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B77 |
An entity may be required to present a line item listed in paragraph 75, or specified in another IFRS Accounting Standard, in more than one of the categories listed in paragraph 47. For example, an entity that does not invest in assets or provide financing to customers as a main business activity may be required to present the line item specified in paragraph 75(b)(ii) of impairment losses determined in accordance with Section 5.5 of IFRS 9 in: (a) the operating category—if it relates to receivables for goods and services as described in paragraph B48(b); and (b) the investing category—if it relates to financial assets that generate a return individually and largely independently of the entity’s other resources as described in paragraph B46. |
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B78 |
Paragraphs 24 and 41(c) require an entity to present additional line items in the statement of profit or loss if doing so is necessary to provide a useful structured summary of the entity’s income and expenses. An entity uses its judgement to make this determination (including whether it is necessary to disaggregate the line items listed in paragraph 75). Paragraphs 20 and 41(d) require an entity to disaggregate items to disclose material information in the notes. An entity also uses its judgement to make this determination. Paragraph 41 requires the entity to base its judgements on an assessment of whether the items have characteristics that are shared (similar characteristics) or characteristics that are not shared (dissimilar characteristics). Such characteristics include: (a) nature (see paragraph 80); (b) function (role) within the entity’s business activities (see paragraph 81); (c) persistence (including the frequency of the item of income or expense or whether it is recurring or non-recurring); (d) measurement basis; (e) measurement uncertainty or outcome uncertainty (or other risks associated with an item); (f) size; (g) geographical location or regulatory environment; (h) tax effects (for example, if different tax rates apply to items of income or expense); and (i) whether the income or expenses arise on initial recognition of a transaction or event or from a subsequent change in estimate relating to the transaction or event. |
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B79 |
Income and expenses that might have sufficiently dissimilar characteristics that presentation in the statement of profit or loss is necessary to provide a useful structured summary or disclosure in the notes is necessary to provide material information include: (a) write-downs of inventories, as well as reversals of such write-downs; (b) impairment losses for property, plant and equipment, as well as reversals of such impairment losses; (c) income and expenses from restructurings of an entity’s activities and reversals of any provisions for restructuring; (d) income and expenses from disposals of property, plant and equipment; (e) income and expenses from disposals of investments; (f) income and expenses from litigation settlements; (g) reversals of provisions; and (h) non-recurring income and expenses not included in (a)–(g). |
Presentation and disclosure of expenses classified in the operating category
Use of characteristics of nature and function
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B80 |
In determining how to use the characteristics of nature and function to provide the most useful structured summary as required by paragraph 78, an entity shall consider: (a) what line items provide the most useful information about the main components or drivers of the entity’s profitability. For example, for a retail entity a main component or driver of profitability might be cost of sales. Presenting a cost of sales line item might provide relevant information about whether the revenue generated from the sale of goods covers what, for retailers, are mainly direct costs, and by what margin. However, cost of sales is unlikely to provide relevant information about the important components or drivers of profitability if the link between revenue and costs is less direct. For example, for some service entities, information about operating expenses classified by nature, such as employee benefits, might be more relevant to users of financial statements because these expenses are the main drivers of profitability. (b) what line items most closely represent the way the business is managed and how management reports internally. For example, a manufacturing entity managed on the basis of major functions might classify expenses by function for internal reporting purposes. In contrast, an entity that has a single predominant function, such as providing financing to customers, might determine that line items comprising expenses classified by nature provide the most useful information for internal reporting purposes. (c) what standard industry practice entails. If expenses are classified in the same way by entities in an industry, users of financial statements can more easily compare expenses between entities in the same industry. (d) whether the allocation of particular expenses to functions would be arbitrary to the extent that the line items presented would not provide a faithful representation of the functions. In such cases, an entity shall classify these expenses by nature. |
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B81 |
In some cases, an entity considering the factors set out in paragraph B80 could determine that classifying and presenting some expenses by nature and other expenses by function provides the most useful structured summary. For example: (a) the factors in paragraphs B80(a)–(b) might indicate that classifying and presenting expenses by function provides the most useful structured summary, except for particular expenses for which the allocation to functions would be arbitrary (see paragraph B80(d)); and (b) an entity having two different types of main business activities might classify and present some expenses by function and other expenses by nature to provide information about the main drivers of its profitability. |
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B82 |
If an entity classifies and presents some expenses by nature and other expenses by function in the statement of profit or loss, it shall label the resulting line items in a way that clearly identifies what expenses are included in each line item. For example, if an entity includes some employee benefits in a function line item and other employee benefits in a nature line item, the label for the nature line item would clearly identify that it does not include all employee benefits (for example, ‘employee benefits other than those included in cost of sales’). |
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B83 |
Applying paragraph 30, an entity shall classify and present expenses consistently from one reporting period to the next unless paragraphs 30(a) or 30(b) apply. For example, if an entity presents impairment of goodwill as a nature line item in one reporting period, it shall also present any similar impairment of goodwill as a nature line item in subsequent reporting periods unless paragraphs 30(a) or 30(b) apply. If there is no similar impairment of goodwill in a subsequent period, the fact that there is an expense of nil in that subsequent period does not constitute a change in classification and presentation. |
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B84 |
An entity will either present expenses by nature, or applying paragraph 83, disclose some expenses by nature. The amounts presented or disclosed need not be the amounts recognised as an expense in the period. They could include amounts that have been recognised as part of the carrying amount of an asset. If an entity: (a) presents amounts that are not the amounts recognised as an expense in the period, it will also present an additional line item for the change in the carrying amount of the affected assets. For example, applying paragraph 39 of IAS 2, an entity might present a line item for changes in inventories of finished goods and work in progress. (b) discloses, applying paragraph 83(b), amounts that are not the amounts recognised as an expense in the period, the entity shall give a qualitative explanation of that fact, identifying the assets involved. |
