Framework & Presentation

Lecture plan: Housekeeping Course assessment DP requirements

The perimeter wall Corporate Laws Amendment Act of 2006 (proclaimed on 12 Nov 2007 and published in the Government Gazette on 14 December 2007) amends the Companies Act of 1973 Companies Bill of 2008 JSE Listing Requirements

The walls and windows The Framework IAS 1

The bathroom IAS 12 The foundation & walls Framework

Framework for the preparation and presentation of financial statements

objectives of financial statements underlying assumptions (2) qualitative characteristics (4) the elements (5) recognition of the elements measurement of the elements

Objective of f/statements providing info about: financial position, perform. & cash flows results of mgmts stewardship of the resources entrusted to it useful to wide range of users for econ decisions.

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Framework & Presentation

Underlying assumptions - accrual basis - going concern Qualitative characteristics - understandable - relevance - reliability - comparability.

Elements in the financial statements

Assets Resource Controlled by the entity As a result of a past event From which future economic benefits are expected to flow to the entity

Liabilities Present obligation Of the entity As a result of a past event From which future economic benefits are expected to flow from the entity

Equity Assets less Liabilities

Income An increase in economic benefits During the accounting period In the form of increases in assets or decreases in liabilities Resulting in increases in equity Other than contributions from equity participants

Expenses A decrease in economic benefits During the accounting period In the form of decreases in assets or increases in liabilities Resulting in decreases in equity Other than distributions to equity participants

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Framework & Presentation

Recognition & measurement of elements Recognition: Meet: definition recognition criteria Measurement: Historical cost e.g. land Current cost: e.g. PPE at fair value calculated according to an active market Present values: e.g. PPE at fair value calculated in accordance with DCF techniques Realisable values: e.g. inventories carried at lower of cost or NRV Liquidation values etc

Recognition of elements

Asset and liability Future economic benefits probable Reliably measurable

Income and expense Reliably measurable

Recognition criteria met?

Yes Recognise; and where applicable Disclose separately (if required by IFRS or for fair presentation)

No Is the item material to the user?

Yes Disclose

No Ignore

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Framework & Presentation

The windows into our business IAS 1 Presentation of financial statements

objective of IAS 1 objective of financial statements the 5 statements in a set of fin. statements the 8 general features the structure & content of fin. statements

Set of financial statements - Statement of financial position (old BS) - Statement of comprehensive income (old IS) - Statement of changes in equity - Statement of cash flows - Notes to the financial statements

ABC Ltd Statement of financial position As at 31 December 20X2 ASSETS Non-current assets Property, plant and equipment Goodwill Other intangible assets Current assets Inventories Trade and other receivables Cash and cash equivalents EQUITY AND LIABILITIES Issued SC and reserves (the total in the SOCIE) Non-current liabilities Long-term borrowings Deferred tax Provisions Current liabilities Trade and other payables Current portion of long-term borrowings Short-term borrowings Current tax payable

20X2 C000s X X X X X X X X X X X X X X X X X X X X

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Framework & Presentation

Statement of Comprehensive Income Expenses Function method (i.e. use or purpose) Nature method

One statement or two statements OR Statement of comprehensive income (all inclusive) Statement of profit or loss Statement of comprehensive income

Other comprehensive income Change in revaluation surplus Actuarial gains or losses on DBP Gains or losses on translating foreign operations Gains or losses on available-for-sale financial assets Effective portion of gains or losses on hedging instruments in a cash flow hedge

ABC Ltd Statement of comprehensive income For the year ended 31 December 20X2 (function method) 20X2 C Revenue Other income Cost of sales Distribution costs Administration costs Other costs Finance costs Profit before tax Tax expense Profit for the period Other comprehensive income Total comprehensive income (X) X (X) X X X X X

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Framework & Presentation

ABC Ltd Statement of comprehensive income For the year ended 31 December 20X2 (function method) 20X2 C Revenue Other income Add/ (Less) Changes in inventories of FG and WIP Raw materials and consumables used Employee benefit costs Depreciation Other expenses Total expenses Finance costs Profit before tax Tax expense Profit for the period Other comprehensive income Total comprehensive income X X (X) (X) (X) (X) (X) (X) (X) X (X) X X X

See example 16 in GG: SOCI: two layouts compared Reclassification adjustments Occurs with gains or losses on: translating foreign operations; re-measuring available-for-sale financial assets; the effective portion of hedging instruments in a cash flow hedge.

