IFRS Brings A Radical Change To Financial Statement .

2y ago
48 Views
3 Downloads
423.71 KB
6 Pages
Last View : 15d ago
Last Download : 2m ago
Upload by : Nixon Dill
Transcription

IFRS brings a radicalchange to financialstatementpresentationCMA MANAGEMENT28February 2009

Imagine having a balance sheet that doesn’t look like it balances. If there isone thing that accountants are used to doing it is quickly glancing at abalance sheet to see that the total assets equal the total of the liabilitiesplus equity. With the introduction of International Financial ReportingStandards (IFRS) in 2011 though, it may not be as easy to see that abalance sheet balances.By Karine Benzacar, CMAdiscussion paper released by internationalaccounting regulators is proposing to change thelook and feel of financial statements. The newfinancial statement presentation is a proposal by ajoint committee of the key regulators involved in theinternational standards — the U.S. Federal AccountingStandards Board (FASB) and the International AccountingStandards Board (IASB). After years of deliberation since2002, the committee released a preliminary 168-pagediscussion paper in October 2008 identifying changes tofinancial statement presentation. The public has up untilApril 14, 2009, to comment on the proposal, after which itwill become an exposure draft and then move to become anew financial reporting standard.statements complement each other as much as possible.(b) Disaggregates information so that it is useful inpredicting an entity’s future cash flows.(c) Helps users assess an entity’s liquidity and financialflexibility.2AHow are the statements changing?The financial statements will have new names: an incomestatement will now be called a “Statement of ComprehensiveIncome” and a balance sheet will be called a “Statement ofFinancial Position.” The required statement of retainedearnings will be replaced by a “Statement of Changes inShareholder’s Equity” (Exhibit 1). There is also a newstatement reconciling net income to cash flow which must beincluded in the financial statement notes.The new names though, are just the beginning. In order toachieve the objective of cohesiveness between the statements,the format of the statements will change. All statements areto be subdivided into the same general categories — abusiness section (subdivided further into operating andinvesting components), a financing section, income taxes,discontinued operations, and equity (Exhibit 2). Theseclassifications are similar to how today’s cash flowstatement is divided.Why change the look of financial statements?The two regulatory boards are proposing a new look andfeel to the statements, consistent with their objective ofimproving financial reporting and providing betterinformation to the users of financial statements. Thediscussion paper explains that “how an entity presentsinformation in its financial statements is vitally importantbecause financial statements are a central feature offinancial reporting — a principal means of communicatingfinancial information to those outsidean entity.”1 The Boards contend thatExhibit 1: Complete set ofthe existing presentation guidelinesmake it difficult to understand therelationship between financialIncome Statementstatements and that information indifferent statements is inconsistentlypresented. These factors make itdifficult to properly assess the financialhealth of an organization.Balance SheetThere are three objectivesassociated with the change.Information should be presented in thefinancial statements in a manner that:Statement of Retained Earnings(a) Portrays a cohesive financialpicture of an entity’s activities. Acohesive financial picture meansthat the relationship between itemsStatement of Cash Flowsacross financial statements is clearand that an entity’s financialCMA MANAGEMENT29February 2009financial statementsStatement of ComprehensiveIncomeStatement of Financial PositionStatement of Changes in EquityStatement of Cash Flows