Aggregation of operating expenses
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B85 |
To apply paragraph 78, an entity shall consider what level of aggregation for operating expenses provides the most useful structured summary. For example, an entity might have various administrative activities (such as human resources, information technology, legal and accounting). To provide a useful structured summary, the entity might aggregate operating expenses relating to those activities based on their shared characteristic—all are expenses for resources consumed in administrative activities. Accordingly the entity might present them in a line item labelled as ‘administrative expenses’. The entity might also have expenses for resources consumed in selling activities. These expenses have a dissimilar characteristic from the administrative expenses—selling expenses arise from resources consumed in selling activities and administrative expenses arise from resources consumed in administrative activities. These characteristics are sufficiently dissimilar that disaggregation—presentation in separate line items for selling expenses and administrative expenses—might be necessary to provide a useful structured summary of the entity’s expenses. |
STATEMENT PRESENTING COMPREHENSIVE INCOME
Other comprehensive income
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B86 |
Some IFRS Accounting Standards specify circumstances when an entity includes particular items outside the statement of profit or loss in the current reporting period. IAS 8 specifies two such circumstances: the correction of errors and the effect of changes in accounting policies. Other IFRS Accounting Standards require or permit an entity to exclude from profit or loss components of other comprehensive income that meet the Conceptual Framework for Financial Reporting’s definition of income or expenses (see paragraph B87). |
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B87 |
Appendix A defines ‘other comprehensive income’. The components of other comprehensive income include: (a) changes in revaluation surplus (see IAS 16 and IAS 38); (b) remeasurements of defined benefit plans (see IAS 19); (c) gains and losses arising from translating the financial statements of a foreign operation (see IAS 21); (d) gains and losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with paragraph 5.7.5 of IFRS 9; (e) gains and losses on financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of IFRS 9; (f) the effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and losses on hedging instruments that hedge investments in equity instruments designated at fair value through other comprehensive income in accordance with paragraph 5.7.5 of IFRS 9 (see Chapter 6 of IFRS 9); (g) for particular liabilities designated as at fair value through profit or loss, the amount of the change in fair value that is attributable to changes in the liability’s credit risk (see paragraph 5.7.7 of IFRS 9); (h) changes in the value of the time value of options when separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the changes in the intrinsic value (see Chapter 6 of IFRS 9); (i) changes in the value of the forward elements of forward contracts when separating the forward element and spot element of a forward contract and designating as the hedging instrument only the changes in the spot element, and changes in the value of the foreign currency basis spread of a financial instrument when excluding it from the designation of that financial instrument as the hedging instrument (see Chapter 6 of IFRS 9); (j) insurance finance income and expenses from contracts issued within the scope of IFRS 17 excluded from profit or loss when total insurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation applying paragraph 88(b) of IFRS 17, or by an amount that eliminates accounting mismatches with the finance income or expenses arising on the underlying items, applying paragraph 89(b) of IFRS 17; and (k) finance income and expenses from reinsurance contracts held excluded from profit or loss when total reinsurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation, applying paragraph 88(b) of IFRS 17. |
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B88 |
Reclassification adjustments arise, for example, on disposal of a foreign operation (see IAS 21) and when some hedged forecast cash flows affect profit or loss (see paragraph 6.5.11(d) of IFRS 9 in relation to cash flow hedges). |
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B89 |
Paragraph 90 requires an entity to present in the statement presenting comprehensive income or disclose in the notes reclassification adjustments relating to components of other comprehensive income. Reclassification adjustments do not arise on changes in revaluation surplus recognised in accordance with IAS 16 or IAS 38 or on remeasurements of defined benefit plans recognised in accordance with IAS 19. An entity recognises these components in other comprehensive income and does not reclassify them to profit or loss in subsequent reporting periods. An entity may transfer changes in revaluation surplus to retained earnings in subsequent periods as the asset is used or when it is derecognised (see IAS 16 and IAS 38). In accordance with IFRS 9, reclassification adjustments do not arise if a cash flow hedge or the accounting for the time value of an option (or the forward element of a forward contract or the foreign currency basis spread of a financial instrument) results in amounts that an entity removes from the cash flow hedge reserve or a separate component of equity, respectively, and includes directly in the initial cost or other carrying amount of an asset or a liability. An entity transfers these amounts directly to assets or liabilities. |
STATEMENT OF FINANCIAL POSITION
Classification of assets and liabilities as current or non-current
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B90 |
In applying paragraph 96, when an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of current and non-current assets and liabilities in the statement of financial position provides useful information by distinguishing the net assets that are continuously circulating as working capital from those used in the entity’s long-term operations. Such separate classification also highlights assets that an entity expects to realise within the current operating cycle and liabilities that are due for settlement within the same period. |
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B91 |
For some entities, such as financial institutions, a presentation of assets and liabilities in increasing or decreasing order of liquidity provides a more useful structured summary than a current/non-current presentation because the entity does not supply goods or services within a clearly identifiable operating cycle. |
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B92 |
In applying paragraph 96, an entity is permitted to present some of its assets and liabilities using a current/non-current classification and others in order of liquidity when doing so provides a more useful structured summary. The need for a mixed basis of presentation might arise when an entity has diverse operations. |
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B93 |
Information about expected dates of realisation of assets and liabilities is useful in assessing the liquidity and solvency of an entity. IFRS 7 requires disclosure of the maturity analysis of financial assets and financial liabilities. Financial assets include trade and other receivables, and financial liabilities include trade and other payables. Information on the expected date of recovery of non-monetary assets, such as inventories, and the expected date of settlement for liabilities, such as provisions, is also useful, whether assets and liabilities are classified as current or as non-current. For example, an entity discloses in the notes the amount of inventories that it expects to recover more than 12 months after the reporting period. |
Current assets
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B94 |
Paragraph 100 requires an entity to classify as non-current all assets not classified as current. This Standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a long-term nature. It does not prohibit the use of alternative descriptions as long as the meaning is clear. |
