kpmg ifsr 2012

8/12/2019 KPMG IFSR 2012

1/112

Audit Committee Institute

Sponsored by KPMG

INSIGHTSINTO IFRSAN OVERVIEW

September 2012

kpmg.com/ifrs

8/12/2019 KPMG IFSR 2012

2/112

2 | Section or Brochure name

About the AuditCommittee Institute

The KPMG-sponsored Audit Committee

Institute is a growing international network

that provides complimentary guidance

and resources. It is designed to help non-

executive directors update and refresh

the skills and knowledge that are essential

for each member to fulfil their role withinthe board. From small, sector-specific

forums to large key speaker dinners, the

Audit Committee Institute offers non-

executive directors a forum to network

with their peers.

www.auditcommitteeinstitute.com

E:[email protected]
http://www.auditcommitteeinstitute.com/mailto:[email protected]:[email protected]://www.auditcommitteeinstitute.com/

8/12/2019 KPMG IFSR 2012

3/112

Insights into IFRS: An overview | 1

2012 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

INSIGHTS INTO IFRS: AN OVERVIEWThe move towards a single set of high-quality, global accounting standards continues

to gather momentum. As of August 2012, over 120 countries and reporting jurisdictions

require or allow the use of IFRS by publicly traded companies, and more are planning to do

so in the near future.

For those companies reporting under IFRS, Audit Committees need to understand the

standards; but more importantly, they need to understand the principles underpinning

the preparation of the financial statements and the auditors judgements. They must beprepared to invest the time necessary to understand why critical accounting policies

are chosen and how they are applied, and to satisfy themselves that the end result fairly

reflects their understanding.

Insights into IFRS: An overview is designed to help Audit Committee members, and

others, by providing a structured guide to the key issues arising from the standards.

It offers an overview of the requirements of IFRS as at 1 August 2012. For a fuller

understanding of these requirements, this overview should be read in conjunction with

Insights into IFRS, KPMGs practical guide to International Financial Reporting Standards,9th edition 2012/13.

Audit Committee Institute

September 2012

8/12/2019 KPMG IFSR 2012

4/112

2 | Insights into IFRS: An overview


CONTENTSHow to navigate this publication 4

1. Background 5

1.1 Introduction 5

1.2 The Conceptual Framework 6

2. General issues 7

2.1 Form and components of financial statements 7

2.2 Changes in equity 9

2.3 Statement of cash flows 10

2.4 Basis of accounting 11

2.4A Fair value measurement: IFRS 13 12

2.5 Consolidation 14

2.5A Consolidation: IFRS 10 16

2.6 Business combinations 18

2.7 Foreign currency translation 20

2.8 Accounting policies, errors and estimates 22

2.9 Events after the reporting period 23

3. Specific statement of financial position items 25

3.1 General 25

3.2 Property, plant and equipment 26

3.3 Intangible assets and goodwill 28

3.4 Investment property 30

3.5 Investments in associates and the equity method 32

3.6 Investments in joint ventures and proportionate consolidation 34

3.6A Investments in joint arrangements: IFRS 11 36

3.7 [Not used]3.8 Inventories 37

3.9 Biological assets 38

3.10 Impairment of non-financial assets 39

3.11[Not used]

3.12 Provisions, contingent assets and liabilities 41

3.13 Income taxes 43

4. Specific statement of comprehensive income items 45

4.1 General 45

4.2 Revenue 47

4.3 Government grants 49

4.4 Employee benefits 50

8/12/2019 KPMG IFSR 2012

5/112



4.4A Employee benefits: IAS 19 (2011) 53

4.5 Share-based payments 554.6 Borrowing costs 57

5. Special topics 58

5.1 Leases 58

5.2 Operating segments 60

5.3 Earnings per share 62

5.4 Non-current assets held for sale and discontinued operations 64

5.5 Related party disclosures 66

5.6 [Not used]

5.7 Non-monetary transactions 67

5.8 Accompanying financial and other information 68

5.9 Interim financial reporting 69

5.10 [Not used]

5.11Extractive activities 70

5.12 Service concession arrangements 71

5.13 Common control transactions and Newco formations 73

6. First-time adoption of IFRS 74

6.1 First-time adoption of IFRS 747. Financial instruments 76

7.1 Scope and definitions 76

7.2 Derivatives and embedded derivatives 77

7.3 Equity and financial liabilities 78

7.4 Classification of financial assets and financial liabilities 80

7.5 Recognition and derecognition 81

7.6 Measurement and gains and losses 82

7.7 Hedge accounting 84

7.8 Presentation and disclosure 867A Financial instruments: IFRS 9 87

8. Insurance contracts 90

8.1 Insurance contracts 90

Appendix I 92

Summary of forthcoming requirements 92

Appendix II 98

Quick reference table: Currently effective requirements and forthcoming requirements 98

Keeping you informed 107

8/12/2019 KPMG IFSR 2012

6/112



HOW TO NAVIGATE THIS PUBLICATION

You can read and navigate this book on a desktop or mobile device. However, for

mobile devices you may need to open the book in a PDF reader or eBook application.

This publication provides a quick overview of the key requirements of IFRS, for easy

reference. The overview is organised by topic, following the typical presentation of items

in financial statements.

All references to sections in this book are hyperlinked. Click or tap on the text to visitthat section. Click or tap on the home icon at the bottom of each page to return to

Contents.

This edition is based on IFRS in issue at 1 August 2012 that is applicable for entities with

annual reporting periods beginning on 1 January 2012 (referred to as currently effective

requirements)1. A list of the standards and interpretations that are currently effective is

included in Appendix II.

When a significant change will occur as a result of a standard or interpretation that is in

issue at 1 August 2012, but that is not required to be adopted by an entity with an annualreporting period ending 31 December 2012, it is referred to as a forthcoming requirement.

An overview of significant forthcoming requirements is included in Appendix I. In

addition, sections 2.4A Fair value measurement: IFRS 13, 2.5A Consolidation: IFRS 10,

3.6A Investments in joint arrangements: IFRS 11, 4.4AEmployee benefits: IAS 19 (2011)

and 7AFinancial instruments: IFRS 9are included as forthcoming requirements in their

entirety. Minor amendments to standards are not covered in Appendix I.

References to standards are hyperlinked toAppendix Iand II, as appropriate. You can

navigate back from the Appendices by clicking or tapping the relevant section number.

For some topics, we anticipate changes to IFRS in issue at 1 August 2012 e.g. as a

result of an IASB project which are not dealt with in this book. If you are interested in

following the four main joint IASB and FASB projects financial instruments, insurance,

leases and revenue then you will find our IFRS Newsletterseries helpful. Available at

www.kpmg.com/ifrs, these newsletters provide an overview of the recent discussions,

analysis of the potential impact of decisions, current status and anticipated timeline for

completion.

1 This publication does not provide an overview of the requirements of IAS 26 Accounting and Reportingby Retirement Benefit Plans; or the IFRS for Small and Medium-sized Entities(IFRS for SMEs).
http://www.kpmg.com/ifrshttp://www.kpmg.com/ifrs

8/12/2019 KPMG IFSR 2012

7/112



1. BACKGROUND

1.1 Introduction Currently effective: IFRS Foundation Constitution, IASB Due Process Handbook, IFRIC Due

Process Handbook, Preface to IFRSs, IAS 1

Forthcoming: Monitoring Boards review

International Financial Reporting Standards

IFRS is the term used to indicate the whole body of IASB authoritative literature.