Exhibit 2: Statement OverviewStatement of Financial PositionStatement of Comprehensive IncomeStatement of Cash FlowsBusiness Operating Assets and Liabilities Investing Assets and LiabilitiesBusiness Operating Income Investing IncomeBusiness Operating Cash Flows Investing Cash FlowsFinancing Financing Assets Financing LiabilitiesFinancing Financing Income Financing ExpensesFinancing Financing Asset Cash Flows Financing Liabilities Cash FlowsIncome taxesIncome taxes on continuing operationsIncome taxesDiscontinued OperationsDiscontinued Operations (net of tax)Discontinued OperationsOther Comprehensive Income(net of tax)EquityEquityJoint FASB/IASB preliminary views on Financial Statement Presentation, October 2008.The new balance sheet (Statement of FinancialPosition)The biggest difference with the new format of the Statementof Financial Position (balance sheet) is that at first glance, itisn’t obvious that assets balance to liabilities plus equity. Thetraditional balance sheet shows assets on the left side withliabilities and equity on the right, having identical totals onboth sides. The new format does not separate assets andliabilities into distinct sections. Instead, assets and liabilitiesare netted together in each of the sections (operating,investing, financing, income taxes, and discontinuedoperations) of the Statement of Financial Position. Howmanagement segregates assets or liabilities into each of thedifferent sections is subject to a fair bit of managementjudgment and their basis for classification must be disclosedin the financial statement notes. Totals for short-term andlong-term assets in each section of the statement areoptional. An entity must disclose the totals for short-term,long-term, and total assets and liabilities but they can do soeither in the statement or in the notes to the financialstatements. There is no familiar total for liabilities plusequity (Exhibit 3). Underlying the presentation format, thebalance sheet still balances.The new income statement (Statement ofComprehensive Income)The Statement of Comprehensive Income is similar totoday’s income statement in that it calculates a subtotal fornet income and then has a section for other comprehensiveincome (OCI). However, everything above net income isdivided into the same categories that the balance sheet isclassified in — an operating section, an investing section, aCMA MANAGEMENTfinancing section, income taxes, and discontinuedoperations. Within the OCI section, the entity must indicateto which category (operating, investing, or financing) theactual line items relate to.Line items are further identified by function and thennature. For example, cost of goods sold must be furthersubdivided into materials costs, labour costs, and overhead.Details for general and administrative expenses must also bedisclosed. If these guidelines result in too lengthy of astatement, the entity can summarize the statement, but theymust still present the details in the financial statement notes(Exhibit 4).The new cash flow statementThe Cash Flow Statement is the only statement that willretain its existing name. Its format is similar to today’sformat, but there is one significant change — the indirectmethod of reporting cash flow will no longer be allowed.Current GAAP allows entities to report cash flow usingeither a direct or an indirect method. The direct methodreports cash changes based on how much cash is paid for orreceived as a result of various activities; the indirect methodstarts with income and making adjustments to arrive at cashflow. Most organizations opt to report under the indirectmethod since information for this format is usually moreeasily available from their accounting systems. A secondmajor change is that there are no more cash equivalents.The statement reports only on changes in cash. Instead ofeliminating the need to reconcile net income to cash flowusing the indirect method, the regulators recognize thatsuch a reconciliation provides valuable information tofinancial statement users and therefore require a new30 February 2009

Exhibit 3: SAMPLE STATEMENT OF FINANCIAL POSITIONBUSINESSOperatingReceivablesLess: allowance for bad debtInventoryPrepaid expensesShort-term assetsProperty, plant and equipmentLess: accumulated depreciationGoodwillIntangibles (net)Long-term assetsAccounts payableAccrued liabilitiesShort-term liabilitiesAccrued long-term liabilitiesLong-term liabilitiesNet operating 0)(9,200)(25,000)(1,700)(35,900)InvestingAvailable for sale assets (short-term)Investment in sub (long-term)Total investing assetsNET BUSINESS ASSETSFINANCINGFinancing assetsCashTotal financing assetsFinancing liabilitiesDividends payableShort-term debtShort-term financing liabilitiesLong-term debtTotal financing liabilitiesNET FINANCING ASSETSINCOME TAXESShort-termIncome tax payableLong-termDeferred tax assetsNET INCOME TAX ASSETDISCONTINUED OPERATIONSAssets held for saleLiabilities related to assets held for saleNET ASSETS HELD FOR SALENET ASSETSEQUITYShare capitalRetained earningsAccumulated other comprehensive incomeTOTAL EQUITYNote: Lines in italics are optionalCMA MANAGEMENT31February 2009

Exhibit 4: SAMPLE STATEMENT OF COMPREHENSIVE Total RevenueCost of Goods SoldMaterialsLabourOverheadChange in inventoryTotal cost of goods soldGross ProfitSelling ExpensesCommissionsAdvertisingOtherTotal selling expenseGeneral and administrative expensesCompensationRentDepreciationOtherTotal G&AOther operating income (expense)Loss on disposal of assetsOtherTotal other operating income (expense)Total operating incomeInvestingDividend incomeEquity in earnings of subTotal investing incomeTOTAL BUSINESS INCOMEFINANCINGInterest incomeTotal financing asset incomeInterest expenseTotal financing liability expenseTOTAL NET FINANCING EXPENSEINCOME TAXESIncome tax expenseNet profit from continuing operationsDISCONTINUED OPERATIONSLoss on discontinued operations, net of taxNET INCOMEOTHER COMPREHENSIVE INCOMEUnrealized loss on securities, net of taxTOTAL COMPREHENSIVE INCOMENote: Lines in italics are optionalCMA MANAGEMENT32February 4,700