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B95 |
The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. When an entity’s normal operating cycle is not clearly identifiable, it is assumed to be 12 months. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within 12 months after the reporting period. Current assets also include assets held primarily for the purpose of trading (examples include some financial assets that meet the definition of held for trading in IFRS 9) and the current portion of non-current financial assets. |
Current liabilities
Normal operating cycle (see paragraph 101(a))
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B96 |
Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in an entity’s normal operating cycle. An entity classifies such items as current liabilities even if they are due to be settled more than 12 months after the reporting period. The same normal operating cycle applies to the classification of the entity’s assets and liabilities. When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be 12 months. |
Held primarily for the purpose of trading (see paragraph 101(b)) or due to be settled within 12 months (see paragraph 101(c))
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B97 |
Other current liabilities are not settled as part of the normal operating cycle, but are due for settlement within 12 months after the reporting period or held primarily for the purpose of trading. Examples are some financial liabilities that meet the definition of held for trading in IFRS 9, bank overdrafts, and the current portion of non-current financial liabilities, dividends payable, income taxes and other non-trade payables. Financial liabilities that provide financing on a long-term basis (that is, are not part of the working capital used in the entity’s normal operating cycle) and are not due for settlement within 12 months after the reporting period are non-current liabilities, subject to paragraphs B99–B103. |
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B98 |
An entity classifies its financial liabilities as current when they are due to be settled within 12 months after the reporting period, even if: (a) the original term was for a period longer than 12 months; and (b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the financial statements are authorised for issue. |
Right to defer settlement for at least 12 months (paragraph 101(d))
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B99 |
An entity’s right to defer settlement of a liability for at least 12 months after the reporting period must have substance and, as illustrated in paragraphs B100–B103, must exist at the end of the reporting period. |
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B100 |
An entity’s right to defer settlement of a liability arising from a loan arrangement for at least 12 months after the reporting period may be subject to the entity complying with conditions specified in that loan arrangement (hereafter referred to as ‘covenants’). For the purposes of applying paragraph 101(d), such covenants: (a) affect whether that right exists at the end of the reporting period—as illustrated in paragraphs B102–B103—if an entity is required to comply with the covenant on or before the end of the reporting period. Such a covenant affects whether the right exists at the end of the reporting period even if compliance with the covenant is assessed only after the reporting period (for example, a covenant based on the entity’s financial position at the end of the reporting period but assessed for compliance only after the reporting period). (b) do not affect whether that right exists at the end of the reporting period if an entity is required to comply with the covenant only after the reporting period (for example, a covenant based on the entity’s financial position six months after the end of the reporting period). |
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B101 |
If an entity has the right, at the end of the reporting period, to roll over an obligation for at least 12 months after the reporting period under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. If the entity has no such right, the entity does not consider the potential to refinance the obligation and classifies the obligation as current. |
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B102 |
When an entity breaches a covenant of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand, it classifies the liability as current, even if the lender agreed, after the reporting period and before the authorisation of the financial statements for issue, not to demand payment as a consequence of the breach. The entity classifies the liability as current because, at the end of the reporting period, it does not have the right to defer its settlement for at least 12 months after that date. |
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B103 |
However, an entity classifies the liability as non-current if the lender agreed by the end of the reporting period to provide a period of grace ending at least 12 months after the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment. |
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B104 |
Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least 12 months after the reporting period. If a liability meets the criteria in paragraphs 101–102 for classification as non-current, it is classified as non-current even if management intends or expects the entity to settle the liability within 12 months after the reporting period, or even if the entity settles the liability between the end of the reporting period and the date the financial statements are authorised for issue. However, in either of those circumstances, the entity may need to disclose information about the timing of settlement to enable users of financial statements to understand the impact of the liability on the entity’s financial position (see paragraphs 6C(c) of IAS 8 and B105(d)). |
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B105 |
If the following events occur between the end of the reporting period and the date the financial statements are authorised for issue, those events are disclosed as non-adjusting events in accordance with IAS 10 Events after the Reporting Period: (a) refinancing on a long-term basis of a liability classified as current (see paragraph B98); (b) rectification of a breach of a long-term loan arrangement classified as current (see paragraph B102); (c) the granting by the lender of a period of grace to rectify a breach of a long-term loan arrangement classified as current (see paragraph B103); and (d) settlement of a liability classified as non-current (see paragraph B104). |
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B106 |
In applying paragraphs 101–102 and B96–B103 an entity might classify liabilities arising from loan arrangements as non-current when the entity’s right to defer settlement of those liabilities is subject to the entity complying with covenants within 12 months after the reporting period (see paragraph B100(b)). In such situations, the entity shall disclose information in the notes that enables users of financial statements to understand the risk that the liabilities could become repayable within 12 months after the reporting period, including: (a) information about the covenants (including the nature of the covenants and when the entity is required to comply with them) and the carrying amount of related liabilities. (b) facts and circumstances, if any, that indicate the entity may have difficulty complying with the covenants—for example, the entity having acted during or after the reporting period to avoid or mitigate a potential breach. Such facts and circumstances could also include the fact that the entity would not have complied with the covenants if they were to be assessed for compliance based on the entity’s circumstances at the end of the reporting period. |
Settlement (paragraphs 101(a), 101(c) and 101(d))
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B107 |
For the purpose of classifying a liability as current or non-current, settlement refers to a transfer to the counterparty that results in the extinguishment of the liability. The transfer could be of: (a) cash or other economic resources—for example, goods or services; or (b) the entity’s own equity instruments, unless paragraph B108 applies. |