Never occurs on: changes in a revaluation surplus; actuarial gains and losses on defined benefit plans.

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Framework & Presentation

Changes to income and expenses Changes made via profit or loss (SOCI): Adjustments to income and expenses through, for example: o o o Changes in estimates Correction of current period errors Correction of prior period errors immaterial

Changes made via retained earnings (SOCIE): o o Correction of prior period errors material Changes in accounting policy

ABC Ltd Statement of changes in equity For the year ended 31 December 20X2 Share capital C Bal: 1/1/20X1 restated X Previously reported Change in acc policy Correction of error Total CI Less divs declared Add issue of shares Bal: 31/12/20X1 - restated Previously reported Change in acc policy Correction of error Total CI Less divs declared Add issue of shares Bal: 31/12/20X2 X X X X

Share premium C X

Retained earnings C X X X X X (X)

Total equity C X

X X X X X X X (X) X X X X X

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Framework & Presentation

Notes to the fin. statements Statement of compliance Significant accounting policies measurement bases acc policies important to understanding judgments made by mgmt re acc policies chosen

Information about: items in other 4 FSs that need deeper disclosure items not in other 4 FSs where an IFRS/ statute requires disclosure non-financial disclosures (e.g. mgmt objectives and policies re risk management) where you think disclosure is relevant judgments made by mgmt affecting amts capital management

2 Kinds of Judgments made by Mgmt which acc policy to use (source of policy uncertainty) making estimates (sources of estimation uncertainty)

Sources of estimation uncertainty which acc policy to apply making estimates (sources of estimation uncertainty)

Disclosure needed if: significant risk that a material adjustment to the CA of an A or L may be needed in the next financial year.

Disclosure would include: 6 aspects need disclosure (See SGIFR: Chp2, Sect 4) or (See GG pg 52)

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Framework & Presentation

Example 1: Source of Estimation Uncertainty What S of EU disclosure is required for an investment in shares measured at fair value based on market prices, where a a significant risk exists of a material change to its CA next year?

Answer 1: None, because: the possible change in CA is caused by the market price changing not by incorrect assumptions made by management.

Example 2: Judgements re choice of acc policy Give an example of a mgmt judgment re choice of policy.

Answer 2: When management decides that one of its buildings is held for sale and is not held for use with the result that IAS 40: Investment property is used to account for that building instead of IAS 16: Property, plant and equipment

Example 3: Judgements causing estimation uncertainty

Give an example of:

a judgement that may be a source of EU, the A or L it may affect and briefly explain how the judgement could affect the estimated amount.

Answer 3: Judgement: mgmt thought we could win a legal case Account affected: Provisions for law suits (L): How affected: If judgement wrong (i.e. we lose), the amount could be underestimated or possibly not provided for at all!

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Framework & Presentation

Judgement: mgmt expects technological advances that they think will reduce the cost of the future rehabilitation of environment due in 20 years Account affected: Provision for rehabilitation costs How affected: If the technological advances dont happen, the provision would be underestimated if unexpected technology is developed, the provision could be overestimated

Judgement: mgmt expects to have to rehabilitate environment in 20 years Account affected: Provision for rehabilitation costs How affected: If the rehabilitation only has to happen in 30 years, the provision will be overestimated (estimates based on PV factors for 20 years instead of 30 years)

General features

- fair presentation & compliance with IFRS; sometimes departure required & allowed sometimes departure required but disallowed

- going concern; - accrual basis; - materiality and aggregation; - offsetting; sometimes allowed sometimes required sometimes disallowed

- reporting frequency; - comparative information; if change in presentation since prior yr 2 yrs of comparatives needed for SOFP

- consistency.

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