International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) are the standard in over 100 countries, including the EU and many parts of Asia and South America.

IFRS standards that consist of a set of accounting rules that determine how transactions and other accounting events are required to be reported in financial statements. They are designed to maintain credibility and transparency in the financial world, which enables investors and business operators to make informed financial decisions.

Standards are issued and maintained by the International Accounting Standards Board and were created to establish a common language so that financial statements can easily be interpreted from company to company and country to country. The United States, however, has not yet adopted them and the SEC is still deciding whether or not they should move towards them as the official standard of accounting.

IFRS 1

First-time Adoption of International Financial Reporting Standards:

The objective of this IFRS is to ensure that an entity’s first IFRS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:

(a) is transparent for users and comparable over all periods presented.

(b) provides a suitable starting point for accounting in accordance with International Financial Reporting Standards (IFRSs); and

(c) can be generated at a cost that does not exceed the benefits.

An entity’s first IFRS financial statements are the first annual financial statements in which the entity adopts IFRSs, by an explicit and unreserved statement in those financial statements of compliance with IFRSs. Financial statements in accordance with IFRSs are an entity’s first IFRS financial statements if, for example, the entity:

(a) presented its most recent previous financial statements:

(i) in accordance with national requirements that are not consistent with IFRSs in all respects.

(ii) in conformity with IFRSs in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IFRSs.

(iii) containing an explicit statement of compliance with some, but not all, IFRSs.

(iv) in accordance with national requirements inconsistent with IFRSs, using some individual IFRSs to account for items for which national requirements did not exist; or

(v) in accordance with national requirements, with a reconciliation of some amounts to the amounts determined in accordance with IFRSs.

(b) prepared financial statements in accordance with IFRSs for internal use only, without making them available to the entity’s owners or any other external users.

(c) prepared a reporting package in accordance with IFRSs for consolidation purposes without preparing a complete set of financial statements as defined in IAS 1 Presentation of Financial Statements (as revised in 2007); or

(d) did not present financial statements for previous periods.

Summary

• IFRS 1 provides guidance for entities adopting IFRS for the first time.
• The standard requires an entity in this position to comply with IFRSs effective at the end of its first IFRS accounting period in terms of the recognition and measurement of assets and liabilities.

• There are limited exemptions from these requirements where the cost of compliance would outweigh the benefits.

• Entities must disclose the effect of the transfer to IFRS on financial position, performance and cash flows.

IFRS 2

Share-based Payment

The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a share‑based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share‑based payment transactions, including expenses associated with transactions in which share options are granted to employees.

(a) equity‑settled share‑based payment transactions,

(b) cash‑settled share‑based payment transactions, and

(c) Transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments. In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been or will be received, in which case this IFRS applies.

Summary

• IFRS 2 requires share-based payments to be recognized in the financial statements at fair value, based on the value of the entity’s shares or the value of the goods and services received.
• The scope of IFRS 2 includes employee share options, transactions in which shares, or other equity instruments are issued in return for goods and services, and transactions where the payment amount is based the on the price of the entity’s shares.

IFRS 3

Business Combinations

The objective of this IFRS is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects.

To accomplish that, this IFRS establishes principles and requirements for how the acquirer:

(a) recognizes and measures in its financial statements the identifiable assets acquired, the

liabilities assumed and any non‑controlling interest in the acquiree,

(b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and

(c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

This IFRS applies to a transaction or other event that meets the definition of a business combination. This IFRS does not apply to:

(a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself.

(b) the acquisition of an asset or a group of assets that does not constitute a business. In such cases the acquirer shall identify and recognize the individual identifiable assets acquired (Including those assets that meet the definition of, and recognition criteria for, intangible assets in IAS 38 Intangible Assets) and liabilities assumed. The cost of the group shall be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill.

(c) a combination of entities or businesses under common control.

