefits under adefined benefit plan. However, unlikedefined benefit plans, actuarial gains orlosses and past service costs must alwaysbe recognised immediately in earnings.

• Termination benefits should be recognisedwhen the entity is demonstrablycommitted to terminating one or moreemployees before the normal retirementdate or to providing termination benefitsas a result of an offer made to encouragevoluntary redundancy.

IAS 19 Employee Benefits (revised 2004)

Effective date Periods beginning on or after 1 January 1999.Certain revisions effective on or after 1 January2001; other revisions effective for periodsending 31 May 2002. Revision in 2004 topermit recognition of actuarial gains and lossesin equity and introduce additional disclosurerequirements is effective 1 January 2006 (earlyapplication encouraged).

Objective To prescribe the accounting and disclosure foremployee benefits, including short-termbenefits (wages, annual leave, sick leave, annualprofit-sharing, bonuses and non-monetarybenefits); pensions; post-employment lifeinsurance and medical benefits; and other long-term employee benefits (long-service leave,disability, deferred compensation, and long-term profit-sharing and bonuses).

Summary • Underlying principle: the cost of providingemployee benefits should be recognised inthe period in which the benefit is earnedby the employee, rather than when it ispaid or payable.

• Short-term employee benefits (payablewithin 12 months) should be recognisedas an expense in the period in which theemployee renders the service.

• Profit-sharing and bonus payments are tobe recognised only when the entity has alegal or constructive obligation to paythem and the costs can be reliablyestimated.

• Post-employment benefit plans (such aspensions and health care) are categorisedas either defined contribution plans ordefined benefit plans.

• Under defined contribution plans,expenses are recognised in the period thecontribution is payable.


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IAS 21 The Effects of Changes in Foreign Exchange Rates(revised 2003)


Objective To prescribe the accounting treatment for anentity’s foreign currency transactions andforeign operations.

Summary • First, determine the reporting entity’sfunctional currency – the currency of theprimary economic environment in whichthe entity operates.

• Then translate all foreign currency itemsinto the functional currency:

– at date of transaction, record using thetransaction-date exchange rate forinitial recognition and measurement;

– at subsequent balance sheet dates:

use closing rate for monetary items;

use transaction-date exchange rates fornon-monetary items carried at historicalcost; and

use valuation-date exchange rates fornon-monetary items that are carried atfair value; and

– exchange differences arising onsettlement of monetary items and ontranslation of monetary items at a ratedifferent than when initially recognisedare included in profit or loss, with oneexception:

exchange differences arising onmonetary items that form part of thereporting entity’s net investment in aforeign operation are recognised in theconsolidated financial statements thatinclude the foreign operation in aseparate component of equity; suchdifferences will be recognised in profit orloss on disposal of the net investment.

• Effective 2005, equity compensationbenefits are covered by IFRS 2, not IAS 19.


IAS 20 Accounting for Government Grants and Disclosure ofGovernment Assistance


Objective To prescribe the accounting for, and disclosureof, government grants and other forms ofgovernment assistance.

Summary • Recognise government grants only whenthere is reasonable assurance that theentity will comply with the conditionsattached to the grants, and the grants willbe received. Non-monetary grants areusually recognised at fair value, thoughrecognition at nominal value is permitted.

• Grants should not be credited directly toequity, but should be recognised in profitor loss over the periods necessary tomatch them with the related costs.

• Income-related grants may either bepresented as a credit in the incomestatement or deduction in reporting therelated expense.

• Asset-related grants may be presented aseither deferred income in the balancesheet, or deducted in arriving at thecarrying amount of the asset.

• Repayment of a government grant isaccounted for as a change in accountingestimate with different treatment forincome- and asset-related grants.

Interpretations SIC 10 Government Assistance – No SpecificRelation to Operating Activities

Government assistance to entities that is aimedat encouragement or long-term support ofbusiness activities either in certain regions orindustry sectors should be treated as agovernment grant under IAS 20.


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– capitalisation model: capitaliseborrowing costs directly attributable tothe acquisition or construction of aqualifying asset, but only when it isprobable that these costs will result infuture economic benefits to the entity,and the costs can be measured reliably.All other borrowing costs that do notsatisfy the conditions for capitalisationare to be expensed when incurred.

• A qualifying asset is one that requires asubstantial period of time to make it readyfor its intended use or sale. Examplesinclude manufacturing plants, investmentproperties and some inventories.

• If funds are borrowed generally and usedfor the purpose of obtaining the qualifyingasset, apply a capitalisation rate (weightedaverage of borrowing costs applicable tothe general outstanding borrowingsduring the period) to expenditure incurredduring the period, to determine theamount of borrowing costs eligible forcapitalisation.


IAS 24 Related Party Disclosures (revised 2003)


Objective To ensure that financial statements drawattention to the possibility that the financialposition and results of operations may havebeen affected by the existence of relatedparties.

Summary • Related parties are parties that control orhave significant influence over thereporting entity (including parentcompanies, owners and their families,major investors, and key managementpersonnel) and parties that are controlledor significantly influenced by the reporting

• The results and financial position of anentity whose functional currency is not thecurrency of a hyperinflationary economyare translated into a different presentationcurrency using the following procedures:

– assets and liabilities for each balancesheet presented (includingcomparatives) are translated at theclosing rate at the date of that balancesheet;

– income and expenses for each incomestatement (including comparatives) aretranslated at exchange rates at thedates of the transactions; and

– all resulting exchange differences arerecognised as a separate component ofequity.

• Special rules for translating into apresentation currency the results andfinancial position of an entity whosefunctional currency is hyperinflationary.

Interpretations SIC 7 Introduction of the Euro

Explained how to apply IAS 21 when the Eurowas first introduced.

IAS 23 Borrowing Costs


Objective To prescribe the accounting treatment forborrowing costs.

Summary • Borrowing costs include interest,amortisation of discounts or premiums onborrowings, and amortisation of ancillarycosts incurred in the arrangement ofborrowings.

• Two accounting models are allowed:

– expense model: charge all borrowingcosts to expense when incurred; and


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IAS 26 Accounting and Reporting by Retirement Benefit Plans


Objective To specify the measurement and disclosureprinciples for the financial reports of retirementbenefit plans.

Summary • Sets out the reporting requirements forboth defined contribution and definedbenefit plans, including a statement of netassets available for benefits and disclosureof the actuarial present value of promisedbenefits (split between vested and non-vested).

• Specifies the need for actuarial valuationof the benefits for defined benefits andthe use of fair values for plan investments.


