International financial
reporting and
standards (IFRS)
BUSINESS ENGINEERING –
FINANCIAL ENGINEERING
Exam:
- Multiple choice questions based on the review documents posted on blackboard (around 50%) – between
25 and 30 question; for each question is only one correct answer
+ cesuur
- Problem solving activities (you get a scenario, and you have to solve) (50%) – 4 or 5 practical problems (1
problem relates to leasing; 3 others will relate to only one topic ; 1 problem which will combine 2 or 3
things about the course = most difficult)
Leasing tables – appendix on the exam ; not bring it yourself
! IFRS numbers doesn’t need to be known
,Table of Contents
CHAPTER 1 – INTRODUCTION AND CONCEPTUAL FRAMEWORK..........................................5
1. INTRODUCTION TO IFRS & IASB’S CONCEPTUAL FRAMEWORK...............................................................5
1.1 IASB Governance structure........................................................................................................ 5
1.2 Standard setting due process..................................................................................................... 7
1.3 IFRS adoption worldwide............................................................................................................ 7
2. CONCEPTUAL FRAMEWORK................................................................................................................... 8
2.1 The objective of general-purpose financial reporting.................................................................8
2.2 Qualitative characteristics of useful accounting information.....................................................8
2.3 Financial statements and the reporting entity............................................................................9
3. THE ELEMENTS OF FINANCIAL STATEMENTS........................................................................................10
3.1 Statement of financial position................................................................................................. 10
3.2 Statement of profit or loss and Statement of other comprehensive income.............................11
3.2.1 Statement of profit or loss..................................................................................................... 11
3.2.2 Statement of comprehensive income.....................................................................................12
4. MEASUREMENT................................................................................................................................. 12
CHAPTER 2 – FAIR VALUE MEASUREMENT (IFRS 13)..........................................................14
1. WHAT IS FAIR VALUE?........................................................................................................................ 14
2. WHAT IS THE RELEVANT MARKET?...................................................................................................... 14
3. FAIR VALUE HIERARCHY..................................................................................................................... 15
4. VALUE IN USE................................................................................................................................... 16
CHAPTER 3 – INVENTORIES................................................................................................... 17
1. DETERMINE WHAT IS INCLUDED IN INVENTORY....................................................................................17
2. PERPETUAL VERSUS PERIODIC INVENTORY SYSTEMS..............................................................................18
2.1 Perpetual inventory system...................................................................................................... 18
2.2 Periodic inventory system......................................................................................................... 18
3. COST FLOW ASSUMPTIONS.................................................................................................................. 19
3.1 Unit cost................................................................................................................................... 19
4. VALUATION: LOWER-OF-COST-OR-NET REALIZABLE VALUE (LCNRV)......................................................21
5. INVENTORY ESTIMATION: RETAIL INVENTORY METHOD..........................................................................22
CHAPTER 4 – TANGIBLE NON-CURRENT ASSETS.................................................................25
1. IAS 16: PROPERTY PLANT EQUIPMENT (PPE)......................................................................................25
1.1 Initial measurement.................................................................................................................. 25
1.2 During the useful life................................................................................................................ 27
1.2.1 Subsequent costs................................................................................................................... 27
1.2.2 Depreciation.......................................................................................................................... 27
1.2.3 Revaluation model................................................................................................................ 29
2. IAS 23: BORROWING COSTS............................................................................................................... 31
3. IAS20: GOVERNMENT GRANTS........................................................................................................... 33
4. IAS 41: BIOLOGICAL ASSETS.............................................................................................................. 34
CHAPTER 5 – INTANGIBLE ASSETS, IMPAIRMENT AND DISPOSAL OF ASSETS..................36
1.IAS 38 INTANGIBLE ASSETS................................................................................................................ 36
1.1 Definition.................................................................................................................................. 36
1.2 Initial measurement.................................................................................................................. 37
1.3 Self-constructed intangible assets............................................................................................ 37
1.4 Amortization of intangible assets.............................................................................................. 38
1.5 Derecognition of tangible and intangible assets.......................................................................38
2. IAS 36 IMPAIRMENT OF ASSETS......................................................................................................... 38
2.1 Impairment of PPE.................................................................................................................... 38
2.2 Impairment of a group of assets............................................................................................... 40
2.3 Impairment of intangible assets................................................................................................ 40
2.4 Impairment of Goodwill............................................................................................................ 41
3. IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS...................................41
3.1 Assets to be disposed of............................................................................................................ 41
PAGE 1
, 3.2 Discontinued operations........................................................................................................... 41
3.3 Allocation of impairment loss.................................................................................................... 42
CHAPTER 6 - IFRS 16: LEASING............................................................................................. 43
1.LEASING DEFINITIOON ACCORDING TO IFRS 16....................................................................................43
2.ACCOUNTING TREATMENT LESSEE........................................................................................................ 43
2.1 Initial recognition..................................................................................................................... 43
2.1.1 The lessee.............................................................................................................................. 43
2.1.2 Lease liablity.......................................................................................................................... 43
2.1.3 Right-of-use asset................................................................................................................... 45
2.2 During the execution of the lease contract...............................................................................45
3.ACCOUNTING TREATMENT LESSOR....................................................................................................... 47
3.1 Lessor accounting for finance lease.......................................................................................... 48
3.2 Lessor accounting for operation lease......................................................................................49
4.SALE-LEASEBACK TRANSACTIONS......................................................................................................... 50
CHAPTER 7 – FINANCIAL INSTRUMENTS (GUEST LECTURE PWC)......................................53
1.CLASSIFICATION & MEASUREMENT...................................................................................................... 53
1.1 Definition of a financial instrument.......................................................................................... 53
1.2 Debt vs equity........................................................................................................................... 53
1.3 Three phases of IFRS 9............................................................................................................. 54
1.4 General model........................................................................................................................... 55
1.4.1 Amortised cost....................................................................................................................... 55
1.4.2 Business assessment model (BM Test)..................................................................................56
1.4.3 Other business model............................................................................................................ 57
2.4.4 Reclassification criteria......................................................................................................... 58
1.4.5 Solely payments of principal and interest (SPPI)...................................................................59
2. IMPAIRMENT THEORY......................................................................................................................... 61
2.1 Three staged model for impairment......................................................................................... 61
2.2 IFRS 9: expected credit loss..................................................................................................... 62
3. IMPAIRMENT EXERCISE....................................................................................................................... 64
3.1 Significant increase in credit risk (SICR)..................................................................................64
3.2 Calculating expected credit losses............................................................................................ 65
4. RISK MANAGEMENT DISCLOSURE........................................................................................................ 65
4.1 Under IFRS 7............................................................................................................................ 65
4.2 IFRS 7 vs IFRS 13..................................................................................................................... 66
4.3 Under IFRS 13.......................................................................................................................... 66
4.4 Under IFRS 9............................................................................................................................ 66
5. ACCOUNTING FOR DERIVATIVES – UNDER IFRS 9.................................................................................67
6. HEDGE ACCOUNTING......................................................................................................................... 67
6.1 Back to basics........................................................................................................................... 67
6.2 Under IAS 39............................................................................................................................ 68
6.3 Under IFRS 9............................................................................................................................ 71
CHAPTER 8 – REVENUE FROM CONTRACTS WITH CUSTOMERS (IFRS 15).........................72
1.IDENTIFY THE CONTRACTS WITH A CUSTOMER.......................................................................................72
2.IDENTIFY THE PERFORMANCE OBLIGATIONS IN THE CONTRACT...............................................................73
3.DETERMINE THE TRANSACTION PRICE................................................................................................... 77
4. ALLOCATE THE TRANSACTION PRICE TO THE PERFORMANCE OBLIGATIONS IN THE CONTRACT...................80
5.RECOGNIZE REVENUE WHEN (OR AS) THE ENTITY SATISFIES A PERFORMANCE OBLIGATION.......................81
5.1 Licenses.................................................................................................................................... 82
5.2 Bill-and-hold arrangements....................................................................................................... 82
CHAPTER 9 – PROVISIONS, CONTINGENT LIABILITIES AND CONTIGENT ASSETS (IAS 37)
................................................................................................................................................. 83
1.CONTEXT OF IAS 37........................................................................................................................... 83
2.RECOGNITION CRITERIA PROVISIONS.................................................................................................... 84
3.RECOGNITION CRITERIA RESTRUCTURING PROVISIONS............................................................................86