Summary

• Business combinations are accounted for using the acquisition method
• Goodwill is measured as the excess of the aggregate of:
  • Consideration transferred
  • The non-controlling (minority) interest, and
  • Fair value of any previously held equity interest in acquiree, over the identifiable net assets of the acquiree.

The non-controlling (minority) interest is measured at acquisition either at fair value or as a proportion of the fair value of the net assets of the acquiree.

IFRS 5

Non-current Assets Held for Sale and Discontinued Operations

The objective of this IFRS is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. In particular, the IFRS requires:

(a) Assets that meet the criteria to be classified as held for sale to be measured at the lower of carrying amount and fair value less costs to sell, and depreciation on such assets to cease; and

(b) Assets that meet the criteria to be classified as held for sale to be presented separately in the statement of financial position and the results of discontinued operations to be presented separately in the statement of comprehensive income.

     The classification and presentation requirements of this IFRS apply to all recognized non‑current assets and to all disposal groups of an entity. The measurement requirements of this IFRS apply to all recognized non‑current assets and disposal groups except for those assets listed in paragraph 5 which shall continue to be measured in accordance with the Standard noted.

     Assets classified as non‑current in accordance with IAS 1 Presentation of Financial Statements shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this IFRS. Assets of a class that an entity would normally regard as non‑current that are acquired exclusively with a view to resale shall not be classified as current unless they meet the criteria to be classified as held for sale in accordance with this IFRS.

     The measurement provisions of this IFRS do not apply to the following assets, which are covered by the IFRSs listed, either as individual assets or as part of a disposal group:

(a) Deferred tax assets (IAS 12 Income Taxes).

(b) Assets arising from employee benefits (IAS 19 Employee Benefits).

(c) Financial assets within the scope of IFRS 9 Financial Instruments.

(d) Non‑current assets that are accounted for in accordance with the fair value model in IAS 40 Investment Property.

(e) Non‑current assets that are measured at fair value less costs to sell in accordance with IAS 41 Agriculture.

(f) Groups of contracts within the scope of IFRS 17 Insurance Contracts.

Summary

Assets or disposal groups classified as held for sale must be measured at the lower of carrying amount and fair value less costs to sell. Any resulting impairment loss is recognized in profit or loss. Once classified as held for sale, these assets are not depreciated and are disclosed separately on the face of the statement of financial position (balance sheet) within current assets.

Discontinued operations are those which have been disposed of or are held for sale. Their results are separately disclosed within the statement of comprehensive income (income statement) and their cash flows are separately disclosed within the statement of cash flows (cash flow statement).

IFRS 6

Exploration for and Evaluation of Mineral Resources

1. The objective of this IFRS is to specify the financial reporting for the exploration for and evaluation of mineral resources.
2. In particular, the IFRS requires:

(a) Limited improvements to existing accounting practices for exploration and evaluation expenditures.

(b) Entities that recognize exploration and evaluation assets to assess such assets for impairment in accordance with this IFRS and measure any impairment in accordance with IAS 36 Impairment of Assets.

(c) Disclosures that identify and explain the amounts in the entity’s financial statements arising from the exploration for and evaluation of mineral resources and help users of those financial statements understand the amount, timing and certainty of future cash flows from any exploration and evaluation assets recognized.

.    3. An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.

.    4. The IFRS does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral resources.

.    5. An entity shall not apply the IFRS to expenditures incurred:

(a) Before the exploration for and evaluation of mineral resources, such as expenditures incurred before the entity has obtained the legal rights to explore a specific area.

(b) After the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

Summary

IFRS 6 provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. The following are specifically excluded from its scope:

• Expenditures incurred before legal rights of exploration are obtained, and
• Expenditures incurred after the technical feasibility and commercial viability of extracting mineral resources are demonstrable.

Exploration and evaluation assets should initially be measured at cost in the statement of financial position (balance sheet). After recognition, either the cost or revaluation model of IAS 16/IAS 38 may be applied. Impairment tests are required when circumstances suggest that the carrying amount of the assets may exceed their recoverable amount.