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B108 |
Terms of a liability that could, at the option of the counterparty, result in its settlement by the transfer of the entity’s own equity instruments do not affect its classification as current or non-current if, applying IAS 32, the entity classifies the option as an equity instrument, recognising it separately from the liability as an equity component of a compound financial instrument. |
Items to be presented in the statement of financial position or disclosed in the notes
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B109 |
Paragraphs 24 and 41(c) require an entity to present additional line items in the statement of financial position if doing so is necessary to provide a useful structured summary of the entity’s assets, liabilities and equity. An entity uses its judgement to make this determination (including whether it is necessary to disaggregate the line items listed in paragraph 103). Paragraph 41 requires the entity to base its judgements on an assessment of whether the items have characteristics that are shared (similar characteristics) or characteristics that are not shared (dissimilar characteristics). For additional line items for assets and liabilities, an entity bases its judgements on an assessment of the nature or function of the assets or liabilities. The characteristics listed in paragraphs B110(c)–(k) might assist an entity in identifying the nature or function of assets and liabilities. |
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B110 |
Paragraphs 20 and 41(d) require an entity to disaggregate items to disclose material information in the notes. An entity uses its judgement to do this based on an assessment of whether the items have characteristics that are shared (similar characteristics) or characteristics that are not shared (dissimilar characteristics). Such characteristics include: (a) nature; (b) function (role) in the entity’s business activities; (c) duration and timing of recovery or settlement (including whether an asset or liability is classified as current or non-current or whether its recovery or settlement forms part of the entity’s operating cycle); (d) liquidity; (e) measurement basis; (f) measurement uncertainty or outcome uncertainty (or other risks associated with an item); (g) size; (h) geographical location or regulatory environment; (i) type, for example, the type of good, service or customer; (j) tax effects—for example, if assets or liabilities have different tax bases; and (k) restrictions on the use of an asset or on the transferability of a liability. |
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B111 |
Assets, liabilities and items of equity that might have sufficiently dissimilar characteristics that presentation in the statement of financial position is necessary to provide a useful structured summary or disclosure in the notes is necessary to provide material information include: (a) property, plant and equipment disaggregated into classes in accordance with IAS 16; (b) receivables disaggregated into amounts receivable from trade customers, amounts receivable from related parties, prepayments and other amounts; (c) inventories disaggregated, applying IAS 2, into items such as merchandise, production supplies, materials, work in progress and finished goods; (d) trade payables disaggregated, applying IAS 7, to provide separately the amounts of those payables that are part of supplier finance arrangements; (e) provisions disaggregated according to their nature, such as, provisions for employee benefits, decommissioning liabilities, or other items; and (f) equity capital and reserves disaggregated into various classes, such as paid-in capital, share premium and reserves. |
NOTES
Structure
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B112 |
Paragraph 114 requires an entity to present notes in a systematic manner, so far as is practicable. Examples of systematic ordering or grouping of the notes include: (a) giving prominence to the areas of its activities that an entity considers to be most important to an understanding of its financial performance and financial position, such as grouping together information about particular business activities; (b) grouping together information about items measured similarly such as assets measured at fair value; or (c) following the order of the line items in the statement(s) of financial performance and the statement of financial position, such as: (i) statement of compliance with IFRS Accounting Standards (see paragraph 6B of IAS 8); (ii) material accounting policy information (see paragraph 27A of IAS 8); (iii) supporting information for items presented in the statement of financial position, the statement(s) of financial performance, the statement of changes in equity and the statement of cash flows, in the order in which each statement is provided and each line item is presented; and (iv) other disclosures, including: (1) contingent liabilities (see IAS 37) and unrecognised contractual commitments; and (2) non-financial disclosures—for example an entity’s financial risk management objectives and policies (see IFRS 7). |
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B113 |
Paragraph 117 defines management-defined performance measures. An entity might have no management-defined performance measures, one management-defined performance measure or more than one. For example, an entity that publicly communicates its financial performance to users of financial statements using only totals and subtotals required to be presented or disclosed by IFRS Accounting Standards does not have a management-defined performance measure. |
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B114 |
To meet the definition of a management-defined performance measure, the measure must communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole. For example, if a subtotal of income and expenses that relates to a reportable segment disclosed in accordance with IFRS 8 does not provide information about an aspect of the financial performance of the entity as a whole, that subtotal cannot meet the definition of a management-defined performance measure. |
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B115 |
However, sometimes a subtotal of income and expenses that relates to a reportable segment could provide information about an aspect of the financial performance of the entity as a whole. For example, if a reportable segment contains a single main business activity of the entity and a subtotal of income and expenses relating to that segment is presented in the statement of profit or loss, that would indicate that the subtotal provides information about an aspect of the financial performance of the entity as a whole. In such cases, a subtotal of income and expenses related to that reportable segment would meet the definition of a management-defined performance measure if it met the other parts of the definition of a management-defined performance measure. |
Subtotals of income and expenses
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B116 |
A management-defined performance measure is a subtotal of income and expenses. Examples of measures that are not management-defined performance measures because they are not subtotals of income and expenses include: (a) subtotals of only income or only expenses (for example, a stand-alone measure of adjusted revenue that is not part of a subtotal that also includes expenses); (b) assets, liabilities, equity or combinations of these elements; (c) financial ratios (for example, return on assets) (see paragraph B117); (d) measures of liquidity or cash flows (for example, free cash flow); or (e) non-financial performance measures. |
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B117 |
A financial ratio is not a management-defined performance measure because it is not a subtotal of income and expenses. However, a subtotal that is the numerator or denominator in a financial ratio is a management-defined performance measure if the subtotal would meet the definition of a management-defined performance measure if it were not part of a ratio. Accordingly, an entity shall apply the disclosure requirements in paragraphs 121–125 to such a numerator or denominator. |
