for Accounting Professionals

IFRS INTRODUCTION

www.accountingreform.ru
 IFRS Introduction

The copyright of the material contained in each workbook belongs to the

1 PREFACE European Union and according to their policy may be used free of charge for
These workbooks are an update of those originally written by the project any non-commercial purpose.
team of the European Union funded project Accounting Reform II, in the
Russian Federation. The project team would like to express thanks to those who have contributed
their time and thoughts to the content of the workbooks. In particular:
In 2006 and 2007, the workbooks were updated by the project team of the
European Union funded project, Implementation of Accounting Reform in the The European Union Delegation, Moscow
Russian Federation, in cooperation with the Ministry of Finance and the The Ministry of Finance and Ministry of Agriculture, Russian Federation
Ministry of Agriculture.

The workbooks cover various concepts of IFRS based accounting. They are
intended to be practical self-instruction aids that professional accountants
can use to upgrade their knowledge, understanding and skills.

Each workbook is a self-standing short course of study is designed for a

approximately of three hours of study.

The members of the project team were contributed by PwC Moscow and
FBK Moscow, ACCA London and Agriconsult Rome. Although the workbooks
are part of a series, each one is independent of the others.

A basic knowledge of accounting is assumed but if any additional knowledge

is required this is mentioned at the beginning of the section.

Each workbook is a combination of, Information, and Self Test Questions and
Answers.

Further Reading References and links to useful Web Sites are also included.
Contact
The IFRS series includes a workbook on transformation, covering the
production of IFRS financial statements from RAS based data.
e-mail web
victoria.Stepanova.ru.pwc.com www.accountingreform.ru
The volumes within each series are described in detail and available for
Tel. Fax.
download from the project web site.
+ 7 495 967 6047 + 7 495 967 6001

Moscow, Russia, April 2006

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IFRS Introduction

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 IFRS Introduction

CONTENTS
1 PREFACE...................................................................................................... 2
An Introduction to IFRS.........................................................................................2
1.1 Scope...................................................................................................... 2
2 Grouping of IFRS...........................................................................................2
2.1 Introductory Standards............................................................................2
2.2 Foundation Standards.............................................................................2
2.3 Property, Plant and Equipment Standards..............................................2
2.4 Special Case 1 Standards.......................................................................2
2.5 Remuneration Standards........................................................................2
2.6 Listed Company Standards.....................................................................2
2.7 Special Case 2 Standards.......................................................................2
2.8 Disclosure Standards..............................................................................2
2.9 Banking Standards..................................................................................2
2.10 Industry Specific Standards.................................................................2
2.11 Consolidation Standards.....................................................................2
2.12 Additional Publications from sources other than IASB.........................2
3 Overview of the Standards.............................................................................2
3.1 Introductory Group.................................................................................2
IFRS Framework for the Preparation and Presentation of Financial Statements 2
IAS 1: Presentation of Financial Statements..............................................2
IAS 7: Cash Flow Statements.....................................................................2
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors.2
3.2 Foundation Group...................................................................................2
IAS 18: Revenue........................................................................................ 2
IAS 2: Inventories.......................................................................................2
IAS 37: Provisions, Contingent Liabilities and Contingent Assets..............2
IAS 12: Income Taxes................................................................................2
3.3 Property, Plant and Equipment Group....................................................2
IAS 16: Property, Plant and Equipment......................................................2
IAS 36: Impairment of Assets.....................................................................2
IAS 40: Investment Property.......................................................................2
IAS 17: Leases...........................................................................................2
IAS 38: Intangible Assets............................................................................2
IAS 11: Construction Contracts..................................................................2
IAS 23: Borrowing Costs.............................................................................2
IAS 20: Accounting for Government Grants and Disclosure of Government Assistance 2
4 Special Case 1 Group....................................................................................2
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 IFRS Introduction

