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  • Insights into IFRS® An overview

    Audit Committee Institute

    September 2019

    home.kpmg/ifrs

    https://home.kpmg/xx/en/home/services/audit/international-financial-reporting-standards.html

  • About the Audit Committee Institute Sponsored by more than 40 member firms around the world, KPMG’s Audit Committee Institutes (ACIs) provide audit committee and board members with practical insights, resources and peer exchange opportunities focused on strengthening oversight of financial reporting and audit quality, and the array of challenges facing boards and businesses today – from risk management and emerging technologies to strategy and global compliance.

    For more information, speak to your usual KPMG contact or go to home.kpmg/globalACI.

    http://www.kpmg.com/globalACI

  • Insights into IFRS: An overview | 1

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

    Facing new challenges The past few years have certainly been busy for financial statement preparers, so many will be relieved to have filed their first sets of financial statements under the new financial instruments and revenue standards. The focus now will be on consistency in application of the new standards and the post-implementation issues that will undoubtedly emerge.

    However, there’s no let-up for preparers as they focus on their next milestones – the implementation of IFRS 16, which reveals lease liabilities that might previously have been ‘hidden’, and, for insurers, perhaps the biggest accounting change: IFRS 17. Although the deferral of IFRS 17’s effective date to 2022 and the proposed amendments will help, there’s still a huge amount to do, with the impacts felt far beyond accounting. The benefits for users of financial statements, including greater transparency and comparability, should not be underestimated.

    Looking forward, as businesses grow and evolve – whether by developing new goods and services, embedding new technology or seeking new business opportunities – new challenges will arise when navigating IFRS Standards. Our practical guidance in Insights into IFRS reflects the extensive insight and hands-on experience that we’ve gained on all of the standards, so it’s well-placed to help you apply them consistently across your business, whatever direction that takes. It will also help you with the disclosures that you will need to provide in your financial statements; remember to keep them clear and meaningful – users require financial information that is relevant and consistent. For more, visit home.kpmg/betterbusinessreporting.

    This companion guide aims to help Audit Committee members and others by providing a structured guide to the key issues arising from the Standards.

    Audit Committee Institute September 2019

    https://home.kpmg/xx/en/home/services/audit/better-business-reporting.html

  • 2 | Insights into IFRS: An overview

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

    Contents Facing new challenges 1

    How to navigate this publication 4

    1 Background 5 1.1 Introduction 5 1.2 The Conceptual Framework 6

    2 General issues 8 2.1 Form and components of financial statements 8 2.2 Changes in equity 10 2.3 Statement of cash flows 11 2.4 Fair value measurement 12 2.5 Consolidation 14 2.6 Business combinations 17 2.7 Foreign currency translation 19 2.8 Accounting policies, errors and estimates 21 2.9 Events after the reporting date 22 2.10 Hyperinflation 23

    3 Statement of financial position 24 3.1 General 24 3.2 Property, plant and equipment 25 3.3 Intangible assets and goodwill 27 3.4 Investment property 29 3.5 Associates and the equity method 31 3.6 Joint arrangements 33 3.7 [Not used] 3.8 Inventories 34 3.9 Biological assets 35 3.10 Impairment of non-financial assets 36 3.11 [Not used] 3.12 Provisions, contingent assets and liabilities 38 3.13 Income taxes 40

    4 Statement of profit or loss and other comprehensive income 43 4.1 General 43 4.2 Revenue 45 4.3 Government grants 48 4.4 Employee benefits 49 4.5 Share-based payments 51 4.6 Borrowing costs 53

    5 Special topics 54 5.1 Leases 54 5.2 Operating segments 56

    Contents

  • Insights into IFRS: An overview | 3

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

    5.3 Earnings per share 58 5.4 Non-current assets held for sale and discontinued operations 60 5.5 Related party disclosures 61 5.6 Investment entities 62 5.7 Non-monetary transactions 64 5.8 Accompanying financial and other information 65 5.9 Interim financial reporting 66 5.10 Disclosure of interests in other entities 67 5.11 Extractive activities 69 5.12 Service concession arrangements 70 5.13 Common control transactions and Newco formations 72

