ADVANCED FINANCIAL ACCOUNTING
lecture 1b – setting the scene ........................................................................................................ 2
lecture 2 – business combinations ................................................................................................ 9
lecture 3 – consolidation ..............................................................................................................16
lecture 5a financial instruments – intro.........................................................................................26
lecture 5b debt-equity classification ............................................................................................29
lecture 6a – classification and measurement ................................................................................31
lecture 6b – financial instruments – disclosure .............................................................................37
lecture 7a financial instruments – hedge accounting .....................................................................39
lecture 7b – accounting for cryptos ...............................................................................................44
lecture 9 – associates and joint arrangements ..............................................................................46
lecture 10 – foreign currency ........................................................................................................55
lecture 11 – income tax accounting...............................................................................................64
lecture 12 - presentation & disclosure ..........................................................................................73
lecture 13 – practice exam ...........................................................................................................80
1
, LECTURE 1B – SETTING THE SCENE
WHY INTERNATIONAL STANDARDS ?
- Most countries have their own set of financial reporting requirements / accounting standards
o E.g. in the Netherlands the Dutch law (Titel 9 Book 2 Dutch Civil Code) and the Dutch
‘Richtlijnen voor de Jaarverslaggeving’ van de Raad voor de Jaarverslaggeving
- This hampers international comparability and does not create a level playing field for competing
companies (for example on the capital markets)
- International comparability is mainly important for listed, internationally operating companies
- So international accounting standards (now called International Financial Reporting Standards of
IFRS) were developed
- As from 2005 the European Union mandates IFRS (after endorsement by the EU) for all listed
companies
- So IFRS exists alongside national standards
o E.g. in The Netherlands listed companies are required to apply IFRS, other companies are
allowed to apply IFRS, but can also apply Dutch GAAP
SUCCESS OF IFRS SO FAR – 168 COUNTRIES SURVEYED
GAAP applied by Global Fortune 500 companies:
IFRS IN EUROPEAN UNION (INCLUDING THE NETHERLANDS )
- EU decided to introduce endorsement mechanism of IFRSs (EU-IFRS)
- Once standard approved by IASB the European Commission will decide whether or not to make it
mandatory in the EU
o Advice sought from European Financial Reporting Advisory Group
o Outreach to stakeholders
o Council of the EU (Member States governments) and the European Parliament (EP) are
also consulted (EP has vetoright)
- So far in only a few, minor, instances the EU had deviated from IFRS, allowing alternative
accounting choices, mainly for banks and insurance companies
- EU-IFRS mandatory for all listed entities in their consolidated financial statements. Member
States may require or allow additional categories of entities to apply EU-IFRS and may require or
allow EU-IFRS in the separate financial statements
REGULATORY ENVIRONMENT
Most countries have financial reporting regulator focused on capital markets
2
, - E.g. in The Netherlands: Autoriteit Financiële Markten (AFM), responsible for supervision of
financial reporting by listed entities
- In the EU coordination of national regulators by European Securities and Markets Authority
(ESMA)
- USA: Securities and Exchange Commission
Non-listed entities in The Netherlands:
- No regulator
- But anybody can start case against financial reports with the Enterprise Chamber (Court)
FROM FINANCIAL REPORTING TO CORPORATE REPORTING
VALUE RELEVANCE OF TRADITIONAL ACCOUNTING INFORMATION DECLINES
Potential causes:
- Increasing importance of sometimes
unrecognised intangible assets
o R&D
o Branding
o Software
o People
- Alternative real-time sources of financial
information (internet)
- Growing importance of non-financial
information
IMPACT CLIMATE ON FINANCIAL PERFORMANCE
- Carbon Tracker issued ‘Flying Blind’, signalling a lack of information about impact climate in
financial reports and auditor reports in 2021 and repeated this in 2022 and 2024
- ESMA issued report ‘The Heat is on’ in October 2023 with recommendations about the
disclosure of the impact of climate change in financial reports and in October 2024 a Public
Statement “Clearing the smog – Accounting for Carbon Allowances in Financial Statements”
GROWING NEED FOR SUSTAINABILITY INFORMATION IN GENERAL
Not just climate, but information about:
- the impact of sustainability risks and opportunities on the entity; and
- the impact of the entity on its environment, effected communities and society at large
SUSTAINABILITY RISKS AND OPPORTUNITIES MAY HAVE FINANCIAL IMPACT
- Regulations and permits may prohibit certain (planned) activities
- Lawsuits, penalties, pricing (such as carbon pricing) may make certain activities loss making
- Customers may ban certain products of companies altogether
- Reputational risks may also affect other parties in the value chain such as investors, suppliers,
business partners, etc.