IFRS is designed for use by profit-oriented entities.

Both the bold and plain-type paragraphs of IFRS have equal authority.

Compliance with IFRS

Any entity claiming compliance with IFRS complies with all standards and

interpretations, including disclosure requirements, and makes an explicit andunreserved statement of compliance with IFRS.

The overriding requirement of IFRS is for the financial statements to give a fair

presentation (or a true and fair view).
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

8/112



1.2 The Conceptual Framework Currently effective: IASB Conceptual Framework Forthcoming: IFRS 13

Purpose

The IASB and the Interpretations Committee use the Conceptual Framework when

developing new or revised IFRSs and interpretations, or amending existing IFRSs.

The Conceptual Framework is a point of reference for preparers of financial statements

in the absence of specific guidance in IFRS.

Objective of general purpose financial reporting

The objective of general purpose financial reporting is to provide financial information

about the reporting entity that is useful to existing and potential investors, lenders and

other creditors in making decisions about providing resources to the entity.

Qualitative characteristics of useful financial information

The Conceptual Framework outlines the qualitative characteristics of financial

information to identify the types of information that is likely to be most useful to users

of financial statements.

Assets and liabilities

The Conceptual Framework sets out the definitions of assets and liabilities. The

definitions of equity, income and expenses are derived from the definition of assets

and liabilities.

Going concern

Financial statements are prepared on a going concern basis, unless management

intends or has no alternative other than to liquidate the entity or to stop trading.

Transactions with shareholders

Transactions with shareholders in their capacity as shareholders are recognised directly

in equity.

8/12/2019 KPMG IFSR 2012

9/112



2. GENERAL ISSUES

2.1 Form and components of financial statements Currently effective: IAS 1, IAS 27

Forthcoming: IFRS 10, IFRS 11, IAS 27 (2011), Amendments to IAS 1,Annual Improvements

20092011

Components of a complete set of financial statements

The following are presented as a complete set of financial statements: a statement of

financial position; a statement of comprehensive income; a statement of changes in

equity; a statement of cash flows; and notes, including accounting policies.

In addition, a statement of financial position as at the beginning of the earliest

comparative period is presented when an entity restates comparative information

following a change in accounting policy, the correction of an error, or the reclassification

of items in the financial statements.

Reporting period

The end of the annual reporting period may change only in exceptional circumstances.

Comparative information

Comparative information is required for the preceding period only, but additional periods

and information may be presented.

Types of financial statements

IFRS sets out the requirements that apply to consolidated, individual and separatefinancial statements.

Consolidated financial statements

An entity with one or more subsidiaries presents consolidated financial statements

unless specific criteria are met.
http://-/?-http://-/?-http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

10/112



Individual financial statements

An entity with no subsidiaries but with an associate or jointly controlled entity prepares

individual financial statements unless specific criteria are met.

Separate financial statements

An entity is permitted, but not required, to present separate financial statements in

addition to consolidated or individual financial statements.

Presentation of pro forma information

In our view, the presentation of pro forma information is acceptable if it is allowed by

local regulations and stock exchange rules and if certain criteria are met.

8/12/2019 KPMG IFSR 2012

11/112



2.2 Changes in equity Currently effective: IAS 1 Forthcoming:Annual Improvements 20092011

General

A statement of changes in equity (and related notes) reconciles opening to closing

amounts for each component of equity.

All owner-related changes in equity are presented in the statement of changes in equity,

separately from non-owner changes in equity.

Entities with no equity

Entities that have no equity as defined in IFRS may need to adopt the financial

statement presentation of members or unit holders interests.

Changes in accounting policies and errors

The total adjustment to each component of equity resulting from changes in accountingpolicies is presented separately from that resulting from the correction of errors in the

statement of changes in equity.

8/12/2019 KPMG IFSR 2012

12/112



2.3 Statement of cash flows Currently effective: IAS 7

Cash and cash equivalents

Cash and cash equivalents includes certain short-term investments and, in some

cases, bank overdrafts.

Operating, investing and financing activities

The statement of cash flows presents cash flows during the period classified by

operating, investing and financing activities.

An entity chooses its own policy for classifying each of interest and dividends. The

chosen presentation method should present the cash flows in the most appropriate

manner for the business or industry, and should be applied consistently.

Taxes paid are classified as operating activities unless it is practicable to identify them

with, and therefore classify them as, financing or investing activities.

Direct vs indirect method

Cash flows from operating activities may be presented under either the direct method

or the indirect method.

Foreign currency cash flows

Foreign currency cash flows are translated at the exchange rates at the dates of thecash flows (or using averages when appropriate).

Offsetting

Generally, all financing and investing cash flows are reported gross. Cash flows are

offset only in limited circumstances.

8/12/2019 KPMG IFSR 2012

13/112



2.4 Basis of accounting Currently effective: IAS 1, IAS 21, IAS 29, IFRIC 7 Forthcoming: IFRS 13

Modified historical cost

Financial statements are prepared on a modified historical cost basis, with a growing

emphasis on fair value.

Going concern

Even when the going concern assumption is not appropriate, IFRS is still applied.

Hyperinflation

When an entitys functional currency is hyperinflationary, its financial statements are

adjusted to state all items in the measuring unit current at the end of the reporting

period.

Key judgements and estimations

Disclosure is required for judgements that have a significant impact on the financial

statements and for key sources of estimation uncertainty.

8/12/2019 KPMG IFSR 2012

14/112



2.4A Fair value measurement: IFRS 13 Forthcoming: IFRS 13

IFRS 13 Fair Value Measurementis not yet effective. It will be effective for annual periods

beginning on or after 1 January 2013.

Scope

IFRS 13applies to most fair value measurements or disclosures (including

measurements based on fair value) that are required or permitted by other IFRSs.

Fair value principles

Fair value is 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 i.e. an exit price.

Fair value measurement assumes that a transaction takes place in the principal

market for the asset or liability or, in the absence of a principal market, in the most

advantageous market for the asset or liability.

Application issues

For liabilities or an entitys own equity instrument, if a quoted price for a transfer

of an identical or similar liability or own equity instrument is not available and the

identical item is held by another entity as an asset, then the liability or own equity

instrument is valued from the perspective of a market participant that holds the asset.

Failing that, other valuation techniques are used to value the liability or own equity

instrument from the perspective of a market participant that owes the liability. The fair value of a liability reflects non-performance risk. Non-performance risk is

assumed to be the same before and after the transfer of the liability.

When another IFRS requires or permits an asset or a liability to be measured initially

at fair value, gains or losses arising on the difference between fair value at initial

recognition and the transaction price are recognised in profit or loss, unless the other

IFRS requires otherwise.

Certain groups of financial assets and financial liabilities with offsetting market orcredit risks may be measured based on the net risk exposure.

8/12/2019 KPMG IFSR 2012

15/112



The fair value of a non-financial asset is based on its highest and best use tomarket participants, which may be on a stand-alone basis or in combination with

complementary assets or liabilities.

Valuation technique

While IFRS 13discusses three general approaches to valuation (the market, income,

and cost approaches), it does not establish specific valuation standards. Several

valuation techniques may be available under each approach.

Appropriate valuation technique(s) should be used, maximising the use of relevant

observable inputs and minimising the use of unobservable inputs.

A fair value hierarchy is established based on the inputs to valuation techniques used

to measure fair value.

The inputs are categorised into three levels (Levels 1, 2 and 3), with the highest

priority given to unadjusted quoted prices in active markets for identical assets or

liabilities and the lowest priority given to unobservable inputs.