4.FUTURE OPERATING LOSSES AND ONEROUS CONTRACTS.........................................................................86
PAGE 2
, 4.1 Future operating losses............................................................................................................ 86
4.2 Onerous contracts..................................................................................................................... 86
5.CONTINGENT LIABILITIES.................................................................................................................... 87
6.CONTINGENT ASSETS.......................................................................................................................... 87
CHAPTER 10 – ACCOUNTING FOR PENSIONS (IAS 19).........................................................89
1. INTRODUCTION.................................................................................................................................. 89
1.1 State pension............................................................................................................................ 89
1.2 Supplementary pension plans................................................................................................... 89
1.2.1 Design.................................................................................................................................... 89
1.2.2 Social legislation.................................................................................................................... 90
1.2.3 Funding legislation................................................................................................................ 90
1.2.4 Accounting standards............................................................................................................ 91
2. BASIC PRINCIPLES............................................................................................................................. 91
2.1 Objective................................................................................................................................... 91
2.2 Classification of benefit plans................................................................................................... 92
2.3 Methodology & actuarial assumptions......................................................................................93
2.4 Amounts recognized in financial statements............................................................................94
2.5 Disclosures................................................................................................................................ 97
3. ACTUARIAL ASSUMPTIONS.................................................................................................................. 97
4. SPECIAL TOPICS (BELGIUM)................................................................................................................ 99
4.1 Fair value of insurance policies................................................................................................ 99
4.2 “DC” pension plans subject to minimum guaranteed rates of return.......................................99
CHAPTER 11 – PRESENTATION AND DISCLOSURE IN PUBLISHED FINANCIAL
STATEMENTS........................................................................................................................ 101
1. IAS 1: PRESENTATION OF FINANCIAL STATEMENTS............................................................................101
1.1 Current versus non-current liabilities.....................................................................................101
1.2 Offsetting................................................................................................................................ 102
1.3 Statement of profit or loss...................................................................................................... 102
1.4 Aggregating............................................................................................................................ 102
2. IAS 8: ACCOUNTING POLICIES, CHANGES TO ACCOUNTING ESTIMATES AND ERRORS............................103
2.1 Change in accounting policy................................................................................................... 103
2.2 Change in estimate................................................................................................................. 104
2.3 Correction of errors................................................................................................................ 104
3. IAS 10: EVENTS AFTER THE REPORTING PERIOD...............................................................................104
3.1 Events after the reporting period........................................................................................... 104
4. IFRS 8: DISCLOSURE OF SEGMENT INFORMATION..............................................................................105
4.1 What is an operating segment?............................................................................................... 105
4.2 What is a reportable segment?............................................................................................... 106
4.3 Which information has to be provided?..................................................................................106
4.4 Reconcilliation........................................................................................................................ 107
4.5 Additional entity-wide disclosures.......................................................................................... 107
CHAPTER 12 – BUSINEESS COMBINATIONS.......................................................................108
1. WHAT IS A BUSINESS COMBINATION?................................................................................................ 108
1.1 What is a business combination?............................................................................................ 108
1.2 What is control over an acquiree?.......................................................................................... 109
2. ACQUISITION METHOD (IFRS 13)..................................................................................................... 109
2.1 Identify an acquirer................................................................................................................ 109
2.2 Determining the acquisition date............................................................................................ 110
2.3 Measuring assets and liabilities.............................................................................................. 110
2.4 Measuring the consideration transferred...............................................................................110
2.5 Non-controlling interests........................................................................................................ 111
2.6 Determing goodwill................................................................................................................. 111
3. BUSINESS COMBINATION IN STAGES (= STEP ACQUISITIONS)...............................................................112
4. DISCLOSURE REQUIREMENTS............................................................................................................ 113
ADDITIONAL EXERCISES...................................................................................................... 114