IAS 21: The Effects of Changes in Foreign Exchange Rates.....................2

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations...2
5 Remuneration Group......................................................................................2
IAS 19: Employee Benefits.........................................................................2
IAS 26: Accounting and Reporting by Retirement Benefit Plans................2
IFRS 2: Share-based Payment...................................................................2
6 Listed Company Group..................................................................................2
IAS 14: Segment Reporting........................................................................2
IAS 34: Interim Financial Reporting............................................................2
IAS 33: Earnings per Share........................................................................2
7 Special Case 2 Group....................................................................................2
IAS 29: Financial Reporting in Hyperinflationary Economies......................2
IFRS 1: First-time Adoption of International Financial Reporting Standards2
8 Disclosure Group........................................................................................... 2
IAS 24: Related Party Disclosure...............................................................2
IAS 10: Events after the Balance Sheet Date.............................................2
9 Banks Group.................................................................................................. 2
IFRS 7: Disclosure in the Financial Statements of Banks and Similar Financial Institutions 2
IAS 32: Financial Instruments: Disclosure and Presentation......................2
IAS 39: Financial Instruments: Recognition and Measurement..................2
10 Industry Specific Group..............................................................................2
IAS 41: Agriculture......................................................................................2
IFRS 4: Insurance Contracts......................................................................2
IFRS 6. Exploration for and evaluation of mineral resources......................2
11 Consolidation Standards.............................................................................2
IFRS 3: Business Combinations.................................................................2
12 Additional Publications................................................................................2
12.1 Illustrative............................................................................................2
Illustrative Corporate Financial Statements................................................2
IFRS Disclosure Checklist..........................................................................2
12.2 Transformation....................................................................................2
RAS to IFRS Transformation......................................................................2
12.3 Case Studies.......................................................................................2
IFRS Case Studies.....................................................................................2
Issues and Solutions for the Pharmaceutical Industry................................2

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 IFRS Introduction

AN INTRODUCTION TO IFRS 2 GROUPING OF IFRS

The standards are grouped into twelve themes as follows:
1.1 SCOPE
These notes are an unofficial guide to IFRS and complement the series, 2.1 INTRODUCTORY STANDARDS
IFRS Workbooks for Accounting Professionals. The main objective is to help IFRS Framework for the Preparation and Presentation of Financial
you navigate the IFRS standards by grouping them by theme. Statements

The secondary purpose is to highlight how our publications can assist in Main Financial Statements and Accounting Policies
learning IFRS. For each Standard there is a workbook, comprising text, IAS 1: Presentation of Financial Statements
examples, multiple-choice questions and answers. IAS 7: Cash Flow Statements
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
The architecture of IFRS must be taken as a whole. Financial statements
prepared under IFRS must use all of the applicable standards to be “IFRS
compliant”.
2.2 FOUNDATION STANDARDS
IFRS can be grouped by theme rather than date of publication as published IAS 18: Revenue
by IASB. IAS 2: Inventories
IAS 37: Provisions, Contingent Liabilities and Contingent Assets
The themes chosen recognise that some standards, such as ‘Impairment’ IAS 12: Income Taxes
interact with a range of other standards.

Our website www.accountingreform.ru contains workbooks and training 2.3 PROPERTY, PLANT AND EQUIPMENT STANDARDS
materials on each standard. In accordance with EU policy, they are free for
download and use for any non-commercial purpose. IAS 16: Property, Plant and Equipment
IAS 36: Impairment of Assets
IAS 40: Investment Property
IAS 17: Leases
IAS 38: Intangible Assets
IAS 11: Construction Contracts
IAS 23: Borrowing Costs
IAS 20: Accounting for Government Grants and Disclosure of Government
Assistance

2.4 SPECIAL CASE 1 STANDARDS

IAS 21: The Effects of Changes in Foreign Exchange Rates
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
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2.11 CONSOLIDATION STANDARDS