A premium or discount may be an appropriate input to a valuation technique. Apremium or discount should not be applied if it is inconsistent with the relevant unit

of account.

For fair value measurements of assets or liabilities having bid and ask prices, an

entity uses the price within the bid-ask spread that is most representative of fair

value in the circumstances. The use of bid prices for assets and ask prices for

liabilities is permitted.

Guidance is provided on measuring fair value when there has been a decline in the

volume or level of activity in a market, and when transactions are not orderly.

Disclosures

A comprehensive disclosure framework is set out in IFRS 13to help users of

financial statements assess the valuation techniques and inputs used in fair value

measurements, and the effect on profit or loss or other comprehensive income of

recurring fair value measurements that are based on significant unobservable inputs.

8/12/2019 KPMG IFSR 2012

16/112



2.5 Consolidation Currently effective: IAS 27, SIC-12 Forthcoming: IFRS 10, IFRS 12

Scope

All subsidiaries are consolidated, including subsidiaries of venture capital organisations

and unit trusts, and those acquired exclusively with a view to subsequent disposal.

Assessing control

Consolidation is based on control, which is the power to govern, either directly or

indirectly, the financial and operating policies of an entity so as to obtain benefits from

its activities.

The ability to control is considered separately from the exercise of that control.

The assessment of control may be based on either a power-to-govern or a de facto

control model.

Potential voting rights that are currently exercisable are considered in assessing control.

Special purpose entities

A special purpose entity (SPE) is an entity created to accomplish a narrow and well-

defined objective. SPEs are consolidated based on control. The determination of control

includes an analysis of the risks and benefits associated with an SPE.

Subsidiaries accounting periods and policies

A parent and its subsidiaries generally have the same reporting periods when

consolidated financial statements are prepared. If this is impracticable, then the

difference between the reporting period of a parent and its subsidiary cannot be more

than three months. Adjustments are made for the effects of significant transactions and

events between the two dates.

Uniform accounting policies are used throughout the group.

8/12/2019 KPMG IFSR 2012

17/112

8/12/2019 KPMG IFSR 2012

18/112



2.5A Consolidation: IFRS 10 Forthcoming: IFRS 10, IFRS 12

IFRS 10 Consolidated Financial Statementsand IFRS 12 Disclosure of Interests in Other

Entitiesare not yet effective. They will be effective for annual periods beginning on or after

1 January 2013.

The single control model

Control involves power, exposure to variability in returns and a linkage between thetwo. It is assessed on a continuous basis.

The investor considers the purpose and design of the investee so as to identify

its relevant activities, how decisions about such activities are made, who has the

current ability to direct those activities and who receives returns therefrom.

Control is usually assessed over a legal entity, but can also be assessed over only

specified assets and liabilities of an entity (referred to as a silo) when certain

conditions are met.

Step 1: Power over relevant activities

There is a gating question in the model, which is to determine whether voting rights

or rights other than voting rights are relevant when assessing whether the investor

has power over the relevant activities of the investee.

Only substantive rights held by the investor and others are considered.

If voting rights are relevant when assessing power, then substantive potential voting

rights are taken into account. The investor assesses whether it holds voting rightssufficient to unilaterally direct the relevant activities of the investee, which can

include de facto power.

If voting rights are not relevant when assessing power, then the investor considers:

the purpose and design of the investee;

evidence that the investor has the practical ability to direct the relevant activities

unilaterally;

indications that the investor has a special relationship with the investee; and

whether the investor has a large exposure to variability in returns.
http://-/?-http://-/?-http://-/?-http://-/?-http://-/?-http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

19/112



Step 2: Exposure to variability in returns

Returns are broadly defined and include:

distributions of economic benefits;

changes in the value of the investment; and

fees, remunerations, tax benefits, economies of scale, cost savings and other

synergies.

Step 3: Linkage An investor that has decision-making power over an investee and exposure to

variability in returns determines whether it acts as a principal or as an agent to

determine whether there is a linkage between power and returns. When the decision

maker is an agent, the link between power and returns is absent and the decision

makers delegated power is treated as if it were held by its principal(s).

To determine whether it is an agent, the decision maker considers:

substantive removal and other rights held by a single or multiple parties;

whether its remuneration is on arms length terms;

its other economic interests; and

the overall relationship between itself and other parties.

An entity takes into account the rights of parties acting on its behalf when assessing

whether it controls an investee.

8/12/2019 KPMG IFSR 2012

20/112



2.6 Business combinationsCurrently effective: IFRS 3 Forthcoming: IFRS 10, IFRS 13

Scope

Business combinations are accounted for under the acquisition method, with limited

exceptions.

Identifying a business combination

A business combination is a transaction or other event in which an acquirer obtains

control of one or more businesses.

Identifying the acquirer

The acquirer in a business combination is the combining entity that obtains control of

the other combining business or businesses.

Determining the acquisition date

The acquisition date is the date on which the acquirer obtains control of the acquiree.

Consideration transferred

Consideration transferred by the acquirer, which is generally measured at fair value at

the acquisition date, may include assets transferred, liabilities incurred by the acquirer

to the previous owners of the acquiree and equity interests issued by the acquirer.

Determining what is part of the business combination

Any items that are not part of the business combination transaction are accounted for

outside of the acquisition accounting.

Identifiable assets acquired and liabilities assumed

The identifiable assets acquired and the liabilities assumed are recognised separately

from goodwill at the acquisition date if they meet the definition of assets and liabilities

and are exchanged as part of the business combination. They are measured at theacquisition date at their fair values, with limited exceptions.

8/12/2019 KPMG IFSR 2012

21/112



Measurement of non-controlling interests

Ordinary non-controlling interests (NCI) are measured at fair value, or at their

proportionate interest in the net assets of the acquiree, at the acquisition date.

Other NCI are generally measured at fair value.

Goodwill or a gain on bargain purchase

Goodwill is measured as a residual and is recognised as an asset. When the residual is

a deficit (gain on a bargain purchase), it is recognised in profit or loss after re-assessing

the values used in the acquisition accounting.

Subsequent measurement and accounting

Adjustments to the acquisition accounting during the measurement period reflect

additional information about facts and circumstances that existed at the acquisition

date.

In general, items recognised in the acquisition accounting are measured and accounted

for in accordance with the relevant IFRSs subsequent to the business combination.

8/12/2019 KPMG IFSR 2012

22/112



2.7 Foreign currency translation Currently effective: IAS 21, IAS 29

Determining the functional currency

An entity measures its assets, liabilities, income and expenses in its functional

currency, which is the currency of the primary economic environment in which it

operates.

Translation of foreign currency transactions

Transactions that are not denominated in an entitys functional currency are foreign

currency transactions; exchange differences arising on translation are generally

recognised in profit or loss.

Translation of financial statements of a foreign operation

The financial statements of foreign operations are translated as follows:

assets and liabilities are translated at the closing rate;

income and expenses are translated at actual rates or appropriate averages; and

equity components (excluding current-year movements, which are translated at

actual rates) are translated at historical rates.

Exchange differences arising on the translation of the financial statements of a foreign

operation are recognised in other comprehensive income and accumulated in a

separate component of equity. The amount attributable to any non-controlling interests

(NCI) is allocated to and recognised as part of NCI.

Hyperinflation

If the functional currency of a foreign operation is the currency of a hyperinflationary

economy, then current purchasing power adjustments are made to its financialstatements before translation into a different presentation currency; the adjustments

are based on the closing rate at the end of the current period. However, if the

presentation currency is not the currency of a hyperinflationary economy, then

comparative amounts are not restated.

