IFRS Fundamentals_Part-1_by Md.Monowar Hossain FCA,CPA,FCMA,FCS,CPFA

Financial Management eLearning
[By Md. Monowar Hossain FCA, CPA,
FCMA, FCS, CIFRS, CIPFA(UK), FIFC, CGA]
June 27, 2020
IAS / IFRS Basic understanding
Md.Monowar Hossain FCA,CPA
eMail: md.monowar.hossain@gmail.com
Page # 1
Learning outcomes
(1) What is IAS?
(2) What are International Financial Reporting Standards (IFRS)?
(3) Understanding International Financial Reporting Standards (IFRS)
(4) From IAS to IFRS
(5) GAAP vs IFRS vs IAS
(6) Standard IFRS Requirements
(7) IFRS vs. American Standards
(8) Composition of IFRS
(9) History of IFRS
(10) Combination of Accounting Standards
(11) List of International Financial Reporting Standards (IFRS)
(12) List of International Accounting Standards (IAS)
(13) List of IFRIC Interpretations
(14) List of SIC Interpretations
(15) List of Other pronouncements
(16) Adaption of IAS/IFRS in Bangladesh
(17) Adaption of IAS/IFRS in Bangladesh in Future -FRC
(18) Overview of IAS-1: Presentation of Financial Statements
(19) Overview of IAS-2: Inventories
(20) Overview of IAS-7: Statement of Cashflow
(21) Overview of IAS-8: Accounting Policies, Changes in Accounting Estimates and Errors
(22) Overview of IAS-10: Events After the Reporting Period
(23) Overview of IAS-12: Income Taxes
(24) Overview of IAS-16: Property, Plant and Equipment
What is IAS?
International Accounting Standards
(IAS) are older accounting standards
issued by the International
Accounting Standards Board (IASB),
an independent international
standard-setting body based in
London. The IAS were replaced in
2001 by International Financial
Reporting Standards (IFRS)

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1
International Financial Reporting Standards (IFRS)
What are International Financial Reporting Standards (IFRS)?
International Financial Reporting
Standards (IFRS) set common rules so
that financial statements can be
consistent, transparent and
comparable around the world. IFRS are
issued by the International Accounting
Standards Board (IASB).
They specify how companies must maintain and report their accounts, defining types of
transactions and other events with financial impact. IFRS were established to create a
common accounting language, so that businesses and their financial statements can be
consistent and reliable from company to company and country to country.
Understanding International Financial Reporting Standards (IFRS)
IFRS are designed to bring consistency to accounting language, practices and
statements, and to help businesses and investors make educated financial analyses
and decisions.
The IFRS Foundation sets the standards to
“bring transparency, accountability and
efficiency to financial markets around the
world… fostering trust, growth and long-term
financial stability in the global economy.”
Companies benefit from the IFRS because
investors are more likely to put money into a
company if the company's business practices
are transparent.
IFRS are used in at least 120 countries, including those in the European Union (EU) and many
in Asia and South America, but the U.S. uses Generally Accepted Accounting Principles
(GAAP).
IFRS are sometimes confused
with International Accounting
Standards (IAS), which are the
older standards that IFRS
replaced. IAS was issued
from 1973 to 2000, and the
International Accounting
Standards Board (IASB)
replaced the International
Accounting Standards
Committee (IASC) in 2001.

1 https://www.investopedia.com/terms/i/ifrs.asp

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Standard IFRS Requirements
IFRS covers a wide range of accounting activities. There are certain aspects of business
practice for which IFRS set mandatory rules.
Statement of Financial
Position: This is also known
as a balance sheet. IFRS
influences the ways in which
the components of a balance
sheet are reported.
Statement of
Comprehensive Income:
This can take the form of
one statement, or it can be
separated into a profit and
loss statement and a
statement of other income,
including property and
equipment.
Statement of Changes in Equity: Also known as a statement of retained earnings, this
documents the company's change in earnings or profit for the given financial period.
Statement of Cash Flow: This report summarizes the company's financial transactions in
the given period, separating cash flow into Operations, Investing, and Financing.
In addition to these basic reports, a company must also give a summary of its accounting
policies. The full report is often seen side by side with the previous report, to show the changes
in profit and loss. A parent company must create separate account reports for each of its
subsidiary companies.

