Welcome to the Training on IFRS

Organizer : National Bank of

Ethiopia (NBE)
2

Part III
Presentation &
Disclosures
3

IAS 1
Presentation of
Financial
Statements
 1. Objective
4

This Standard prescribes the basis for

presentation of general purpose
financial statements (GPFS) to ensure
comparability both with the entity’s
financial statements of previous
periods and with the financial
statements of other entities.
 It sets out overall requirements for the

presentation of financial statements,

guidelines for their structure and
 2. Scope
5

An entity shall apply this Standard

in preparing and presenting
general purpose financial
statements (GPFS) in accordance
with International Financial
Reporting Standards (IFRSs).
 Other IFRSs set out the
recognition, measurement and
disclosure requirements for
 3. Definitions
6

 The following terms are used in

this Standard with the meanings
specified:
 General purpose financial
statements (financial statements)
- are those intended to meet the
needs of users who are not in a
position to require an entity to
prepare reports tailored to their
 3. Definitions
7

 Notes - contain information in addition

to that presented in the statement of
financial position, statement(s) of
profit or loss and other
comprehensive income, statement
of changes in equity and statement
of cash flows.
 They provide narrative descriptions or

disaggregation of items presented in

those statements and information
 4. Complete set of financial
statements
8

 A complete set of financial statements comprises:

1. Statement of financial position;
2. Statement of profit or loss and other comprehensive
income;
3. Statement of changes in equity;
4. Statement of cash flows;
5. Notes to the financial statements;
6. comparative information in respect of the preceding
period;
7. Statement of financial position as at the beginning of the
preceding period when an entity applies an accounting
policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it
reclassifies items in its financial statements.
 5. General Features
9

i. Fair presentation & compliance

with IFRS
ii. Going concern
iii. Accrual basis of accounting
iv. Materiality & aggregation
v. Offsetting
vi. Frequency of reporting
vii. Consistency of presentation
 5.1. Fair Presentation &
Compliance with IFRS
10

 Financial statements shall present fairly

the financial position, financial performance
and cash flows of an entity;
 Fair presentation implies that the financial

statements “present fairly” (or present a

“true and fair” view) of the financial
position, financial performance, and
cash flows of an entity;
 The application of IFRS, with additional

disclosure where required, is expected to

result in financial statements that achieve a
“fair presentation.”
 5.2. Going Concern
11

 When preparing financial statements,

management shall make an assessment of an
entity’s ability to continue as a going concern.
 Financial statements should be prepared

on a going concern basis unless

management intends to liquidate the entity
or cease trading or has no realistic option
but to do so.
 When management is aware, in making its

assessment, of material uncertainties

related to events or conditions that may cast
significant doubt upon the entity’s ability to
 5.2. Going Concern
12

 When an entity does not prepare financial

statements on a going concern basis, it shall
disclose that fact, together with the basis on
which it prepared the financial statements
and the reason why the entity is not
regarded as a going concern.
 In making the assessment about the going
concern assumption, management takes into
account all available information about the
future, which is at least 12 months from the
end of the reporting period.
 5.3. Accrual Basis of Accounting
13

An entity shall prepare its financial

statements, except for cash flow
information, using the accrual basis
of accounting.
 Excluding the cash flow statement all

other financial statements must be

prepared on an accrual basis, whereby
assets and liabilities are recognized when
they are receivable or payable rather
than when actually received or paid.
 5.4. Materiality and Aggregation
14

 An entity shall present separately

each material class of similar
items.
 An entity shall present separately

items of a dissimilar nature or

function unless they are
immaterial.
 5.5. Offsetting
15

An entity shall not offset assets

and liabilities or income and
expenses, unless required or
permitted by an IFRS.
 Measuring assets net of
allowances, for instance,
presenting receivables net of
allowance for doubtful debts, is
not offsetting.
 5.6. Frequency of
16
Reporting
 An entity shall present a complete set of financial
statements (including comparative information)
at least annually.
 When an entity changes the end of its
reporting period and presents financial
statements for a period longer or shorter than
one year, an entity shall disclose, in addition to
the period covered by the financial statements:
a) the reason for using a longer or shorter
period,&
b) the fact that amounts presented in the
financial statements are not entirely
comparable.
 5.7. Consistency of Presentation
17

