In the Absence of an IFRS, where to turn to ?

The IASB publishes its standards in a series of pronouncements called International Financial Reporting Standards (IFRSs). The term ‘International Financial Reporting Standards’ includes IFRSs, IASs and Interpretation developed by the IFRIC or its predecessor, the former SIC.

The Interpretation of IFRSs are prepared by the IFRIC to give authoritative guidance on issues that are likely to receive divergent or unacceptable treatment, in the absence of such guidance.

As stated in paragraph 9 of IAS 8, Accounting Policies, Changes in Accounting Estimates, and Errors that IFRS are accompanied by guidance to assist entities in applying their requirements. All such guidance states whether it is an integral part of IFRS. Guidance that is an integral part of the IFRSs is mandatory. Guidance that is not an integral part of the IFRSs does not contain requirements for financial statements.

Further, paragraph 10 states that in the absence of an IFRS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is :

(1)  relevant to the economic decision-making needs for users; and

(2)  reliable, in that the financial statements :

1. represent faithfully the financial position, financial performance and cash flows of the entity;
2. reflect the economic substance of transactions, other events and conditions, and not merely the legal form;
3. are neutral, ie. free from bias;
4. are prudent; and
5. are complete in all material respects

Following, paragraph 11 states that in making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order :

1. the requirements in IFRSs dealing with similar and related issues; and
2. the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.

Paragraph 12 states that in making the judgement described in paragraph 10, management may also consider the most recent pronouncements of other standard-setting bodies that use a similar concept framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11 (HRD).

A Guide through IFRS July 2010

The IFRS Foundation will shortly publish an updated version of "A Guide through IFRSs July 2010".

This 2010 edition is presented in two volume parts (Part A and B), sold together as a set. This new guide will include :

• All IFRSs and IASs as approved by the IASB at 1 July 2010
• The Complete and up-to-date consolidated text, with extensive cross-references and other annotations, of IFRSs, including IASs and IFRIC and SIC Interpretations.
• IASB-issued supporting documents, illustrative examples, implementation guidance.
• Bases for conclusions and dissenting opinions as approved at 1 July 2010.

This edition does not contain documents that are being replaced or superseded but remain applicable of the reporting entity chooses not to adopt the newer version early.

The main changes in this collection, since the 2009 edition, are the inclusion of :

• one new standard – IFRS 9
• one revised standard – IAS 24
• amendments to IFRSs that were issued as separate documents
• amendments to IFRSs issued in the third annual improvements project
• amendments to other IFRSs resulting from those revised or amended standards
• one new Interpretation – IFRIC 19

The arrangement of the contents in this edition differs from that in previous editions. In recognition of the growing size of the contents this edition of the Bound Volume is published in two parts. Part A presents the Framework and the unaccompanied IFRSs and their introductions and explanatory rubrics. Part B contains the accompanying documents, such as bases for conclusions, implementation guidance and illustrative examples. This partition therefore distinguishes the Framework and the requirements of IFRSs (in Part A) from the non-mandatory accompanying material (in Part B), and enables them to be read side by side.

How to purchase this publication ?

A Guide through IFRS July 2010 - (ISBN 978-1-907026-82-9 Set of two volume parts A & B), can be purchased for £90 each set (plus shipping). Discounts are available for bookshops/agents, multiple copies, students/academics and residents of middle and low income countries.
You can find further information about this publication and register your interest at the web shop.

IASB IFRS Update – 8 April 2010

The IASB has done a public meeting in London on 8 April 2010, discussed several issues of IFRS regulation on Annual Improvements, Derecognition, Fair Value Measurement and also an amendments to IAS 19 regarding Termination Benefits. Here is the summary of the meeting result :

This IASB Update is a staff summary of the tentative decisions reached by the Board at a public meeting. As a project progresses, the Board can, and sometimes does, modify its earlier tentative decisions. Tentative decisions do not change existing requirements until those decisions are incorporated in a new or amended standard.