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IFRS vs. American Standards
Differences exist
between IFRS and other
countries' Generally
Accepted Accounting
Principles (GAAP) that
affect the way a financial
ratio is calculated. For
example, IFRS is not as
strict on defining
revenue and allow
companies to report
revenue sooner, so
consequently, a balance
sheet under this system
might show a higher
stream of revenue than
GAAP's.
IFRS also has different requirements for expenses; for example, if a company is spending
money on development or an investment for the future, it doesn't necessarily have to be
reported as an expense (it can be capitalized).
Another difference between IFRS and GAAP is the specification of the way inventory is
accounted for. There are two ways to keep track of this, first in first out (FIFO) and last in
first out (LIFO). FIFO means that the most recent inventory is left unsold until older inventory
is sold; LIFO means that the most recent inventory is the first to be sold. IFRS prohibits LIFO,
while American standards and others allow participants to freely use either.
KEY TAKEAWAYS
 IFRS were established to create
a common accounting language,
so business and accounts can be
understood from company to
company and country to country.
 Both companies and investors
benefit from IFRS because
people are more confident
investing in a company if its
business practices are
transparent and reliable.
 The IFRS are set by the
Standards Board, an
independent body of the IFRS
Foundation, which provide

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updates, insights and guidance
on the standards.
History of IFRS
IFRS originated
in the European
Union, with the
intention of
making business
affairs and
accounts
accessible
across the
continent. The
idea quickly
spread globally,
as a common
language
allowed greater
communication
worldwide.
Although the U.S. and some other countries don't use IFRS, most do, and they are spread
all over the world, making IFRS the most common global set of standards.
The IFRS website has more information on the rules and history of the IFRS.
2
Standards
Accounting Standards are the
combination of:
International Financial
Reporting Standards (IFRS)
Standards (IAS)
IFRIC Interpretations
SIC-Interpretations
Other pronouncements

2
https://www.iasplus.com/en/standards

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International Financial Reporting Standards (IFRS)
# Name Issued
IFRS 1 First-time Adoption of International Financial Reporting Standards 2008*
IFRS 2 Share-based Payment 2004
IFRS 3 Business Combinations 2008*
IFRS 4
Insurance Contracts
Will be superseded by IFRS 17 as of 1 January 2023 2004
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 2004
IFRS 6 Exploration for and Evaluation of Mineral Resources 2004
IFRS 7 Financial Instruments: Disclosures 2005
IFRS 8 Operating Segments 2006
IFRS 9 Financial Instruments 2014*
IFRS 10 Consolidated Financial Statements 2011
IFRS 11 Joint Arrangements 2011
IFRS 12 Disclosure of Interests in Other Entities 2011
IFRS 13 Fair Value Measurement 2011
IFRS 14 Regulatory Deferral Accounts 2014
IFRS 15 Revenue from Contracts with Customers 2014
IFRS 16 Leases 2016
IFRS 17 Insurance Contracts 2017