IFRS 3: Business Combinations
2.5 REMUNERATION STANDARDS IAS 27: Consolidated and Separate Financial Statements
IAS 19: Employee Benefits IAS 28: Investments in Associates
IAS 26: Accounting and Reporting by Retirement Benefit Plans IAS 31: Interests in Joint Ventures
IFRS 2: Share-based Payment

2.12 ADDITIONAL PUBLICATIONS FROM SOURCES OTHER

2.6 LISTED COMPANY STANDARDS THAN IASB
IAS 14: Segment Reporting Illustrative, Checklist
IAS 34: Interim Financial Reporting Illustrative Corporate Financial Statements 2004
IAS 33: Earnings per Share IFRS Disclosure Checklist 2004
Transformation
RAS to IFRS Transformation
2.7 SPECIAL CASE 2 STANDARDS Case Studies
IAS 29: Financial Reporting in Hyperinflationary Economies IFRS Case Studies
IFRS 1: First-time Adoption of International Financial Reporting Standards Issues and Solutions for the Pharmaceutical Industry

2.8 DISCLOSURE STANDARDS 3 OVERVIEW OF THE STANDARDS

IAS 24: Related Party Disclosure.
IAS 10: Events after the Balance Sheet Date 3.1 INTRODUCTORY GROUP

2.9 BANKING STANDARDS IFRS FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL
IFRS 7: Disclosure in the Financial Statements of Banks and Similar STATEMENTS
Financial Institutions
IAS 32: Financial Instruments: Disclosure and Presentation This framework document deals with:
IAS 39: Financial Instruments: Recognition and Measurement
(i) the objective of financial statements;
(ii) the qualitative characteristics that determine the usefulness of
information in financial statements;
2.10 INDUSTRY SPECIFIC STANDARDS (iii) the definition, recognition and measurement of the elements
IAS 41: Agriculture from which financial statements are constructed; and
IFRS 4: Insurance Contracts (iv) concepts of capital and capital maintenance.
IFRS 6. Exploration for and evaluation of mineral resourses

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 IFRS Introduction

It identifies that IFRS accounts are prepared using the accrual concept and IAS 7 requires the disclosure of information on changes in cash and cash
that financial statements are normally prepared on the assumption that an equivalents by means of a cash flow statement.
undertaking is a going concern, and will continue in operation for the
foreseeable future. This classifies cash flows into:
(i) operating,
The Framework document is a comprehensive overview of the foundations of (ii) investing and
IFRS, and is referred to by the IASB in its deliberations on new standards (iii) financing activities.
and amendments to existing standards.
Foreign currency cash flows are covered, as are Acquisitions and Disposals
Main Financial Statements and Accounting Policies of Subsidiaries and Other Business Units.

IAS 1: PRESENTATION OF FINANCIAL STATEMENTS

IAS 8: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND

IAS 7: CASH FLOW STATEMENTS ERRORS

As well as financial performance, financial statements also show the results An undertaking shall disclose in the summary of significant policies:
of management’s stewardship of resources and must provide information on:
(i) assets; (i) the measurement bases used in the financial statements; and
(ii) liabilities; (ii) the other policies used, that are relevant to an understanding of the
(iii) equity; financial statements.
(iv) income and expenses, including gains and losses;
(v) other changes in equity; and IAS 8 prescribes the criteria for selecting and changing accounting policies,
(vi) cash flows. and disclosing the effects of estimates and errors.

A complete set of financial statements comprises: Accounting policies are rules and practices applied in presenting financial
(i) a balance sheet; statements.
(ii) an income statement;
(iii) a statement of changes in equity showing either: A change in accounting estimate is an adjustment of the carrying amount of
(iv) all changes in equity, or an asset or a liability or the consumption of an asset.
(v) changes in equity (not normal buying and selling);
(vi) a cash flow statement; and Changes in estimates result from new information, or new developments are
(vii) notes, comprising a summary of significant accounting policies, not corrections of errors.
and other explanatory notes.
Prior-period errors are omissions or misstatements in the financial
IAS 1 AND IAS 7 cover the primary presentation issues of IFRS financial statements of prior-periods.
statements and specify the information that needs to be included in those Information that was available, and should have been taken into account, is
statements. classified as an error.