IAS 27 Consolidated and Separate Financial Statements(revised 2003)


Objective To prescribe requirements for preparing andpresenting consolidated financial statementsfor a group of entities under the control of aparent.

To prescribe how to account for investments insubsidiaries, jointly controlled entities andassociates in separate financial statements.

Summary • A subsidiary is an entity controlled byanother entity, known as the parent.Control is the power to govern theoperating and financial policies.

entity (including subsidiaries, jointventures, associates, and post-employment benefit plans).

• Requires disclosure of:

– relationships involving control, evenwhen there have been no transactions;

– related party transactions; and

– management compensation (includingan analysis by type of compensation).

• For related party transactions, disclosure isrequired of the nature of the relationshipand of sufficient information to enable anunderstanding of the potential effect ofthe transaction.

• Examples of related party transactions thatmust be disclosed:

– purchases or sales of goods;

– purchases or sales of assets;

– rendering or receiving of services;

– leases;

– transfers of research and development;

– transfers under licence agreements;

– transfers under finance arrangements(including loans and equitycontributions);

– provision of guarantees or collateral; and

– settlement of liabilities on behalf of theentity or by the entity on behalf ofanother party.



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IAS 28 Investments in Associates (revised 2003)


Objective To prescribe the investor’s accounting forinvestments in associates over which it hassignificant influence.

Summary • Applies to all investments in which aninvestor has significant influence unlessthe investor is a venture capital firm,mutual fund or unit trust, and it elects tomeasure such investments at fair valuethrough profit or loss under IAS 39.

• Interests in associates that are classified asheld for sale in accordance with IFRS 5 areaccounted for in accordance with thatStandard.

• Otherwise, an investor must use the equitymethod for all investments in associatesover which it has significant influence.

• Rebuttable presumption of significantinfluence if investment held, directly andindirectly, is more than 20% of associate.

• Under the equity method, the investmentis initially recorded at cost. It issubsequently adjusted by the investor’sshare of the investee’s post acquisitionchange in net assets. Investor’s incomestatement reflects its share of theinvestee’s post-acquisition profit or loss.

• Associate’s accounting policies must bethe same as those of the investor.

• Reporting dates of associates cannot bemore than three months different fromthe investor’s reporting date.

• Even if consolidated accounts are notprepared, for example, because theinvestor has no subsidiaries, equityaccounting is required. However, theinvestor does not apply the equity methodwhen presenting “separate financial

• Consolidated financial statements arefinancial statements of a group (parentand subsidiaries) presented as those of asingle economic entity.

• Consolidated financial statements mustinclude all subsidiaries. No exemption for“temporary control” or “subsidiary thatoperates under severe long-term fundstransfer restrictions”. However, if, onacquisition, a subsidiary meets the criteriato be classified as held for sale under IFRS5, it is accounted for under that Standard.

• Intragroup balances, transactions, incomeand expenses are eliminated in full.

• All entities in the group must use thesame accounting policies.

• Reporting dates of subsidiaries cannot bemore than three months different fromthe group reporting date.

• Minority interest is reported in equity inthe balance sheet and is not deducted inmeasuring the group’s profit or loss.However, group profit or loss is allocatedbetween minority and the parent’sshareholders on the face of the incomestatement.

• In the parent’s separate financialstatements: account for all of itsinvestments in subsidiaries, associates andjoint ventures (other than those that areclassified as held for sale under IFRS 5)either at cost or as investments underIAS 39.

Interpretations SIC 12 Consolidation – Special PurposeEntities

An entity should consolidate a special purposeentity (SPE) when, in substance, it controls theSPE. SIC 12 provides indicators of control.


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IAS 30 Disclosures in Financial Statements of Banks andSimilar Institutions

Effective date Periods beginning on or after 1 January 1991.Superseded by IFRS 7 effective in 2007.

Objective To prescribe appropriate presentation anddisclosure standards for banks and similarfinancial institutions, as a supplement to therequirements of other IFRSs.

Summary • Requires banks to classify items in theincome statement and balance sheet bytheir nature, and to present assets in orderof relative liquidity.

• Identifies certain minimum incomestatement and balance sheet line items forbanks.

• Disclosure requirements includeconcentration of assets, liabilities, and off-balance items; losses on loans andadvances; contingencies; asset pledges;and general banking risks.


IAS 31 Interests in Joint Ventures (revised 2003)


Objective To prescribe the accounting treatment requiredfor interests in joint ventures (JVs), regardless ofthe structure or legal form of the JV activities.

Summary • Applies to all investments in whichinvestor has joint control unless theinvestor is a venture capital firm, mutualfund or unit trust, and it elects to measuresuch investments at fair value throughprofit or loss under IAS 39.

statements” as defined in IAS 27. Instead,the investor accounts for the investmenteither at cost or as an investment underIAS 39.

• Requirement for impairment testing inaccordance with IAS 36. The impairmentindicators in IAS 39 also apply.


IAS 29 Financial Reporting in Hyperinflationary Economies


Objective To prescribe specific standards for entitiesreporting in the currency of a hyperinflationaryeconomy, so that the financial informationprovided is meaningful.

Summary • The financial statements of an entity thatreports in the currency of ahyperinflationary economy should bestated in terms of the measuring unitcurrent at the balance sheet date.

• Comparative figures for prior period(s)should be restated into the same currentmeasuring unit.

• Generally an economy is hyperinflationarywhen there is 100% inflation over 3 years.

Interpretations IFRIC 7 Applying the Restatement Approachunder IAS 29

When the economy of an entity’s functionalcurrency becomes hyperinflationary, the entitymust apply the requirements of IAS 29 asthough the economy had always beenhyperinflationary.


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venturer’s “separate financial statements”as defined in IAS 27, interests in jointventures should be accounted for either atcost or as investments under IAS 39.

Interpretations SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by Venturers

Recognition of proportionate share of gains orlosses on contributions of non-monetary assetsin exchange for an equity interest is generallyappropriate.

IAS 32 Financial Instruments: Disclosure and Presentation(revised 2005)

Effective date Annual periods beginning on or after 1 January2005. Disclosure provisions are superseded onadoption of IFRS 7, effective in 2007.

Objective To enhance users’ understanding of thesignificance of on-balance sheet and off-balancesheet financial instruments to an entity’sfinancial position, performance, and cash flows.

Summary • Issuer’s classification of an instrumenteither as a liability or an equity instrument:

– based on substance, not form of theinstrument;

– classification is made at the time ofissuance and is not subsequentlyaltered;

– an instrument is a financial liability ifthe issuer may be obligated to delivercash or another financial asset or theholder has a right to demand cash oranother financial asset. An example ismandatorily redeemable preferredshares;

– an instrument that does not give rise tosuch a contractual obligation is anequity instrument; and

• The key characteristic of a JV is acontractual arrangement to share control.JVs may be classified as jointly controlledoperations, jointly controlled assets orjointly controlled entities. Differentrecognition principles for each type of JV.