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International Accounting Standards
# Name Issued
IAS 1 Presentation of Financial Statements 2007*
IAS 2 Inventories 2005*
IAS 3
Consolidated Financial Statements
Superseded in 1989 by IAS 27 and IAS 28 1976
IAS 4
Depreciation Accounting
Withdrawn in 1999
IAS 5
Information to Be Disclosed in Financial Statements
Superseded by IAS 1 effective 1 July 1998 1976
IAS 6
Accounting Responses to Changing Prices
Superseded by IAS 15, which was withdrawn December 2003
IAS 7 Statement of Cash Flows 1992
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 2003
IAS 9
Accounting for Research and Development Activities
Superseded by IAS 38 effective 1 July 1999
IAS 10 Events After the Reporting Period 2003
IAS 11
Construction Contracts
IAS 12 Income Taxes 1996*
IAS 13
Presentation of Current Assets and Current Liabilities
Superseded by IAS 1 effective 1 July 1998
IAS 14
Segment Reporting
Superseded by IFRS 8 effective 1 January 2009 1997
IAS 15
Information Reflecting the Effects of Changing Prices
Withdrawn December 2003 2003
IAS 16 Property, Plant and Equipment 2003*
IAS 17
Leases
Will be superseded by IFRS 16 as of 1 January 2019 2003*

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# Name Issued
IAS 18
Revenue
Will be superseded by IFRS 15 as of 1 January 2018 1993*
IAS 19
Employee Benefits (1998)
Superseded by IAS 19 (2011) effective 1 January 2013 1998
IAS 19 Employee Benefits (2011) 2011*
IAS 20
Accounting for Government Grants and Disclosure of Government
Assistance 1983
IAS 21 The Effects of Changes in Foreign Exchange Rates 2003*
IAS 22
Business Combinations
Superseded by IFRS 3 effective 31 March 2004 1998*
IAS 23 Borrowing Costs 2007*
IAS 24 Related Party Disclosures 2009*
IAS 25
Accounting for Investments
Superseded by IAS 39 and IAS 40 effective 2001
IAS 26 Accounting and Reporting by Retirement Benefit Plans 1987
IAS 27 Separate Financial Statements (2011) 2011
IAS 27
Consolidated and Separate Financial Statements
Superseded by IFRS 10, IFRS 12 and IAS 27 (2011) effective 1
January 2013 2003
IAS 28 Investments in Associates and Joint Ventures (2011) 2011
IAS 28
Investments in Associates
Superseded by IAS 28 (2011) and IFRS 12 effective 1 January 2013 2003
IAS 29 Financial Reporting in Hyperinflationary Economies 1989
IAS 30
Disclosures in the Financial Statements of Banks and Similar
Financial Institutions
IAS 31
Interests In Joint Ventures
Superseded by IFRS 11 and IFRS 12 effective 1 January 2013 2003*
IAS 32 Financial Instruments: Presentation 2003*

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# Name Issued
IAS 33 Earnings Per Share 2003*
IAS 34 Interim Financial Reporting 1998
IAS 35
Discontinuing Operations
IAS 36 Impairment of Assets 2004*
IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1998
IAS 38 Intangible Assets 2004*
IAS 39
Financial Instruments: Recognition and Measurement
Superseded by IFRS 9 effective 1 January 2018 where IFRS 9 is
applied 2003*
IAS 40 Investment Property 2003*
IAS 41 Agriculture 2001
IFRIC Interpretations
# Name Issued
IFRIC 1
Changes in Existing Decommissioning, Restoration and
Similar Liabilities 2004
IFRIC 2
Members' Shares in Co-operative Entities and Similar
Instruments 2004
IFRIC 3
Emission Rights
Withdrawn June 2005 2004
IFRIC 4
Determining Whether an Arrangement Contains a Lease
IFRIC 5
Rights to Interests arising from Decommissioning,
Restoration and Environmental Rehabilitation Funds 2004
IFRIC 6
Liabilities Arising from Participating in a Specific Market -
Waste Electrical and Electronic Equipment 2005
IFRIC 7
Applying the Restatement Approach under IAS 29
Financial Reporting in Hyperinflationary Economies 2005