An entity shall retain the presentation and

classification of items in the financial
statements from one period to the next
unless:
a) it is apparent, following a significant
change in the nature of the entity’s
operations or a review of its financial
statements, that another presentation or
classification would be more appropriate
having regard to the criteria for the
selection and application of accounting
policies in IAS 8; or
 5.8. Structure and Content
18

 An entity shall clearly identify the

financial statements and distinguish
them from other information in the
same published document.
 An entity shall display the ffg
information :
1. the name of the entity;
2. whether the financial statements
are of an individual entity or a
group of entities;
 6. Statement of Profit or Loss
19

 The entity is required to present a

statement of profit or loss
consisting of:
1) Revenue (IFRS 15)
2) Finance costs; (IAS 23)
3) Share of the profit or loss of
associates and joint ventures
accounted for using the equity
method; (IAS 28)
4) tax expense; (IAS 12)
 Example: Statement
20 of P/L
 Example : Statement of P / L
21
 7. Statement of P/L and
22
OCI
 The entity shall present the
statement of profit or loss and
other comprehensive income
(statement of comprehensive
income) consisting of:
1. profit or loss;
2. Other comprehensive income;
3. Total comprehensive income for
the period, being the total of
profit or loss and other
 7.1. Components of OCI
23

 The components of OCI include:

a) changes in revaluation surplus ( IAS 16 : Property,
Plant and Equipment and IAS 38 : Intangible
Assets);
b) Re-measurements of defined benefit plans ( IAS 19 :
Employee Benefits);
c) gains and losses arising from translating the financial
statements of a foreign operation ( IAS 21 : The
Effects of Changes in Foreign Exchange Rates);
d) gains and losses from investments in equity instruments
measured at FV through other comprehensive
income. ( IFRS 9 : Financial Instruments)
e) Etc.
 Example: Statement of Profit / Loss
and OCI
24
 Example: Statement of Profit / Loss
and OCI
25
 8. Statement of changes in equity
26

 The entity is required to present a

statement of changes in equity
consisting of:
1. total comprehensive income for the
period, showing separately the total
amounts attributable to owners of the
parent and to non-controlling interests;
2. for each component of equity, the
effects of retrospective application or
retrospective restatement (i.e. the
effects of changes in accounting policies
 8. Statement of changes in equity
27

3. for each component of equity, a

reconciliation between the carrying
amount at the beginning and the end of
the period, separately (as a minimum)
disclosing changes resulting from:
i. profit or loss;

ii. other comprehensive income; and

iii. transactions with owners in their capacity

as owners showing separately
contributions by and distributions to
owners and changes in ownership
 Example: Statement of changes in
equity
28
 9. Statement of Financial Position (SFP)
29

 It is a list of the Assets, Liabilities and

Capital of an entity at a specific date.
 It provides a basis for computing rates
of return and evaluating the capital
structure of the enterprise.
 Analysts use the Statement of
Financial Position to assess a
company’s liquidity, solvency, and
financial flexibility.
 9. Statement of Financial Position
30

 Sub classifications of line items are required

to be disclosed in either the SFP or the notes.
 The minimum line items in the SFP include :
a) property, plant and equipment; (IAS 16)
b) investment property; (IAS 40)
c) intangible assets; (IAS 38)
d) financial assets (excluding amounts shown under
(e),(h) and (i); (IAS 32 , IFRS 7& 9)
e) investments accounted for using the equity
method; (IAS 28)
f) biological assets; (IFRS 41)
g) inventories; (IAS 2)
h) trade and other receivables; (IAS 32 , IFRS 7& 9)
 9. Statement of Financial Position
31

i) cash and cash equivalents; (IAS 32 ,

IFRS 7& 9)
j) the total of assets included in disposal
groups & classified as held for sale in
accordance with Non-current Assets Held
for Sale and Discontinued Operations;
(IFRS 5)
k) trade and other payables; (IAS 32 , IFRS
7& 9)
l) provisions; (IAS 37)
m)financial liabilities (excluding amounts
 9. Statement of Financial Position
32

o) deferred tax liabilities and deferred tax

assets, as defined in IAS 12;
p) liabilities included in disposal groups
classified as held for sale; (IFRS 5)
q) non-controlling interests, presented within
equity; and (IFRS 3 & 10);
r) issued capital and reserves attributable to
owners of the parent. (IFRS 3 & 10)
 Example: Statement of Financial
Position
33
 Example: Statement of Financial
Position (Cont’d…)
34
 10. Notes
35