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B118 |
A subtotal of income and expenses that meets the definition of a management-defined performance measure in paragraph 117 is a management-defined performance measure whether or not it is presented in the statement of profit or loss. |
Public communications
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B119 |
A subtotal meets the definition of a management-defined performance measure only if an entity uses it in public communications outside its financial statements. Public communications include management commentary, press releases and investor presentations. For the purpose of defining management-defined performance measures, public communications exclude oral communications, written transcripts of oral communications and social media posts. |
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B120 |
Management-defined performance measures relate to the same reporting period as the financial statements. Specifically, a subtotal: (a) relating to interim financial statements but not to the annual financial statements can only be a management-defined performance measure in the interim financial statements; and (b) relating to annual financial statements but not to interim financial statements can only be a management-defined performance measure in the annual financial statements. |
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B121 |
An entity shall consider only public communications related to the reporting period to identify management-defined performance measures for the reporting period, unless as part of its financial reporting process it routinely issues such public communications after the date of issue of its financial statements. If that is the case, an entity shall consider public communications related to the previous reporting period to identify management-defined performance measures for the current reporting period. |
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B122 |
However, a measure used in the public communications related to the previous reporting period is not required to be identified as a management-defined performance measure for the current reporting period if there is evidence that indicates it will not be included in the public communications to be issued relating to the current reporting period. If such a measure had been disclosed as a management-defined performance measure in the previous reporting period and is not identified as such for the current reporting period, that would be a change to, or a cessation of, a management-defined performance measure to which the disclosure requirements in paragraph 124 apply. |
Subtotals similar to gross profit
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B123 |
In accordance with paragraph 118(a), subtotals similar to gross profit are not management-defined performance measures. A subtotal is similar to gross profit when it depicts the difference between a type of revenue and directly related expenses incurred in generating that revenue. Examples include: (a) net interest income; (b) net fee and commission income; (c) insurance service result; (d) net financial result (investment income minus insurance finance income and expenses); and (e) net rental income. |
Presumption about communicating management’s view
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B124 |
Paragraph 119 states that a subtotal of income and expenses used in public communications outside its financial statements is presumed to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole. Applying paragraph 120, an entity is permitted to rebut that presumption if it has reasonable and supportable information available that demonstrates that: (a) the subtotal does not communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole (see paragraphs B125–B128); and (b) the entity has a reason for using the subtotal in its public communications other than communicating management’s view of an aspect of the financial performance of the entity as a whole (see paragraph B129). |
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B125 |
Examples of reasonable and supportable information that demonstrate that a subtotal does not communicate to users of financial statements management’s view of an aspect of the financial performance of an entity as a whole are: (a) an entity communicating the subtotal without prominence (see paragraph B126); and (b) management not using the subtotal internally to assess or monitor the entity’s financial performance (see paragraphs B127–B128). |
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B126 |
Whether an entity communicates a subtotal without prominence is a matter of judgement based on a number of factors, for example: (a) the extent of references to the subtotal—few references indicate a lack of prominence, numerous references indicate prominence; and (b) the content of commentary or analysis about or relying on the subtotal, for example: (i) a description of the subtotal as information that does not communicate management’s view and that is provided only in response to frequent requests from some users of financial statements indicates a lack of prominence; (ii) use of the subtotal to support management analysis and commentary on the entity’s financial performance and to provide explanations of the reasons for changes in the subtotal from period to period indicates prominence; and (iii) a comparison of the subtotal to competitors’ subtotals or industry benchmarks indicates prominence. |
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B127 |
Management’s use of a subtotal to assess or monitor an aspect of the financial performance of the entity as a whole demonstrates that the subtotal communicates management’s view of an aspect of the financial performance of the entity as a whole. However, if management uses a subtotal internally but not in an entity’s public communications, the subtotal does not meet the definition of a management-defined performance measure. |
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B128 |
An entity might adjust a subtotal communicated in its public communications for use internally by management to assess or monitor the entity’s financial performance. In such cases, the entity shall use its judgement to assess whether the subtotal it uses internally is sufficiently similar to the subtotal it uses in its public communications so that paragraph B127 applies. The more similar the subtotals are, the more likely it is that the subtotal used in the entity’s public communications communicates to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole. |
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B129 |
Examples of reasonable and supportable information that demonstrates an entity has a reason for using a subtotal in its public communications other than to communicate to users of its financial statements management’s view of an aspect of the financial performance of the entity as a whole are that the subtotal: (a) is required in a public communication by law or regulation; (b) communicates performance related to financial statements prepared in accordance with an accounting framework other than IFRS Accounting Standards; (c) is used in a public communication to satisfy a request from an external party; or (d) is used in a public communication for the purpose of communicating information other than financial performance. |
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B130 |
Paragraph 120 applies to a subtotal and not to individual items of income and expense that comprise the subtotal. Accordingly, an entity cannot assert that a subtotal does not communicate management’s view of an aspect of the financial performance of the entity as a whole based on information that demonstrates that an individual item (or items) of income or expense within the subtotal does not represent such a view. |
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B131 |
