IFRS in Practice
IFRS in Practice sets out practical information about the application of key aspects of IFRS, including industry specific guidance.
Please speak to your normal BDO contact if you would like to discuss any aspects of the publication, or click here to be redirected to contact details for BDO's 'IFRS Leaders - The IFRS Working Party' or to a list of IFRS Country Leaders who are key contacts at our member firms.
IFRS 9 Financial Instruments
This BDO IFRS in Practice publication sets out practical information and examples about the application of key aspects of IFRS 9. IFRS 9 (2014) has been developed by the International Accounting Standards Board (IASB) to replace IAS 39 Financial Instruments: Recognition and Measurement. The IASB completed IFRS 9 in July 2014, by publishing a final standard which incorporates the final requirements of all three phases of the financial instruments projects, being:
• Classification and Measurement,
• Impairment, and
• Hedge Accounting
The IASB’s project was initially carried out as a joint project with the US Financial Accounting Standards Board (FASB). However, the FASB ultimately decided to make more limited changes to the classification and measurement of financial instruments, and to develop a more US specific impairment model for financial assets
Applying IFRS 9 to Related Company Loans in the Real Estate Sector
IFRS 9 Financial Instruments makes no distinction between unrelated third party transactions. Entities that prepare stand-alone financial statements are required to apply the full provisions of the standard to all transactions within its scope. This means related company loans receivables must be classified and measured in ccordance with the requirements of IFRS 9, including where relevant, applying the Expected Credit Loss (ECL) model for impairement.
The purpose pf this publication is to illustrate the application of IFRS 9 to a number of common intragroup funding structures that a typical real estate group might have in place.
In Section 1, we consider the five common funding structures for an investment property group.
In Section 2, we consider a typical funding structure for a property development group, such as a house-builder.
Applying IFRS 9 to Related Company Loans
IFRS 9 Financial Instruments makes no distinction between unrelated third party and related party transactions. This means related company loan receivables must be classified and measured in accordance with the requirements of IFRS 9, including where relevant, applying the Expected Credit Loss (ECL) model for impairment.
Applying IFRS 9 to related company loans can present a number of application challenges as they are often advanced on terms that are not arms-length or sometimes advanced on an informal basis without any terms at all. In addition, they can contain features that expose the lender to risks that are not consistent with a basic lending arrangement. This publication sets out a summary of the key requirements of IFRS 9 (focusing on those that are likely to be most relevant to related company loans) and uses examples to illustrate how these requirements could be applied in practice.
IFRS 15 Revenue from Contracts with Customers: Transition
For all entities applying IFRS, IFRS 15 revenue from Contracts with Customers comes into effect for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. This means for those entities applying the fill retrospective transition method with 31 December year end, the transition date 1 January 2017.
IFRS 15 Revenue from Contracts with Customers
On 28 May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers. IFRS 15 sets out a single and comprehensive framework for revenue recognition and, for many entities, the timing of profile of revenue recognition will change.
This version of IFRS in Practice updates the publication for our most recent views on the application of IFRS 15.
IFRSs, Amendments to IFRSs, IFRICs and Agenda Decisions that are mandatory for 31 December 2018 year-ends and those that are effective in future periods.
This publication covers changes to International Financial Reporting Standards (IFRSs) that are effective for the first time in the annual financial statements of entities with 31 December 2018 year-ends, comprising:
• New and amended IFRSs;
• IFRS Interpretations Committee Interpretations (IFRICs).
It also includes Agenda Decisions issued by the IFRS Interpretations Committe during 2018.
In addition, this piblication covers changed to IFRSs that are effective in future periods, together with a discussion about major preojects that are currently in progress at the International Accounting Standards Board (IASB).
IFRS 6 Exploration for and evaluation of Mineral Resources
This issue of IFRS in Practice summarises the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources, and looks at a number of practical issues which often arise in practice.
Key aspects of IFRS 6 are that it:
• Applies only to Exploration and Evaluation (E&E) expenditure;
• Contains an exemption from certain of the requirements of IFRS, meaning that there are fewer restrictions placed on what qualifies to be capitalised as an asset (or part of an asset);
• Permits a choice of whether an entity expenses all E&E expenditure as incurred, or capitalises that expenditure (in which case there is a choice about how much of that expenditure might be capitalised);
• Contains certain exemptions from requirements of IAS 36 Impairement of Assets, for the purposes of assessing whether E&E expenditure which has been capitalised is impaired.