 The notes shall:

1. present information about the nature of the
reporting entity , its operations and address.
2. present information about the basis of
preparation of the financial statements;
3. present information about the presentation
currency of the reporting entity;
4. present information about the specific
accounting policies and estimates used in
preparation of the financial statements;
5. disclose the information required by IFRSs
that is not presented elsewhere in the
36

IAS 7
Statement of
cash flows
 1. Objective
37

 This standard provides the

information to users of financial
statements about the entity's ability
to generate cash and cash
equivalents as well as indicating the
cash needs of the entity.
 It provides historical information
about cash and cash equivalents,
classifying cash flows between
operating, investing and financing
 2. Scope
38

 An entity shall prepare a SCF in

accordance with the requirements of
this Standard and shall present it as an
integral part of its F/S for each period
for which F/S are presented.
 Users of an entity’s financial
statements are interested in how the
entity generates and uses cash and
cash equivalents.
 This Standard requires all entities to
 3. Definitions
39

 Cash - comprises cash on hand and

demand deposits.
 Cash equivalents - are short-term,

highly liquid investments that are

readily convertible to known amounts
of cash and which are subject to an
insignificant risk of changes in value.
 Cash flows are inflows and outflows

of cash and cash equivalents.

 4. Presentation of SCF
40

 IAS 7 requires SCF to report cash flows

during the period classified by :
1. Operating activities

2. Investing activities

3. Financing activities.
 The manner of presentation of cash flows

between operating, investing and

financing activities depends on the nature
of the entity.
 4.1. Operating
41
activities
 Most of the components of cash flows from
operating activities will be those items which
determine the net profit or loss of the entity, i.e.
they relate to the main revenue-producing activities
of the entity.
 Examples: Cash flows from operating activities.
a) Cash receipts from the sale of goods & services;

b) Cash receipts from royalties, fees, commissions

and other revenue;

c) Cash payments to suppliers for goods and
services;
d) Cash payments to expenses ;
 4.2. Investing activities
42

 It shows the extent of new investment in assets which will

generate future profit and cash flows.
 Examples : Cash flows arising from investing activities.
a) Cash payments to acquire property, plant and
equipment, intangibles and other non-current assets,
b) Cash receipts from sales of property, plant and
equipment, intangibles and other non-current assets.
c) Cash payments to acquire shares or debentures of other
entities.
d) Cash receipts from sales of shares or debentures of other
entities.
e) Cash advances and loans made to other parties.
f) Cash receipts from the repayment of advances and loans
made to other parties.
 4.3. Financing activities
43

 It shows the share of cash which the entity's

capital providers have claimed during the period.
 Examples : Cash flows from Financing activities.
a) Cash proceeds from issuing shares.
b) Cash payments to owners to acquire or redeem
the entity's shares.
c) Cash proceeds from issuing debentures,
loans, notes, bonds, mortgages and other
short or long-term borrowings.
d) Principal repayments of amounts borrowed
under finance leases.
 5. Reporting cash flows from operating
activities
44

 An entity shall report cash flows from

operating activities using either:
a) Direct method - whereby major classes of
gross cash receipts and gross cash
payments are disclosed; or
b) Indirect method - whereby profit or loss is
adjusted for the effects of transactions of a
non-cash nature, any deferrals or accruals of
past or future operating cash receipts or
payments, and items of income or expense
associated with investing or financing cash
 5.1. Indirect Method
45

 Net profit or loss is adjusted for the effects

of transactions of a non-cash nature, any
deferrals or accruals of past or future
operating cash receipts or payments, and
items of income or expense associated with
investing or financing cash flows in this
method.
 In practice, it is more commonly used since

it is quicker and easier.