IFRS 7

Financial Instruments: Disclosures

The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate:

(a) The significance of financial instruments for the entity’s financial position and performance; and

(b) The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

The principles in this IFRS complement the principles for recognizing, measuring and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments.

This IFRS applies to:

1. Derivatives that are embedded in contracts within the scope of IFRS 17, if IFRS 9 requires the entity to account for them separately.
2. Investment components that are separated from contracts within the scope of IFRS 17, if 17 requires such separation, unless the separated investment component is an investment contract with discretionary participation features.
3. An issuer’s rights and obligations arising under insurance contracts that meet the definition of financial guarantee contracts, if the issuer applies IFRS 9 in recognizing and measuring the contracts. However, the issuer shall apply IFRS 17 if the issuer elects, in accordance with paragraph 7(e) of IFRS 17, to apply IFRS 17 in recognizing and measuring the contracts.
4. An entity’s rights and obligations that are financial instruments arising under credit card contracts, or similar contracts that provide credit or payment arrangements, that an entity issues that meet the definition of an insurance contract if the entity applies IFRS 9 to those rights and obligations.
5. An entity’s rights and obligations that are financial instruments arising under insurance contracts that an entity issues that limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract, if the entity elects.

Summary

IFRS 7 requires two main categories of financial instruments disclosure:

• Information about the significance of financial instruments on financial performance and position, including:
  • Carrying value of each of the categories of financial instrument
  • Amounts recognized in profit or loss with respect to financial instruments
  • Descriptions of hedging arrangements
  • Information about fair values of each class of financial instrument
• Information about the nature and extent of risks arising from financial instruments, including:

• • Qualitative disclosures describing risk exposures for each type of financial instrument and the management of risk.

• • Quantitative disclosures including summary quantitative data about exposure to risk at the reporting date and specific exposure to credit, liquidity and market risk.

IFRS 8

Operating Segments

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

This IFRS shall apply to:

(a) The separate or individual financial statements of an entity:

1. 1. Whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over‑the‑counter market, including local and regional markets), or
   2. That file, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and

(b) The consolidated financial statements of a group with a parent:

1. 1. Whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over‑the‑counter market, including local and regional markets), or
   2. that file, or is in the process of filing, the consolidated financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.

• If an entity that is not required to apply this IFRS chooses to disclose information about segments that do not comply with this IFRS, it shall not describe the information as segment information.
• If a financial report contains both the consolidated financial statements of a parent that is within the scope of this IFRS as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements.

Summary

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of an entity that are regularly reviewed by the chief operating decision maker in order to allocate resources and assess performance. Where operating segments meet quantitative thresholds, segment information is required to be disclosed. General information about how the entity identified its operating segments and information about products and services is also required.

IFRS 9

Financial Instruments

The objective of this Standard is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.

Summary

Measurement of financial assets

The new standard uses a single approach to determine whether a financial asset is measured at amortized cost or fair value; the approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. Gains and losses on those financial assets classified as measured at fair value are either recognized in profit or loss or in other comprehensive income. The final issue of IFRS 9 in July 2014 made limited amendments to the previous IFRS 9 classification rules, such that:

• Debt instruments meeting given criteria must be measured at amortized cost unless designated as measured at FVTPL.
• Debt instruments meeting other given criteria must be measured at FVTOCI unless designated as measured at FVTPL.
• All other debt instruments are measured at FVTPL.
• All equity instruments are measured at FVTPL unless they are not held for trading and an entity has elected to measure them at FVTOCI, in profit or loss except where an entity has elected to recognize gains and losses on an equity investment in other comprehensive income.

Measurement of financial liabilities

The standard does not change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to exist: fair value through profit or loss and amortized cost. IFRS 9 requires gains and losses on financial liabilities designated as at fair value through profit or loss to be split into the amount of change in the fair value that is attributable to changes in the credit risk of the liability, which is presented in other comprehensive income, and the remaining amount of change in the fair value of the liability, which is presented in profit or loss. Amounts presented in other comprehensive income are not subsequently reclassified to profit or loss. This requirement to recognize own credit risk-related fair value gains and losses in other comprehensive income may be applied by entities in isolation without applying the other requirements of IFRS 9 at the same time.