An entity might change its use of a subtotal to communicate to users of its financial statements management’s view of an aspect of the financial performance of the entity as a whole. As a result a subtotal might become, or cease to be, a management-defined performance measure. Judgement is required to identify whether a measure not originally identified as a management-defined performance measure has become one, or whether a measure previously identified as a management-defined performance measure has ceased to be one. For example, an entity might be required by a regulator to report a particular subtotal that, when first used, does not communicate management’s view of an aspect of the financial performance of the entity as a whole. Over time the process of producing the subtotal might lead to management using the measure internally to assess and monitor the entity’s financial performance or expanding the commentary and explanations in public communications beyond the regulatory requirements, with the result that the measure meets the definition of a management-defined performance measure. |
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B132 |
Paragraph 122 requires an entity to include in a single note all information about management-defined performance measures required by paragraphs 121–125. If an entity also discloses other information in that note, the information in the note shall be labelled in a way that clearly distinguishes the information required by paragraphs 121–125 from the other information. |
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B133 |
For example, if an entity applies IFRS 8 and the reportable segment information includes a management-defined performance measure, the entity may disclose the required information about the management-defined performance measure in the same note as other reportable segment information, provided the entity either: (a) includes in that note the information required by paragraphs 121–125 for all its management-defined performance measures and, to fulfil the requirements in paragraph B132, labels the information in the note in a way that clearly distinguishes the information required by paragraphs 121–125 from the information required by IFRS 8; or (b) provides a separate note that includes the information required for all its management-defined performance measures, including those for which the entity includes information in the reportable segment information. |
A clear and understandable manner
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B134 |
Paragraph 123 requires an entity to label and describe its management-defined performance measures in a clear and understandable manner that does not mislead users of financial statements. To provide such a description, an entity shall disclose information that enables a user of financial statements to understand the items of income or expense included and excluded from the subtotal. Therefore, an entity shall: (a) label and describe the measure in a way that faithfully represents its characteristics in accordance with paragraph 43 (see paragraph B135); and (b) provide information specific to management-defined performance measures—that is: (i) if the entity has calculated the measure other than by using the accounting policies it used for items in the statement(s) of financial performance, the entity shall state that fact and the calculations it has used for the measure; and (ii) if, in addition, the calculation of the measure differs from accounting policies required or permitted by IFRS Accounting Standards, the entity shall state that additional fact and, if necessary, an explanation of the meaning of terms it uses (see paragraph B135(b)). |
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B135 |
To label and describe the measure in a way that faithfully represents its characteristics, an entity shall: (a) label the measure in a way that represents the characteristics of the subtotal (for example, using the label ‘operating profit before non-recurring expenses’ only for a subtotal that excludes from operating profit all expenses identified by the entity as non-recurring); and (b) explain the meaning of terms it uses in its descriptions that are necessary to understand the aspect of financial performance being communicated (for example, explaining how the entity defines ‘non-recurring expenses’). |
Reconciliation to the most directly comparable total or subtotal
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B136 |
Paragraph 123(c) requires an entity to reconcile each management-defined performance measure to the most directly comparable subtotal listed in paragraph 118 or total or subtotal specifically required to be presented or disclosed by IFRS Accounting Standards. For example, an entity that discloses in the notes a management-defined performance measure of adjusted operating profit or loss shall reconcile that measure to operating profit or loss. In aggregating or disaggregating the reconciling items disclosed, an entity shall apply the requirements in paragraphs 41–43. |
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B137 |
For each reconciling item, an entity shall disclose: (a) the amount(s) related to each line item in the statement(s) of financial performance; and (b) a description of how the item is calculated and contributes to the management-defined performance measure providing useful information (see paragraphs B138–B140), if necessary to provide the information required by paragraphs 123(a) and 123(b). |
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B138 |
The description required in paragraph B137(b) is required if there is more than one reconciling item and each item is calculated using a different method or contributes to providing useful information in a different way. For example, an entity might exclude from a management-defined performance measure several items of expense, some because they were identified as outside management’s control and others because they were identified as non-recurring. In such cases, disclosure of which items contributed to which type of adjustment would be required to explain how the management-defined performance measure provides useful information. |
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B139 |
A single explanation might apply to more than one item or might apply to all reconciling items collectively. For example, an entity might exclude several items of income or expense in calculating a management-defined performance measure based on an entity-specific application of ‘non-recurring’. In such a case, a single explanation that includes the entity’s definition of ‘non-recurring’ that applies to all reconciling items might satisfy the requirement in paragraph B137(b). |
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B140 |
Applying paragraph 123(c), an entity is permitted to reconcile a management-defined performance measure to a total or subtotal that is not presented in the statement(s) of financial performance. In such cases, an entity: (a) shall reconcile that total or subtotal to the most directly comparable total or subtotal presented in the statement(s) of financial performance; and (b) is not required to disclose the information required by paragraphs 123(d) and 123(e) for the reconciliation in (a). |
Income tax effect for each item disclosed in the reconciliation
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B141 |
An entity is required by paragraph 123(d) to disclose the income tax effect for each item disclosed in the reconciliation between a management-defined performance measure and the most directly comparable subtotal listed in paragraph 118 or total or subtotal specifically required to be presented or disclosed by IFRS Accounting Standards. An entity shall determine the income tax effect required by paragraph 123(d) by calculating the income tax effects of the underlying transaction(s): (a) at the statutory tax rate(s) applicable to the transaction(s) in the tax jurisdiction(s) concerned; (b) based on a reasonable pro rata allocation of the current and deferred tax of the entity in the tax jurisdiction(s) concerned; or (c) by using another method that achieves a more appropriate allocation in the circumstances. |
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B142 |
If, applying paragraph B141, an entity uses more than one method to calculate the income tax effects of reconciling items, it shall disclose how it determined the tax effects for each reconciling item. |
Appendix C
Effective date and transition
This appendix is an integral part of the IFRS Accounting Standard.