Errors include
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(i) calculation error; In the case of the provision of services, inventories include the cost of
(ii) incorrect application of accounting policies; unbilled services, (similar to work in progress).
(iii) oversights or misinterpretations;
(iv) fraud. Valuation of inventory at cost, fair value and net realisable value are all
discussed in the workbook.
Retrospective application, is applying a new policy as if that policy had
always been applied.
IAS 37: PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
Retrospective restatement is restating financial statements as if a prior-
period error had never occurred. IAS 37 sets out recognition criteria and measurement bases for provisions,
contingent liabilities and contingent assets and specify the information to be
Retrospective application and restatement may be new to some of our disclosed in the notes to the financial statements.
readers. Our workbook on IAS 8 provides guidance and examples.
Provisions are used to provide for future liabilities that are uncertain.

3.2 FOUNDATION GROUP Contingent assets are uncertain cash inflows that may be received.

Contingent liabilities (e.g. guarantees and warranties) do not appear on

balance sheets, but need to be noted in financial statements to enable users
IAS 18: REVENUE
to have a complete picture of the undertaking’s financial position.
Revenue is income that is derived from ordinary activities of the firm. (See
also IAS 12: INCOME TAXES
IAS 17, 28, 39 & 41 which complement IAS 18 in respect of revenue.)
Income comprises revenue and gains.
IAS 12 prescribes the accounting treatment for income taxes, and the tax
The timing of recognition of revenue is a key issue of the standard. consequences of:

Revenue will be recognised when it is probable that future economic benefits (i) Transactions of the current period;
will flow to the undertaking, and the benefits can be measured. (ii) The future liquidation of assets and liabilities.

If liquidation of those assets and liabilities will make future tax payments
larger or smaller, IAS 12 generally requires recording of a deferred tax
IAS 2: INVENTORIES
liability (or deferred tax asset).
Inventories are: IAS 12 also covers:
(i) Recognition of deferred tax assets arising from unused tax
(i) assets that are held for sale, or being prepared for sale, losses, or unused tax credits,
(ii) materials to be used in the production process or provision of (ii) Presentation of income taxes, and
services.
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(iii) Disclosure of information relating to income taxes. It does not include property:

(i) for use in the production, supply of goods, services,

3.3 PROPERTY, PLANT AND EQUIPMENT GROUP (ii) or for administrative purposes; or
(iii) for sale in the ordinary course of business.

IAS 16: PROPERTY, PLANT AND EQUIPMENT IAS 17: LEASES

The main issues in accounting for property, plant and equipment are: Leases involve the owner of an asset renting it to others for payment.
(i) the recognition of the assets; Short-term rental agreements are mostly accounted for as ‘operating leases’,
(ii) the determination of their carrying amounts; in the same way as rental payments are booked.
(iii) the depreciation charges; and
(iv) impairment losses to be recognised. Long-term rentals (‘finance leases’) have seen dramatic growth over the last
50 years.

IAS 36: IMPAIRMENT OF ASSETS IAS 17 addresses this issue by accounting for finance leases in a similar
manner to the purchase of an asset, matched by a loan for the same amount.
The objective of IAS 36 is to prescribe the procedures to ensure that assets The asset appears on the balance sheet, even though the lessee does not
are carried at no more than their recoverable amount and the disclosures own it.
that must be made.
Operating leases are treated as expense items in the income statement.
An asset is described as impaired when its carrying amount exceeds the
recoverable amount (amount to be recovered through use, or sale).
IAS 36 requires the recording of an impairment loss. IAS 38: INTANGIBLE ASSETS

IAS 38 requires an undertaking to record an intangible asset only if:

IAS 40: INVESTMENT PROPERTY
(i) future benefits of the asset will flow to the undertaking and
Investment property can be: (ii) the cost of the asset can be measured.