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# Name Issued
IFRIC 8
Scope of IFRS 2
Withdrawn effective 1 January 2010 2006
IFRIC 9 Reassessment of Embedded Derivatives 2006
IFRIC 10 Interim Financial Reporting and Impairment 2006
IFRIC 11
IFRS 2: Group and Treasury Share Transactions
Withdrawn effective 1 January 2010 2006
IFRIC 12 Service Concession Arrangements 2006
IFRIC 13
Customer Loyalty Programmes
IFRIC 14
IAS 19 – The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction 2007
IFRIC 15
Agreements for the Construction of Real Estate
IFRIC 16 Hedges of a Net Investment in a Foreign Operation 2008
IFRIC 17 Distributions of Non-cash Assets to Owners 2008
IFRIC 18
Transfers of Assets from Customers
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 2009
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 2011
IFRIC 21 Levies 2013
IFRIC 22
Foreign Currency Transactions and Advance
Consideration 2016
IFRIC 23 Uncertainty over Income Tax Treatments 2017

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SIC Interpretations
# Name Issued
SIC-1
Consistency – Different Cost Formulas for Inventories
Superseded 1997
SIC-2
Consistency – Capitalisation of Borrowing Costs
Superseded 1997
SIC-3
Elimination of Unrealised Profits and Losses on Transactions with
Associates
Superseded 1997
SIC-5
Classification of Financial Instruments - Contingent Settlement
Provisions
Superseded 1998
SIC-6
Costs of Modifying Existing Software
Superseded 1998
SIC-7 Introduction of the Euro 1998
SIC-8
First-Time Application of IASs as the Primary Basis of Accounting
Superseded 1998
SIC-9
Business Combinations – Classification either as Acquisitions or
Unitings of Interests
Superseded 1998
SIC-10 Government Assistance – No Specific Relation to Operating Activities 1998
SIC-11
Foreign Exchange – Capitalisation of Losses Resulting from Severe
Currency Devaluations
Superseded 1998
SIC-12
Consolidation – Special Purpose Entities
Superseded by IFRS 10 and IFRS 12 effective 1 January 2013 1998
SIC-13
Jointly Controlled Entities – Non-Monetary Contributions by
Venturers
Superseded by IFRS 11 and IFRS 12, effective for annual periods
beginning on or after 1 January 2013 1998
SIC-14
Property, Plant and Equipment – Compensation for the Impairment
or Loss of Items
Superseded 1998
SIC-15
Operating Leases – Incentives

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# Name Issued
SIC-16
Share Capital – Reacquired Own Equity Instruments (Treasury
Shares)
Superseded 1999
SIC-17
Equity – Costs of an Equity Transaction
Superseded 2000
SIC-18
Consistency – Alternative Methods
Superseded 2000
SIC-19
Reporting Currency – Measurement and Presentation of Financial
Statements under IAS 21 and IAS 29
Superseded 2000
SIC-20
Equity Accounting Method – Recognition of Losses
Superseded 2000
SIC-21
Income Taxes – Recovery of Revalued Non-Depreciable Assets
Superseded by, and incorporated into, IAS 12 by amendments made
by Deferred Tax: Recovery of Underlying Assets, effective for annual
periods beginning on or after 1 January 2012 2000
SIC-22
Business Combinations – Subsequent Adjustment of Fair Values and
Goodwill Initially Reported
Superseded 2000
SIC-23
Property, Plant and Equipment – Major Inspection or Overhaul Costs
Superseded 2000
SIC-24
Earnings Per Share – Financial Instruments and Other Contracts that
May Be Settled in Shares
Superseded 2000
SIC-25
Income Taxes – Changes in the Tax Status of an Enterprise or its
Shareholders 2000
SIC-27
Evaluating the Substance of Transactions in the Legal Form of a
Lease
SIC-28
Business Combinations – 'Date of Exchange' and Fair Value of Equity
Instruments
Superseded 2001
SIC-29 Disclosure – Service Concession Arrangements 2001