The International Accounting Standards Board met in London on 8 April 2010 for an additional Board meeting. The US Financial Accounting Standards Board (FASB) participated via video conference. The boards discussed:

• Annual improvements
• Derecognition
• Fair value measurement
• Termination benefits - amendments to IAS 19

Annual improvements

The Board had previously tentatively decided to include in the Annual Improvements 2008-2010 cycle an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards regarding the use of a previous GAAP carrying amount as deemed cost for property, plant and equipment and intangible assets used in operations subject to rate regulation. At this meeting the Board considered and tentatively agreed to clarifications to this proposed amendment.

The Board formally assessed the improvements proposed for inclusion in the forthcoming Improvements to IFRS against the current published criteria for Annual Improvements and concluded that the criteria were met.

Next step

The staff will circulate shortly a ballot draft of Improvements to IFRSs for publication in April 2010.

Derecognition

The staff held an education session for the FASB on the IASB's proposed derecognition model. The boards will hold further discussions on the proposed derecognition model at the next joint board meeting.

Fair value measurement

Considerations for re-exposure

The Board discussed whether there is a need to re-expose a draft of an IFRS on fair value measurement.

The Board tentatively agreed to publish a limited scope exposure draft of the measurement uncertainty analysis disclosure, including the effect of correlation. The comment period of the exposure draft will coincide with the FASB's comment period for proposed amendments to Accounting Standards Codification Topic 820 (Fair Value Measurements and Disclosures).

The Board also tentatively agreed to publish on the IASB website a Request for Views to solicit feedback on the FASB's proposed amendments to Topic 820. The IASB and FASB will consider jointly the feedback received on the IASB's limited scope exposure draft, the IASB's Request for Views and the proposed amendments to Topic 820.

Termination benefits - amendments to IAS 19

The Board tentatively decided that there is no need to re-expose the forthcoming amendments to IAS 19 Employee Benefits, relating to termination benefits.

The Board expects to publish the final amendments in the second quarter of 2010.

IAS 37 - Liabilities project - Staff paper posted

Just got today April 08, 2010 an email from IFRS alert regarding IAS 37 – Liabilities project.

The IASB staff have prepared a staff paper discussing one aspect of the working draft IFRS to replace IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The paper explains how the recognition criteria would apply to liabilities arising from lawsuits. Its purpose is to help people understand the recognition criteria before they comment on the revised measurement proposals in the Exposure Draft Measurement of Liabilities in IAS 37.

Further information is available on the Liabilities page of the IASB website.

IASB issues a discussion paper of Extractive Activities

This is an email alerted from IASB IFRS alert on Tuesday, April 6, 2010 :

The IASB published today the results of an international research project on a possible future International Financial Reporting Standard (IFRS) for extractive activities in the form of a discussion paper - Extractive Activities. The discussion paper is open for comment until 30 July 2010.

More information:

• Read the press release
• Visit the project page. A Snapshot summary document will be available on the project page shortly.

Access the document online:

• To access the document visit the "Get involved / Comment on a proposal" section on www.iasb.org
• If you are an eIFRS/Comprehensive subscriber, you can also view the document in the 'Latest Additions' section of eIFRS (you will be required to provide your login details).

Printed copies of the document:

• Printed copies of the document can be purchased from the IASC Foundation's online shop for £12 each plus shipping. Discounts are available.
• Comprehensive subscribers will receive a print copy shortly.

IASC Foundation publishes proposed IFRS Taxonomy 2010

(19 February 2010) The International Accounting Standards Committee (IASC) Foundation today published for public comment an exposure draft of the International Financial Reporting Standards (IFRSs) Taxonomy 2010. The proposed taxonomy is consistent with IFRSs and the IFRS for Small and Medium-sized Entities (SMEs).

The proposed taxonomy contains significant architectural improvements when compared with the 2009 version; in particular the proposed architecture integrates IFRSs and the IFRS for SMEs into a single taxonomy. Other proposed improvements include an extended use of axes (dimensions) in the taxonomy, reconsideration of the IASC Foundation's approach for concept naming and of its principle of deleting redundant (deprecated) concepts.