IFRS 10

Consolidated Financial Statements

The objective of this IFRS is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

To meet the objective in this IFRS:

(a) requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;

(b) defines the principle of control, and establishes control as the basis for consolidation;

(c) sets out how to apply the principle of control to identify whether an investor controls an investee and therefore, must consolidate the investee;

(d) sets out the accounting requirements for the preparation of consolidated financial statements; and

(e) defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity.

This IFRS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination.

Summary

IFRS 10 uses control as the single basis for consolidation, and requires that all three of the following are in place in order to establish control and so consolidate an investee:

• Power is the ability to direct those activities which significantly affect the investee’s returns. It arises from rights, which may be straightforward (eg, through voting rights) or complex (eg, through one or more contractual arrangements).
• Exposure, or rights, to variable returns from involvement with the investee Returns must have the potential to vary as a result of the investee’s performance and can be positive, negative or both.
• The ability to use power over the investee to affect the amount of the investor’s returns.

IFRS 11

Joint Arrangements

The objective of this IFRS is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e., joint arrangements).

• To meet the objective, this IFRS defines joint control and requires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement.
• A joint arrangement is an arrangement of which two or more parties have joint control.
• A joint arrangement has the following characteristics:

(a) The parties are bound by a contractual arrangement.

(b) The contractual arrangement gives two or more of those parties joint control of the Arrangement.

• A joint arrangement is either a joint operation or a joint venture.

IFRS 12

Disclosure of Interests in Other Entities

The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate:

(a) The nature of, and risks associated with, its interests in other entities; and

(b) The effects of those interests on its financial position, financial performance and cash flows.

To meet the objective in, an entity shall disclose:

(a) The significant judgements and assumptions, it has made in determining:

1. 1. The nature of its interest in another entity or arrangement;
   2. The type of joint arrangement in which it has an interest;
   3. That it meets the definition of an investment entity, if applicable; and

(b) Information about its interests in:

1. 1. subsidiaries;
   2. joint arrangements and associates; and
   3. structured entities that are not controlled by the entity (unconsolidated structured entities)

If the disclosures required by this IFRS, together with disclosures required by other IFRSs, do not meet the objective, an entity shall disclose whatever additional information is necessary to meet that objective.

An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in this IFRS. It shall aggregate or disaggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics.

Summary

• IFRS 12 applies to any entity which has an interest in a subsidiary, joint arrangement, associate or unconsolidated structured entity.
• Its objective is to require the disclosure of information which enables users of financial statements to evaluate:
  • The nature of, and risks associates with, its interests in other entities, and
  • The effects of those interests on its financial position, financial performance and cash flows. In order to meet this objective, entities are required to make the following disclosures:
  • Significant judgements and assumptions made in determining control, joint control or significant influence and type of joint arrangement.
  • Information on interests in subsidiaries such that the composition of the group and non-controlling interest is understood and restrictions, risks and changes in ownership can be evaluated.
  • Information on interests in associates and joint arrangements such that the nature and extent of the interests, financial effects and associated risks can be evaluated.
  • Information on interests in unconsolidated structured entities such that the nature and extent of the interests and associated risks can be evaluated.

IFRS 13

Fair Value Measurement

This IFRS:

(a) defines fair value;

(b) sets out in a single IFRS a framework for measuring fair value; and

(c) requires disclosures about fair value measurements.

Fair value is a market‑based measurement, not an entity‑specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same – to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs. Because fair value is a market‑based measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value.

The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement. In addition, this IFRS shall be applied to an entity’s own equity instruments measured at fair value.

