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Your revision guide - IFRS 10 to 15
06 November 2017
Here is your handy pocket-sized guide to 10 through to IFRS 15
IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS
IFRS 10 establishes principles for presenting and preparing consolidated financial statements when an entity controls one or more other entities. IFRS 10:
• requires an entity (the parent) that controls one or more other entities (subsidiaries) to present consolidated financial statements;
• defines the principle of control, and establishes control as the basis for consolidation;
• sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee;
• sets out the accounting requirements for the preparation of consolidated financial statements; and
• defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity. Consolidated financial statements are financial statements that present the assets, liabilities, equity, income, expenses and cash flows of a parent and its subsidiaries as those of a single economic entity.
IFRS 11 JOINT ARRANGEMENTS
IFRS 11 establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (joint arrangements). A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities (ie activities that significantly affect the returns of the arrangement) require the unanimous consent of the parties sharing control. IFRS 11 classifies joint arrangements into two types—joint operations and joint ventures:
• in a joint operation, the parties that have joint control of the arrangement (joint operators) have rights to particular assets, and obligations for particular liabilities, relating to the arrangement; and
• in a joint venture, the parties that have joint control of the arrangement (joint venturers) have rights to the net assets of the arrangement. IFRS 11 requires a joint operator to recognise and measure its share of the assets and liabilities (and recognise the related revenues and expenses) in accordance with IFRS Standards applicable to the particular assets, liabilities, revenues and expenses. A joint venturer accounts for its interest in the joint venture using the equity method (see IAS 28).
IFRS 12 DISCLOSURE OF INTEREST IN OTHER ENTITIES
IFRS 12 requires an entity to disclose information that enables users of its financial statements to evaluate:
• the nature of, and risks associated with, its interests in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity; and
• the effects of those interests on its financial position, financial performance and cash flows.
IFRS 13 FAIR VALUE MEASUREMENT
IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements.
It applies when another Standard requires or permits fair value measurements or disclosures about fair value measurements (and measurements based on fair value, such as fair value less costs to sell), except in specified circumstances in which other Standards govern. For example, IFRS 13 does not specify the measurement and disclosure requirements for share-based payment transactions, leases or impairment of assets. Nor does it establish disclosure requirements for fair values related to employee benefits and retirement plans.
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or the liability under current market conditions, including assumptions about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value.
IFRS 14 REGULATORY DEFERRAL ACCOUNTS
IFRS 14 prescribes special accounting for the effects of rate regulation. Rate regulation is a legal framework for establishing the prices that a public utility or similar entity can charge to customers for regulated goods or services.
Rate regulation can create a regulatory deferral account balance. A regulatory deferral account balance is an amount of expense or income that would not be recognised as an asset or liability in accordance with other Standards, but that qualifies to be deferred in accordance with IFRS 14, because the amount is included, or is expected to be included, by a rate regulator in establishing the price(s) that an entity can charge to customers for rate-regulated goods or services.
IFRS 14 permits a first-time adopter within its scope to continue to account for regulatory deferral account balances in its IFRS financial statements in accordance with its previous GAAP when it adopts IFRS Standards. However, IFRS 14 introduces limited changes to some previous GAAP accounting practices for regulatory deferral account balances, which are primarily related to the presentation of those balances.
IFRS 15 REVENUE FROM CONTRACT WITH CUSTOMERS
IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with earlier application permitted.
IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. Applying IFRS 15, an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To recognise revenue under IFRS 15, an entity applies the following five steps:
• identify the contract(s) with a customer.
• identify the performance obligations in the contract. Performance obligations are promises in a contract to transfer to a customer goods or services that are distinct.
• determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. If the consideration promised in a contract includes a variable amount, an entity must estimate the amount of consideration to which it expects to be entitled in exchange for transferring the promised goods or services to a customer.
• allocate the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of each distinct good or service promised in the contract.
• recognise revenue when a performance obligation is satisfied by transferring a promised good or service to a customer (which is when the customer obtains control of that good or service). A performance obligation may be satisfied at a point in time (typically for promises to transfer goods to a customer) or over time (typically for promises to transfer services to a customer). For a performance obligation satisfied over time, an entity would select an appropriate measure of progress to determine how much revenue should be recognised as the performance obligation is satisfied.
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