The IFRS Taxonomy 2010 is a translation of IFRSs as issued at 1 Janaury 2010 into XBRL (eXtensible Business Reporting Language). XBRL is rapidly becoming the format of choice for the electronic filing of financial information - particularly within jurisdictions reporting under IFRSs - because it facilitates simpler and faster filing and comparison of IFRS financial data by companies, regulators, investors, analysts and other users of the IFRS Taxonomy.

Interested parties are invited to comment on the exposure draft of the IFRS Taxonomy 2010 and accompanying materials by 22 April 2010. The proposed taxonomy and related material can be accessed here. The final version is expected to be released at the end of April 2010.

Kind regards,
IASC Foundation XBRL Team
www.iasb.org/xbrl

2010 IFRSs Bound Volume

Below is the e-IFRS email alerted by IASB.org :

The IASCF is pleased to announce that the "2010 International Financial Reporting Standards (IFRSs)" Bound Volume will be published soon, in March 2010.

This edition includes 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 2010.

For convenience, this RED book edition is presented in two parts:

• Part A (the requirements) contains the latest version of International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), and IFRIC and SIC Interpretations.
• Part B contains the accompanying documents, such as illustrative examples, implementation guidance, bases for conclusions and dissenting opinions.

Copies are priced at £60 each, plus shipping. Discounts are available for:

• academics/students
• middle income and low income countries
• multiple orders.

The 2010 IFRSs Bound Volume (978-1-907026-60-7) (Product code 10201) is priced at £60 per copy, plus shipping. Further information can be found on our Webshop. Please register your interest in this product if you wish to be notified of its publication.

If you need any further information, please contact our customer services by email or telephone: +44 (0)20 7332 2730.

Kind regards,

IASC Foundation Publications Department
publications@iasb.org
www.iasb.org

Access to the whole content of IFRSs for free

The IASC Foundation provides access free of charge to the current year’s consolidated unaccompanied IFRSs in English as issued by the IASB and published in the Bound Volume (as of 1 January 2009).

Access to the accompanying documents, illustrative examples, implementation guidance, and bases for conclusions is available through subscription-based services or by purchasing print versions of IFRSs via our store.

All rights, including copyright, in the content of these web pages are owned or controlled by the IASC Foundation.

To access the unaccompanied IFRSs you need to be a registered user.  Registration is free and takes only a few minutes.  It allows you to access the unaccompanied IFRSs, the IFRS for SMEs, to register for email alerts, submit comment letters or register as an observer.

Here is the link to the source : http://www.iasb.org/IFRSs/IFRs.htm

IFRS for SMEs Training Material

The International Accounting Standards Committee Foundation (IASC Foundation) today published the first part of its comprehensive set of training materials for the IFRS for SMEs. The free-to-download training material forms part of a range of initiatives undertaken by the IASC Foundation and the International Accounting Standards Board (IASB) to support the widespread adoption of the IFRS for SMEs.

The IFRS for SMEs was published by the IASB in July 2009 following an extensive development programme, including widespread consultation with interested parties. The standard is designed for use by small and medium-sized entities (SMEs), which are estimated to constitute more than 95 per cent of all companies.

The training material is designed to assist companies and accounting practitioners in applying the standard. It will also assist educators in teaching how to apply the IFRS for SMEs. Once completed, the training material will comprise 35 separate modules—one for each section of the IFRS for SMEs. The first twelve modules are now available for download from the IASB website (http://www.iasb.org/IFRS+for+SMEs/Training+material.htm). The remaining modules will be published in the course of this year as they are completed. Each module guides the learner through the official text, develops the learner’s understanding of the requirements through the use of examples, and points out where significant judgements are required. It also includes questions designed to test the learner’s knowledge of the requirements as well as case studies to develop the learner’s ability to apply the IFRS for SMEs.

The training material is part of a range of measures taken by the IASC Foundation and the IASB to support and facilitate the implementation of the IFRS for SMEs around the world. In particular:

(a) The IASB developed implementation guidance to accompany the IFRS for SMEs, consisting of illustrative financial statements and a presentation and disclosure checklist.