EFFECTIVE DATE
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C1 |
An entity shall apply this Standard for annual reporting periods beginning on or after 1 January 2027. Earlier application is permitted. If an entity applies this Standard for an earlier period, it shall disclose that fact in the notes. |
TRANSITION
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C2 |
An entity shall apply this Standard retrospectively applying IAS 8. However, an entity is not required to present the quantitative information specified in paragraph 28(f) of IAS 8. |
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C3 |
In its annual financial statements an entity shall disclose, for the comparative period immediately preceding the period in which this Standard is first applied, a reconciliation for each line item in the statement of profit or loss between: (a) the restated amounts presented applying this Standard; and (b) the amounts previously presented applying IAS 1 Presentation of Financial Statements. |
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C4 |
If an entity applies IAS 34 in preparing condensed interim financial statements in the first year of applying this Standard, the entity shall present in the condensed interim financial statements each heading it expects to use in applying the Standard and the subtotals required by paragraphs 69–74 of this Standard, despite the requirements in paragraph 10 of IAS 34. An entity shall not apply the requirements in paragraph 10 of IAS 34 for headings and subtotals in condensed interim financial statements until it has issued its first set of annual financial statements prepared in accordance with this Standard. |
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C5 |
If an entity applies IAS 34 in preparing interim financial statements in the first year of applying this Standard, the entity shall, as part of the information required by paragraph 16A(a) of IAS 34, disclose reconciliations for each line item presented in the statement of profit or loss for the comparative periods immediately preceding the current and cumulative current periods. The reconciliations are required between: (a) the restated amounts presented applying the accounting policies for the comparative period and the cumulative comparative period when the entity applies this Standard; and (b) the amounts previously presented applying the accounting policies for the comparative period and cumulative comparative period when the entity applied IAS 1. |
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C6 |
An entity is permitted, but not required, to disclose the reconciliations described in paragraphs C3 and C5 for the current period or earlier comparative periods. |
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C7 |
At the date of initial application of this Standard, an entity eligible to apply paragraph 18 of IAS 28 is permitted to change its election for measuring an investment in an associate or joint venture from the equity method to fair value through profit or loss in accordance with IFRS 9. If an entity makes such a change, the entity shall apply the change retrospectively applying IAS 8. An entity applying paragraph 11 of IAS 27 shall make the same change in its separate financial statements. |
WITHDRAWAL OF IAS 1
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C8 |
This Standard supersedes IAS 1. |
Appendix D
Amendments to other IFRS Accounting Standards
This appendix sets out the amendments to other IFRS Accounting Standards.
IFRS 1 First-time Adoption of International Financial Reporting Standards
Paragraphs 1, 3, 4, 4A, 5, 22, 32, D30 and E2 and Appendix A are amended. Paragraphs 32(za) and 39AJ are added.
OBJECTIVE
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1 |
The objective of this IFRS is to ensure that an entity’s first IFRS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that: (a) is transparent for users and comparable over all periods presented; (b) provides a suitable starting point for accounting in accordance with IFRS Accounting Standards; and (c) can be generated at a cost that does not exceed the benefits. |
SCOPE
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3 |
An entity’s first IFRS financial statements are the first annual financial statements in which the entity adopts IFRSs, by an explicit and unreserved statement in those financial statements of compliance with IFRS Accounting Standards. Financial statements in accordance with IFRSs are an entity’s first IFRS financial statements if, for example, the entity: (a) presented its most recent previous financial statements: ... (ii) in conformity with IFRSs in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IFRS Accounting Standards; (iii) containing an explicit statement of compliance with some, but not all, IFRS Accounting Standards; ... (c) prepared a reporting package in accordance with IFRSs for consolidation purposes without preparing a complete set of financial statements as defined in IFRS 18 Presentation and Disclosure in Financial Statements or ... |
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4 |
This IFRS applies when an entity first adopts IFRSs. It does not apply when, for example, an entity: (a) stops presenting financial statements in accordance with national requirements, having previously presented them as well as another set of financial statements that contained an explicit and unreserved statement of compliance with IFRS Accounting Standards; (b) presented financial statements in the previous year in accordance with national requirements and those financial statements contained an explicit and unreserved statement of compliance with IFRS Accounting Standards; or (c) presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with IFRS Accounting Standards, even if the auditors qualified their audit report on those financial statements. |
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4A |
Notwithstanding the requirements in paragraphs 2 and 3, an entity that has applied IFRSs in a previous reporting period, but whose most recent previous annual financial statements did not contain an explicit and unreserved statement of compliance with IFRS Accounting Standards, must either apply this IFRS or else apply IFRSs retrospectively in accordance with IAS 8 Basis of Preparation of Financial Statements as if the entity had never stopped applying IFRSs. ... |
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5 |
This IFRS does not apply to changes in accounting policies made by an entity that already applies IFRSs. Such changes are the subject of: (a) requirements on changes in accounting policies in IAS 8; and ... |
PRESENTATION AND DISCLOSURE
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...
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22 |
Some entities present historical summaries of selected data for periods before the first period for which they present full comparative information in accordance with IFRSs. This IFRS does not require such summaries to comply with the recognition and measurement requirements of IFRSs. Furthermore, some entities present comparative information in accordance with previous GAAP as well as the comparative information required by IFRS 18. In any financial statements containing historical summaries or comparative information in accordance with previous GAAP, an entity shall: ... |
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Interim financial reports
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32 |
To comply with paragraph 23, if an entity presents an interim financial report in accordance with IAS 34 for part of the period covered by its first IFRS financial statements, the entity shall satisfy the requirements of IAS 34, unless stated otherwise, as well as the following requirements: (za) An entity shall present each heading it expects to use in applying IFRS 18 and the subtotals required by paragraphs 69–74 of that Standard, notwithstanding the requirements in paragraph 10 of IAS 34. An entity shall apply the requirements in paragraph 10 of IAS 34 for headings and subtotals in condensed financial statements after it has issued its first IFRS financial statements prepared in accordance with IFRS 18. ... |
EFFECTIVE DATE
...