8/12/2019 KPMG IFSR 2012

23/112



Translation from functional to presentation currency

An entity may present its financial statements in a currency other than its functional

currency (presentation currency). An entity that translates financial statements into a

presentation currency other than its functional currency uses the same method as for

translating financial statements of a foreign operation.

Sale or liquidation of a foreign operation

If an entity disposes of an interest in a foreign operation, which includes losing control

over a foreign subsidiary, then the cumulative exchange differences recognised in othercomprehensive income are reclassified to profit or loss. A partial disposal of a foreign

subsidiary (without the loss of control) leads to a proportionate reclassification to NCI,

while other partial disposals result in a proportionate reclassification to profit or loss.

Convenience translations

An entity may present supplementary financial information in a currency other than its

presentation currency if certain disclosures are made.

8/12/2019 KPMG IFSR 2012

24/112



2.8 Accounting policies, errors and estimates Currently effective: IAS 1, IAS 8 Forthcoming:Annual Improvements 20092011

Selection of accounting polices

Accounting policies are the specific principles, bases, conventions, rules and practices

that an entity applies in preparing and presenting financial statements.

When IFRS does not cover a particular issue, management uses its judgement based

on a hierarchy of accounting literature.

Unless otherwise specifically permitted by an IFRS, the accounting policies adopted by

an entity are applied consistently to all similar items.

Changes in accounting policy and correction of prior-period errors

An accounting policy is changed in response to a new or revised IFRS, or on a voluntary

basis if the new policy is more appropriate.

Generally, accounting policy changes and corrections of prior-period errors are made byadjusting opening equity and restating comparatives unless this is impracticable.

Changes in accounting estimates

Changes in accounting estimates are accounted for prospectively.

When it is difficult to determine whether a change is a change in accounting policy or a

change in estimate, it is treated as a change in estimate.

Change in classification or presentation

If the classification or presentation of items in the financial statements is changed, thencomparatives are restated unless this is impracticable.

Presentation of a third statement of financial position

A statement of financial position as at the beginning of the earliest comparative period

is presented when an entity restates comparative information following a change

in accounting policy, the correction of an error, or the reclassification of items in thefinancial statements.

8/12/2019 KPMG IFSR 2012

25/112



2.9 Events after the reporting period Currently effective: IAS 1, IAS 10

Overall approach

The date on which the financial statements are authorised for issue is generally the date

on which they are authorised for issue by management, either to the supervisory board

or to the shareholders.

Adjusting events

The financial statements are adjusted to reflect events that occur after the end of the

reporting period, but before the financial statements are authorised for issue, if those

events provide evidence of conditions that existed at the end of the reporting period.

Non-adjusting events

Financial statements are not adjusted for events that are a result of conditions that

arose after the end of the reporting period, except when the going concern assumption

is no longer appropriate.

Current vs non-current classification

The classification of liabilities as current or non-current is based on circumstances at the

end of the reporting period.

Earnings per share

Earnings per share is restated to include the effect on the number of shares of certainshare transactions that happen after the end of the reporting period.

Going concern

If management determines that the entity is not a going concern after the end of the

reporting period but before the financial statements are authorised for issue, then the

financial statements are not prepared on a going concern basis.

8/12/2019 KPMG IFSR 2012

26/112



Identifying the key event

It is necessary to determine the underlying causes of an event and its timing to

determine the appropriate accounting i.e. as an adjusting or non-adjusting event.

Discovery of a fraud after the end of the reporting period

In our view, if information about a fraud could not reasonably be expected to have been

obtained and taken into account by an entity preparing financial statements when they

were authorised for issue, then the subsequent discovery is not evidence of a prior-

period error.

8/12/2019 KPMG IFSR 2012

27/112



3. SPECIFIC STATEMENT OF FINANCIALPOSITION ITEMS

3.1 General Currently effective: IAS 1

Forthcoming:Amendments to IAS 32

Format of the statement of financial position

While IFRS requires certain items to be presented in the statement of financial position,

there is no prescribed format.

Generally, an entity presents its statement of financial position classified between

current and non-current assets and liabilities. An unclassified statement of financial

position based on the order of liquidity is acceptable only when it provides reliable and

more relevant information.

Current vs non-current

An asset is classified as current if it is expected to be realised in the normal operating

cycle, is held for trading, is expected to be realised within 12 months, or it is cash or a

cash equivalent.

A liability is classified as current if it is expected to be settled in the normal operatingcycle, is due within 12 months, or there are no unconditional rights to defer the

settlement for at least 12 months.

A liability that is payable on demand because certain conditions are breached isclassified as current even if the lender has agreed, after the end of the reporting period

but before the financial statements are authorised for issue, not to demand repayment.

Assets and liabilities that are part of working capital are classified as current even if they

are due to be settled more than 12 months after the end of the reporting period.

Offsetting

A financial asset and a financial liability are offset if the criteria are met. However, non-

financial assets and non-financial liabilities cannot be offset.

8/12/2019 KPMG IFSR 2012

28/112

8/12/2019 KPMG IFSR 2012

29/112



Retirements and disposals

The gain or loss on disposal is the difference between the net proceeds received and

the carrying amount of the asset.

Compensation for the loss or impairment of property, plant and equipment is

recognised in profit or loss when receivable.

8/12/2019 KPMG IFSR 2012

30/112



3.3 Intangible assets and goodwill Currently effective: IFRS 3, IAS 38, IFRIC 12, SIC-32 Forthcoming: IFRS 13

Definitions

An intangible asset is an identifiable non-monetary asset without physical substance.

An intangible asset is identifiable if it is separable or arises from contractual or legal

rights.

Initial recognition and measurement

In general, intangible assets are initially recognised at cost.

The initial measurement of an intangible asset depends on whether it has been

acquired separately, as part of a business combination, or was internally generated.

Goodwill is recognised only in a business combination and is measured as a residual.

Internal development expenditure is capitalised if specific criteria are met. Thesecapitalisation criteria are applied to all internally developed intangible assets.

Internal research expenditure is expensed as incurred.

Expenditure relating to the following is expensed as incurred:

internally generated goodwill;

customer lists;

start-up costs;

training costs;

advertising and promotional activities; and

relocation or a re-organisation.

Indefinite useful lives

Acquired goodwill and other intangible assets with indefinite useful lives are not

amortised, but instead are subject to impairment testing at least annually.
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

31/112



Finite useful lives

Intangible assets with finite useful lives are amortised over their expected useful lives.

Subsequent expenditure

Subsequent expenditure on an intangible asset is capitalised only if the definition of an

intangible asset and the recognition criteria are met.

Revaluations

Intangible assets may be revalued to fair value only if there is an active market.

Retirements and disposals

The gain or loss on disposal is the difference between the net proceeds received and

the carrying amount of the asset.

8/12/2019 KPMG IFSR 2012

32/112



3.4 Investment property Currently effective: IAS 40, IAS 16, IAS 17 Forthcoming: IFRS 13

Scope

Investment property is property (land or building) held to earn rentals or for capital

appreciation, or both.

Property held by a lessee under an operating lease may be classified as investment

property if:

the rest of the definition of investment property is met; and

the lessee measures all of its investment property at fair value.

A portion of a dual-use property is classified as investment property only if the portion

could be sold or leased out under a finance lease. Otherwise, the entire property is

classified as property, plant and equipment, unless the portion of the property used for

own use is insignificant.