(b) This year, in co operation with regional professional associations and the world’s development agencies, the IASC Foundation will begin a series of regional ‘train the trainers’ workshops. These workshops will focus on building capacity for the implementation of the IFRS for SMEs, particularly in developing and emerging economies. The first series of workshops, which has been organised jointly with the Confederation of Asian Pacific Accountants, will take place in India and Malaysia in January 2010. Further workshops are being planned jointly with regional professional associations in Africa, the Caribbean and elsewhere.

(c) The Trustees of the IASC Foundation will finalise, later this month, the terms of reference and operating procedures of the SME Implementation Group.

Source : www.iasb.org

2009 Russian translation of IFRS

I’ve just got an alerted email from IASB.org regarding on the publication of 2009 Russian translation of IFRS.

The IASC Foundation is pleased to announce the publication of the following:

2009 Russian translation of International Financial Reporting Standards

These Russian files correspond to the text used for the adoption of IFRSs into law, and do not include the accompanying material such as the Bases for Conclusions and Implementation Guidance.

Access the documents online

• The Russian translation can be accessed online via the "IFRS" section on www.iasb.org. You will need to be a registered user to access the translation - to register click here.
• eIFRS/Comprehensive subscribers can access the Russian translation in the secure eIFRS subscriber area after logging in with their username and password and then navigating to the Latest Additions section.

IASB and FASB reaffirm to improve IFRS and U.S.GAAP and to bring about their convergence

At their joint meeting last week, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) reaffirmed their commitment to improve International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (U.S. GAAP) and to bring about their convergence. The Boards also agreed to intensify their efforts to complete the major joint projects described in their 2006 Memorandum of Understanding (MoU), as updated in 2008.

Today, as a further affirmation of that commitment, the IASB and FASB issued a joint statement describing their plans and milestone targets for completing the major MoU projects in 2011. The statement, which is available by clicking here [PDF] also describes the values and principles underpinning the Boards’ collaboration and significant successes achieved thus far.

In affirming their commitment to developing a common set of high quality standards, the Boards took note of the support of the leaders of the Group of 20 nations, the Financial Crisis Advisory Group of the FASB and IASB, and the Monitoring Board of the International Accounting Standards Committee (IASC) Foundation for the joint convergence efforts underway.

Commenting on the update, Sir David Tweedie, chairman of the IASB, said:

The two boards are committed to improving financial reporting internationally by completing the convergence programme described in the Memorandum of Understanding. The statement published today describes a series of important and concrete steps that will help us to achieve our June 2011 targets.

Robert Herz, chairman of the FASB, said:

Our successful joint meeting with the IASB in late October demonstrated that improvements in financial reporting and convergence are very much on track. Our joint efforts have and will continue to produce significant benefits to investors and the economy at large. We will continue our dual objectives of working toward global convergence while addressing reporting issues of critical importance to U.S. investors and financial markets.

In the interest of timely and continued progress, the two Boards also committed to monthly joint meetings and to provide transparency and accountability by providing quarterly updates on their progress on convergence projects.

The IASB and the FASB will hold their next joint meeting via videoconference later this month.

The Trustees of the IASC Foundation and the Trustees of the FAF also issued a statement of support today available by clicking here [PDF].

Source : IASB.org

IASB Publishes IFRS for Small and Medium-sized Entities

On Thursday, 9 July 2009, IASB has published the IFRS for SMEs. Following is the Press Release which was posted from the IASB website :

The International Accounting Standards Board (IASB) issued today an International Financial Reporting Standard (IFRS) designed for use by small and medium-sized entities (SMEs), which are estimated to represent more than 95 per cent of all companies*. The standard is a result of a five-year development process with extensive consultation of SMEs worldwide.

The IFRS for SMEs is a self-contained standard of about 230 pages tailored for the needs and capabilities of smaller businesses. Many of the principles in full IFRSs for recognising and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced. To further reduce the reporting burden for SMEs revisions to the IFRS will be limited to once every three years.