PAGE 3
reporting and
standards (IFRS)
BUSINESS ENGINEERING –
FINANCIAL ENGINEERING
Exam:
- Multiple choice questions based on the review documents posted on blackboard (around 50%) – between
25 and 30 question; for each question is only one correct answer
+ cesuur
- Problem solving activities (you get a scenario, and you have to solve) (50%) – 4 or 5 practical problems (1
problem relates to leasing; 3 others will relate to only one topic ; 1 problem which will combine 2 or 3
things about the course = most difficult)
Leasing tables – appendix on the exam ; not bring it yourself
! IFRS numbers doesn’t need to be known
,Table of Contents
CHAPTER 1 – INTRODUCTION AND CONCEPTUAL FRAMEWORK..........................................5
1. INTRODUCTION TO IFRS & IASB’S CONCEPTUAL FRAMEWORK...............................................................5
1.1 IASB Governance structure........................................................................................................ 5
1.2 Standard setting due process..................................................................................................... 7
1.3 IFRS adoption worldwide............................................................................................................ 7
2. CONCEPTUAL FRAMEWORK................................................................................................................... 8
2.1 The objective of general-purpose financial reporting.................................................................8
2.2 Qualitative characteristics of useful accounting information.....................................................8
2.3 Financial statements and the reporting entity............................................................................9
3. THE ELEMENTS OF FINANCIAL STATEMENTS........................................................................................10
3.1 Statement of financial position................................................................................................. 10
3.2 Statement of profit or loss and Statement of other comprehensive income.............................11
3.2.1 Statement of profit or loss..................................................................................................... 11
3.2.2 Statement of comprehensive income.....................................................................................12
4. MEASUREMENT................................................................................................................................. 12
CHAPTER 2 – FAIR VALUE MEASUREMENT (IFRS 13)..........................................................14
1. WHAT IS FAIR VALUE?........................................................................................................................ 14
2. WHAT IS THE RELEVANT MARKET?...................................................................................................... 14
3. FAIR VALUE HIERARCHY..................................................................................................................... 15
4. VALUE IN USE................................................................................................................................... 16
CHAPTER 3 – INVENTORIES................................................................................................... 17
1. DETERMINE WHAT IS INCLUDED IN INVENTORY....................................................................................17
2. PERPETUAL VERSUS PERIODIC INVENTORY SYSTEMS..............................................................................18
2.1 Perpetual inventory system...................................................................................................... 18
2.2 Periodic inventory system......................................................................................................... 18
3. COST FLOW ASSUMPTIONS.................................................................................................................. 19
3.1 Unit cost................................................................................................................................... 19
4. VALUATION: LOWER-OF-COST-OR-NET REALIZABLE VALUE (LCNRV)......................................................21
5. INVENTORY ESTIMATION: RETAIL INVENTORY METHOD..........................................................................22
CHAPTER 4 – TANGIBLE NON-CURRENT ASSETS.................................................................25
1. IAS 16: PROPERTY PLANT EQUIPMENT (PPE)......................................................................................25
1.1 Initial measurement.................................................................................................................. 25
1.2 During the useful life................................................................................................................ 27
1.2.1 Subsequent costs................................................................................................................... 27
1.2.2 Depreciation.......................................................................................................................... 27
1.2.3 Revaluation model................................................................................................................ 29
2. IAS 23: BORROWING COSTS............................................................................................................... 31
3. IAS20: GOVERNMENT GRANTS........................................................................................................... 33
4. IAS 41: BIOLOGICAL ASSETS.............................................................................................................. 34
CHAPTER 5 – INTANGIBLE ASSETS, IMPAIRMENT AND DISPOSAL OF ASSETS..................36
1.IAS 38 INTANGIBLE ASSETS................................................................................................................ 36
1.1 Definition.................................................................................................................................. 36
1.2 Initial measurement.................................................................................................................. 37
1.3 Self-constructed intangible assets............................................................................................ 37
1.4 Amortization of intangible assets.............................................................................................. 38
1.5 Derecognition of tangible and intangible assets.......................................................................38
2. IAS 36 IMPAIRMENT OF ASSETS......................................................................................................... 38
2.1 Impairment of PPE.................................................................................................................... 38
2.2 Impairment of a group of assets............................................................................................... 40
2.3 Impairment of intangible assets................................................................................................ 40
2.4 Impairment of Goodwill............................................................................................................ 41
3. IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS...................................41