 5.1. Indirect Method (Cont’d…)
46
 Indirect Method
47
(Cont’d…)
 Example of a SCF: Indirect Method
48
 5.2. Direct Method
49

 It discloses major classes of gross

cash receipts and gross cash
payments.
 It is the preferred method
because it discloses information,
not available elsewhere in the
financial statements but IAS 7
does not require it.
 5.2. Direct Method
50

Cash Payment To Suppliers = Cost of Sales -

End A/P + Beg A/P + End Inventory - Beg
Inventory
 Example of a SCF: Direct
Method
51
 6. Non-cash transactions
52

 Investing and financing transactions that do

not require the use of cash or cash equivalents
shall be excluded from a statement of cash flows.
 Such transactions shall be disclosed elsewhere in
the financial statements in a way that provides all
the relevant information about these investing and
financing activities.
 Examples of non-cash transactions are:
a) the acquisition of assets either by assuming

directly related liabilities or by means of a lease;

b) the acquisition of an entity by means of an equity

issue; and
c) the conversion of debt to equity.
 7. Disclosures
53

 An entity shall disclose but not limited to :

a) investing and financing transactions that do not
require the use of cash or cash equivalents in a
way that provides all the relevant information
about these investing and financing activities.
b) the components of cash and cash equivalents and
shall present a reconciliation of the amounts in its
statement of cash flows with the equivalent items
reported in the statement of financial position.
c) together with a commentary by management, the
amount of significant cash and cash equivalent
balances held by the entity that are not available
for use by the group.
54

IAS 33
Earnings per
share
Brainstorming Question…

What
What is
is Earning
Earning Per
Per Share
Share (EPS)
(EPS)

55
 1. Objective
56

This standard :
 prescribes the principles for the
determination and presentation of
earnings per share;
 focuses on determining the
denominator of calculation of
earnings per share.
 2. Scope
57

This standard applies to :

 Enterprises whose shares are
publicly traded;
 Enterprises in process of issuing
such shares;
 Enterprises electing to disclose
EPS.
 3. Basic EPS
58

Profit / loss attributable to ordinary

shareholders*
Weighted average number of ordinary
shares in issue during period

*Profit after interest, tax, NCI and preference

dividends
 Example : Basic EPS – no changes
59
in period
 DGB has the following issued share capital
throughout the year:
 200,000 ordinary shares of ETB1,000; and
 50,000 10% preference shares of ETB1.

Extracts from the company’s financial statements for

the year ended 31 December 20x6 showed:
 Net profit 60,000,000
 Taxation (20,000,000)
 Net profit after taxation 40,000,000
 Dividends not deducted in arriving at the profit
figure:
 Preference dividend 5,000,000

 Example : Basic EPS – no changes in
period (2)
60

Solution

EPS = ETB 35,000,000 / 200,000 = 175

per share
61
4. Losses

If the earnings figure is a negative

figure then the earnings per share
should be calculated in the normal
way but shown as a loss per
share.
 5. Diluted EPS
62

A company may have securities which do not have a

claim to equity earnings now, but may do in the future.
These include:
1. options or warrants;
2. rights granted under employee or other share purchase
plan;
3. contingently issuable shares;
4. convertible loan stock or preference shares; and
5. separate classes of equity share not yet entitled to a
share of equity earnings, but becoming so in the future.

i.e. they could increase the number of equity shares

ranking for dividend and so dilute or ‘water down’ EPS
 5. Presentation and
63
Disclosure
 EPS is presented for every period for which a
SPLOCI is presented;
 Present basic and diluted EPS with equal
prominence on the face of the statement;
 Present EPS for discontinued operations if

discontinued operations reported;

 Amounts used in the numerators of the
calculations and a reconciliation to profit or loss
presented in the SPLOCI;
 Weighted average number of ordinary shares

for basic and diluted EPS, with a reconciliation

of these denominators to each other
64

IAS 10
Events after the
reporting period
Brainstorming Question…

How
How do
do you
you report
report the
the events
events after
after the
the reporting
reporting
period
period ??