Benefits

The IFRS for SMEs responds to strong international demand from both developed and emerging economies for a rigorous and common set of accounting standards for smaller and medium-sized businesses that is much simpler than full IFRSs. In particular, the IFRS for SMEs will:

(a) provide improved comparability for users of accounts

(b) enhance the overall confidence in the accounts of SMEs, and

(c) reduce the significant costs involved of maintaining standards on a national basis.

The IFRS for SMEs will also provide a platform for growing businesses that are preparing to enter public capital markets, where application of full IFRSs is required.

The IFRS for SMEs is separate from full IFRSs and is therefore available for any jurisdiction to adopt whether or not it has adopted the full IFRSs. It is also for each jurisdiction to determine which entities should use the standard. It is effective immediately on issue.

Rigorous development

In developing the IFRS for SMEs the IASB consulted extensively worldwide. A 40-member Working Group of SME experts advised the IASB on the structure and content of the IFRS at various stages in its development. The exposure draft of the IFRS, published in 2007, was translated into five languages to assist SMEs in responding to the proposals. More than 50 round-table meetings and seminars were held to receive direct feedback, and the draft IFRS was field-tested by over 100 small companies in 20 countries. As a result, further simplifications have been achieved in the final document.

Paul Pacter, Director of Standards for SMEs for the IASB, has agreed to lead a group to support international adoption of the standard. Further details of this group will be announced shortly.

Global education initiative

To support the implementation of the IFRS for SMEs the IASC Foundation is developing comprehensive training material. The Foundation is also working with international development agencies to provide instructors for regional workshops to ‘train the trainers’ in the use of the training material, particularly within developing and emerging economies. The training material will be published in a number of languages. The English language material will be downloadable free of charge from the IASB’s website in late 2009.

The complete IFRS for SMEs (together with the basis for conclusions, illustrative financial statements, and a presentation and disclosure checklist) can be downloaded free of charge from http://go.iasb.org/IFRSforSMEs from today.

Introducing the IFRS for SMEs, Sir David Tweedie, IASB Chairman, said:

The publication of IFRS for SMEs is a major breakthrough for companies throughout the world. For the first time, SMEs will have a common high quality and internationally respected set of accounting requirements. We believe the benefits will be felt in both developed and emerging economies.
I thank Paul Pacter for his tireless efforts in leading the project, as well as the hundreds of people and SMEs worldwide who have assisted in the development of the IFRS.

Commenting on the announcement, Paul Pacter, Director of Standards for SMEs, said:

The IFRS for SMEs will provide businesses with a passport to raise capital on a national or an international basis.

Journal of Accountancy on July 9, 2009 has commented the release of this IFRS for SMEs standard through its article titled “New Option for Private Companies in Streamlined IFRS.”

U.S. private companies have a new choice for accounting and financial reporting—a slimmed-down version of IFRS tailored more to their needs. IFRS for SMEs (small- and medium-size entities) is a simplification of full IFRS. The International Accounting Standards Board (IASB), which released the standard Thursday after five years of work on the project, defines SMEs as businesses that publish general-purpose financial statements for external users and do not have public accountability. Many U.S. private companies would fit that definition.

Read further in here >>. And another related article from CFO.com in here >>

Get Ready for IFRS

This article was quoted from the International Financial Reporting Standards (IFRS), an AICPA Backgrounder, released by AICPA through its IFRS resources Web site : www.IFRS.com

The growing acceptance of IFRS as a basis for U.S. financial reporting represents a fundamental change for the U.S. accounting profession. Today, approximately 113 countries require or allow the use of IFRS for the preparation of financial statements by publicly held companies. In the United States, the Securities and Exchange Commission (SEC) has been taking steps to set a date to allow U.S. public companies to use IFRS, and perhaps make its adoption mandatory. In fact, on November 14, 2008, the SEC released for public comment a proposed roadmap with a timeline and key milestones for adopting IFRS beginning in 2014.

The international standard-setting process began several decades ago as an effort by industrialized nations to create standards that could be used by developing and smaller nations unable to establish their own accounting standards. But as the business world became more global, regulators, investors, large companies and auditing firms began to realize the importance of having common standards in all areas of the financial reporting chain.