When a lessor provides ancillary services, the property is classified as investment

property if such services are a relatively insignificant component of the arrangement as

a whole.

Recognition and measurement

Investment property is initially recognised at cost.

Subsequent to initial recognition, all investment property is measured under either:

the fair value model (subject to limited exceptions); or

the cost model.

When the fair value model is chosen, changes in fair value are recognised in profit or

loss.

Subsequent expenditure is capitalised only when it is probable that it will give rise to

future economic benefits.

8/12/2019 KPMG IFSR 2012

33/112



Reclassification

Transfers to or from investment property can be made only when there has been a

change in the use of the property.

The intention to sell an investment property without redevelopment does not justify

reclassification from investment property into inventory; the property continues to be

classified as investment property until the time of disposal unless it is classified as held-

for-sale.

Disclosure Disclosure of the fair value of all investment property is required, regardless of the

measurement model used.

8/12/2019 KPMG IFSR 2012

34/112



3.5 Investments in associates and the equity method Currently effective: IAS 28 Forthcoming: IAS 28 (2011), IFRS 9

Definition

The definition of an associate is based on significant influence, which is the power to

participate in the financial and operating policies of an entity.

There is a rebuttable presumption of significant influence if an entity holds 20 to

50 percent of the voting rights of another entity.

Potential voting rights that are currently exercisable are considered in assessing

significant influence.

Exceptions from applying the equity method

Generally, associates are accounted for under the equity method in the consolidated

financial statements.

Venture capital organisations, mutual funds, unit trusts and similar entities may elect toaccount for investments in associates as financial assets.

Equity accounting is not applied to an investee that is acquired with a view to its

subsequent disposal if the criteria are met for classification as held-for-sale.

Applying the equity method

In applying the equity method, an associates accounting policies should be consistent

with those of the investor. The end of an associates reporting period may not differ from that of the investor by

more than three months, and should be consistent from period to period. Adjustments

are made for the effects of significant events and transactions between the two dates.

When an equity-accounted investee incurs losses, the carrying amount of the investors

interest is reduced but not to below zero. Further losses are recognised by the investor

only to the extent that the investor has an obligation to fund losses or has made

payments on behalf of the investee.

Unrealised profits and losses on transactions with associates are eliminated to the

extent of the investors interest in the investee.

8/12/2019 KPMG IFSR 2012

35/112



Changes in the status of equity-accounted investees

In our view, when an entity contributes a controlling interest in a subsidiary in exchange

for an interest in an associate, the entity may choose either to recognise the gain or loss

in full or to eliminate the gain or loss to the extent of the entitys interest in the investee.

On the loss of significant influence,the fair value of any retained investment is taken

into account in calculating the gain or loss on the transaction, as if the investment were

fully disposed of; this gain or loss is recognised in profit or loss. Amounts recognised in

other comprehensive income are reclassified or transferred as required by other IFRSs.

8/12/2019 KPMG IFSR 2012

36/112



3.6 Investments in joint ventures and proportionateconsolidation Currently effective: IAS 31, SIC-13

Forthcoming: IFRS 11, IAS 28 (2011)

Definition

A joint venture is an entity, asset or operation that is subject to contractually

established joint control.

Accounting for jointly controlled entities

Jointly controlled entities may be accounted for either by proportionate consolidation or

under the equity method in the consolidated financial statements.

Venture capital organisations, mutual funds, unit trusts and similar entities may elect to

account for investments in jointly controlled entities as financial assets.

Proportionate consolidation is not applied to an investee that is acquired with a view to

its subsequent disposal if the criteria are met for classification as held-for-sale.

Unrealised profits and losses on transactions with jointly controlled entities are

eliminated to the extent of the investors interest in the investee.

Gains and losses on non-monetary contributions, other than a subsidiary, in return for

an equity interest in a jointly controlled entity are generally eliminated to the extent of

the investors interest in the investee.

In our view, when an entity contributes a controlling interest in a subsidiary in exchange

for an interest in a jointly controlled entity, the entity may choose either to recognise thegain or loss in full or to eliminate the gain or loss to the extent of the entitys interest in

the investee.

On the loss of joint control, the fair value of any retained investment is taken into

account in calculating the gain or loss on the transaction; this gain or loss is recognisedin profit or loss. Amounts recognised in other comprehensive income are reclassified or

transferred as required by other IFRSs.
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

37/112



Accounting for jointly controlled assets

The investor accounts for its share of the jointly controlled assets, the liabilities and

expenses it incurs, and its share of any income or output.

Accounting for jointly controlled operations

The investor accounts for the assets it controls, the liabilities and expenses it incurs,

and its share of any income from the joint operation.

8/12/2019 KPMG IFSR 2012

38/112



3.6A Investments in joint arrangements: IFRS 11 Forthcoming: IFRS 11

IFRS 11 Joint Arrangementsis not yet effective. It will be effective for annual periods

beginning on or after 1 January 2013.

Identifying joint arrangements

A joint arrangement is an arrangement over which two or more parties have joint

control. There are two types of joint arrangements: a joint operation and a jointventure.

Classifying joint arrangements

In a joint operation, the parties to the arrangement have rights to the assets and

obligations for the liabilities, related to the arrangement.

In a joint venture, the parties to the arrangement have rights to the net assets of the

arrangement.

A joint arrangement not structured through a separate vehicle is a joint operation.

A joint arrangement structured through a separate vehicle may be either a joint

operation or a joint venture. Classification depends on the legal form of the vehicle,

contractual arrangements and other facts and circumstances.

Accounting for joint arrangements

Generally, a joint venturer accounts for its interest in a joint venture under the equity

method in accordance with IAS 28 (2011).

A joint operator recognises, in relation to its involvement in a joint operation, its

assets, liabilities and transactions, including its share in those arising jointly. The joint

operator accounts for each item in accordance with the relevant IFRSs.

A party to ajoint operation, who does not have joint control, recognises its assets,

liabilities and transactions, including its share in those arising jointly, if it has rights to

the assets and obligations for the liabilities of the joint operation.

A party to ajoint venture, who does not have joint control, accounts for its interest inaccordance with IAS 39, or IAS 28 (2011)if significant influence exists.

8/12/2019 KPMG IFSR 2012

39/112



3.8 Inventories Currently effective: IAS 2

Measurement

Generally, inventories are measured at the lower of cost and net realisable value.

Cost includes all direct expenditure to get inventory ready for sale, including

attributable overheads.

The cost of inventory is generally determined under the first-in, first-out (FIFO) orweighted-average method. The use of the last-in, first-out (LIFO) method is prohibited.

Other cost formulas, such as the standard cost or retail methods, may be used when

the results approximate the actual cost.

Inventory is written down to net realisable value when net realisable value is less than

cost.

If the net realisable value of an item that has been written down subsequently

increases, then the write-down is reversed.

Recognition as an expense

The cost of inventory is recognised as an expense when the inventory is sold.

8/12/2019 KPMG IFSR 2012

40/112



3.9 Biological assets Currently effective: IAS 41 Forthcoming: IFRS 13

Scope

Biological assets (living animals or plants) are in the scope of the standard if they are

subject to a process of management of biological transformation.

Measurement

Biological assets are measured at fair value less costs to sell unless it is not possible to

measure fair value reliably, in which case they are measured at cost.

Gains and losses from changes in fair value less costs to sell are recognised in profit or

loss.

Agricultural produce

Agricultural produce harvested from a biological asset is measured at fair value lesscosts to sell at the point of harvest. Thereafter, the standard on inventories generally

applies (see 3.8).