(i) land, or This requirement applies whether an intangible asset is acquired externally,
(i) a building, or or generated internally.
(ii) part of a building, or
(iii) both land and building. IAS 38 includes additional recognition criteria for internally-generated
intangible assets.
It is held by the owner (or by the lessee, under a finance lease) to earn rent,
or for capital appreciation, or both. After initial recognition, IAS 38 requires an intangible asset to be measured
at:

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IAS 20: ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF

(i) cost, less any accumulated amortisation and any accumulated GOVERNMENT ASSISTANCE
impairment losses or
(ii) revalued amount, less any accumulated amortisation, and any The standard covers accounting and disclosure of government grants and
accumulated impairment losses. similar assistance that transfers resources to qualifying firms. The firms
qualify by past, or future, compliance with the grant conditions.
Grants exclude assistance that cannot be reasonably valued, and
transactions with government which are in the normal course of trade.
IAS 11: CONSTRUCTION CONTRACTS Such incentives as free technical assistance, marketing advice and the
provision of guarantees may not be easy to value.
The start and finish of construction contracts often falls in to different
accounting periods.
Thus, the timing of recognition of contract revenue and contract costs are key
issues of the standard.
4 SPECIAL CASE 1 GROUP
An effective internal financial budgeting and reporting system, which is kept IAS 21: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
up-to-date at all times, is required to control construction contracts.
Transactions in foreign currencies, investments and liabilities in foreign
Regular reviews of costs and revisions of estimates are necessary currencies are covered, as are financial statements of foreign operations.
throughout the contract.
The standard sets out how to recognise and record income, expenditure,
Construction contracts include: assets and liabilities denominated in a foreign currency and how gains and
losses are recognised.
(i) services related to the construction, such as project managers
and architects;
(ii) contracts for demolition, or restoration, of assets and the IFRS 5: NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED
restoration of the environment. OPERATIONS

IFRS 5 sets out requirements for the classification, measurement and

IAS 23: BORROWING COSTS presentation of non-current assets ‘held for sale’.

Generally, borrowing costs are immediately expensed. IFRS 5 arises from the IASB’s consideration of the U.S. based FASB
Statement No. 144 and addresses two areas:
An alternate treatment is allowed: the capitalisation of borrowing costs that
are directly attributable to the acquisition, construction or production of a (i) the classification, measurement and presentation of assets ‘held
qualifying asset. for sale’;
(ii) the classification and presentation of discontinued operations.

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IFRS 2 covers settlements made in an entity’s own equity instruments or in

5 REMUNERATION GROUP cash, if the amount payable depends on the price of the entity’s shares (or
Providing guidance on remuneration, these standards are of specific interest other equity instruments, such as options).
to those involved in private pension schemes and the use of shares and
share options to pay staff and others. Estimates are required of the number of options, or other instruments,
expected to be exercised.

IAS 19: EMPLOYEE BENEFITS Such estimates are complex to calculate where performance criteria, such as
earnings targets, are involved. Specialist valuation skills are likely to be
IAS 19 identifies, and provides guidance on the accounting for, five required in order to determine the amounts to be reported in the financial
categories of staff benefits: statements.

(i) short-term staff benefits, such as salaries and social security

contributions, paid annual leave and paid sick leave, profit-
sharing and bonuses payable within twelve months and non-
6 LISTED COMPANY GROUP
cash benefits such as medical care, housing, cars and free or These three standards are compulsory only for companies listed on stock
subsidised goods or services for current staff. exchanges, or mandatory under national accounting regulations. For other
(ii) post-employment benefits such as pensions, other retirement companies these standards are recommended.
benefits, post-employment life insurance and post-employment
medical care. IAS 14: SEGMENT REPORTING
(iii) other long-term staff benefits, including long-service or
sabbatical leave, jubilee or other long-service benefits, long-term IAS 14 establishes principles for reporting financial information by segment.
disability benefits and, if they are payable twelve months or more Segments are the different types of products, services, geographical areas of
after the end of the period, profit-sharing, bonuses and deferred operation.
compensation.
(iv) termination benefits. Many undertakings provide groups of products, and services, or operate in
(v) equity compensation benefits. geographical areas that are subject to differing rates of profitability,
opportunities for growth, future prospects, and risks.