The globalization of business and finance has led more than 12,000 companies in more than 100 countries to adopt IFRS. In 2005, the European Union (EU) began requiring companies incorporated in its member states whose securities are listed on an EU-regulated stock exchange to prepare their consolidated financial statements in accordance with IFRS. Australia, New Zealand and Israel have essentially adopted IFRS as their national standards. Canada, which previously planned convergence with US. GAAP, now plans to require IFRS for publicly accountable entities in 2011. The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) plan convergence by 2011. On November 11, 2008, Mexico announced it would adopt IFRS for all listed entities starting in 2012.

In another part, AICPA reported that even great strides have been made by the FASB and the IASB to converge the content of IFRS and U.S. GAAP, yet several significant differences between the U.S. GAAP and IFRS still remain. For example :

1. IFRS does not permit LIFO as an inventory costing method
2. IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.
3. IFRS has a different probability threshold and measurement objective for contingencies.
4. IFRS does not permit curing debit covenant violations after year-end
5. IFRS guidance regarding revenue recognition is less extensive than U.S. GAAP and contains relatively little industry-specific instruction.

Further, it said that perhaps the greatest difference between IFRS and U.S. GAAP is that IFRS provides much less overall detail.

Go here >> to download the complete publication.

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.

Methods of INVENTORY COSTING Under IAS 2 re.Inventories

IAS 2 regarding Inventories states that inventories shall be measured at the lower of cost and net realizable value.

The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Then, how to assign the cost of inventories ?

Par. 23 to par. 27 of IAS 2 lines out the guidance of valuing the cost of inventories.

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs (par. 23).

The theoretical basis for valuing inventories and cost of goods sold requires assigning the production and/or acquisition costs to the specific goods to which they relate. For example, the cost of ending inventory for an entity it its first year, during which it produced ten items (e.g., exclusive single family homes), might be the actual production cost of the first, sixth, and eighth unit produced if those are the actual units still  on hand at the date of the statement of financial position. The costs of the other  homes would be included in that year's income statement (the presentation of comprehensive income in two statements) as cost of goods sold. This method of inventory valuation is usually referred to as specific identification.

Specific identification is generally not a practical technique, as the product will generally lose its separate identity as it passes through the production and sales process. Exceptions to this would generally be limited to those situations where there are small inventory quantities, typically having high unit value and a low turnover rate. Under IAS 2, specific identification must be employed to cost inventories that are not ordinarily interchangeable, and goods and services produced and segregated for specific projects. For inventories meeting either of these criteria, the specific identification method is mandatory and alternative methods cannot be used.

The cost of inventories, other than those dealt with in par. 23, shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified (par. 25).

The FIFO formula assumes that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the entity (par. 27).

The FIFO method of inventory valuation assumes that the first goods purchased will be the first goods to be used or sold, regardless of the actual physical flow. This method is thought to parallel most closely the physical flow of the units for most industries having moderate to rapid turnover of goods. The strength of this cost flow assumption lies in the inventory amount reported in the statement of financial position. Because the earliest goods purchased are the first ones removed from the inventory account, the remaining balance is composed of items acquired closer to period end, at more recent costs. This yields results similar to those obtained under current cost accounting in the statement of financial position, and helps in achieving the goal of reporting assets at amounts approximating current values.

The other acceptable method of inventory valuation under revised IAS 2 involves averaging and is commonly referred to as the weighted-average cost method. The cost of goods available for sale (beginning inventory and net purchases) is divided by the units available for sale to obtain a weighted-average unit cost. Ending inventory and cost of goods sold are then priced at this average cost.

The Standard (IAS 2) does not permit the use of the last-in, first-out (LIFO) formula to measure the cost of inventories (par. IN13).

The IASB, as part of its Improvements Project, determined that the goals of achieving convergence among accounting standards and of promoting uniformity across entities reporting under IFRS would be served by eliminating the formerly "allowed alternative" of costing inventories by means of the last-in, first-out (LIFO) method. This has left the first-in, first-out (FIFO) and the weighted-average methods as the only two acceptable costing techniques under IFRS.

