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3 Disclosure initiative: Amendments to IAS 1

3 Disclosure initiative: Amendments to IAS 1

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1.3.5 Other comprehensive income arising from investments accounted for under

the equity method

The amendments clarify that the share of other comprehensive income arising from investments

accounted for under the equity method is grouped based on whether the items will or will not

subsequently be reclassified as profit or loss. Each group should then be presented as a single line item in

the statement of other comprehensive income.



1.4 Other aspects of IAS 1

You should note the following further aspects of IAS 1.



Key terms



(a)



The standard includes various definitions.







Material. Omissions or misstatements of items are material if they could, individually or

collectively, influence the economic decisions of users taken on the basis of the financial

statements. Materiality depends on the size and nature of the omission or misstatement judged in

the surrounding circumstances. The size or nature of the item, or a combination of both, could be

the determining factor.

Impracticable. Applying a requirement is impracticable when the entity cannot apply it after

making every reasonable effort to do so.







(b)



Guidance is provided on the meaning of present fairly, ie represent faithfully the effects of

transactions and other events in accordance with the definitions and recognition criteria for assets,

liabilities, income and expenses as set out in the Conceptual Framework.



(c)



The application of IFRSs with additional disclosure where necessary, is presumed to result in

financial statements that achieve a fair presentation.



(d)



In extremely rare circumstances, compliance with a requirement of an IFRS or IFRIC may be so

misleading that it would conflict with the objective of financial statements set out in the

Framework, the entity shall depart from that specific requirement.

(i)



(ii)



(e)



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Where the relevant regulatory framework requires or does not prohibit such a departure, the

entity must disclose:

(1)



That management has concluded that the financial statements present fairly the

entity's financial position, financial performance and cash flows



(2)



That it has complied with applicable IFRSs except that it has departed from a

particular requirement to achieve a fair presentation



(3)



Full details of the departure



(4)



The impact on the financial statements for each item affected and for each period

presented



Where the relevant regulatory framework prohibits departure from the requirement, the

entity shall, to the maximum extent possible, reduce the perceived misleading aspects of

compliance by disclosing:

(1)



The relevant IFRS, the nature of the requirement and the reason why complying with

the requirement is misleading



(2)



For each period presented, the adjustments to each item in the financial statements

that would be necessary to achieve a fair presentation



An entity must present current and non-current assets, and current and non-current liabilities,

as separate classifications in the statement of financial position. A presentation based on liquidity

should only be used where it provides more relevant and reliable information, in which cases, all

assets and liabilities shall be presented broadly in order of liquidity.



10: Performance reporting  Part B Accounting standards



(f)



A long-term financial liability due to be settled within twelve months of the year end date should

be classified as a current liability, even if an agreement to refinance, or to reschedule payments,

on a long-term basis is completed after the reporting period and before the financial statements are

authorised for issue.



Year end



(g)



Agreement to

refinance on longterm basis



Date financial

statements authorised

for issue



Settlement date <12

months after year end



A long-term financial liability that is payable on demand because the entity breached a condition

of its loan agreement should be classified as current at the year end even if the lender has agreed

after the year end, and before the financial statements are authorised for issue, not to demand

payment as a consequence of the breach.



Condition of loan

agreement breached.

Long-term liability

becomes payable on

demand



Year end



Lender agrees not to

enforce payment

resulting from breach



Date financial

statements approved

for issue



However, if the lender has agreed by the year end to provide a period of grace ending at least

twelve months after the year end within which the entity can rectify the breach and during that

time the lender cannot demand immediate repayment, the liability is classified as non-current.

(h)



All requirements previously set out in other standards for the presentation of particular line items in

the statement of financial position and statement of profit or loss and other comprehensive income

are now dealt with in IAS 1. These line items are: biological assets; liabilities and assets for current

tax and deferred tax; and pre-tax gain or loss recognised on the disposal of assets or settlement of

liabilities attributable to discontinuing operations.



(i)



The section that set out the presentation requirements for the net profit or loss for the period in

IAS 8 has now been transferred to IAS 1 instead.



(j)



The following disclosures are no longer required:

(i)



The results of operating activities, as a line item on the face of the statement of profit or loss

and other comprehensive income. 'Operating activities' are not defined in IAS 1



(ii)



Extraordinary items, as a line item on the face of the statement of profit or loss and other

comprehensive income (note that the disclosure of 'extraordinary items' is now prohibited)



(iii)



The number of an entity's employees



(k)



An entity must disclose, in the summary of significant accounting policies and/or other notes, the

judgements made by management in applying the accounting policies that have the most

significant effect on the amounts of items recognised in the financial statements.



(l)



An entity must disclose in the notes information regarding key assumptions about the future, and

other sources of measurement uncertainty, that have a significant risk of causing a material

adjustment to the carrying amounts of assets and liabilities within the next financial year.



(m)



The following items must be disclosed on the face of the statement of profit or loss and other

comprehensive income.