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# Name Issued
SIC-30
Reporting Currency – Translation from Measurement Currency to
Presentation Currency
Superseded 2001
SIC-31
Revenue – Barter Transactions Involving Advertising Services
SIC-32 Intangible Assets – Web Site Costs 2001
SIC-33
Consolidation and Equity Method – Potential Voting Rights and
Allocation of Ownership Interests
Superseded 2001
Other pronouncements
Name Issued
Conceptual Framework for Financial Reporting 2018 2018*
Preface to International Financial Reporting Standards 2002*
IFRS for Small and Medium Sized Entities 2009
IFRS Practice Statement Management Commentary 2010
IFRS Practice Statement Making Materiality Judgements 2017
Adaption of IAS/IFRS in Bangladesh
3
IFRS are considered a principles-based set of standards in that they set up broad rules with
greater importance on interpretation and the use of judgment, rather than reliance on specific
bright-lines.
Due to growing international business among countries, there is strong support in favor of
IFRS. IFRS is a well-structured set of accounting standards which will increase transparency,
understandability and promote global acceptance on financial reporting (Edwards, 2009).2
There is a well-built and growing demand around the world for global, high-quality accounting
standards that deal clearness and comparability. This demand has been strengthened in
recent years by massive increases in cross-border trade and investment. Improved impetus
has come from the need for reliable financial information in developing and transitional
countries. Application of International Standards are also mandated / desired by the World
Bank (WB), Asian Development Bank (ADB), European Union (EU), United Nation (UN),

3
Research Journal of Finance and Accounting

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agencies and other development associates on borrowers and recipients of foreign aid and
technical support.
Moreover, there are irresistible global pressures, affecting the Bangladesh economy, which
warrant the Accountancy Profession to execute standardization of accountancy practices
through implementation of IAS/IFRS. Therefore, Bangladesh has adopted IFRS in July 2006.

The Institute of Chartered Accountants of Bangladesh (ICAB), which is a supreme body for
the development of accounting profession in Bangladesh, has been functioning for the
adoption and improvement of accounting standards. The ICAB has adopt IAS/IFRS, most of
these carbon copies of original IASs/IFRSs. While processing has been done than Security
Exchange Commission of Bangladesh (SEC) hold the responsibilities and became delegated
of Government of Bangladesh to keep an eye on compliance all those standards by listed
company in Bangladesh (Mir & Rahman,2005).
Adaption of IAS/IFRS in Bangladesh in Future
4
The Bangladesh Parliament enacted Financial Reporting ACT (FRA), 2015 on September 9,
2015. FRA requires the establishment of the Financial Reporting Council (FRC) – an
independent oversight body to bring trust, credit worthiness, transparency and accountability
in the audited reports and accounting as financial reporting of the publicly listed companies.
The main purpose of the FRC will be to regulate the financial reporting process followed by
the public interest entities. It will also regulate auditing profession of the country.
The FRC is a 12-members body, comprising of representatives from the government, the
Bangladesh Bank, the BSEC, the FBCCI, the academia, and the professional accounting
bodies.

4
https://www.frcbd.org/

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Mission, Vision and values of FRC:
 Vision- To be a model organization
ensuring quality in auditing, accounting
and financial and non-financial reporting.
 Mission - To bring corporate
confidence in auditing, financial and
non-financial reporting among users
of financial statements.
Objects as per Financial Reporting Act
2015:
‐ To promote the provision of high-
quality reporting of financial and non-
financial information by public interest
entities;
‐ To promote the highest standards
among licensed auditors;
‐ To enhance the credibility of
financial reporting; and
‐ To improve the quality of
accountancy and audit services.
Domains / area of FRC:
* Public Interest Entities
* Listed Companies
* State Owned Enterprises
* Regulatory Bodies
* Auditors
* Professional Accountants
* Government
* General Public
Functions of FRC
 Setting Standards for
Financial Reporting,
Auditing, Valuation and
Actuarial Services
 Licensing of Auditors
 Approving Audit Firms
 Audit Practice Review
 Financial / Non-Financial
Reporting Review
What FRC will do?
 Ensure adherence to International Financial
Reporting Standards (IFRS) and International
Standards of Auditing (ISA);
 Ensure compliance with code of corporate
governance
 Provision of training/ seminars to facilitate
implementation of accounting standards
 Encourage feedback from all stakeholders to
improve quality audit and financial and non-
financial reporting
 Setting Standards and Implementing them in consideration of the perspective of
socio-economic condition of Bangladesh and after keeping consistency with
internationally accepted and quality financial reporting, auditing standards, valuation
and Actuarial Services;