3.1 Assets to be disposed of............................................................................................................ 41
PAGE 1
, 3.2 Discontinued operations........................................................................................................... 41
3.3 Allocation of impairment loss.................................................................................................... 42
CHAPTER 6 - IFRS 16: LEASING............................................................................................. 43
1.LEASING DEFINITIOON ACCORDING TO IFRS 16....................................................................................43
2.ACCOUNTING TREATMENT LESSEE........................................................................................................ 43
2.1 Initial recognition..................................................................................................................... 43
2.1.1 The lessee.............................................................................................................................. 43
2.1.2 Lease liablity.......................................................................................................................... 43
2.1.3 Right-of-use asset................................................................................................................... 45
2.2 During the execution of the lease contract...............................................................................45
3.ACCOUNTING TREATMENT LESSOR....................................................................................................... 47
3.1 Lessor accounting for finance lease.......................................................................................... 48
3.2 Lessor accounting for operation lease......................................................................................49
4.SALE-LEASEBACK TRANSACTIONS......................................................................................................... 50
CHAPTER 7 – FINANCIAL INSTRUMENTS (GUEST LECTURE PWC)......................................53
1.CLASSIFICATION & MEASUREMENT...................................................................................................... 53
1.1 Definition of a financial instrument.......................................................................................... 53
1.2 Debt vs equity........................................................................................................................... 53
1.3 Three phases of IFRS 9............................................................................................................. 54
1.4 General model........................................................................................................................... 55
1.4.1 Amortised cost....................................................................................................................... 55
1.4.2 Business assessment model (BM Test)..................................................................................56
1.4.3 Other business model............................................................................................................ 57
2.4.4 Reclassification criteria......................................................................................................... 58
1.4.5 Solely payments of principal and interest (SPPI)...................................................................59
2. IMPAIRMENT THEORY......................................................................................................................... 61
2.1 Three staged model for impairment......................................................................................... 61
2.2 IFRS 9: expected credit loss..................................................................................................... 62
3. IMPAIRMENT EXERCISE....................................................................................................................... 64
3.1 Significant increase in credit risk (SICR)..................................................................................64
3.2 Calculating expected credit losses............................................................................................ 65
4. RISK MANAGEMENT DISCLOSURE........................................................................................................ 65
4.1 Under IFRS 7............................................................................................................................ 65
4.2 IFRS 7 vs IFRS 13..................................................................................................................... 66
4.3 Under IFRS 13.......................................................................................................................... 66
4.4 Under IFRS 9............................................................................................................................ 66
5. ACCOUNTING FOR DERIVATIVES – UNDER IFRS 9.................................................................................67
6. HEDGE ACCOUNTING......................................................................................................................... 67
6.1 Back to basics........................................................................................................................... 67
6.2 Under IAS 39............................................................................................................................ 68
6.3 Under IFRS 9............................................................................................................................ 71
CHAPTER 8 – REVENUE FROM CONTRACTS WITH CUSTOMERS (IFRS 15).........................72
1.IDENTIFY THE CONTRACTS WITH A CUSTOMER.......................................................................................72
2.IDENTIFY THE PERFORMANCE OBLIGATIONS IN THE CONTRACT...............................................................73
3.DETERMINE THE TRANSACTION PRICE................................................................................................... 77
4. ALLOCATE THE TRANSACTION PRICE TO THE PERFORMANCE OBLIGATIONS IN THE CONTRACT...................80
5.RECOGNIZE REVENUE WHEN (OR AS) THE ENTITY SATISFIES A PERFORMANCE OBLIGATION.......................81
5.1 Licenses.................................................................................................................................... 82
5.2 Bill-and-hold arrangements....................................................................................................... 82
CHAPTER 9 – PROVISIONS, CONTINGENT LIABILITIES AND CONTIGENT ASSETS (IAS 37)
................................................................................................................................................. 83
1.CONTEXT OF IAS 37........................................................................................................................... 83
2.RECOGNITION CRITERIA PROVISIONS.................................................................................................... 84
3.RECOGNITION CRITERIA RESTRUCTURING PROVISIONS............................................................................86