8/12/2019 KPMG IFSR 2012

41/112



3.10 Impairment of non-financial assets Currently effective: IAS 36, IFRIC 10 Forthcoming: IFRS 13, IFRS 11, IAS 27 (2011)

Scope

IAS 36covers the impairment of a variety of non-financial assets, including:

property, plant and equipment;

intangible assets and goodwill;

investment property and biological assets carried at cost less accumulated

depreciation; and

investments in subsidiaries, joint ventures and associates.

Identifying the level at which assets are tested for impairment

Whenever possible, an impairment test is performed for an individual asset. Otherwise,

assets are tested for impairment in cash-generating units (CGUs). Goodwill is alwaystested for impairment at the level of a CGU or a group of CGUs.

A CGU is the smallest group of assets that generates cash inflows from continuing use

that are largely independent of the cash inflows of other assets or groups thereof.

Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the

synergies of the business combination from which it arose. The allocation is based on

the level at which goodwill is monitored internally, restricted by the size of the entitys

operating segments.

Determining when to test for impairment

Impairment testing is required when there is an indication of impairment.

Annual impairment testing is required for goodwill and intangible assets that either are

not yet available for use or have an indefinite useful life. This impairment test may be

performed at any time during the year, provided that it is performed at the same time

each year.
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

42/112



Measuring an impairment loss

An impairment loss is recognised if an assets or CGUs carrying amount exceeds the

greater of its fair value less costs to sell and value in use.

Fair value less costs to sell is based on market participant assumptions.

Estimates of future cash flows used in the value in use calculation are specific to the

entity, and need not be the same as those of market participants. The discount rate

used in the value in use calculation reflects the markets assessment of the risks

specific to the asset or CGU, as well as the time value of money.

Recognising an impairment loss

An impairment loss for a CGU is allocated first to any goodwill and then pro rata to other

assets in the CGU that are within the scope of IAS 36.

An impairment loss is generally recognised in profit or loss.

Reversal of impairment

Reversals of impairment are recognised, other than for impairments of goodwill.

A reversal of an impairment loss is generally recognised in profit or loss.

8/12/2019 KPMG IFSR 2012

43/112

8/12/2019 KPMG IFSR 2012

44/112

8/12/2019 KPMG IFSR 2012

45/112



3.13 Income taxes Currently effective: IAS 12, SIC-25

Scope

Income taxes are taxes based on taxable profits, and taxes that are payable by a

subsidiary, associate or joint venture on distribution to investors.

Current tax

Current tax represents the amount of income taxes payable (recoverable) in respect of

the taxable profit (loss) for a period.

Deferred tax

Deferred tax is recognised for the estimated future tax effects of temporary

differences, unused tax losses carried forward and unused tax credits carried forward.

A deferred tax liability is not recognised if it arises from the initial recognition of

goodwill.

A deferred tax asset or liability is not recognised if:

it arises from the initial recognition of an asset or liability in a transaction that is not a

business combination; and

at the time of the transaction, it affects neither accounting profit nor taxable profit.

Deferred tax is not recognised in respect of investments in subsidiaries, associates and

joint ventures if certain conditions are met.

A deferred tax asset is recognised to the extent that it is probablethat it will be realised.

Measurement

Current and deferred tax are measured based on rates that are enacted or substantively

enacted at the end of the reporting period.

Deferred tax is measured based on the expected manner of settlement (liability) or

recovery (asset).

Deferred tax is measured on an undiscounted basis.
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

46/112



Classification and presentation

The total income tax expense (income) recognised in a period is the sum of current

tax plus the change in deferred tax assets and liabilities during the period, excluding

tax recognised outside profit or loss (i.e. in other comprehensive income or directly in

equity) or arising from a business combination.

Income tax related to items recognised outside profit or loss is itself recognised outside

profit or loss.

Deferred tax is classified as non-current in a classified statement of financial position.

An entity offsets current tax assets and current tax liabilities only when it has a legally

enforceable right to offset current tax assets against current tax liabilities, and it

intends either to settle on a net basis or to realise the asset and settle the liability

simultaneously.

8/12/2019 KPMG IFSR 2012

47/112



4. SPECIFIC STATEMENT OF COMPREHENSIVEINCOME ITEMS

4.1 General Currently effective: IAS 1

Forthcoming:Amendments to IAS 1, IFRS 9

Format of the statement of comprehensive income

A statement of comprehensive income is presented either as a single statement or in

the form of two statements, comprising an income statement (displaying components

of profit or loss) and a separate statement of comprehensive income (beginning with

profit or loss and displaying the components of other comprehensive income).

While IFRS requires certain items to be presented in the statement of comprehensive

income, there is no prescribed format.

Additional line items are presented when they are relevant to understanding the entitysfinancial performance.

Use of the description unusual or exceptional

In our view, use of the terms unusual or exceptional should be infrequent and

reserved for items that justify a greater prominence.

Extraordinary items

The presentation or disclosure of items of income and expense characterised asextraordinary items is prohibited.

Alternative earnings measures

The presentation of alternative earnings measures (e.g. EBITDA) in the statement of

comprehensive income is not prohibited, although national regulators may have more

restrictive requirements.

Offsetting

Items of income and expense are not offset unless this is required or permitted by another

IFRS, or when the amounts relate to similar transactions or events that are not material.
http://-/?-http://-/?-

8/12/2019 KPMG IFSR 2012

48/112



Other comprehensive income

Other comprehensive income comprises items of income and expenses, including

reclassification adjustments, that are not recognised in profit or loss.

Reclassification adjustments from other comprehensive income to profit or loss are

disclosed in the statement of comprehensive income or in the notes.

8/12/2019 KPMG IFSR 2012

49/112



4.2 Revenue Currently effective: IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 Forthcoming: IFRS 13

Overall approach

Revenue is recognised only if it is probable that future economic benefits will flow to

the entity and these benefits can be measured reliably.

When an arrangement includes more than one component, it may be necessary to

account for the revenue attributable to each component separately.

When two or more transactions are linked so that the individual transactions have no

commercial effect on their own, they are analysed as one arrangement.

Measurement

Revenue is measured at the fair value of consideration received, taking into account any

trade discounts and volume rebates.

Revenue recognition does not require cash consideration. However, when goods orservices exchanged are similar in nature and value, the transaction does not generate

revenue.

Sale of goods

Revenue from the sale of goods is recognised when the entity has transferred the

significant risks and rewards of ownership to the buyer and it no longer retains control

or has managerial involvement in the goods.

Construction contracts

Construction contracts are accounted for under the percentage-of-completion method.

The completed-contract method is not permitted.

Service contracts

Revenue from service contracts is recognised in the period during which the service is

rendered, generally under the percentage-of-completion method.

8/12/2019 KPMG IFSR 2012

50/112



Gross vs net presentation

Revenue comprises the gross inflows of economic benefits received by an entity for its

own account.

In an agency relationship, amounts collected on behalf of the principal are not

recognised as revenue by the agent.

8/12/2019 KPMG IFSR 2012

51/112

8/12/2019 KPMG IFSR 2012

52/112



4.4 Employee benefits Currently effective: IAS 19, IFRIC 14 Forthcoming: IAS 19 (2011), IFRS 10, IFRS 13

Scope

IFRS specifies accounting requirements for all types of employee benefits, and not

just pensions. IAS 19deals with all employee benefits, except those to which IFRS 2

applies.