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 Ensuring compliance with internationally accepted quality standards set by the
International Accounting Standards Board (IASB), International Auditing and
Assurance Standards Board (IAASB) or related other international bodies;
 Ensuring Effective compliance, monitoring and enforcement of financial reporting
and auditing standards set by the Council;
 Setting necessary rules, regulations, standard guidelines and codes and ensuring
their enforcement for the purpose of ensuring of qualitative standard of financial
reporting, accounting and auditing;
 Monitoring auditing practice and exercise of auditors for the purpose of
maintaining high standard of professional conduct;
 Giving advice on activities in relation to accounting and auditing and providing
information related services as central information storage;
 Enlisting auditors and maintaining related information in register and
publication thereof;
 Ensuring compliance of reporting requirement prescribed under any other Act;
 Giving recommendations on academic certificates, courses and various teaching,
training, internship, articleship and research activities run by professional accounting
bodies and providing assistance in development;
 Observing professional development activities run by professional accounting
bodies for the fulfillment of the purpose of this Act;
 Encouraging and where applicable, financing research on such a subject by which
the financial report, accounting, auditing and corporate governance system can be
enforced more effectively and efficiently by the council, professional accountancy
bodies or any other entity concerned;
 Making necessary rule or regulations for conducting accounting and auditing
activities properly;
 Conducting investigation and activities in relation thereto under this Act;
 Taking suitable procedure or scheme and implementing those for achieving the
objectives and performing the functions of Council;
 Engaging or where applicable, executing memorandum of understanding and
agreement, with such local or international institutional initiatives which are related to
the objectives and functions of the Council or helpful thereto it;
 Fixing charge and fee on services provided by the Council;
 Imposing fine under this Act and rules made thereunder;
 Giving recommendation or advice to the Government about financial report,
non-financial report, financial statement, annual report, accounting and auditing or
subjects related thereto; and
 Doing such other activities, which the council deems fit, fit the purpose of
implementing its general objectives and functions for the fulfilment of the purpose of
this Act;

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International Accounting Standard (IAS)

Every standard should have
‐ Objectives/Scope
‐ Recognition
‐ Measurement
‐ Disclosure

5
IAS-1: Presentation of Financial Statements
Overview of IAS 1
 Issued: in 1975; re-issued in 2007, followed by amendments
 Effective date: 1 January 2009
 What it does:
o It defines complete set of general-purpose financial statements that
contains 5 components:
1. Statement of financial position;
2. Statement of profit or loss and other comprehensive income;
3. Statement of changes in equity;
4. Statement of cash flows;
5. Notes with summary of significant accounting policies and other
explanatory information
o It describes the general features of financial statements:
 fair presentation and compliance with IFRS;
 going concern;
 accrual basis of accounting;
 materiality and aggregation;
 offsetting;
 frequency of reporting;
 comparative information; and
 consistency of presentation.
o It sets the minimum requirements for the content of financial
statements; their identification and structure.