Summary

• With limited exceptions, IFRS 13 applies where another IFRS requires or allows fair value measurements or disclosures about fair value measurements. The new standard provides guidance on establishing fair values and introduces consistent disclosure requirements.
• Fair value is defined by IFRS 13 as ‘the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
• IFRS 13 indicates that when measuring fair value, the following must be considered
  • The asset or liability being measured, including its condition, location and any restrictions on sale
  • The principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability
  • For a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis
  • The assumptions that market participants would use when pricing the asset or liability.

The standard provides a hierarchy of methods (‘the fair value hierarchy’) for arriving at fair value, with Level 1 being the preferable method where available:

• Level 1 unadjusted quoted prices for identical assets and liabilities in active markets.
• Level 2 other observable inputs for the asset or liability such as quoted prices in active markets for similar assets or liabilities or quoted prices for identical assets or liabilities in markets which are not active.
• Level 3 unobservable inputs developed by an entity using the best information available where there is little or no market activity for the asset or liability at the measurement date.

IFRS 14

Regulatory Deferral Accounts

The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

In meeting this objective, the Standard requires:

(a) limited changes to the accounting policies that were applied in accordance with previous generally accepted accounting principles (previous GAAP) for regulatory deferral account balances, which are primarily related to the presentation of these accounts; and

(b) Disclosures that:

1. 1. Identify and explain the amounts recognized in the entity’s financial statements that arise from rate regulation; and

   2. Help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any regulatory deferral account balances that are recognized.

The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts IFRS, subject to the limited changes referred to in paragraph above.

In addition, this Standard provides some exceptions to, or exemptions from, the requirements of other Standards. All specified requirements for reporting regulatory deferral account balances, and any exceptions to, or exemptions from, the requirements of other Standards that are related to those balances, are contained within this Standard instead of within those other Standards.

     This Standard does not address other aspects of accounting by entities that are engaged in rate-regulated activities. By applying the requirements in this Standard, any amounts that are permitted or required to be recognized as assets or liabilities in accordance with other Standards shall not be included within the amounts classified as regulatory deferral account balances.

An entity that is within the scope of, and that elects to apply, this Standard shall apply all of its requirements to all regulatory deferral account balances that arise from all of the entity’s rate-regulated activities.

Summary

• IFRS 14 is an interim standard, applicable to first-time adopters of IFRS that provide goods or services to customers at a price or rate that is subject to rate regulation by the government eg the supply of gas or electricity.
• Rate regulation ensures that specified costs are recovered by the supplier, and that prices charged to customers are fair. These twin objectives mean that prices charged to customers at a particular time do not necessarily cover the costs incurred by the supplier at that time. In this case, the recovery of such costs is deferred, and they are recognized through future sales.
• IFRS does not have specific requirements in respect of accounting for this mismatch, however established practice is that amounts are recognized in profit or loss as they arise.

IFRS 15

Revenue from Contracts with Customers

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

• An entity shall apply this Standard to a contract only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration. A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity’s ordinary activities.

• A contract with a customer may be partially within the scope of this Standard and partially within the scope of other Standards.

(a) If the other Standards specify how to separate and/or initially measure one or more parts of the contract, then an entity shall first apply the separation and/or measurement requirements in those Standards. An entity shall exclude from the transaction price the amount of the part (Or parts) of the contract that are initially measured in accordance with other Standards and shall apply to allocate the amount of the transaction price that remains (If any) to each performance obligation within the scope of this Standard and to any other parts of the contract identified by.

(b) If the other Standards do not specify how to separate and/or initially measure one or more parts of the contract, then the entity shall apply this Standard to separate and/or initially measure the part (or parts) of the contract.

This Standard specifies the accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard. An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard.