    6 First-time adoption of IFRS Standards 74 6.1 First-time adoption of IFRS Standards 74 6.2 Regulatory deferral accounts and first-time adoption of IFRS Standards 76

    Financial instruments – Introduction to sections 7 and 7I 78

    7 Financial instruments 79 7.1 Scope and definitions 79 7.2 Derivatives and embedded derivatives 80 7.3 Equity and financial liabilities 81 7.4 Classification of financial assets 82 7.5 Classification of financial liabilities 83 7.6 Recognition and derecognition 84 7.7 Measurement 85 7.8 Impairment 87 7.9 Hedge accounting 88 7.10 Presentation and disclosures 90 7.11 Transition to IFRS 9 92

    7I Financial instruments – IAS®39 94 7I.1 Scope and definitions 94 7I.2 Derivatives and embedded derivatives 95 7I.3 Equity and financial liabilities 96 7I.4 Classification of financial assets and financial liabilities 97 7I.5 Recognition and derecognition 98 7I.6 Measurement and gains and losses 99 7I.7 Hedge accounting 101 7I.8 Presentation and disclosures 103

    8 Insurance contracts 105 8.1 Insurance contracts 105 8.1A Insurance contracts: IFRS 17 107

    Appendix I 110 New standards or amendments for 2019 and forthcoming requirements 110

    Keeping in touch 113

  • 4 | Insights into IFRS: An overview

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home

    How to navigate this publication This guide provides a quick overview of the key requirements of IFRS Standards, for easy reference, and is organised by topic.

    This edition is designed for companies with a year end of 31 December 2019. It is based on IFRS Standards in issue at 1 August 2019, and includes standards and interpretations that are effective at that date1 (‘currently effective requirements’) and significant amendments that are effective in later periods (‘forthcoming requirements’).

    Appendix I lists new standards or amendments for 2019 and forthcoming requirements, other than minor amendments.

    1. IAS 26 Accounting and Reporting by Retirement Benefit Plans and the IFRS for Small and Medium-sized Entities are excluded.

  • Insights into IFRS: An overview | 5

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home

    1 Background

    1.1 Introduction Currently effective: IFRS Foundation Constitution, International Accounting Standards

    Board and IFRS Interpretations Committee Due Process Handbook, Preface to IFRS

    Standards, IAS 1

    IFRS Standards

    – IFRS Standards (the Standards) are a set of globally accepted standards for financial reporting applied primarily by listed entities in over 160 countries.

    – Individual standards and interpretations are developed and maintained by the International Accounting Standards Board and the IFRS Interpretations Committee.

    – The Standards are designed for use by profit-oriented entities.

    Compliance with IFRS Standards

    – Any entity claiming compliance with the Standards complies with all standards and interpretations, including disclosure requirements, and makes an explicit and unreserved statement of compliance with the Standards.

    – The overriding requirement of the Standards is for the financial statements to give a fair presentation (or a true and fair view).

  • 6 | Insights into IFRS: An overview

    © 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Home

    1.2 The Conceptual Framework Currently effective: Conceptual Framework for Financial Reporting

    Purpose

    – The Conceptual Framework is a point of reference:

    - for the International Accounting Standards Board and the IFRS Interpretations Committee in developing and maintaining standards and interpretations; and

    - for preparers of financial statements in the absence of specific guidance in IFRS Standards.

    – The Conceptual Framework does not override any specific standard.

    Objective of general purpose financial reporting

    – The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

    Qualitative characteristics of useful financial information

    – For financial information to be useful, it needs to be relevant to users and faithfully represent what it purports to represent. The usefulness of financial information is enhanced by its comparability, verifiability, timeliness and understandability.

    Financial statements and the reporting entity

    – The Conceptual Framework sets the objective of financial statements, describe