65
 1. Objective
66

 The objective of this Standard is to

prescribe:
a) when an entity should adjust its
financial statements for events after
the reporting period; and
b) the disclosures that an entity should
give about the date when the financial
statements were authorized for issue
and about events after the reporting
period.
 2. Scope
67

 This Standard shall be applied

in the accounting for, and
disclosure of events after the
reporting period.
 4. Definitions
68

 Events after the end of the reporting period - are

those events, favourable and unfavourable, that occur
b/n the end of the reporting period and the date when
the financial statements are authorised for issue.
a) Adjusting events ― those that provide evidence of
conditions that existed at the end of the reporting
period.
 adjust the amounts recognised in financial
statements.
b) Non-adjusting events ― those that are indicative of
conditions that arose after the end of the reporting
period
 do not adjust the amounts recognised in its financial
statements;
 disclose the nature of the event and its financial
effect.
 Examples of Adjusting
69
events
i. evidence of a permanent diminution in property value
prior to the year end;
ii. sale of inventory after the reporting period for less than its

carrying value at the year end;

iii. insolvency of a customer with a balance at the year end;

iv. amounts received or paid in respect of legal or insurance

claims which were in negotiation at the year end;

v. determination after the year end of the sale or purchase

price of assets sold or purchased before the year end;

vi. evidence of a permanent diminution in the value of a long-

term investment prior to the year end;

vii.discovery of error or fraud which shows that the financial

statements were incorrect, etc.

 Examples of Non-adjusting
events
70

i. acquisition of, or disposal of, a subsidiary after

the year end;
ii. announcement of a plan to discontinue an
operation;
iii. major purchases and disposals of assets;

iv. destruction of a production plant by fire after the

reporting period;
v. announcement or commencing implementation

of a major restructuring;
vi. share transactions after the reporting period;

vii. litigation commenced after the reporting period;

viii. etc.
 5. Disclosure
71

 Date of authorization for issue

 An entity shall disclose the date
when the F/S were authorized for
issue and who gave that
authorization.
 If the entity’s owners or others have

the power to amend the F/S after

issue, the entity shall disclose that
fact.
73

IAS 8
Accounting Policies,
Changes in Accounting
Estimates & Errors
Brainstorming Question…

How
How dodo you
you report
report Accounting
Accounting Policies,
Policies, Changes
Changes
in
in Accounting
Accounting Estimates
Estimates and
and Errors
Errors ??

74
 1. Objective
75

 The objective of this standard is to prescribe

the criteria for selecting and changing
accounting policies, together with the :
1. accounting treatment and disclosure of
changes in accounting policies;
2. changes in accounting estimates and
3. the corrections of errors.
 Disclosure requirements for accounting
policies, except those for changes in
accounting policies, are set out in IAS 1
Presentation of Financial Statements.
 2. Scope
76

 This Standard shall be applied in :

1. selecting and applying accounting policies,
and
2. accounting for changes in accounting
policies, changes in accounting estimates
and
3. corrections of prior period errors.
 The tax effects of corrections of prior

period errors and of retrospective

adjustments made to apply changes in
accounting policies are accounted for and
 3. Accounting estimate
77

1. Accounting estimates - arise in relation to

business activities because of of the
uncertainties inherent within them.
 They involve judgments based on the latest

available, reliable information but are not

correction of errors.
 3. Accounting estimate
79

 Example of Accounting estimates :

i. Depreciation Methods - SLM, Activity &
Diminishing
ii. Useful lives and Salvage Value - PPE , IA &
IP
iii. Bad debts - Uncollected Receivables, Taxes
iv. Obsolescence Loss - Inventory
v. Performance based bonus plan -
Employees;
vi. The fair value of - Financial Assets or
Financial Liabilities;
vii. Percentage of completion – Construction
 3.1. Changes in accounting
estimates
80

 Changes in accounting estimate are not

applied retrospectively.
 The rule here is that the effect of a change

in an accounting estimate should be

included in the determination of net profit or
loss in one of:
a) The period of the change, if the change

affects that period only;

b) The period of the change and future
periods, if the change affects both.
 3. 1. Changes in accounting
estimates
81

 ABC Co acquired a non-current asset on

January 1, 20X2 for $80,000. It had no
residual value and a useful life of 10
years. On January 1, 20X5 the remaining
useful life was reviewed and revised to 4
years. What will be the depreciation for
20X5?
 4. Accounting policies
82

 Accounting policies - are the specific

principles, bases, conventions, rules, and
practices applied by an entity in preparing
and presenting financial statements.
 Accounting policies - are determined by
applying the relevant IAS, IFRS or IFRS
Interpretation and considering any
relevant Implementation Guidance issued
by the IASB for that IFRS Interpretation.
 4. Accounting policies
83