Summary

• The core principle is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.
• A five-step approach to revenue recognition is required:
• • Identify the contract(s) with a customer.
  • Identify the performance obligations in the contract.
  • Determine the transaction price.
  • Allocate the transaction price to the performance obligations in the contract.
  • Recognize revenue when (or as) performance obligations are satisfied.
• IFRS 15 also includes requirements for accounting for costs related to a contract with a customer.
• These are recognized as an asset if certain criteria are met.
• The standard requires qualitative and quantitative disclosures in respect of revenue, contract balances, performance obligations, significant judgements and assets recognized from costs to obtain or fulfill a contract.

IFRS 16

Leases

1. This Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.
2. An entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard consistently to contracts with similar characteristics and in similar circumstances.
3. An entity shall apply this Standard to all leases, including leases of right-of-use assets in a sublease, except for:

(a) leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;

(b) leases of biological assets within the scope of IAS 41 Agriculture held by a lessee;

(c) service concession arrangements within the scope of IFRIC 12 Service Concession Arrangements;

(d) licenses of intellectual property granted by a lessor within the scope of IFRS 15 Revenue from Contracts with Customers; and

(e) rights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.

4. A lessee may, but is not required to, apply this Standard to leases of intangible assets other than

those described in paragraph 3(e)

Summary

Lessees recognize a right-of-use asset and a lease liability on the commencement of a lease.

• The asset is initially recognized at the amount of the lease liability plus initial direct costs; it is subsequently measured using the cost model unless the underlying asset is investment property measured at fair value or PPE measured under the revaluation model.
• The liability is initially measured at the present value of the lease payments over the lease term, discounted at the rate implicit in the lease.

An election can be made on a lease-by-lease basis to apply alternative accounting treatment to leases with a term of less than 12 months and leases for low value assets. In this case lease payments are recognised as an expense on a straight-line basis, or another systematic basis, over the lease term.

Lessors classify leases as either operating or finance leases:

• Operating lease income is recognized on a straight-line basis over the lease term; the underlying asset is presented in the statement of financial position (balance sheet).
• Finance lease income is recognized over the period of the lease to reflect a constant periodic rate of return; the underlying asset is derecognized, and a receivable recognized instead, measured initially at the net investment in the lease.

IFRS 17

Insurance Contracts

IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

• An entity shall apply IFRS 17 to:

(a) insurance contracts, including reinsurance contracts, it issues;

(b) reinsurance contracts it holds; and

(c) investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts.

• All references in IFRS 17 to insurance contracts also apply to:

(a) reinsurance contracts held, except: for references to insurance contracts issued

(b) investment contracts with discretionary participation features as set out.

• All references in IFRS 17 to insurance contracts issued also apply to insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than reinsurance contracts held.

Some contracts meet the definition of an insurance contract but limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either IFRS 17 or IFRS 9 to such contracts that it issues unless such contracts are excluded from the scope of IFRS 17. The entity shall make that choice for each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.

Summary

• IFRS 17 applies to issued insurance and reinsurance contracts, reinsurance contracts held and investment contracts with a discretionary participation feature that are issued by an entity that also issues insurance contracts. Contracts may be grouped for accounting purposes.
• Issuers of insurance contracts should report them in the statement of financial position at the total of:
  • the fulfilment cash flows, being current estimates of amounts that the entity expects to collect from premiums and pay out for claims, benefits and expenses, adjusted for the timing and risk of those amounts, and
  • the contractual service margin, being the expected profit for providing insurance cover
• Where a contract is expected to be profitable, the profit is recognized over the term during which insurance coverage is provided; where a contract is expected to be loss-making, the expected loss is recognized in profit or loss immediately.
• The amount recognized in the statement of financial position should be remeasured at each reporting date, taking into account current discount rates and estimates of the amount, timing and uncertainty of cash flows.
• The change in the carrying amount of insurance contracts is included in profit or loss or disaggregated between an amount presented in profit or loss and an amount presented in other comprehensive income. This is an accounting policy choice.
• The premium allocation approach (PAA) is a simplified approach that is available to measure some short-term insurance contracts.
• The measurement requirements are modified for reinsurance contracts held and insurance contracts with direct participation features.

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