The Scope of IAS 16 Property, Plant and Equipment

IAS 16 par. 2 to par. 5 described the scope of IAS 16 Property, Plant and Equipment (PPE)

This Standard shall be applied in accounting for property, plant and equipment except when another Standard requires or permits a different accounting treatment (par. 2).

Par. 3 states that this standard does not apply to :

(a)  property, plant and equipment classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;

(b)  biological assets related to agricultural activity (see IAS 41 Agriculture);

(c)  the recognition and measurement of exploration and evaluation assets (see IFRS 6 Exploration for and Evaluation of Mineral Resources); or

(d)  mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

However, this Standard applies to PPE used to develop or maintain the assets described in (b)-(d).

Other Standards may require recognition of an item of PPE based on an approach different from that in this Standard. For example, IAS 17 Leases requires an entity to evaluate its recognition of an item of leased PPE on the basis of the transfer risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard (par. 4).

Further, par. 5 states that an entity shall apply this Standard to property that is being constructed or developed for future use as investment property but does not yet satisfy the definition of "investment property" in IAS 40 Investment Property. Once the construction or development is complete, the property becomes investment property and the entity is required to apply IAS 40. IAS 40 also applies to investment property that is being redeveloped for continued future use as investment property. An entity using the cost model for investment property in accordance with IAS 40 shall use the cost model in this Standard.

Source : International Accounting Standard (IAS) 16 Property, Plant and Equipment

IFRS Bound Volume 2009 is available now

International Financial Reporting Standards (IFRS) 2009 (English) is the only official printed edition of the consolidated text of the IASB's authoritative pronouncements.
This edition presents in a single volume the latest version of International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), IFRIC and SIC Interpretations and the supporting documents - illustrative examples, implementation guidance, bases for conclusions and dissenting opinions - as issued by the IASB at 1 January 2009.
The main changes in this 2009 edition of the Bound Volume are :

• one revised standard - IFRS 1
• amendments to IFRSs that were issued as separate documents
• amendments to IFRSs issued in the first annual improvements project
• amendments to other IFRSs resulting from those revised or amended standards
• three new Interpretations - IFRICs 15-17

The version of IFRS 1 that is being superseded by the new version has been ommited.
The volume also includes the IASC Foundation Constitution, the IASB Framework for the Preparation and Presentation of Financial Statements, the Preface to International Financial Reporting Standards, the Due Process Handbooks for the IASB and IFRIC, an updated Glossary of Terms, and a comprehensive Index.
The publication date : 10 March 2009, 2880 pages approx.

Several Guidelines for the First-time Adoption of IFRS

IFRS 1 regarding on First-time Adoption of International Financial Reporting Standards.

Per IFRS 1, an entity must apply the standard in its first IFRS financial statements and in each interim financial report it presents under IAS 34 for a part of the period covered by its first IFRS financial statements. For example, if 2006 is the first annual period for which IFRS financial statements are being prepared, the quarterly or semiannual statements for 2006, if presented, must also comply with IFRS.

IFRS 1 stipulates that in preparing an opening IFRS statement of financial position, the first-time adopter (an entity is referred to as a first-time adopter in the period in which it presents its first IFRS financial statements) is to use the same accounting policies as it has used throughout all periods presented in its first IFRS financial statements.

Furthermore, the standard requires that those accounting policies must comply with each IFRS effective at the “reporting date” for its first IFRS financial statements, except under certain defined circumstances wherein the entity claims targeted exemptions from retrospective application of IFRS, or is prohibited by IFRS from applying IFRS retrospectively.

In other words, a first-time adopter should consistently apply the same accounting policies throughout the periods presented in its first IFRS financial statements and these accounting policies should be based on “latest version of the IFRS” effective at the reporting date.

If a new IFRS has been issued on the reporting date, but application is not yet mandatory, although reporting entities have been encouraged to apply it before the effective date, the first-time adopter is permitted, but not required, to apply it as well.

In general, IFRS 1 requires an entity to comply with each IFRS effective at the end of its first IFRS reporting period. In particular, the IFRS requires an entity to do the following in the opening IFRS statement of financial position that it prepares as a starting point for its accounting under IFRSs :

a) Recognize all assets and liabilities whose recognition is required by IFRSs;

b) Not recognize items as assets or liabilities if IFRSs do not permit such recognition;

c) Reclassify items that it recognized under previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity under IFRSs; and

d) Apply IFRSs in measuring all recognized assets and liabilities.

An entity is required to apply the IFRS if its first IFRS financial statements are for a period beginning on or after 1 January 2004. Earlier application is encouraged (IN6 IFRS 1)

To be continued (this is the first part of two articles)

Changes in Accounting Policies, What to Disclose in the Financial Statements ?

Par. 28 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors states that when initial application of an IFRS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall dislose :

1. the title of the IFRS;
2. when applicable, that the change in accounting policy is made in accordance with its transitional provisions;
3. the nature of the change in accounting policy;
4. when applicable, a description of the transitional provisions;
5. when applicable, the transitional provisions that might have an effect on future periods;
6. for the current period and each prior period presented, to the extent practicable, the amount of the adjustment :
   • for each financial statement line item affected; and
   • if IAS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share;
7. the amount of the adjustment relating to periods before those presented, to the extent practicable; and
8. if retrospective application required by par. 19(a) or (b) is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

Further, par. 29 states that when a voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose :

1. the nature of the change in accounting policy;
2. the reasons why applying the new accounting policy provides reliable and more relevant information;
3. for the current period and each prior period presented, to the extent practicable, the amount of the adjustment :
   • for each financial statement line item affected; and
   • if IAS 33 applies to the entity, for basic and diluted earnings per share
4. the amount of the adjustment relating to periods before those presented, to the extent practicable; and
5. if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

When an entity has not applied a new IFRS that has been issued but is not yet effective, as stated in par. 30, the entity shall disclose :

1. this fact; and
2. known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the entity's financial statements in the period of initial application.

Latest, par. 31 states that in complying with par. 30, an entity considers disclosing :

1. the title of the new IFRS;
2. the nature of the impending change or changes in accounting policy;
3. the date by which application of the IFRS is required;
4. the date as at which it plans to apply the IFRS initially; and
5. either :
   • a discussion of the impact that initial application of the IFRS is expected to have on the entity's financial statements; or
   • if that impact is not known or reasonably estimable, a statement to that effect.

(Source : IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)

Applying Changes in Accounting Policies

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 14 states that :

An entity shall change an accounting policy only if the change :

1. is required by an IFRS; or
2. results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity's financial position, financial performance or cash flows.

Par. 19 stated that subject to paragraph 23 :

1. an entity shall account for a change in accounting policy resulting from the initial application of an IFRS in accordance with the specific transitional provisions, if any, in that IFRS; and
2. when an entity changes an accounting policy upon initial application of an IFRS that does not include specific transitional provisions applying to that change, or changes in accounting policy voluntarily, it shall apply the change retrospectively.

For the purpose of this Standard, early application of an IFRS is not a voluntary change in accounting policy (par. 20).

In the absence of an IFRS that specifically applies to a transaction, other event or condition, management may, in accordance with par. 12, apply an accounting policy from the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to develop accounting standards. If, following an amendment of such a pronouncement, the entity chooses to change an accounting policy, that change is accounted for and disclosed as a voluntary change in accounting policy (par. 21).

Retrospective Application

Subject to par. 23, when a change in accounting policy is applied retrospectively in accordance with par. 19(a) or (b), the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied (par. 22).

Limitations on Retrospective Application

When retrospective application is required by par. 19(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the change (par. 23).

When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period (par. 24).

When it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable (par. 25).

(Source : IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)