 Example: of Accounting policies

i. IFRS - Recognition, Measurement, Presentation &
Disclosure
ii. Bases of Accounting such as Cash Base, Modified
Cash Base, Modified Accrual Base, Accrual Base,…;
iii. Measurement Model for PPE -Revaluation Model &
Cost Model
iv. Measurement Model for IA -Revaluation Model &
Cost Model
v. Measurement Model for IP- Fair Value Model & Cost
Model
vi. Inventory Valuation Methods- SI, FIFO & WA
 4. Accounting policies
84

 Where there is no applicable IFRS or

Interpretation, management should use its
judgment in developing and applying an
accounting policy that results in information that
is relevant and reliable. Accordingly,
Management should refer to:
1) The requirements and guidance in IFRSs and
IFRICs dealing with similar and related
issues.
2) The definitions, recognition criteria and
measurement concepts for assets, liabilities
and expenses in the Conceptual
Framework.
 4. 1. Changes in accounting policies
85

 The same accounting policies are usually

adopted from period to period, to allow users to
analyze trends over time in profit, cash flows
and financial position.
 Changes in accounting policy will therefore be

rare and should be made only if :

1) The change is required by an IFRS; or
2) The change will result in a more appropriate
presentation of events or transactions in the
financial statements of the entity, providing
more reliable and relevant information.
 Accounting policy : PPE 86

86

 Which measurement basis provides the

most relevant information that can be
faithfully represented about a
manufacturing entity’s plant? Choose
1 of:
1) Historical cost (no depreciation; no impairment);

2) Cost model (historical cost-depreciation-

impairment);
3) Revaluation model (fair value-depreciation-
impairment);
4) Fair value model;
 Accounting Policy: Bearer
87
Plants
87

 Which measurement basis provides the

most relevant information that can be
faithfully represented about a oil palm
grower’s bearer plants? Choose 1 of:
1) Historical cost (no depreciation; no impairment);

2) Cost model (historical cost-depreciation-

impairment);
3) Revaluation model (fair value-depreciation-
impairment);
4) Fair value model;
5) Entity specific current value measure (value in
 Accounting policy : investment
88
property
88

 Which measurement basis provides the

most relevant information that can be
faithfully represented about an entity’s
investment property? Choose 1 of:
1) Historical cost (no depreciation; no impairment);

2) Cost model (historical cost-depreciation-

impairment);
3) Revaluation model (fair value-depreciation-
impairment);
4) Fair value model;
5) Entity specific current value measure (value in
 4. 1. Changes in accounting
policies
89

Exercise: Assume that an entity

decided in March 2012 to change its
inventory valuation method from FIFO
to Weighted Average Method. An
entity’s income before taxes, using the
new weighted average method in 2012,
is $30,000. Pretax income data for 2010
and 2011 is as follows. Required:
Journalize the change in accounting
policies assuming income tax rate of
 4. 1. Changes in accounting policies
90
 4. 1. Changes in accounting policies
91

 Required: Journalize the change in accounting policies

assuming income tax rate of 30%.
 The report shows the information an entity presented
in its comparative income statements, based on a 30 %
tax rate. Thus, under the retrospective approach,
the company recasts the prior years’ income numbers
under the newly adopted method. This approach thus
preserves comparability across years.
 The firm should record the cumulative effect of the
change for prior periods as an adjustment to
beginning retained earnings of the earliest year
presented.
 5. Errors 92

92

Errors can arise in respect of the recognition,

measurements, presentation or disclosure of
elements of financial statements.
Financial statements do not comply with IFRS if
they contain either:
a) material errors (errors that could affect a user’s
decision made on the basis of the financial
info); or
b) immaterial errors made intentionally to achieve
a particular presentation of an entity’s financial
position, financial performance or cash flows.
 5. Errors
93

 Prior period errors - are omissions from, and

misstatements in, the entity’s financial
statements for one or more prior periods
arising from a failure to use, or misuse of,
faithfully representative information that:
a) Was available when financial statements
for those periods were authorized for issue;
and
b) Could reasonably be expected to have
been obtained and taken into account in
the preparation and presentation of those
financial statements.
 5.1. Prior period errors
94