IFRS 16 Leases
In January 2016 the IASB published IFRS 16 Leases, which is effective for accounting periods beginning on or after 1 January 2019. Early adoption is permitted, but only if IFRS 15 Revenue from Contracts with Customers has also been adopted. IFRS 16 brings significant changes in accounting requirements for lease accounting, primarily for lessees, resulting in lease liabilities and right-off-use assets being recognised on balance sheet for lease contracts currently classified as operating leases. Entities applying IFRS will also need to pay careful attention to whether wider service contracts contain lease components. IFRS 16 has been developed to replace the existing suite of standards and interpretations on leases, notably IAS 17.
This BDO IFRS In Practice details the requirements of IFRS 16 and includes numerous practical examples.
IFRS 11 Joint Arrangements (Feb 2016)
This BDO IFRS in Practice publication sets out practical information and examples about the application of key aspects of IFRS 11.
In May 2011 the International Accounting Standard Board (IASB) issued IFRS 11 Joint Arrangements, which superseded IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non Monetary Contributions by Venturers.
The project to replace the existing guidance in respect of joint arrangements was undertaken because under IAS 31 the accounting treatment for jointly controlled entities was primarily dependent on the structure or legal form of the arrangement, rather than the substance of the arrangement.
IFRS 9 Financial Instruments (Oct 2015)
This BDO IFRS in Practice publication sets out practical information and examples about the application of key aspects of IFRS 9.
IFRS 9 (2014) has been developed by the International Accounting Standards Board (IASB) to replace IAS 39 Financial Instruments: Recognition and Measurement.
The IASB completed IFRS 9 in July 2014, by publishing a final standard which incorporates the final requirements of all three phases of the financial instruments projects, being:
• Classification and Measurement,
• Impairment, and
• Hedge Accounting
The IASB’s project was initially carried out as a joint project with the US Financial Accounting Standards Board (FASB). However, FASB ultimately decided to make more limited changes to the classification and measurement of financial instruments, and to develop a more US specific impairment model for financial assets.
IAS 7 Statement of Cash Flows (May 2014)
This publication addresses a number of practical issues which often arise in practice from the application of IAS 7 Statement of Cash Flows, including:
- Definition of cash and cash equivalents
- Restricted cash and cash equivalents balances
- Classification of cash flows as operating, investing or financing
- Offsetting cash inflows and outflows
- Presentation of operating cash flows using the direct or indirect method
- Income taxes and sales taxes
- Foreign exchange
- Group cash pooling arrangements in separate financial statements
- Securities and loans held for trading
- Classification of cash flow from derivatives used in an economic hedge
- Finance leases
- Cash flows arising from business combinations
Cash flows from discontinued operations.
Distinguishing between a business combination and an asset purchase in the extractives industry (Mar 2014)
This publication addresses the accounting requirements, judgements, and difficulties in distinguishing asset acquisition transactions between:
- A 'business combination', and
- An asset purchase.
Key topics that are addressed in the publication include:
- Differences in between the accounting requirements for a business combination and an asset acquisition
- The definition of a ‘business’, and the interaction of consideration regarding inputs, processes, and outputs as well as the existence of any goodwill.
- Types of transactions that may, or may not, give rise to a business combination, or where judgement is required
- Reverse acquisitions (‘backdoor listings’)
- Analysis of the 2013 IASB Staff Paper regarding the definition of a business.
(Note: Principles and examples included are equally relevant and applicable to entities operating in industries other than the extractives industry)
IAS 36 Impairment of Assets (Dec 2013)
This publication summarises the requirements of IAS 36 Impairment of Assets, including:
- The scope of the standard
- Goodwill and cash generating units (CGUs)
- Indicators of impairment and the timing of impairment tests
- Impairment testing (including; determining carrying and recoverable amounts, fair value less costs of disposal method, and value in use method)
- Recognising impairments
- Reversing impairments
- Considerations for CGUs with non-controlling interests
- Other practical considerations.
The publication also considers and incorporates recent concerns and enforcement priorities raised by regulators, including both:
How impairment tests are prepared (i.e. inputs used, determination of CGUs, allocation of goodwill to CGUs etc.).
Common Errors in Financial Statements - Share-based Payment (Dec 2013)
This publication summarises several common errors that can be made in an entities financial statements in relation to the treatment of share-based payments, including:
- Failure to identify share-based payments, and
- Inappropriate accounting for share-based payments.
Accounting for Commodity Loans (Oct 2012)
This publication highlights a number of practical issues that need to be considered when determining the appropriate accounting approach for commodity loans (i.e. where a lender advances funds which, instead of being repaid in cash, may be repaid by the delivery of a quantity of a commodity during a specific period).
Accounting for convertible notes (Oct 2012)
This publication highlights a number of practical issues that need to be considered when determining the appropriate accounting approach for convertible instruments.