IAS 26: ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS Segment information is relevant to assessing the risks, and returns, of a
diversified, or multinational, undertaking that may not be determinable from
IAS 26 should be applied in the reports of private retirement benefit (pension) the aggregated data.
plans where such reports are prepared.
The principle of segment analysis e.g. by customer or customer industry is
applicable to all businesses.
IFRS 2: SHARE-BASED PAYMENT

IAS 34: INTERIM FINANCIAL REPORTING

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IAS 34:
(i) defines the minimum content of an interim financial report; and This straightforward requirement needs an understanding of complex
(ii) identifies the recognition and measurement principles that should economic concepts, a thorough knowledge of the enterprise’s financial and
be applied in an interim financial report. operating patterns and a detailed series of procedures to implement.

The notes to interim financial reports include primarily an explanation of the

events, and changes, that are significant to an understanding of the changes IFRS 1: FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING
in financial position, and performance, since the last annual reporting date. STANDARDS

Virtually none of the notes to the annual financial statements are repeated, or IFRS 1 sets out the requirements for first time adopters of IFRS. The
updated in the interim report. standard allows companies to avoid some of the need for reconstructing old
records, by providing exemptions from other standards.

IAS 33: EARNINGS PER SHARE 8 DISCLOSURE GROUP

The objective of IAS 33 is to prescribe principles for the calculation and
presentation of earnings per share. This is to improve comparisons between IAS 24: RELATED PARTY DISCLOSURE.
different undertakings in the same reporting period, and between different
reporting periods for the same undertaking. The standard will be applied in:
(i) Identifying related party relationships and transactions;
Earnings per share (earnings / number of shares) as a measure of (ii) Identifying outstanding balances between an undertaking and
performance has its limitations, as accounting policies for determining related parties;
‘earnings may differ. (iii) Identifying when the disclosures should be made; and
(iv) Determining what disclosures should be made.
The focus of IAS 33 is on determining the number of shares used in the EPS
calculation, which may not be immediately clear (e.g. where options exist). Related party relationships are a normal feature of business throughout the
world. The related party relationships can have an impact on the profit, or
loss, of an undertaking.
7 SPECIAL CASE 2 GROUP Transactions with related may be made on different terms or prices, than
would have been made with unrelated parties.

IAS 29: FINANCIAL REPORTING IN HYPERINFLATIONARY ECONOMIES

IAS 10: EVENTS AFTER THE BALANCE SHEET DATE
IAS 29 is based on current purchasing power principles and requires that
financial statements, prepared in the currency of a hyperinflationary IFRS 10 details the post-balance-sheet events, when they should be
economy, be stated in terms of the value of money at the reporting balance recognised and how they should be recorded and disclosed.
sheet date.

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 IFRS Introduction

Post-balance-sheet events happen in the period starting immediately after There are specified minimum disclosures on credit risk, liquidity risk and
the balance sheet date and ending at the date of approval of the financial market risk.
statements by the shareholders.