• Jointly controlled operations: venturerrecognises the assets it controls, andexpenses and liabilities it incurs, and itsshare of income earned, in both its separateand consolidated financial statements.

• Jointly controlled assets: venturerrecognises its share of the joint assets, anyliabilities that it has incurred directly, andits share of any liabilities incurred jointlywith the other venturers, income from thesale or use of its share of the output ofthe joint venture, its share of expensesincurred by the joint venture, andexpenses incurred directly in respect of itsinterest in the joint venture. These rulesapply to both separate and consolidatedfinancial statements.

• Jointly controlled entities: two accountingpolicy choices are permitted:

– proportionate consolidation: under thismethod, the venturer’s balance sheetincludes its share of the assets that itcontrols jointly and its share of theliabilities for which it is jointly responsible.Its income statement includes its share ofthe income and expenses of the jointlycontrolled entity; and

– the equity method, as described in IAS 28.

• Interests in jointly controlled entities thatare classified as held for sale in accordancewith IFRS 5 are accounted for inaccordance with that Standard.

• Even if consolidated accounts are notprepared (for example, because theventurer has no subsidiaries),proportionate consolidation/ equityaccounting is required. However, in the


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Interpretations IFRIC 2 Members' Shares in Co-operativeEntities and Similar Instruments

These are liabilities unless the co-op has thelegal right not to redeem on demand.



IAS 33 Earnings per Share (revised 2003)


Objective To prescribe principles for determining andpresenting earnings per share (EPS) amounts inorder to improve performance comparisonsbetween different entities in the same periodand between different accounting periods forthe same entity. Focus of IAS 33 is on thedenominator of the EPS calculation.

Summary • Applies to publicly traded entities, entitiesin the process of issuing such shares, andany other entity voluntarily presenting EPS.

• EPS to be reported for profit or lossattributable to ordinary equity holders ofthe parent entity (face of the incomestatement), for profit or loss fromcontinuing operations attributable toordinary equity holders of the parententity (face of the income statement), andfor any discontinued operations (face ofthe income statement or the notes).

• Present basic and diluted EPS on the faceof the income statement:

– for each class of ordinary share that hasa different right to share in profit forthe period;

– interest, dividends, gains and lossesrelating to an instrument classified as aliability should be reported as incomeor expense as appropriate.

• At issuance, an issuer must classifyseparately the debt and equity componentsof a single compound instrument such asconvertible debt and debt issued withdetachable rights or warrants.

• A financial asset and a financial liabilityshould be offset and the net amountreported when, and only when, an entityhas a legally enforceable right to set offthe amounts, and intends either to settleon a net basis or simultaneously.

• Cost of treasury shares is deducted fromequity, and resales of treasury shares areequity transactions.

• Costs of issuing or reacquiring equityinstruments (other than in a businesscombination) are accounted for as adeduction from equity, net of any relatedincome tax benefit.

• Disclosure requirements include:

– risk management and hedging policies;

– hedge accounting policies andpractices, and gains and losses fromhedges;

– terms and conditions of, andaccounting policies for, all financialinstruments;

– information about exposure to interestrate risk;

– information about exposure to creditrisk;

– fair values of all financial assets andfinancial liabilities, except those forwhich a reliable measure of fair value isnot available; and

– information about derecognition,collateral, impairment, defaults andbreaches, and reclassifications.


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IAS 34 Interim Financial Reporting


Objective To prescribe the minimum content of an interimfinancial report (IFR) and the recognition andmeasurement principles for an IFR.

Summary • Applies only when the entity is required orelects to publish an IFR in accordance withIFRSs.

• Local regulators (not IAS 34) mandate:

– which entities should publish interimfinancial reports;

– how frequently; and

– how soon after the end of an interimperiod.

• An IFR is a complete or condensed set offinancial statements for a period shorterthan an entity’s full financial year.

• Minimum components of an IFR are acondensed balance sheet, incomestatement, statement of changes in equity,cash flow statement, and selectedexplanatory notes.

• Prescribes the comparative periods forwhich interim financial statements arerequired to be presented.

• Materiality is based on interim financialdata, not forecasted annual amounts.

• The notes in an IFR should provide anexplanation of events and transactionssignificant to understanding the changessince the last annual financial statements.

• Same accounting policies as annual.

• Revenue and costs to be recognised whenthey occur, not anticipated or deferred.

• Change in accounting policy – restatepreviously reported interim periods.


– with equal prominence;

– for all periods presented.

• In consolidated financial statements, EPSreflects earnings attributable to theparent’s shareholders.

• Dilution is a reduction in EPS or anincrease in loss per share on theassumption that convertible instrumentsare converted, that options or warrantsare exercised, or that ordinary shares areissued when specified conditions are met.

• Basic EPS calculation:

– earnings numerator: should be afterdeduction of all expenses including taxand minority interests, and afterdeduction of preference dividends; and

– denominator: weighted averagenumber of shares outstanding duringthe period.

• Diluted EPS calculation:

– earnings numerator: the net profit forthe period attributable to ordinaryshares is increased by the after-taxamount of dividends and interestrecognised in the period in respect ofthe dilutive potential ordinary shares(such as options, warrants, convertiblesecurities and contingent insuranceagreements), and adjusted for anyother changes in income or expensethat would result from the conversionof the dilutive potential ordinary shares;

– denominator: should be adjusted forthe number of shares that would beissued on the conversion of all of thedilutive potential ordinary shares intoordinary shares; and

– anti-dilutive potential ordinary sharesare to be excluded from the calculation.



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• Value in use is the present value ofestimated future cash flows expected toarise from the continuing use of an asset,and from its disposal at the end of itsuseful life.

• Discount rate is the pre-tax rate thatreflects current market assessments of thetime value of money and the risks specificto the asset. The discount rate should notreflect risks for which future cash flowshave been adjusted and should equal therate of return that investors would requireif they were to choose an investment thatwould generate cash flows equivalent tothose expected from the asset.

• At each balance sheet date, review assetsto look for any indication that an assetmay be impaired. If impairment isindicated, calculate recoverable amount.

• Goodwill and other intangibles withindefinite useful lives must be tested forimpairment at least annually, andrecoverable amount calculated.