5
https://www.ifrsbox.com/ifrs/ias‐1/

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IAS-2: Inventories
Overview of IAS 2
 Issued: in 1975; re-issued in 1993 and 2003
 What it does:
o It prescribes the accounting treatment for inventories;
o It gives guidance on determining the cost of inventories and
their subsequent recognition as an expense;
o It prescribes the measurement rules including the net realizable value
o It gives guidance on the cost formulas (FIFO and weighted average).
IAS-7: Statement of Cashflow
Overview of IAS 7
 What it does:
o It requires the presentation of changes in cash and cash equivalents in
the form of statement of cash flows;
o It defines cash and cash equivalents and explains what is and what is
NOT included in cash flow movements.
o It classifies the cash flows as either from operating, investing or financing
activities.
o It requires reporting cash flows from operating activities either by direct or
indirect method.
o In relation to reporting cash flows from investing and financing activities, IAS
7 asks to report gross receipts and payments with several exceptions
where net basis is allowed.
o It also deals with several specific transactions, such as foreign currency
cash flows, interest and dividends, taxes on income, investments in
subsidiaries, associates and joint ventures, changes in ownership interests in
subsidiaries and other businesses, non-cash transactions etc.
IAS-8: Accounting Policies, Changes in Accounting Estimates and Errors
Overview of IAS 8
 Issued: in 1978; re-issued in 1993 and 2003, followed by amendments
 What it does:
o It prescribes the criteria for selecting and changing accounting policy;
o It explains a change in accounting estimate, how to recognize the effect of
such a change in the financial statements and what to disclose;
o It provides the rules on how to correct errors made in the prior
period financial statements
o It discusses impracticability in respect of retrospective application and
retrospective restatement.

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What is the objective of IAS 8?
The Standard IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors tells
us:
 How to select and apply our accounting policies;
 How to account for the changes in accounting policies;
 How to account for changes in accounting estimates; and
 How to correct errors made in the previous reporting periods.
Accounting Policies
Accounting policies are anything from rules, guidelines, conventions, principles and
similar norms used by entities for the preparation of the financial statements.
Accounting Estimates
Accounting estimate is not defined by IAS 8 directly, just indirectly via changes in
accounting estimates.
When you change the accounting estimate, you change either some amount of an asset or a
liability, or pattern of its consumption in both current and future reporting periods.
Again, a little warning:
 If these changes result from some new information or new trend, or development,
then they are changes in accounting estimates.
 If these changes result from some error, such as incorrect calculation or wrong
application of accounting policies – then they are NOT changes in accounting
estimates, but errors and they must be accounted for as for errors.
Typical examples of changes in accounting estimates are:
 Bad debt provisions,
 Depreciation rates and useful lives of your assets,
 Provisions for warranty repairs, etc.

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Errors
Prior-period errors are some omissions from (that’s when you forget something) or
misstatements in the financial statements as a result of ignoring or misusing the information
that was available or could be reasonably obtained when preparing these financial
statements.
It does not really matter why the error happened – whether it was intentional (fraud) or
unintentional, you still need to correct it if it is material.
The question is:
Is the error material?
The concept of materiality is explained in IAS 1 Presentation of Financial Statements, but
to simplify: anything that can affect the decisions of users of financial statements is
material. In other words – anything significant.
Do not forget that something can be material not only because of its size, but also due
to its nature: for example, bonuses paid to your management are always significant,
whether they amounted to a few dollars or to millions.
Back to our errors:
1. If the error is NOT material, then you can correct it in the current reporting
period. Remember, if the error is NOT material, then your financial statements still
might be reliable and relevant.
2. If the error IS MATERIAL, then you always correct it retrospectively, by going
back and restating your figures in the previous periods.

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For the specific example with correction of error, please read here about correcting wrongly
estimated useful lives of your assets.
IAS-10: Events After the Reporting Period
Overview of IAS 10
 What it does:
o IAS 10 sets the rules when an entity should adjust its financial statements
for events after the reporting period together with the necessary
disclosures.
o It defines both adjusting and non-adjusting events.
o There are 4 main types of material events after the reporting period:
1. Dividends declared in this period after the reporting period, but
before approval of the financial statements;
2. Going concern assumption no longer applies after the reporting
period;
3. Events that were unknown, or unclear, at the reporting date;
4. Conditions arising after the reporting period, not existing prior the
end of the reporting period
Main rules of IAS 10
Event after the reporting period is favorable or unfavorable event that occurs between :
 The end of the reporting period and
 The date that the financial statements are authorised for issue.
There are two types of events after the reporting period:
1. Adjusting events
2. Non-adjusting events.