There are 4 main types of material post-balance-sheet event in this period: IAS 32: FINANCIAL INSTRUMENTS: DISCLOSURE AND PRESENTATION

(i) Dividends declared in the period should be noted, but not shown IAS 39: FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
as a liability, at the balance sheet date.
(ii) If the company can no longer be considered a going-concern These two standards are primarily used by financial institutions and specify
during this period, the financial statements should not be disclosure, presentation, recognition and measurement of financial
prepared on a going-concern basis. instruments.
(iii) Events that were unknown or unclear at the balance sheet date,
will cause the financial statements to be adjusted. Our approach to these 2 complex, comprehensive standards is to provide
(iv) Conditions that arose after the balance sheet date should not 4 detailed workbooks on different stages of accounting for financial
adjust the financial statements, but should be suitably noted. instruments:

Initial Recognition.
9 BANKS GROUP De-recognition.
Subsequent Recognition.
Hedge Accounting.
Whilst IFRS 7 relates only to Banks and similar financial institutions, IAS 32
and IAS 39 must be applied to financial instruments in any company
reporting under IFRS.
Financial instruments are used extensively in banking but only to a limited
extent in enterprises. 10 INDUSTRY SPECIFIC GROUP
IFRS 7: DISCLOSURE IN THE FINANCIAL STATEMENTS OF BANKS AND SIMILAR IAS 41: AGRICULTURE
FINANCIAL INSTITUTIONS
IAS 41 should be applied to the following agricultural activities:
IFRS 7 requires banks to provide disclosures in their financial statements
that enable users to evaluate: (i) biological assets;
(ii) agricultural produce at the point of harvest; and
(i) the significance of financial instruments for the bank’s financial (iii) certain government grants.
position and performance; and
(ii) the nature and extent of risks arising from financial instruments Agricultural activity includes:
to which the bank is exposed during the period and at the
reporting date, and (i) livestock,
(iii) how the entity manages those risks. (ii) forestry,
(iii) cropping,
(iv) cultivation,
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 IFRS Introduction

(v) aquaculture (including fish farming).

In each case, living animals and plants perform a biological transformation

that takes place in a managed environment. Management is the key issue
that differentiates agricultural activity from other activities such as sea fishing
11 CONSOLIDATION STANDARDS
or harvesting virgin forest neither of which are classified as agricultural
activities.
IFRS 3: BUSINESS COMBINATIONS
The extent of change in the biological asset can be measured in a wide
variety of ways, ripeness, dimensions, fat content etc. IFRS 3 is the latest standard relating to consolidated accounts.
It made a number of important changes to previous practice, outlined below,
Biological transformation results in: but must be read in conjunction with IAS 27, 28 and 31.

(i) Change in the asset through an increase or decrease in quantity, Accounting

or quality.
(ii) Additional assets may result from procreation or agricultural Business combinations within the scope of IFRS 3 are accounted for using
produce (cereals, legumes, beef, milk). the ‘purchase method’.

The acquirer records the acquiree’s identifiable assets, liabilities and

IFRS 4: INSURANCE CONTRACTS contingent liabilities at their fair values at the acquisition date and also
records goodwill, which is subsequently tested for impairment.
IFRS 4 specifies the financial reporting for insurance contracts for issuers of
such contracts. Assets acquired and assumed:

In particular, IFRS 4 requires: Recognition

(i) certain improvements to accounting, If there is an existing restructuring liability per IAS37, it is included in the
(ii) disclosure that identifies and explains the amounts in an goodwill calculation.
insurer’s financial statements, Particularly in relation to:
a. amounts arising from insurance contracts and timing; If fair values can be measured reliably, the acquirer must record separately
b. uncertainty of cash flows. the acquiree’s contingent liabilities, at the acquisition date, as part of
allocating the cost of a business combination.
If the contingent liabilities cannot be measured, they are not included in the
allocation of cost.
IFRS 6. EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES
Measurement
IFRS 6 is an interim solution, pending development of a comprehensive
solution to help companies deal with the IAS 16 and IAS 38 scope IFRS 3 requires the acquiree’s identifiable assets, liabilities and contingent
exclusions. liabilities to be measured initially at their fair values, at the acquisition date.