• If it is not possible to determine therecoverable amount for the individualasset, then determine recoverable amountfor the asset’s cash-generating unit. Theimpairment test for goodwill should beperformed at lowest level within the entityat which goodwill is monitored for internalmanagement purposes, provided that theunit or group of units to which goodwill isallocated is not larger than a segmentunder IAS 14.

• Reversal of prior years’ impairment lossesallowed in certain instances (prohibited forgoodwill).


Useful Deloitte Interim financial reporting: A guide to publication IAS 34

Guidance on the requirements of the Standard(March 2006), model interim financial reportand compliance checklist. Available fordownload at www.iasplus.com/dttpubs/pubs.htm

IAS 36 Impairment of Assets (revised 2004)

Effective date Applies to goodwill and intangible assetsacquired in business combinations for which theagreement date is on or after 31 March 2004,and to all other assets prospectively for periodsbeginning on or after 31 March 2004.

Objective To ensure that assets are carried at no morethan their recoverable amount, and to prescribehow recoverable amount is calculated.

Summary • IAS 36 applies to all assets exceptinventories (see IAS 2), assets arising fromconstruction contracts (see IAS 11),deferred tax assets (see IAS 12), assetsarising from employee benefits (see IAS19), financial assets (see IAS 39),investment property measured at fairvalue (see IAS 40), and biological assetsrelated to agricultural activity measured atfair value less estimated point-of-sale costs(see IAS 41).

• Impairment loss to be recognised whenthe carrying amount of an asset exceedsits recoverable amount.

• Recognise impairment loss throughincome statement for assets carried atcost; treat as a revaluation decrease forassets carried at revalued amount.

• Recoverable amount is the higher of anasset’s fair value less costs to sell and itsvalue in use.


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amount of a present obligation cannotbe made (this is rare).

• Contingent liabilities require disclosureonly (no recognition). If the possibility ofoutflow is remote, then no disclosure.

• Contingent asset arises when the inflowof economic benefits is probable, but notvirtually certain, and occurrence dependson an event outside the control of theentity.

• Contingent assets require disclosure only.If the realisation of income is virtuallycertain, the related asset is not acontingent asset and recognition isappropriate.

Interpretations IFRIC 1 Changes in ExistingDecommissioning, Restoration and SimilarLiabilities

Adjust the provision for changes in the amountor timing of future costs and for changes in themarket-based discount rate.

IFRIC 5 Rights to Interests Arising fromDecommissioning, Restoration andEnvironmental Funds

Addresses how a contributor accounts for itsinterest in the fund and its obligation to makeadditional contributions.

IFRIC 6 Liabilities arising from Participatingin a Specific Market – Waste Electrical andElectronic Equipment

The event that triggers liability recognition isparticipating in the market during themeasurement period, not the original sale of theequipment.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Effective date Periods beginning on or after 1 July 1999.

Objective To prescribe appropriate recognition criteria andmeasurement bases for provisions, contingentliabilities and contingent assets, and to ensurethat sufficient information is disclosed in thenotes to the financial statements to enableusers to understand their nature, timing andamount. IAS 37 thus aims to ensure that onlygenuine obligations are dealt with in thefinancial statements. Planned futureexpenditure, even where authorised by theboard of directors or equivalent governing body,is excluded from recognition, as are accruals forself-insured losses, general uncertainties, andother events that have not yet taken place.

Summary • Recognise a provision only when a pastevent has created a legal or constructiveobligation, an outflow of resources isprobable, and the amount of theobligation can be estimated reliably.

• Amount recognised as a provision is thebest estimate of settlement amount atbalance sheet date.

• Requires a review of provisions at eachbalance sheet date to adjust for changesin estimate.

• Utilise provisions only for originalpurposes.

• Examples of provisions may includeonerous contracts, restructuring provisions,warranties, refunds and site restoration.

• Contingent liability arises when:

– there is a possible obligation to beconfirmed by a future event that isoutside the control of the entity; or

– a present obligation may, but probablywill not, require an outflow ofresources; or

– a sufficiently reliable estimate of the


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case it should form part of the amountattributed to goodwill at the date ofacquisition.

• For the purpose of accounting subsequentto initial acquisition, intangible assets areclassified as:

– indefinite life: no foreseeable limit tothe period over which the asset isexpected to generate net cash inflowsfor the entity. ‘Indefinite’ does notmean ‘infinite’; and

– finite life: a limited period of benefit tothe entity.

• Intangible assets may be accounted forusing a cost model or a revaluation model(permitted only in limited circumstances –see below). Under the cost model, assetsare carried at cost less any accumulatedamortisation and any accumulatedimpairment losses.

• If the intangible asset has a quoted marketprice in an active market, an accountingpolicy choice of a revaluation model ispermitted. Under the revaluation model,the asset is carried at revalued amount,which is fair value at revaluation date lessany subsequent depreciation and anysubsequent impairment losses.

• The cost (residual value is normally zero)of an intangible asset with a finite usefullife is amortised over that life. Impairmenttesting under IAS 36 is required wheneverthere is an indication that the carryingamount exceeds the recoverable amountof the intangible asset.

• Intangible assets with indefinite usefullives are not amortised but must be testedfor impairment at each reporting date.If recoverable amount is lower than thecarrying amount, an impairment loss isrecognised. The assessment must alsoconsider whether the intangible continuesto have an indefinite life.

IAS 38 Intangible Assets (revised 2004)

Effective date 1 April 2004.

Objective To prescribe the accounting treatment forrecognising, measuring and disclosing allintangible assets that are not dealt withspecifically in another IFRS.

Summary • Requires an entity to recognise anintangible asset, whether purchased orself-created, if:

– it is probable that the future economicbenefits that are attributable to theasset will flow to the entity; and

– the cost of the asset can be measuredreliably.

• Additional recognition criteria forinternally-generated intangible assets.

• All research costs are charged to expensewhen incurred.

• Development costs are capitalised onlyafter technical and commercial feasibilityof the resulting product or service havebeen established.

• Intangible assets, including in-processresearch and development, acquired in abusiness combination should berecognised separately from goodwill ifthey arise as a result of contractual orlegal rights or are separable from thebusiness.

• Internally-generated goodwill, brands,mastheads, publishing titles, customerlists, start-up costs, training costs,advertising costs and relocation costsshould not be recognised as assets.

• If an intangible item does not meet boththe definition and the recognition criteriafor an intangible asset, expenditure on theitem is recognised as an expense when itis incurred, except if the cost is incurred aspart of a business combination, in which


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• An entity has an option of recognisingnormal purchases and sales of securities inthe market place consistently either attrade date or settlement date. If settlementdate accounting is used, IAS 39 requiresrecognition of certain value changesbetween trade and settlement dates.