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Adjusting events
Adjusting event is the event that arose after the end of the reporting period, but provides
further evidence of conditions that existed at the end of the reporting period.
Accounting treatment: financial statements should be adjusted for adjusting events.
Going concern: If a management indicates after the end of the reporting period that it
intends to liquidate the business or cease trading or there is no other realistic alternative,
then the financial statements should NOT be prepared under going concern basis.
Non-adjusting event
Non-adjusting event is an event after the reporting period that indicates conditions
arising after the end of the reporting period.
Accounting treatment: do not adjust financial statements for non-adjusting events. The
following disclosure shall be made:
 The nature of the event, and
 An estimate of its financial effect or a statement that such an estimate cannot be
made.
Accounting for dividends: If an entity declares dividends to shareholders after the end of
the reporting period, the entity shall not account for those dividends as for a liability at the
reporting date.
If dividends are declared after the end of the Reporting Period, but before the financial
statements are approved for issue, the dividends are disclosed in the notes to the financial
statements.
IAS-12: Income Taxes
Overview of IAS 12
 What it does:
o It defines basic terms, such as accounting profit, taxable profit / loss,
current tax, deferred tax, temporary differences, etc.
o It explains a tax base and contains the examples of its computation.

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Page # 23

o It sets the recognition criteria of current and deferred tax liabilities and tax
assets:
 In relation to deferred tax liabilities arising from taxable
temporary differences, IAS 12 requires recognition of deferred tax
for all of them with certain exceptions and provides examples and
further guidance.
 In relation to deferred tax assets arising from deductible
temporary differences, unused tax losses and unused tax
credits, IAS 12 requires recognition of deferred tax only to the extent
that it is probable that taxable profit will be available against which the
deductible temporary differences, unused tax losses and unused tax
credits can be utilized, with certain exceptions.
o It prescribes rules on measurement of deferred tax assets and
liabilities, recognition of current and deferred tax income and expense
and presentation of current and deferred tax in the financial statements.
o It requires specific disclosures and brings illustrative examples in its
appendices.

IAS-16: Property, Plant and Equipment

6
Overview of IAS 16
 What it does:
o It prescribes the accounting treatment for property, plant and equipment;
o It sets the initial recognition criteria related to an item of property, plant
and equipment and deals with subsequent costs;
o It prescribes the rules for initial measurement of property, plant and
equipment (components of cost)
o In relation to subsequent measurement, it permits two models:
1. Cost model: The asset is carried at its cost less accumulated
depreciation and impairment loss.
2. Revaluation model: The asset is carried at a revalued amount
calculated as fair value at the date of revaluation less subsequent
accumulated depreciation and impairment loss.
Standard IAS 16 prescribes the accounting treatment for property, plant and
equipment and therefore it is one of the most important and commonly applied standards.
The main issues dealt in IAS 16 are recognition of property, plant and equipment,
measurement at and after recognition, impairment of property, plant and equipment
(although IAS 36 deals with impairment in more detail) and derecognition.

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https://www.ifrsbox.com/ias‐16‐property‐plant‐and‐equipment/

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Recognition of Property, Plant and Equipment
Property, plant and equipment are tangible items that are held for use in the production or
supply of goods or services, for rental to others, or for administrative purposes; and are
expected to be used during more than one period.
IAS 16 states that the cost of an item of property, plant and equipment shall be recognized
as an asset if, and only if:
 it is probable that future economic benefits associated with the item will flow to the
entity; and
 the cost of the item can be measured reliably.
This recognition principle shall be applied to all costs at the time they are incurred,
both incurred initially to acquire or construct an item of property, plant and equipment
and incurred subsequently after recognition to add to, replace part of or service it.

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