(Sources : Wiley IFRS 2008 : Interpretation and Application of International Financial Reporting Standards - Barry J. Epstein, Eva K. Jermakowicz and IAS 2 Inventories)

How to record the changes in accounting estimates ?

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors par. 32 - 40 rules the treatment of changes in accounting estimates.

As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required of : (a) bad debts, (b) inventory obsolescence, (c) the fair value of financial assets or financial liabilities, (d) the useful lives of, or expected pattern of consumption of the future economic benefits embodied in, depreciable assets, and (e) warranty obligations.

The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.

An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error (par. 34).

A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate (par. 35).

Par. 36 of IAS 8 stated that the effect of a change in an accounting estimate, other than a change to which par. 37 applies, shall be recognized prospectively by including it in profit or loss in :

1. the period of the change, if the change affects that period only; or
2. the period of change and future periods, if the change affects both.

To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognized by adjusting the carrying amount of the related asset, liability or equity item in the period of change (par. 37).

Further, par. 38 stated that prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions from the date of the change in estimate. A change in an accounting estimate may effect only the current period's profit or loss, or the profit or loss of both the current period and future periods.

For example, a change in the estimate of the amount of bad debts affects only the current period's profit or loss and therefore is recognized in the current period. However, a change in the estimated useful life of, or the expected pattern of consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the current period and for each future period during the asset's remaining useful life.

In both cases, the effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.

Disclosure

An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect (par. 39).

If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact (par. 40).

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

Identifying A Business Combination

IFRS 3 defined a business combination as 'the bringing together of separate entities or businesses into one reporting entity.'

In developing IFRS 3, the IASB considered adopting the definition of a business combination in SFAS 141. It did not do so because that definition excluded some forms of combinations encompassed in IAS 22 Business Combinations (which IFRS 3 replaced), such as those described in par. BC5 in which none of the former shareholder groups of the combining entities obtained control over the combined entity. Accordingly, IFRS 3 essentially retained the definition of a business combination from IAS 22.

An entity shall determine whether a transaction or other event is a business combination by applying the definition in this IFRS, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. Paragraphs B5-B12 provide guidance on identifying a business combination and the definition of a business (IFRS 3 Business Combinations par. 3).

Identifying a business combination (application of paragraph 3)

This IFRS defines a business combination as a transaction or other event in which an acquirer obtains control of one or more businesses.

An acquirer might obtain control of an acquiree in a variety of ways, for example :

1. by transferring cash, cash equivalents or other assets (including net assets that constitute a business);
2. by incurring liabilities;
3. by issuing equity interests;
4. by providing more than one type of consideration; or
5. without transferring consideration, including by contract alone (see paragraph 43).

A business combination may be structured in a variety of ways for legal, taxation or other reasons, which include but are not limited to :

1. one or more business become subsidiaries of an acquirer or the net assets of one or more businesses are legally merged into the acquirer;
2. one combining entity transfer its net assets, or its owners transfer their equity interests, to another combining entity or its owners;
3. all of the combining entities transfer their net assets, or the owners of those entities transfer their equity interests, to a newly formed entity (sometimes referred to as a roll-up or put-together transaction); or
4. a group of former owners of one of the combining entities obtains control of the combined entity.

(IFRS 3 Business Combinations par. B5 and B6).

Corrections of IFRS 2008

Today, through email service subscription sent by the Publications Department of International Accounting Standards Committee Foundation (publication@iasb.org) regarding on Editorial Corrections of International Financial Reporting Standards 2008, I was alerted that the IASB on November 4, 2008 has issued a list of editorial corrections to the text of the Guide through International Financial Reporting Standards 2008, the 2008 IFRSs Bound Volume, Reclassification of Financial Assets (Amendments to IAS 39 and IFRS 7) October 2008, and Eligible Hedged Items (Amendment to IAS 39 Financial Instruments : Recognition and Measurement) July 2008.