• For the purpose of measuring a financialasset subsequent to initial recognition,IAS 39 classifies financial assets into fourcategories:

1. Loans and receivables not held fortrading.

2. Held-to-maturity (HTM) investments,such as debt securities and mandatorilyredeemable preferred shares, that theentity intends and is able to hold tomaturity. If an entity sells any HTMinvestments (other than in exceptionalcircumstances), all of its other HTMinvestments must be reclassified asavailable-for-sale (category 4 below) forthe current and next two financialreporting years.

3. Financial assets measured at fair valuethrough profit or loss, which includesthose held for trading (short-term profittaking) and any other financial assetthat the entity designates (the “fairvalue option”). Derivative assets arealways in this category unless they aredesignated as hedging instruments.

4. Available-for-sale financial assets (AFS)– all financial assets that do not fall intoone of the other three categories. This includes all investments in equityinstruments that are not measured atfair value through profit or loss.Additionally, an entity may designateany loans and receivables as AFS.

• In 2005, the IASB restricted the use of the“fair value option” (3 above) toeliminating accounting or economicmismatches, or when two items aremanaged jointly.

• Under the revaluation model, revaluationsmust be carried out regularly. All items of agiven class must be revalued (unless there isno active market for a particular asset).Revaluation increases are credited to equity.Revaluation decreases are charged firstagainst the revaluation surplus in equityrelated to the specific asset, and any excessagainst profit or loss. When the revaluedasset is disposed of, the revaluation surplusin equity remains in equity and is notrecycled through profit or loss.

• Normally, subsequent expenditure on anintangible asset after its purchase orcompletion is recognised as an expense.Only rarely can the asset recognitioncriteria be met.

Interpretations SIC 32 Intangible Assets – Web Site Costs

Certain initial infrastructure development andgraphic design costs incurred in web sitedevelopment may be capitalised.

IAS 39 Financial Instruments: Recognition and Measurement(revised 2005)

Effective date Annual periods beginning on or after 1 January2005, except the 2004 and 2005 revisions for thefair value option, cash flow hedge accounting offorecast intragroup transactions, and financialguarantees are effective 1 January 2006.

Objective To establish principles for recognising,derecognising and measuring financial assetsand financial liabilities.

Summary • All financial assets and financial liabilities,including all derivatives and certainembedded derivatives, must be recognisedon the balance sheet.

• Financial instruments are initially measuredat fair value on date of acquisition orissuance. Usually this is the same as cost,but sometimes an adjustment is required.


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• IAS 39 establishes conditions fordetermining when control over a financialasset or liability has been transferred toanother party and, therefore, it should beremoved from the balance sheet(derecognised). Derecognition is notpermitted to the extent to which thetransferor has continuing involvement inan asset or a portion of an asset it hastransferred.

• Hedge accounting (recognising theoffsetting effects of fair value changes ofboth the hedging instrument and thehedged item in the same period’s profit orloss) is permitted in certain circumstances,provided that the hedging relationship isclearly defined, measurable, and actuallyeffective. IAS 39 provides for three typesof hedges:

– fair value hedge: if an entity hedges achange in fair value of a recognisedasset or liability or firm commitment,the change in fair values of both thehedging instrument and the hedgeditem are recognised in profit or losswhen they occur;

– cash flow hedge: if an entity hedgeschanges in the future cash flowsrelating to a recognised asset or liabilityor a probable forecast transaction, thenthe change in fair value of the hedginginstrument is recognised directly inequity until such time as those futurecash flows occur; and

– hedge of a net investment in a foreignentity: this is treated as a cash flowhedge.

• A hedge of foreign currency risk in a firmcommitment may be accounted for as afair value hedge or as a cash flow hedge.

• 2004 “macro hedging” amendment:a portfolio hedge of interest rate risk(hedging an amount rather than a specificasset or liability) can qualify as a fair valuehedge.

• Subsequent to initial recognition:

– all financial assets in categories 1 and 2above are carried at amortised costsubject to a test for impairment;

– all financial assets in category 3 aboveare carried at fair value, with valuechanges recognised in profit or loss; and

– all financial assets in category 4 above(AFS) are measured at fair value in thebalance sheet, with value changesrecognised in equity, subject toimpairment testing. If the fair value ofan AFS asset cannot be measuredreliably, the asset is carried at cost.

• After acquisition, most financial liabilitiesare measured at original recorded amountless principal repayments andamortisation. Three categories of liabilitiesare measured at fair value with valuechanges recognised in profit or loss:

– derivative liabilities;

– liabilities held for trading (short sales);and

– any liabilities that the entity designates,at issuance, to be measured at fair valuethrough profit or loss (the “fair valueoption”). This designation has also beenrestricted during 2005 – see above.

• Fair value is the amount for which an assetcould be exchanged, or a liability settled,between knowledgeable, willing parties inan arm's length transaction. The IAS 39fair value hierarchy:

– best is quoted market price in an activemarket;

– otherwise use a valuation techniquethat makes maximum use of marketinputs and includes recent arm’s lengthmarket transactions, reference to thecurrent fair value of another instrumentthat is substantially the same,discounted cash flow analysis, andoption pricing models.


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Current Standards

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• IAS 40 does not apply to owner-occupiedproperty or property that is beingconstructed or developed for future use asinvestment property, or property held forsale in the ordinary course of business.

• Permits an entity to choose either the fairvalue model or cost model:

– fair value model: investment property ismeasured at fair value, and changes infair value are recognised in the incomestatement; and

– cost model: investment property ismeasured at depreciated cost less anyaccumulated impairment losses. Fairvalue of the investment property muststill be disclosed.

• The chosen measurement model must beapplied to all of the entity’s investmentproperty.

• If an entity uses the fair value model but,when a particular property is acquired,there is clear evidence that the entity willnot be able to determine fair value on acontinuing basis, the cost model is usedfor that property – and it must continue tobe used until disposal of the property.

• Change from one model to the other ispermitted if it will result in a moreappropriate presentation (highly unlikelyfor change from fair value to cost model).

• A property interest held by a lessee underan operating lease can qualify asinvestment property provided that thelessee uses the fair value model of IAS 40.In this case, the lessee accounts for thelease as if it were a finance lease.


• 2005 financial guarantees amendment:financial guarantees are now in the scopeof IAS 39 unless an entity has usedinsurance accounting for guarantees inthe past.

• All financial instruments disclosures are inIAS 32, not IAS 39 and, effective 2007,those disclosures are moved to IFRS 7.