(i)

(ii)



Profit or loss attributable to non-controlling interest

Profit or loss attributable to equity holders of the parent



The allocated amounts must not be presented as items of income or expense. There is a similar

requirement for the statement of changes in equity or statement of recognised income and

expense. (See the example formats above.)



Part B Accounting standards  10: Performance reporting



285



1.5 ED Classification of liabilities – proposed amendments to IAS 1.

In February 2015, the IASB published an ED Classification of liabilities – proposed amendments to IAS 1.

The proposed amendments aim at a more general approach to the classification of liabilities under IAS 1

based on the contractual arrangements in place at the reporting date.

The amendment seeks to clarify the principles for classifying liabilities as current or non-current. It

proposes that classification should be based only on the entity’s rights in place at the end of the reporting

period and in particular, rights to ‘roll over’ a loan facility. The amendment also clarifies the term

‘settlement’ to include the ‘transfer to the counterparty of cash, equity instruments, other assets and

services’.



1.6 Revision of IAS 8



12/13



You have studied this standard already but it is long and important. If you do not understand any of this or

if you have problems with the revision question, go back and revise your earlier study material.

There have been extensive revisions to the standard, which is now called IAS 8 Accounting policies,

changes in accounting estimates and errors. The new title reflects the fact that the material on determining

net profit and loss for the period has been transferred to IAS 1.

Knowledge brought forward from earlier studies



IAS 8 Accounting policies, changes in accounting estimates and errors

Definitions





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

an entity in preparing and presenting financial statements.



The remaining definitions are either new or heavily amended.





A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability

or the amount of the periodic consumption of an asset, that results from the assessment of the

present status of, and expected future benefits and obligations associated with, assets and

liabilities. Changes in accounting estimates result from new information or new developments and,

accordingly, are not corrections of errors.







Material: as defined in IAS 1 (see above)







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, reliable information that:

(a)

(b)



Was available when financial statements for those periods were authorised for issue, and

Could reasonably be expected to have been obtained and taken into account in the

preparation and presentation of those financial statements.



Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies,

oversights or misinterpretations of facts, and fraud.





Retrospective application is applying a new accounting policy to transactions, other events and

conditions as if that policy had always been applied.







Retrospective restatement is correcting the recognition, measurement and disclosure of amounts

of elements of financial statements as if a prior period error had never occurred.







Prospective application of a change in accounting policy and of recognising the effect of a change

in an accounting estimate, respectively, are:

(a)



286



Applying the new accounting policy to transactions, other events and conditions occurring

after the date as at which the policy is changes; and



10: Performance reporting  Part B Accounting standards



(b)





Recognising the effect of the change in the accounting estimate in the current and future

periods affected by the change.



Impracticable. Applying a requirement is impracticable when the entity cannot apply it after

making every reasonable effort to do so. It is impracticable to apply a change in an accounting

policy retrospectively or to make a retrospective restatement to correct an error if one of the

following apply.

(a)

(b)

(c)



The effects or the retrospective application or retrospective restatement are not

determinable.

The retrospective application or retrospective restatement requires assumptions about what

management's intent would have been in that period.

The retrospective application or retrospective restatement requires significant estimates of

amounts and it is impossible to distinguish objectively information about those estimates

that: provides evidence of circumstances that existed on the date(s) at which those amounts

are to be recognised, measured or disclosed; and would have been available when the

financial statements for that prior period were authorised for issue from other information.



Knowledge brought forward from earlier studies (continued)



Accounting policies

This material has been transferred into IAS 8 from IAS 1.





Accounting policies are determined by applying the relevant IFRS or IFRIC and considering any

relevant Implementation Guidance issued by the IASB for that IFRS/IFRIC.







Where there is no applicable IFRS or IFRIC management should use its judgement in developing

and applying an accounting policy that results in information that is relevant and reliable.

Management should refer to:

(a)

(b)



The requirements and guidance in IFRSs and IFRICs dealing with similar and related issues

The definitions, recognition criteria and measurement concepts for assets, liabilities and

expenses in the Conceptual Framework



Management may also consider the most recent pronouncements of other standard setting bodies

that use a similar conceptual framework to develop standards, other accounting literature and

accepted industry practices if these do not conflict with the sources above.





An entity shall select and apply its accounting policies for a period consistently for similar

transactions, other events and conditions, unless an IFRS or an IFRIC specifically requires or

permits categorisation of items for which different policies may be appropriate. If an IFRS or an

IFRIC requires or permits categorisation of items, an appropriate accounting policy shall be

selected and applied consistently to each category.



Changes in accounting policies













These are rare: only required by statute/standard-setting body/results in reliable and more relevant

information.

Adoption of new IAS: follow transitional provisions of IAS. If no transitional provisions:

retrospective application.

Other changes in policy: retrospective application. Adjust opening balance of each affected

component of equity, ie as if new policy has always been applied.

Prospective application is no longer allowed unless it is impracticable to determine the

cumulative effect of the change. (See definition of impracticable above.)

An entity should disclose information relevant to assessing the impact of new IFRSs/IFRICs on the

financial statements where these have been issued but have not yet come into force.



Part B Accounting standards  10: Performance reporting



287



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