Definitions

Post-employment benefits are employee benefits that are payable after the completion

of employment (before or during retirement).

A defined contribution plan is a post-employment benefit plan under which the

employer pays fixed contributions into a separate entity and has no further obligations.

All other post-employment plans are defined benefit plans.

Short-term employee benefits are employee benefits that are due to be settled within12 months of the end of the period in which the services have been rendered.

Other long-term employee benefits are employee benefits that are not due to be

settled within 12 months of the end of the period in which the services have been

rendered.

Recognition

Liabilities for employee benefits are recognised on the basis of a legal or constructive

obligation.

Liabilities and expenses for employee benefits are generally recognised in the period in

which the services are rendered.

The costs of providing employee benefits are generally expensed unless other IFRSs

permit or require capitalisation.

Contributions to a defined contribution plan are expensed as the obligation to make the

payments is incurred.

8/12/2019 KPMG IFSR 2012

53/112



Defined benefit plans

Recognition

A liability is recognised for an employers obligation under a defined benefit plan.

Measurement

The liability and expense are measured actuarially under the projected unit credit

method.

Presentation

Assets that meet the definition of plan assets, including qualifying insurance policies,

and the related liabilities are presented on a net basis in the statement of financial

position.

Actuarial gains and losses

Actuarial gains and losses of defined benefit plans may be recognised in profit or

loss, or immediately in other comprehensive income. Amounts recognised in other

comprehensive income are not reclassified to profit or loss.

If actuarial gains and losses of a defined benefit plan are recognised in profit or loss,

then as a minimum gains and losses that exceed a corridor are required to be

recognised over the average remaining working lives of employees in the plan. Faster

recognition (including immediate recognition) in profit or loss is permitted.

Past service cost

Liabilities and expenses for vested past service costs under a defined benefit plan arerecognised immediately.

Liabilities and expenses for unvested past service costs under a defined benefit plan arerecognised over the vesting period.

Asset ceiling

If a defined benefit plan has assets in excess of the obligation, then the amount of

any net asset recognised is limited to available economic benefits from the plan in the

form of refunds from the plan or reductions in future contributions to the plan, andunrecognised actuarial losses and past service costs.

8/12/2019 KPMG IFSR 2012

54/112

8/12/2019 KPMG IFSR 2012

55/112



4.4A Employee benefits: IAS 19 (2011) Forthcoming: IAS 19 (2011)

IAS 19 (2011) Employee Benefitsis not yet effective. It will be effective for annual periods

beginning on or after 1 January 2013. Below is an overview of the significant changesto

the currently effective requirements included in 4.4.

Definitions

The distinction between short-term and other long-term employee benefits dependson when the entity expects the benefits to be settled.

Defined benefit plans

Recognition

The corridor method is eliminated and actuarial gains and losses are recognised

immediately in other comprehensive income.

All changes in the value of the defined benefit obligation and the plan assets arerecognised immediately, subject to the effect of the asset ceiling.

All past service costs, including unvested amounts, are recognised immediately.

Curtailments and other plan amendments are recognised at the same time as a

related restructuring or related termination benefits when those occur before the

curtailment or other plan amendments occur.

Measurement

The total return on plan assets is determined by applying the liability discount rate

rather than the long-term rate of expected return on plan assets.

The costs of managing plan assets reduce returns on plan assets. Other

administration costs are expensed through profit or loss immediately. The currently

permitted inclusion of such costs within the measurement of the defined benefit

obligation or their deduction from the return on plan assets is removed.

Taxes payable by the plan on contributions relating to service are considered in

measuring current service cost and the defined benefit obligation. All other taxespayable by the plan are included in the return on plan assets.

8/12/2019 KPMG IFSR 2012

56/112



Presentation

The cost of defined benefit plans includes the following components:

service cost recognised in profit or loss;

net interest on net defined benefit liability (asset) recognised in profit or loss;

and

remeasurements of the net defined benefit liability (asset) recognised in other

comprehensive income.

Termination benefits

A termination benefit is recognised at the earlier of:

the date on which the entity recognises costs for a restructuring within the

scope of the provisions standard that includes the payment of termination

benefits; and

the date on which the entity can no longer withdraw the offer of the termination

benefits.

8/12/2019 KPMG IFSR 2012

57/112



4.5 Share-based payments Currently effective: IFRS 2 Forthcoming: IFRS 9, IFRS 10

Basic principles

Goods or services received in a share-based payment transaction are measured at fair

value.

Equity-settled transactions with employees are generally measured based on the grant-

date fair value of the equity instruments granted.

Equity-settled transactions with non-employees are generally measured based on the

fair value of the goods or services obtained.

Equity-settled transactions with employees

For equity-settled transactions, an entity recognises a cost and a corresponding

increase in equity. The cost is recognised as an expense unless it qualifies for

recognition as an asset. Initial estimates of the number of equity-settled instruments that are expected to vest

are adjusted to current estimates and ultimately to the actual number of equity-settled

instruments that vest unless differences are due to market conditions.

Cash-settled transactions with employees

For cash-settled transactions, an entity recognises a cost and a corresponding liability.

The cost is recognised as an expense unless it qualifies for recognition as an asset.

The liability is remeasured, until settlement date, for subsequent changes in the fair

value of the liability. The remeasurements are recognised in profit or loss.

Employee transactions with a choice of settlement

Grants in which the counterparty has the choice of equity or cash settlement are

accounted for as compound instruments. Therefore, the entity accounts for a liabilitycomponent and an equity component separately.

Classification of grants in which the entity has the choice of equity or cash settlementdepends on whether the entity has the ability and intent to settle in shares.

8/12/2019 KPMG IFSR 2012

58/112



Modifications and cancellations of employee transactions

Modification of a share-based payment results in the recognition of any incremental

fair value but not any reduction in fair value. Replacements are accounted for as

modifications.

Cancellation of a share-based payment results in accelerated recognition of any

unrecognised expense.

Group share-based payments arrangements

A share-based payment transaction in which the receiving entity, the reference entityand the settling entity are in the same group from the perspective of the ultimate parent

is a group share-based payment transaction and is accounted for as such by both the

receiving and the settling entities.

A share-based payment that is settled by a shareholder external to the group is also

in the scope of IFRS 2from the perspective of the receiving entity, as long as the

reference entity is in the same group as the receiving entity.

A receiving entity without any obligation to settle the transaction classifies a share-

based payment transaction as equity-settled.

A settling entity classifies a share-based payment transaction as equity-settled if it is

obliged to settle in its own equity instruments and otherwise as cash-settled.

Share-based payments with non-employees

Goods are recognised when they are obtained and services are recognised over theperiod that they are received.

8/12/2019 KPMG IFSR 2012

59/112



4.6 Borrowing costs Currently effective: IAS 23

Scope

Borrowing costs that are directly attributable to the acquisition, construction or

production of a qualifying asset generally form part of the cost of that asset.

Qualifying assets

A qualifying asset is one that necessarily takes a substantial period of time to be made

ready for its intended use or sale.

Borrowing costs eligible for capitalisation

Borrowing costs may include interest calculated under the effective interest method,

certain finance charges and certain foreign exchange differences.

Borrowing costs are reduced by interest income from the temporary investment of

borrowings.

Period of capitalisation

Capitalisation begins when an entity meets all of the following conditions:

expenditures for the asset are being incurred;

borrowing costs are being incurred; and

activities that are necessary to prepare the asset for its intended use or sale are in

progress.

Capitalisation ceases when the activities necessary to prepare the asset for its intended

use or sale are substantially complete.