4.FUTURE OPERATING LOSSES AND ONEROUS CONTRACTS.........................................................................86
PAGE 2
, 4.1 Future operating losses............................................................................................................ 86
4.2 Onerous contracts..................................................................................................................... 86
5.CONTINGENT LIABILITIES.................................................................................................................... 87
6.CONTINGENT ASSETS.......................................................................................................................... 87
CHAPTER 10 – ACCOUNTING FOR PENSIONS (IAS 19).........................................................89
1. INTRODUCTION.................................................................................................................................. 89
1.1 State pension............................................................................................................................ 89
1.2 Supplementary pension plans................................................................................................... 89
1.2.1 Design.................................................................................................................................... 89
1.2.2 Social legislation.................................................................................................................... 90
1.2.3 Funding legislation................................................................................................................ 90
1.2.4 Accounting standards............................................................................................................ 91
2. BASIC PRINCIPLES............................................................................................................................. 91
2.1 Objective................................................................................................................................... 91
2.2 Classification of benefit plans................................................................................................... 92
2.3 Methodology & actuarial assumptions......................................................................................93
2.4 Amounts recognized in financial statements............................................................................94
2.5 Disclosures................................................................................................................................ 97
3. ACTUARIAL ASSUMPTIONS.................................................................................................................. 97
4. SPECIAL TOPICS (BELGIUM)................................................................................................................ 99
4.1 Fair value of insurance policies................................................................................................ 99
4.2 “DC” pension plans subject to minimum guaranteed rates of return.......................................99
CHAPTER 11 – PRESENTATION AND DISCLOSURE IN PUBLISHED FINANCIAL
STATEMENTS........................................................................................................................ 101
1. IAS 1: PRESENTATION OF FINANCIAL STATEMENTS............................................................................101
1.1 Current versus non-current liabilities.....................................................................................101
1.2 Offsetting................................................................................................................................ 102
1.3 Statement of profit or loss...................................................................................................... 102
1.4 Aggregating............................................................................................................................ 102
2. IAS 8: ACCOUNTING POLICIES, CHANGES TO ACCOUNTING ESTIMATES AND ERRORS............................103
2.1 Change in accounting policy................................................................................................... 103
2.2 Change in estimate................................................................................................................. 104
2.3 Correction of errors................................................................................................................ 104
3. IAS 10: EVENTS AFTER THE REPORTING PERIOD...............................................................................104
3.1 Events after the reporting period........................................................................................... 104
4. IFRS 8: DISCLOSURE OF SEGMENT INFORMATION..............................................................................105
4.1 What is an operating segment?............................................................................................... 105
4.2 What is a reportable segment?............................................................................................... 106
4.3 Which information has to be provided?..................................................................................106
4.4 Reconcilliation........................................................................................................................ 107
4.5 Additional entity-wide disclosures.......................................................................................... 107
CHAPTER 12 – BUSINEESS COMBINATIONS.......................................................................108
1. WHAT IS A BUSINESS COMBINATION?................................................................................................ 108
1.1 What is a business combination?............................................................................................ 108
1.2 What is control over an acquiree?.......................................................................................... 109
2. ACQUISITION METHOD (IFRS 13)..................................................................................................... 109
2.1 Identify an acquirer................................................................................................................ 109
2.2 Determining the acquisition date............................................................................................ 110
2.3 Measuring assets and liabilities.............................................................................................. 110
2.4 Measuring the consideration transferred...............................................................................110
2.5 Non-controlling interests........................................................................................................ 111
2.6 Determing goodwill................................................................................................................. 111
3. BUSINESS COMBINATION IN STAGES (= STEP ACQUISITIONS)...............................................................112
4. DISCLOSURE REQUIREMENTS............................................................................................................ 113
ADDITIONAL EXERCISES...................................................................................................... 114
PAGE 3