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 IFRS Introduction

Any minority interest in the acquiree is the minority’s proportion of the net fair IFRS DISCLOSURE CHECKLIST
values.
Structure of the publication:
Goodwill
Section A Disclosures for consideration by all entities
IFRS 3 requires goodwill to be measured after initial recognition at cost, less Section B Disclosures required by all entities but only in certain situations
any accumulated impairment losses. Section C Industry-specific disclosures
Goodwill is not amortised, but must be tested for impairment annually, or Section D Additional disclosures required by listed companies
more frequently. Section E Additional disclosures required by banks and similar financial
institutions
Negative goodwill Section F Additional disclosures required by entities that issue insurance
contracts
IFRS 3 requires that negative goodwill must be expensed by the acquirer Section G Additional disclosures required for retirement benefit plans
immediately. Section H Suggested disclosures for financial review outside the financial
statements
IAS 27: Consolidated and Separate Financial Statements Section I Disclosures for interim financial reports
IAS 28: Investments in Associates
IAS 31: Interests in Joint Ventures Format of Disclosure Checklist
The Disclosure Checklist is presented in a format designed to facilitate the
collection and review of disclosures for each component of the financial
statements.

All disclosures have been grouped by subject, where appropriate.

12 ADDITIONAL PUBLICATIONS
Additional notes and explanations in the checklist are shown in italics.

12.1 ILLUSTRATIVE 12.2 TRANSFORMATION

ILLUSTRATIVE CORPORATE FINANCIAL STATEMENTS RAS TO IFRS TRANSFORMATION

This publication provides an illustrative set of consolidated financial The purpose of this workbook is to examine the process and adjustments
statements, prepared in accordance with IFRS, for a fictional manufacturing, necessary to transform a trial balance based on Russian Accounting
wholesale and retail entity (Footsy & Co Group). It provides a full set of Standards (RAS) into a set of IFRS financial statements comprising Income
financial statements, including notes, and references. Statement and Balance Sheet.

The workbook has been designed around a series of the most common
adjustments covering the main aspects of transformation.
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 IFRS Introduction

These are presented in the form of 17 separate companies each of which (ii) Pilot Case Studies – These case studies simulate all or parts of
requires 2/5 adjustments. Each company uses the same opening, the implementation of IFRS. They assist in the real process of
unadjusted, RAS based trial balance which is then adjusted in accordance planning, timetabling and implementing itself, as well as
with the 2/5 entries required. identifying questions, problems and missing information.

Adjustments from all of the seventeen companies are brought together in a (iii) Cumulative Case Studies. - These studies combine information
summary that reflects all of the adjustment made in the individual companies. or issues from various enterprises and past studies to allow
general truths to be established.

(iv) Critical Incident Case Studies – These case studies examine

12.3 CASE STUDIES selected issues or procedures, which impact the implementation
of IFRS. They help to identify and find solution for issues, which
arise during the conversion or implementation process.

IFRS CASE STUDIES (v) Enterprise Specific Case Studies – These studies examine IFRS
issues in specific industries, for example mining or construction.
The 20 case studies have been designed to cover a wide range of
circumstances but at the same time recognise the conditions and problems (vi) Implementation of Change Case Studies – These case studies
specific to the type of industry and business. examine the management, of the implementation process.

They include examples of:

ISSUES AND SOLUTIONS FOR THE PHARMACEUTICAL INDUSTRY
(i) Re-categorisation the Russian chart of accounts into an IFRS
compatible format; This publication covers 35 IFRS issues met in the Pharmaceutical Industry,
(ii) Identifying and outlining the reclassification and adjustments plus issues of business combinations. The presentation of each issue is the
required to bring the Russian numbers into IFRS compatible background of the issue, relevant guidance and the solution.
values. This included the formalisation of detailed list of
differences and practical application issues.

Case 20 reviews some of the problem issues identified and makes

observations on the future direction of implementation of IFRS for Russian
Companies.

Various types of case study were created including:

(i) Illustrative or Descriptive Case Studies – The objective of these

case studies is to make the IFRS concept familiar to those who
not familiar with them, and to give the participants a common
language.
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