Interpretations IFRIC 9 Reassessment of EmbeddedDerivatives

Generally, determination of whether to accountfor an embedded derivative separately from thehost contract is made when the entity firstbecomes a party to the host contract, and notsubsequently reassessed.

IAS 39 guidance During 1999-2000, an IASC committeedeveloped approximately 250 questions andanswers on IAS 39. Approximately 100 of thosewere incorporated into the 2003 revisions toIAS 39. The remaining Q&As are included asimplementation guidance in the IASB’s annualbound volume of IFRSs.



IAS 40 Investment Property (revised 2004)


Objective To prescribe the accounting treatment forinvestment property and related disclosures.

Summary • Investment property is land or buildingsheld (whether by the owner or under afinance lease) to earn rentals or for capitalappreciation or both.


Agenda projects

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Current Standards

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Current IASB agenda projects The following is a summary of the IASB’s agenda projects at 1 March 2006.

Accounting Standards for Small and Medium-SizedEntities

Status Discussion Paper and Recognition and Measurement Questionnaireissued. Public round-tables held. The IASB is developing an Exposure Draft:

• Standards intended to be suitable for entities that do not have publicaccountability (not listed, not a financial institution).

• Will be a single volume IFRS for SMEs, organised topically.

• There is general agreement that disclosure reductions are needed.The main area of debate is about simplification of recognition andmeasurement principles in IFRSs for SMEs.

What’s next? An Exposure Draft of an IFRS for SMEs is targeted for30 June 2006, though that may be a bit optimistic.

Business Combinations – Phase II

Status In June 2005, the IASB issued Exposure Drafts dealing with:

• Application of the purchase method (joint with FASB; this ExposureDraft would amend IFRS 3).

• Non-controlling (minority) interests (this Exposure Draft would amendIAS 27).

• Non-financial liabilities (this Exposure Draft would amend the principlesfor measuring provisions under IAS 37).

Among the proposals:

• Recognise full goodwill, including minority share.

• Recognise contingent assets as well as liabilities.

• When a parent obtains control, all assets and liabilities of the subsidiary(including goodwill) are measured at fair value.

• When parent loses control, the retained interest is remeasured to fairvalue and gain or loss is recognised.

• After control is obtained, any changes in ownership interests are equitytransactions as long as control is retained.

• All transaction costs are expensed.

• Probability-weighted expected value method to measure provisions,rather than most likely outcome.

IAS 41 Agriculture

Effective Date Periods beginning on or after 1 January 2003.

Objective To prescribe accounting for agricultural activity –the management of the biologicaltransformation of biological assets (living plantsand animals) into agricultural produce.

Summary • Measure all biological assets at fair valueless expected point-of-sale costs at eachbalance sheet date, unless fair valuecannot be measured reliably.

• Measure agricultural produce at fair valueat the point of harvest less expected point-of-sale costs. Because harvested produceis a marketable commodity, there is no“measurement reliability” exception forproduce.

• Change in fair value of biological assetsduring a period is reported in net profit orloss.

• Exception to fair value model for biologicalassets: if there is no active market at thetime of recognition in the financialstatements, and no other reliablemeasurement method, then apply the costmodel to the specific biological asset only.The biological asset should be measuredat depreciated cost less any accumulatedimpairment losses.

• Quoted market price in an active marketgenerally represents the best measure offair value of a biological asset oragricultural produce. If an active marketdoes not exist, IAS 41 provides guidancefor choosing another measurement basis.

• Fair value measurement stops at harvest.IAS 2 applies after harvest.



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Agenda projects

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such as through a holder’s put option or a mandatory redemption feature.For many entities – including many small and medium-sized entities thathave buy-sell agreements with owners, as well as most partnerships andcooperatives – IAS 32 classifies as debt what these entities havetraditionally regarded as equity capital. Often it is their only investorcapital. This project seeks to identify criteria by which financial instrumentsputtable at a pro rata share of the fair value of the residual interest in theissuer would appropriately be classified as equity.

What’s next? An Exposure Draft is expected 2006.

Government Grants and Emissions Trading Schemes

Status IAS 20 provides many options in accounting for governmentgrants. This project is addressing ways to improve IAS 20, includingpossibly replacing it with a new Standard.

Additionally, in December 2004, IFRIC issued Interpretation 3 on emissionrights, which are a form of government grant. The IASB subsequentlywithdrew that Interpretation. The matter of accounting for emission rightsis now included in the IAS 20 project.

What’s next? The Board has noted that certain issues related torecognising and measuring obligations under grants with conditionsattached are similar to issues related to recognising and measuringprovisions under IAS 37. Because the Board is currently reconsidering IAS37 as part of the Business Combinations Phase II project, in February 2006the Board decided to defer work on the IAS 20 project pending finaldecisions on revision of IAS 37, which are expected in mid-2007.

Insurance Contracts Phase II

Status The insurance contracts project was carried forward from theformer IASC. It is a comprehensive project addressing all issues onaccounting for insurance contracts. However, in May 2002, the IASBagreed to split the project into two phases, so that some componentscould be put in place by 2005 without delaying the rest of the project.

Phase I This phase involved issuing an interim standard (IFRS 4) to provideguidance on how existing IFRSs should be applied to insurance contracts.Phase I is now completed. IFRS 4 is described elsewhere in this booklet.

Phase II This phase is taking a fresh look at accounting for insurancecontracts. In January 2003, the Board suspended work on Phase II pendingcompletion of Phase I. Work on Phase II resumed in September 2004 withappointment of a new Working Group on Insurance. In announcing theworking group, the Board noted that its predecessor had published anIssues Paper and a Draft Statement of Principles, and the IASB itself has

What’s next? Final Standard is expected in mid-2007.

Conceptual Framework

Status This is a joint project with the FASB designed to align the twoBoards’ conceptual frameworks. The project is being addressed in eightphases:

• Objectives and qualitative characteristics.

• Elements: Recognition and measurement attributes.

• Initial and subsequent measurement.

• Reporting entity.

• Presentation and disclosure.

• Status of Framework in GAAP hierarchy.

• Applicability to not-for-profit.

• Reconsideration of entire Framework.

What’s next? Each of the eight phases will be examined in a DiscussionPaper. Papers on objectives and qualitative characteristics are planned forlate 2006. Papers on elements and reporting entity are planned for 2007.This project is of more than just academic interest because IAS 8 nowrequires an entity to look to the Framework if it cannot find guidance onaccounting for a particular kind of transaction in the Standards orInterpretations.

Consolidation, Including Special Purpose Entities

Status The objective of this project is to clarify and provide more rigorousguidance on the concept of “control” as the basis for preparingconsolidated financial statements, including applying that concept to“special purpose entities”. The Board’s most recent thinking on thedefinition of control is as follows:

• Ability to direct the strategic financing and operating policies.