Such editorial corrections available in here : IASB Editorial Corrections.

IASB published the ED of IFRS 1 and IFRS 5

The International Accounting Standards Board (IASB) today, 25 September 2008 published for public comment an exposure draft (ED) of proposed amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards.

The exposure draft propose : (1) to exempt companies from retrospective application of IFRSs for oil and gas assets using the full cost method and for operations subject to rate regulation, (2) to exempt companies with existing leasing contracts accounted for in accordance with IFRIC 4 Determining whether an Arrangement contains a Lease from reassessing the classification of those contracts according to IFRSs when the same classification has previously been made in accordance with national GAAP.

In addition, at the same date, IASB also published for public comment an ED of proposed amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

The proposals are to revise the definition of discontinued operations and require additional disclosure about component of an entity that have been disposed of or are classified as held for sale.

The proposals are the result of a joint project by the IASB and the US FASB to develop a common definition of discontinued operations and require common disclosures about them.

The deadline for public comment for these ED is 23 January 2009.

Here is the link to the above IASB Press Release : IASB proposes amendments to the retrospective application (IFRS 1) and IASB proposes revised definition of discontinued operations (IFRS 5)

Fair Presentation and Compliance with IFRS, how IAS 1 rules it ?

IAS 1 Presentation of Financial Statements paragraphs 15-24 rules the fair presentation and compliance with IFRS of financial statement presentation.

Par. 15 stated that financial statements shall present fairly the financial position, financial performance and cash flows of an entity. Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework.

The application of IFRSs, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation.

Par. 16 expressed that an entity whose financial statements comply with IFRSs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with IFRSs unless they comply with all the requirements of IFRSs.

In virtually all circumstances, an entity achieves a fair presentation by compliance with applicable IFRSs.

A fair presentation also requires an entity:

(a) To select and apply accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. IAS 8 sets out a hierarchy of authoritative guidance that management considers in the absence of an IFRS that specifically applies to an item.

(b) To present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information.

(c) To provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.

Par. 18 rules that an entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.

While in par. 19, it stated that in the extremely rare circumstances in which management concludes that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in paragraph 20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.

Par. 20 said that when an entity departs from a requirement of an IFRS in accordance with par. 19, it shall disclose :

(a) That management has concluded that the financial statements present fairly the entity’s financial position, financial performance and cash flows;

(b) That is has complied with applicable IFRSs, except that it has departed from a particular requirement to achieve a fair presentation;

(c) The title of the IFRS from which the entity has departed, the nature of the departure, including the treatment that the IFRS would require, the reason why that treatment would be so misleading in the circumstances that it would conflict with the objective of financial statements set out in the Framework, and the treatment adopted; and

(d) For each period presented, the financial effect of the departure on each item in the financial statements that would have been reported in complying with the requirement.

Further, par. 21 of IAS 1 stated that when an entity has departed from a requirement of an IFRS in a prior period, and that departure affects the amounts recognized in the financial statements for the current period, it shall make the disclosures set out in paragraph 20(c) and (d).

Par. 21 applies, for example, when an entity departed in a prior period from a requirement in an IFRS for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognized in the current period’s financial statements.

Par. 23 stated that in the extremely rare circumstances in which management concluded that compliance with a requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but 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:

(a) The title of the IFRS in question, the nature of the requirement, and the reason why management has concluded that complying with that requirement is so misleading in the circumstances that it conflicts with the objective of financial statements set out in the Framework; and

(b) For each period presented, the adjustments to each item in the financial statements that management has concluded would be necessary to achieve a fair presentation.

Latest, par. 24 stated that for the purpose of par. 19-23, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements.

When assessing whether complying with a specific requirement in an IFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, management considers :

(a) Why the objective of financial statements is not achieved in the particular circumstances; and

(b) How the entity’s circumstances differ from those of other entities that comply with the requirement. If other entities in similar circumstances comply with the requirement, there is a rebuttable presumption that the entity’s compliance with the requirement would not be so misleading that it would conflict with the objective of financial statements set out in the Framework.