reconciliation statement to be included in the financialstatement notes.be welcome. For example, the new reconciliation scheduleprovides users with a lot more information than theycurrently have access to. In other cases though, the newformat may cause confusion and may even createadditional costs for users as they adjust to the newpresentation. For example, many of the ratios used bybankers or stock analysts rely on totals which are no longerrequired to be disclosed on the balance sheet. As such, theusers will need to readjust their processes of reviewingfinancial statements and may need to consider differentratios or different ways to arrive at their current numbers.Companies may also incur additional costs of tracking andstoring information to be able to produce statementsunder the acceptable format. Like anything else, this is achange which will take users and entities time to adjust to.However, like all other accounting proposals, theregulators are now asking the public for their opinion andthis is a such a large departure from current practices thatit is sure to elicit a lot of feedback. The new reconciliation statementThe new reconciliation schedule reconciles cash flows tocomprehensive income. The left hand side of the page liststhe details from the Cash Flow Statement while the righthand side lists the details from the Statement ofComprehensive Income. In between are several columnswhich reconcile the two.The statement disaggregates comprehensive incomeinto four categories:(a) Cash received or paid other than in transactions withowners;(b) Accruals other than remeasurements;(c) Temeasurements3 that are either recurring fair valuechanges or valuation adjustments; and(d) Remeasurements that are not recurring fair valuechanges or valuation adjustments.The statement of changes in equityKarine Benzacar, MBA, CMA, CPA (Del.), (karine@knowledgeplus.ca), is managingdirector of Knowledge Plus Corporation (www.knowledgeplus.org), an organizationwhich provides IFRS training across Canada and the U.S.The Statement of Changes in Equity is similar to theStatement of Changes in Retained Earnings, but muchmore comprehensive. It shows the balance of eachcomponent of equity at the beginning and end of theperiod and identifies the changes resulting from income,each item of OCI, transactions with owners (such ascontributions, dividends, and changes in ownershipinterests of subsidiaries) and retrospective application orrestatements (Exhibit 5).The new financial statements formats are beingproposed in order to bring new clarity and transparency tofinancial statement users. In some cases, the changes will123FASB/IASB discussion paper on preliminary views on FinancialStatement Presentation, S1.FASB / IASB discussion paper on preliminary views on FinancialStatement Presentation, S2.IFRS allows and encourages assets and liabilities to be valued atfair value rather than at historical cost, creating what is known as“remeasurement” adjustments on the Statement ofComprehensive Income.Exhibit 5: SAMPLE STATEMENT OF CHANGES IN EQUITYSharecapitalBalance at 31 Dec 2008Issue of share capitalDividendsTotal comprehensive incomeBalance at 31 Dec 2009Issue of share capitalDividendsTotal comprehensive incomeBalance at 31 Dec ment- translationconsolidated adjustmentsubsidary Associate AReval.surplusUnrealisedgain oncash flowhedgeUnrealisedgain onavailablefor-salefinancialTotal 913656,9033,4397,694CMA MANAGEMENT33February 0)112,366538,026

statement, the entity can summarize the statement, but they must still present the details in the financial statement notes (Exhibit 4). The new cash flow statement The Cash Flow Statement is the only statement that will retain its existing name. Its format is similar to today’s f

Related Documents:

(a) IFRS 9 Financial Instruments (Part A); and (b) IFRS 15 Revenue from Contracts with Customers (Part B). Introduction 2 IFRS 17 is effective from 1 January 2021. An insurer can choose to apply IFRS 17 before that date but only if it also applies IFRS 9. 3 The paper considers components of IFRS 9 and IFRS 15 that are relevant to the

IFRS 17 basics IFRS 17 is the new accounting standard for Insurance Contracts published 18 May 2017 Replace the interim standard IFRS 4 (not standardized across jurisdictions) EU endorsement still under process Go-live 1st January 2022 18 May 2017 IFRS 17 Publication Effective application of IFRS 17 & IFRS 9 1st January 2022 IFRS 17 Go-live ! Transitory

Page 6 of 18 A radical equation is an equation that has a variable in a radicand or has a variable with a rational exponent. ( 2) 25 3 10 3 2 x x radical equations 3 x 10 NOT a radical equation Give your own: Radical equation Non radical equation To solve a radical equation: isolate the radical on one side of the equation and then raise both sides of the

304 Chapter 6 Rational Exponents and Radical Functions 6.3 Lesson WWhat You Will Learnhat You Will Learn Graph radical functions. Write radical functions. Graph parabolas and circles. Graphing Radical Functions A radical function contains a radical expression with the independent variable in the radicand. When the radical is a square root, the function is called a square root

New IFRS Standards—IFRS 16 Leases Page 1 of 26 . Agenda ref 30E STAFF PAPER June 2019 IASB Meeting Project Comprehensive review of the IFRS for SMEs Standard Paper topic New IFRS Standards—IFRS 16 Leases CONTACT(S) Yousouf Hansye ykhansye@ifrs.org 44 (0) 20 7246 6470

1 Overview of IFRS 9 and implementation plan in Thailand 2 IFRS 9 Classification and Measurement 3 IFRS 9 Impairment 4 IFRS 9 Hedge accounting 5 Transition requirements (with applying IFRS 9 with IFRS 4 phase II) 6 Concluding remark

IFRS and US GAAP: similarities and differences IFRS first-time adoption IFRS 1, First-Time Adoption of International Financial Reporting Standards, is the standard that is applied during preparation of a company's first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical

Adopting IFRS – A step-by-step illustration of the transition to IFRS Illustrates the steps involved in preparing the first IFRS financial statements. It takes into account the effect on IFRS 1 of the standards issued up to and including March 2004. Financial instruments under IFRS – A guide through the maze