• Ability to access benefits.

• Ability to use power to maintain, increase, or protect benefits.

What’s next? The project is likely to lead to revisions of IAS 27.An Exposure Draft is expected late 2006 or, more likely, 2007.

Financial Instruments Puttable at Fair Value

Status This is the last remaining “small” financial instruments project onthe Board’s active agenda – though, of course, comprehensivereconsideration of IAS 39 is an active research project. Currently, IAS 32classifies an instrument as a liability if the issuer cannot avoid paying cash,


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Agenda projects

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• The Boards are exploring a revenue recognition approach under whichperformance obligations would be measured by allocating the customerconsideration rather than at the fair value of the obligation (that is, theamount the reporting entity would be required to pay to transfer theperformance obligation to a willing third party of comparable creditstanding).

What’s next? Discussion Paper in third quarter 2006.

Short-Term Convergence of IFRSs and US GAAP

Status The objective of this project is to eliminate a variety of differencesbetween IFRSs and US GAAP. The project, which is being carried out jointlyby FASB and IASB, grew out of an agreement reached by the two Boardsin September 2002. From the IASB side, some aspects of this project havebeen completed, including many of the changes to IASs in December 2003as a result of the IASB’s Improvements Project; IFRS 3 on businesscombinations and the related revisions to IAS 36 and IAS 38; and IFRS 5 onasset disposals and discontinued operations. Likewise, FASB has convergedon a number of points.

What’s next? Current convergence projects are in the following areas:

• IAS 12 Income Taxes An Exposure Draft is expected in the first half of2006. Among the likely changes:

– eliminate the IAS 12 exception from recognising deferred taxes oninitial recognition of an asset;

– accrue deferred tax related to undistributed earnings of domesticsubsidiaries;

– valuation allowance approach for deferred tax assets;

– allocate tax to components of profit and loss or equity; and

– balance sheet classification of deferred tax based on related asset orliability.

• IAS 14 Segment Reporting An Exposure Draft was issued January2006. Proposes to adopt the US FAS 131 “management approach” forboth defining segments and determining what information is disclosed.

• IAS 23 Borrowing Costs Currently, IAS 23 allows both capitalisationand immediate expensing. The IASB has agreed to require capitalisationand prohibit immediate expensing, thereby converging with the FAS 34approach. An Exposure Draft is expected in the first half of 2006.

In February 2006, the two Boards released an update of the September2002 agreement identifying several additional convergence projects theyintend to undertake in the near future. For IASB, that entails a new jointproject with FASB on impairment of assets.

discussed the project at many Board meetings. The Board said that it will“regard the past work as a useful resource, but will not feel bound by it.The only restrictions on a fresh look are the IASB’s Framework and thegeneral principles established in the IASB’s existing standards.”

What’s next? The next step in the Phase II project will be for the IASB topublish a Discussion Paper in 2006 or 2007.

Performance Reporting (Reporting ComprehensiveIncome)

Status Joint project with FASB. Project divided into two segments:

• Segment A:

– Which financial statements? Tentatively decided to require anopening (as well as closing) balance sheet, and a statement of allrecognised income and expenses.

– Comparative information.

• Segment B:

– Presentation of information on the face of the required financialstatements: What information? In what format (line items, columns,and so on)?

– Recycling.

– Disaggregation (such as segment information).

– Totals and subtotals.

What’s next? IASB expects to issue an Exposure Draft on Segment A infirst half of 2006. The FASB will not publish an Exposure Draft on SegmentA but, rather, will address the topics in Segments A and B together.Timetable not established for Segment B.

Revenue Recognition

Status This is a joint project with FASB. Tentative decisions:

• Revenue should be recognised on the basis of changes in assets andliabilities arising from contracts with customers – without considerationof additional criteria, such as realisation and completion of an earningsprocess.

• Revenue arises as a result of (a) an unconditional right to receiveconsideration because a contract deliverable has been delivered and (b)the extinguishment of the reporting entity’s performance obligations toits customers.


Research topics

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Research topics

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Measurement objective There is a trend toward increased use of fairvalues in IFRSs. The CFA Institute (a worldwide financial analysts’organisation) has said that fair value is the only relevant measure for allassets and liabilities from an investor’s point of view. But reliability andearnings management issues persist. The IASB Framework identifies anumber of measurement bases that are used currently in IFRSs but doesnot provide conceptual guidance as to when each is most appropriate.There are two active components of the IASB’s measurement project:

• In November 2005, the IASB issued a Discussion Paper on measurementat initial recognition, which was prepared by the Canadian AccountingStandards Board. The Discussion Paper has not yet been debated by theIASB.

• The FASB is about to adopt a standard with guidance on fair valuemeasurement. The FASB standard would not change the circumstanceswhen fair value is required, just provide guidance on how to do it.The IASB plans to issue a “wrap-around” Exposure Draft of the FASB’sguidance in mid-2006.

Our www.iasplus.com website has the latest information about theIASB’s and IFRIC’s agenda projects and research topics, includingsummaries of decisions reached at each IASB and IFRIC meeting.

IASB’s active research topicsThe following are likely to become active IASB agenda projects soon. The IASB has several other research topics that are inactive at present,including intangibles and hyperinflation.

Extractive industries Primary emphasis of this research is addressingreporting reserves and other resources (definition, measurement and, if acost model is used, which costs should be capitalised). A Discussion Paperis planned for mid-2007.

Financial instruments This research is addressing:

• Measurement of all financial instruments at fair value, with valuechanges recognised in profit or loss.

• Simplifying or eliminating hedge accounting.

• The distinction between liabilities and equity.

• A new standard on derecognition.

Investment entities Reporting by investment trusts, unit trusts, mutualfunds. Project timetable not yet announced.

Joint ventures Currently IAS 31 allows both the equity method andproportionate consolidation. This project is considering the appropriateaccounting for joint ventures. The Board has indicated on several occasionsthat it does not favour the proportionate consolidation method. Timing not yet announced.

Leases The Board has indicated that it favours capitalising all propertyinterests (rights) acquired via leases, even if the lease does not coversubstantially all of the leased asset. Staff research is under way, with aDiscussion Paper planned for late 2006.

Management Commentary Also known as Management Discussion andAnalysis (MD&A) and Operating and Financial Review (OFR). Traditionallythese disclosures have been regulatory requirements that differ fromjurisdiction to jurisdiction. But the fact is that they contain considerablefinancial data for which only limited standards exist even at the nationallevel. In October 2005, the IASB published a Discussion Paper setting out astaff proposal that the IASB develop a global standard for a ManagementCommentary that would replace national regulatory requirements.The Board has not yet taken a position on this proposal.