8/12/2019 KPMG IFSR 2012

60/112



5. SPECIAL TOPICS

5.1 Leases Currently effective: IAS 17, IFRIC 4, SIC-15, SIC-27

Forthcoming: IFRS 10

Definition

An arrangement that at its inception can be fulfilled only through the use of a specificasset or assets, and that conveys a right to use that asset or those assets, is a lease or

contains a lease.

Classification of leases

A lease is classified as either a finance lease or an operating lease.

Lease classification depends on whether substantially all of the risks and rewards

incidental to ownership of the leased asset have been transferred from the lessor to the

lessee.

Lease classification is made at inception of the lease and is not revised unless the lease

agreement is modified.

Accounting for leases

Under a finance lease, the lessor derecognises the leased asset and recognises a

finance lease receivable; the lessee recognises the leased asset and a liability for future

lease payments. Under an operating lease, both parties treat the lease as an executor contract. The

lessor and the lessee recognise the lease payments as income/expense over the lease

term. The lessor recognises the leased asset in its statement of financial position; the

lessee does not.

A lessee may classify a property interest held under an operating lease as an

investment property. If this is done, then the lessee accounts for that lease as if it

were a finance lease, measures investment property using the fair value model and

recognises a lease liability for future lease payments.

8/12/2019 KPMG IFSR 2012

61/112



Lessors and lessees recognise incentives granted to a lessee under an operating lease

as a reduction in lease rental income/expense over the lease term.

A lease of land with a building is treated as two separate leases: a lease of the land and

a lease of the building; the two leases may be classified differently.

In determining whether the lease of land is a finance lease or an operating lease, an

important consideration is that land normally has an indefinite economic life.

Immediate gain recognition from the sale and leaseback of an asset depends on

whether the leaseback is classified as a finance or as an operating lease and, if the

leaseback is an operating lease, whether the sale takes place at fair value.

A series of linked transactions in the legal form of a lease is accounted for based on the

substance of the arrangement; the substance may be that the series of transactions is

not a lease.

Special requirements for revenue recognition apply to manufacturer or dealer lessors

granting finance leases.

8/12/2019 KPMG IFSR 2012

62/112



5.2 Operating segments Currently effective: IFRS 8

Scope

Segment disclosures are presented by entities whose debt or equity instruments

are traded in a public market or that file, or are in the process of filing, their financial

statements with a securities commission or other regulatory organisation for the

purpose of issuing any class of instruments in a public market.

Management approach

Segment disclosures are provided about the components of the entity that

management monitors in making decisions about operating matters i.e. they follow a

management approach.

Such components (operating segments) are identified on the basis of internal reports

that the entitys chief operating decision maker (CODM) regularly reviews in allocating

resources to segments and in assessing their performance.

Aggregation of operating segments

The aggregation of operating segments is permitted only when the segments have

similar economic characteristics and meet a number of other specified criteria.

Determination of reportable segments

Reportable segments are identified based on quantitative thresholds of revenue, profit

or loss, or assets.

Segment disclosure information

The amounts disclosed for each reportable segment are the measures reported to

the CODM, which are not necessarily based on the same accounting policies as the

amounts recognised in the financial statements.

Because disclosures of segment profit or loss, segment assets and segment liabilities

as reported to the CODM are required, rather than as they would be reported under

IFRS, disclosure of how these amounts are measured for each reportable segment isalso required.

8/12/2019 KPMG IFSR 2012

63/112



Reconciliations between total amounts for all reportable segments and financial

statements amounts are disclosed with a description of all material reconciling items.

General and entity-wide disclosures include information about products and services,

geographical areas (including country of domicile and individual foreign countries, if

material), major customers and factors used to identify an entitys reportable segments.

Such disclosures are required even if an entity has only one segment.

Comparative information

Comparative information is normally restated for changes in reportable segments.

8/12/2019 KPMG IFSR 2012

64/112



5.3 Earnings per share Currently effective: IAS 33 Forthcoming: IFRS 10

Scope

Basic and diluted earnings per share (EPS) are presented by entities whose ordinary

shares or potential ordinary shares are traded in a public market or that file, or are in

the process of filing, their financial statements for the purpose of issuing any class of

ordinary shares in a public market.

Basic EPS

Basic EPS is calculated by dividing the earnings attributable to holders of ordinary equity

of the parent by the weighted-average number of ordinary shares outstanding during

the period.

Diluted EPS

To calculate diluted EPS, profit or loss attributable to ordinary equity holders, and the

weighted-average number of shares outstanding, are adjusted for the effects of all

dilutive potential ordinary shares.

Potential ordinary shares are considered dilutive only when they decrease EPS or

increase loss per share from continuing operations. In determining if potential ordinary

shares are dilutive, each issue or series of potential ordinary shares is considered

separately rather than in aggregate.

Contingently issuable ordinary shares are included in basic EPS from the date on whichall necessary conditions are satisfied and, when they are not yet satisfied, in diluted EPS

based on the number of shares that would be issuable if the end of the reporting period

were the end of the contingency period.

When a contract may be settled in either cash or shares at the entitys option, the

presumption is that it will be settled in ordinary shares and the resulting potential

ordinary shares are used to calculate diluted EPS.

When a contract may be settled in either cash or shares at the holders option, the more

dilutive of cash and share settlement is used to calculate diluted EPS.

For diluted EPS, diluted potential ordinary shares are determined independently for

each period presented.

8/12/2019 KPMG IFSR 2012

65/112



Retrospective adjustment

When the number of ordinary shares outstanding changes, without a corresponding

change in resources, the weighted-average number of ordinary shares outstanding

during all periods presented is adjusted retrospectively for both basic and diluted EPS.

Presentation and disclosures

Basic and diluted EPS for both continuing and total operations are presented in the

statement of comprehensive income, with equal prominence, for each class of ordinary

shares that has a differing right to share in the profit or loss for the period. Separate EPS information is disclosed for discontinued operations, either in the

statement of comprehensive income or in the notes to the financial statements.

Adjusted basic and diluted EPS based on alternative earnings measures may be

disclosed and explained in the notes to the financial statements.

8/12/2019 KPMG IFSR 2012

66/112

8/12/2019 KPMG IFSR 2012

67/112



Discontinued operations: presentation

Discontinued operations are presented separately on the face of the statement of

comprehensive income, and related cash flow information is disclosed.

The comparative statement of comprehensive income and cash flow information is re-

presented for discontinued operations.

8/12/2019 KPMG IFSR 2012

68/112



5.5 Related party disclosures Currently effective: IAS 24

Identifying related parties

Related party relationships are those involving control (direct or indirect), joint control

or significant influence.

Key management personnel and their close family members are parties related to an

entity.

Recognition and measurement

There are no special recognition or measurement requirements for related party

transactions.

Disclosures

The disclosure of related party relationships between a parent and its subsidiaries is

required, even if there have been no transactions between them.

No disclosure is required in consolidated financial statements of intra-group

transactions eliminated in preparing those statements.

Comprehensive disclosures of related party transactions are required for each category

of related party relationship.

Key management personnel compensation is disclosed in total and is analysed by

component.

In certain instances, government-related entities are allowed to provide less detaileddisclosures on related party transactions.

8/12/2019 KPMG IFSR 2012

69/112



5.7 Non-monetary transactions Currently effective: IAS 16, IAS 18, IAS 38, IAS 40, IFRIC 18, SIC-31 Forthcoming: IFRS 13

Defin

kpmg ifsr 2012

Documents