 Such errors include the effects of :

i. mathematical mistakes,
ii. mistakes in applying accounting

policies,
iii. oversights or
iv. misinterpretations of facts, and
v. fraud.
 5.2. Accounting treatment : Errors
95

 Prior period errors: correct retrospectively. There

is no longer any allowed alternative treatment. This
involves:
a) Either restating the comparative amounts for the

prior period(s) in which the error occurred,

b) Or, when the error occurred before the earliest prior

period presented, restating the opening balances of

assets, liabilities and equity for that period so that
the financial statements are presented as if the
error had never occurred
 Only where it is impracticable to determine the

cumulative effect of an error on prior periods can

an entity correct an error prospectively.
 5.2. Accounting treatment : Prior
Period Errors
96

Exercise : Assume that the accountant

of an entity determined that it
incorrectly understated its receivable
and revenue by $100,000 in 20x2. In
20x3, S/he makes the following entry to
correct for this error.
Required: Journalize the change in
accounting policies assuming income tax
rate of 30%.
 5.3. Disclosures : Errors
97

 Various disclosures are required.

a) Nature of the prior period error

b) For each prior period, to the extent practicable,

the amount of the correction.

c) The amount of the correction at the beginning of

the earliest prior period presented

d) If retrospective restatement is impracticable for

a particular prior period, the circumstances that

led to the existence of that condition and a
description of how and from when the error has
been corrected. Subsequent periods need not
repeat these disclosures.
98

IAS 24
Related party
disclosures
Brainstorming Question…
How
How dodo you
you disclose
disclose related
related party
party
transactions
transactions ??

99
 1. Introduction
100

 IAS 24 is primarily a disclosure

standard.
 Related party: A related party is a
person / entity that is related to the
entity that is preparing its F/S.
 Related party transaction: A transfer
of resources, services or obligations
between related parties, regardless of
whether a price is charged.
 1. Introduction
101

 Related-party transactions are different

from other types of transactions.
 Arm’s-length transactions
 Users may assume that the transaction reflects
FV ;
 Would be entered into during the normal course
of business or with valid business reason
from the entity’s perspective
 Related-party transactions
 May be entered into for other reasons ;

 2. Definition of Related
102
Party
 Parties are related if:
a) directly, or indirectly through one or more

intermediaries, the party:

i. controls, is controlled by, or is under common

control with ;
ii. has an interest in the entity that gives it

significant influence over the entity; or

iii. has joint control over the entity;

b) the party is an associate of the entity;

c) the party is a joint venture in which the

entity is a venturer
 2. Definition of Related
103
Party
d) A person or a close member of that person’s family
is related to a reporting entity if that person:
i. has control or joint control of the reporting entity;

ii. has significant influence over the reporting entity;

or
iii. is a member of the Key MGT Personnel of the

reporting entity or of a parent of the reporting

entity.
e) the party is a post-employment benefit plan for the
benefit of employees of the entity, or of any entity
that is a related party of the entity.
 2. Definition of Related
104
Party
f) Close members of the family of a person : are
those family members who may be expected
to influence, or be influenced by, that person
in their dealings with the entity and include:
a. that person’s children and spouse or
domestic partner;
b. children of that person’s spouse or
domestic partner; an
c. dependants of that person or that person’s
spouse or domestic partner.
 3. Related Party Transactions
105

 Some of the related party-transactions to be disclosed include

:
1. Purchases or sales of goods
2. Purchases or sales of property and other assets
3. Rendering or receiving of services
4. Leases
5. Transfer of research and development
6. Transfers under license agreements
7. Provision of finance (including loans and equity contribution)
8. Provision of guarantees and collateral security
9. Settlement of liabilities on behalf of the entity or by the
entity on behalf of another party.
 4. Disclosure
106
Requirements
Where related party transactions have occurred,
disclose
a) Nature of relationship
b) Amounts of transactions
c) Amount of outstanding balances, including
terms/conditions
d) Provisions for doubtful debts on outstanding balances
e) Irrecoverable debts written off during the period on
amounts due from related parties
f) Key management compensation in total for Short-term
employee benefits; Post-employment benefits; Other
long-term benefits; Termination benefits; and Share-
based payment
 Question or Comment ?
107
 FUN!
108