Interpretations

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Interpretations

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• SIC 29 Disclosure – Service Concession Arrangements

• SIC 31 Revenue – Barter Transactions Involving Advertising Services

• SIC 32 Intangible Assets – Website Costs

Items not added to IFRIC agenda

We maintain on www.iasplus.com a list of nearly 100 issues that IFRICconsidered adding to its agenda but decided not to do so. In each case,IFRIC announces its reason for not taking the issue onto its agenda. By theirnature, those announcements provide helpful guidance in applying IFRSs.You will find the list at www.iasplus.com/ifric/notadded.htm

Interpretations of IASs and IFRSs are developed by the InternationalFinancial Reporting Interpretations Committee (IFRIC), whichreplaced the Standing Interpretations Committee (SIC) in 2002.Interpretations are part of IASB’s authoritative literature. Therefore,financial statements may not be described as complying withInternational Financial Reporting Standards unless they comply withall the requirements of each applicable Standard and each applicableInterpretation.

InterpretationsIFRIC Interpretations

The following Interpretations have been issued by the InternationalFinancial Reporting Interpretations Committee (IFRIC) starting in 2004through 1 March 2006:

• IFRIC 1 Changes in Existing Decommissioning, Restoration and SimilarLiabilities

• IFRIC 2 Members’ Shares in Co-operative Entities and SimilarInstruments

• IFRIC 3 Emission Rights – withdrawn

• IFRIC 4 Determining whether an Arrangement contains a Lease

• IFRIC 5 Rights to Interests Arising from Decommissioning, Restorationand Environmental Rehabilitation Funds

• IFRIC 6 Liabilities arising from Participating in a Specific Market – WasteElectrical and Electronic Equipment

• IFRIC 7 Applying the Restatement Approach under IAS 29, FinancialReporting in Hyperinflationary Economies

• IFRIC 8 Scope of IFRS 2

• IFRIC 9 Reassessment of Embedded Derivatives

SIC Interpretations

The following Interpretations, issued by the Standing InterpretationsCommittee (SIC) from 1997-2001, remain in effect. All other SICInterpretations were superseded when the improvements to IASs wereadopted in December 2003:

• SIC 7 Introduction of the Euro

• SIC 10 Government Assistance – No Specific Relation to OperatingActivities

• SIC 12 Consolidation – Special Purpose Entities

• SIC 13 Jointly Controlled Entities – Non-Monetary Contributions byVenturers

• SIC 15 Operating Leases – Incentives

• SIC 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets

• SIC 25 Income Taxes – Changes in the Tax Status of an Enterprise or itsShareholders

• SIC 27 Evaluating the Substance of Transactions in the Legal Form of aLease


Websites

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IFRS e-learning

90

Website addressesDeloitte Touche Tohmatsu

www.deloitte.com

www.iasplus.com

IASB

www.iasb.org

Some national standard-setting bodies

Australian Accounting Standards Board www.aasb.com.au

Canadian Accounting Standards Board www.acsbcanada.org

China Accounting Standards Committee www.casc.gov.cn/internet/internet/en.html

Conseil National de la www.minefi.gouv.fr/Comptabilité (France) directions_services/CNCompta/

German Accounting Standards Board www.drsc.de

Japan Accounting Standards Board www.asb.or.jp/index_e.html

Korea Accounting Standards Board www.kasb.or.kr/enghome.nsf

New Zealand Financial Reporting www.icanz.co.nzStandards Board

Accounting Standards Board www.asb.org.uk(United Kingdom)

Financial Accounting Standards www.fasb.org Board (USA)

International Auditing and Assurance Standards Board

www.ifac.org/iaasb

International Federation of Accountants

www.ifac.org

International Organization of Securities Commissions

www.iosco.org

Our www.iasplus.com website has a page with links to nearly 200accounting-related websites.

Deloitte’s IFRS e-learningDeloitte is pleased to make available, in the publicinterest and without charge, our e-learning trainingmaterials for IFRSs. Modules are available for virtually allIASs/IFRSs – in the case of IASs 32 and 39 there arethree modules.

Each module involves downloading a 4mb to 6mb zip file and extractingthe enclosed files and directory structure into a directory on yourcomputer.

Before downloading, you will be asked to read and accept a disclaimernotice. The e-learning modules may be used and distributed freely bythose registering with the site, without alteration from the original formand subject to the terms of the Deloitte copyright over the material.

To download, go to www.iasplus.com and click on the light bulb icon onthe home page.


IAS Plus newsletter

92

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein,its member firms, and their respective subsidiaries and affiliates. DeloitteTouche Tohmatsu is an organisation of member firms around the worlddevoted to excellence in providing professional services and advice,focused on client service through a global strategy executed locally innearly 150 countries. With access to the deep intellectual capital of120,000 people worldwide, Deloitte delivers services in four professionalareas – audit, tax, consulting and financial advisory services – and servesmore than one-half of the world’s largest companies, as well as largenational enterprises, public institutions, locally important clients, andsuccessful, fast-growing global growth companies. Services are notprovided by the Deloitte Touche Tohmatsu Verein, and, for regulatory andother reasons, certain member firms do not provide services in all fourprofessional areas.

As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor anyof its member firms has any liability for each other’s acts or omissions.Each of the member firms is a separate and independent legal entityoperating under the names “Deloitte”, “Deloitte & Touche”, “DeloitteTouche Tohmatsu”, or other related names.

Our global IFRS leadership team

IFRS global office

Ken Wild, Global IFRS Leader [email protected]

IFRS centres of excellence

Americas:

D. J. Gannon, Washington [email protected]

Asia-Pacific:

Bruce Porter, Melbourne [email protected]

Stephen Taylor, Hong Kong [email protected]

Europe-Africa:

Graeme Berry, Johannesburg [email protected]

Jan Peter Larsen, Copenhagen [email protected]

Veronica Poole, London [email protected]

Laurence Rivat, Paris [email protected]

This publication is available in electronic form at www.iasplus.com

Subscribe to our IAS PlusnewsletterDeloitte publishes IAS Plus, a quarterly newsletter on developments ininternational financial reporting. We also publish special editions of thisnewsletter to address important pronouncements and proposals and othermajor news events in detail. In addition, e-mail alerts are occasionallyprovided for important news arising between issues of the newsletter.

If you would like to receive download links to these newsletters and alertsvia e-mail, you can subscribe by visiting the IAS Plus website home page:www.iasplus.com

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