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39AJ |
IFRS 18 issued in April 2024 amended paragraphs 1, 3, 4, 4A, 5, 22, 32, D30 and E2, amended Appendix A and added paragraph 32(za). An entity shall apply those amendments when it applies IFRS 18. ... |
Appendix A
Defined terms
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| first IFRS financial statements |
The first annual financial statements in which an entity adopts IFRS Accounting Standards, by an explicit and unreserved statement of compliance with IFRS Accounting Standards. |
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| IFRS Accounting Standards |
IFRS Accounting Standards are accounting standards issued by the International Accounting Standards Board. They comprise: (a) International Financial Reporting Standards; (b) International Accounting Standards; (c) IFRIC Interpretations; and (d) SIC Interpretations. IFRS Accounting Standards were previously known as International Financial Reporting Standards, IFRS, IFRSs and IFRS Standards. |
...
Appendix D
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Severe hyperinflation
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D30 |
When the functional currency normalisation date falls within a 12-month comparative period, the comparative period may be less than 12 months, provided that a complete set of financial statements (as required by paragraph 10 of IFRS 18) is provided for that shorter period. ... |
Appendix E
...
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E2 |
An entity that chooses to present comparative information that does not comply with IFRS 7 and the completed version of IFRS 9 (issued in 2014) in its first year of transition shall: ... (d) apply paragraph 6C(c) of IAS 8 to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance. |
A footnote is added to the end of paragraph 39K.
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- In April 2024 the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements and carried over these requirements in IAS 1 Presentation of Financial Statements to IFRS 18.
A footnote is added to ‘IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
’ in paragraph 39P.
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- When it issued IFRS 18, the IASB changed the title of IAS 8 to Basis of Preparation of Financial Statements.
A footnote is added to ‘IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
’ in paragraphs 39Q and 39R.
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- When it issued IFRS 18, the IASB changed the title of IAS 8.
The footnote to the definition of IFRS Accounting Standards in Appendix A is deleted.
IFRS 2 Share-based Payment
A footnote is added to ‘IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
’ in paragraph 59B.
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- When it issued IFRS 18 Presentation and Disclosure in Financial Statements in April 2024, the IASB changed the title of IAS 8 to Basis of Preparation of Financial Statements.
A footnote is added to ‘IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.’ in paragraph 63E.
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- When it issued IFRS 18, the IASB changed the title of IAS 8.
IFRS 3 Business Combinations
Paragraphs 50 and B64 are amended. Paragraph 64R is added.
THE ACQUISITION METHOD
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Measurement period
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50 |
After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error in accordance with IAS 8 Basis of Preparation of Financial Statements. ... |
EFFECTIVE DATE AND TRANSITION
Effective date
...
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64R |
IFRS 18 Presentation and Disclosure in Financial Statements issued in April 2024 amended paragraphs 50 and B64. An entity shall apply those amendments when it applies IFRS 18. ... |
Appendix B
Application guidance
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DISCLOSURES (APPLICATION OF PARAGRAPHS 59 AND 61)
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B64 |
To meet the objective in paragraph 59, the acquirer shall disclose the following information for each business combination that occurs during the reporting period: ... (q) the following information: ... If disclosure of any of the information required by this subparagraph is impracticable, the acquirer shall disclose that fact and explain why the disclosure is impracticable. This IFRS uses the term ‘impracticable’ with the same meaning as in IAS 8 Basis of Preparation of Financial Statements. |
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Paragraphs 2, 3, 5A, 5B, 13, 17, 26A, 28, 33–36A, 38, 39 and 41, and the headings before paragraphs 31 and 38, are amended. Paragraph 31 is not amended but included for ease of reference. Paragraph 44N is added.
SCOPE
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2 |
The classification, presentation and disclosure requirements of this IFRS apply to all recognised non-current assets and to all disposal groups of an entity. The measurement requirements of this IFRS apply to all recognised non-current assets and disposal groups (as set out in paragraph 4), except for those assets listed in paragraph 5 which shall continue to be measured in accordance with the Standard noted. |
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3 |
Assets classified as non-current in accordance with IFRS 18 Presentation and Disclosure in Financial Statements shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this IFRS. Assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale shall not be classified as current unless they meet the criteria to be classified as held for sale in accordance with this IFRS. ... |
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5A |
The classification, presentation, measurement and disclosure requirements in this IFRS applicable to a non-current asset (or disposal group) that is classified as held for sale apply also to a non-current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners (held for distribution to owners). |
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5B |
This IFRS specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. Disclosures in other IFRSs do not apply to such assets (or disposal groups) unless those IFRSs require: (a) specific disclosures in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations; or (b) disclosures about measurement of assets and liabilities within a disposal group that are not within the scope of the measurement requirement of IFRS 5 and such disclosures are not already provided in the other notes to the financial statements. Additional disclosures about non-current assets (or disposal groups) classified as held for sale or discontinued operations may be necessary to comply with the disclosure requirements of IFRS 18 and the requirements of IAS 8 Basis of Preparation of Financial Statements, in particular paragraphs 6A and 31A of IAS 8. |
CLASSIFICATION OF NON-CURRENT ASSETS (OR DISPOSAL GROUPS) AS HELD FOR SALE OR AS HELD FOR DISTRIBUTION TO OWNERS
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Non-current assets that are to be abandoned
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13 |
An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. However, if the disposal group to be abandoned meets the criteria in paragraph 32(a)–(c), the entity shall present or disclose the results and cash flows of the disposal group as discontinued operations in accordance with paragraphs 33 and 34 at the date on which it ceases to be used. Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold. ... |
MEASUREMENT OF NON-CURRENT ASSETS (OR DISPOSAL GROUPS) CLASSIFIED AS HELD FOR SALE
Measurement of a non-current asset (or disposal group)
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17 |
When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be classified in profit or loss applying the requirements in IFRS 18 relating to income and expenses arising from the remeasurement of a non-current asset (or disposal group) classified as held for sale. ... |
Changes to a plan of sale or to a plan of distribution to owners
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