WHAT WE HAVE SEEN OVER THE YEARS
- All sorts of requirements for non-financial information in financial statements or in annual report
o Remuneration management
o Corporate governance
3
, o Country-by-country reporting of tax payments
o Sustainability information
o Health and safety information
o Diversity information
o Inequality
- Annual report is considered by government / regulators as a convenient mailbox for disclosures
by organisations
- Disadvantages: piecemeal, ‘flavour of the day’, no integration, no clear link with strategy, value
chain or performance.
INITIATIVES
- Corporate Reporting
o ‘Core and More’ principle (Accountancy Europe)
- Integrated reporting
o International Integrated Reporting Council (IIRC)
▪ Focus on investors
o Global Reporting Initiative (GRI)
▪ Broader range of stakeholders
o In some countries (like South-Africa) integrated reporting is mandatory
- Strategic report (UK)
- Corporate Sustainability Reporting Directive (European Union)
CALL FOR CONSOLIDATION
- International Stock Exchange Supervisors (IOSCO) as well as investors and preparer
organisations asked the IFRS Foundation to become the independent global standard setter for
sustainability disclosures
o IFRS Foundation set up ISSB (International Sustainability Standards Board) next to the
IASB
o But kept a capital market focus, i.e. impact environment on company (outside in
perspective)
- IIRC, CDSB and SASB merged into the IFRS Foundation
- TCFD handed over its monitoring activities to the IFRS Foundation
- So now two global standards setters left: ISSB and Global Reporting Initiative (GRI)
- GRI keeps a multi-stakeholder view and focus on impact company on its environment (inside-out
perspective)
NEW STRUCTURE OF IFRS FOUNDATION (SIMPLIFIED)
4
lecture 1b – setting the scene ........................................................................................................ 2
lecture 2 – business combinations ................................................................................................ 9
lecture 3 – consolidation ..............................................................................................................16
lecture 5a financial instruments – intro.........................................................................................26
lecture 5b debt-equity classification ............................................................................................29
lecture 6a – classification and measurement ................................................................................31
lecture 6b – financial instruments – disclosure .............................................................................37
lecture 7a financial instruments – hedge accounting .....................................................................39
lecture 7b – accounting for cryptos ...............................................................................................44
lecture 9 – associates and joint arrangements ..............................................................................46
lecture 10 – foreign currency ........................................................................................................55
lecture 11 – income tax accounting...............................................................................................64
lecture 12 - presentation & disclosure ..........................................................................................73
lecture 13 – practice exam ...........................................................................................................80
1
, LECTURE 1B – SETTING THE SCENE
WHY INTERNATIONAL STANDARDS ?
- Most countries have their own set of financial reporting requirements / accounting standards
o E.g. in the Netherlands the Dutch law (Titel 9 Book 2 Dutch Civil Code) and the Dutch
‘Richtlijnen voor de Jaarverslaggeving’ van de Raad voor de Jaarverslaggeving
- This hampers international comparability and does not create a level playing field for competing
companies (for example on the capital markets)
- International comparability is mainly important for listed, internationally operating companies
- So international accounting standards (now called International Financial Reporting Standards of
IFRS) were developed
- As from 2005 the European Union mandates IFRS (after endorsement by the EU) for all listed
companies
- So IFRS exists alongside national standards
o E.g. in The Netherlands listed companies are required to apply IFRS, other companies are
allowed to apply IFRS, but can also apply Dutch GAAP
SUCCESS OF IFRS SO FAR – 168 COUNTRIES SURVEYED
GAAP applied by Global Fortune 500 companies:
IFRS IN EUROPEAN UNION (INCLUDING THE NETHERLANDS )
- EU decided to introduce endorsement mechanism of IFRSs (EU-IFRS)
- Once standard approved by IASB the European Commission will decide whether or not to make it
mandatory in the EU
o Advice sought from European Financial Reporting Advisory Group
o Outreach to stakeholders
o Council of the EU (Member States governments) and the European Parliament (EP) are
also consulted (EP has vetoright)
- So far in only a few, minor, instances the EU had deviated from IFRS, allowing alternative
accounting choices, mainly for banks and insurance companies
- EU-IFRS mandatory for all listed entities in their consolidated financial statements. Member
States may require or allow additional categories of entities to apply EU-IFRS and may require or
allow EU-IFRS in the separate financial statements
REGULATORY ENVIRONMENT
Most countries have financial reporting regulator focused on capital markets
2
, - E.g. in The Netherlands: Autoriteit Financiële Markten (AFM), responsible for supervision of
financial reporting by listed entities
- In the EU coordination of national regulators by European Securities and Markets Authority
(ESMA)
- USA: Securities and Exchange Commission
Non-listed entities in The Netherlands:
- No regulator
- But anybody can start case against financial reports with the Enterprise Chamber (Court)
FROM FINANCIAL REPORTING TO CORPORATE REPORTING
VALUE RELEVANCE OF TRADITIONAL ACCOUNTING INFORMATION DECLINES
Potential causes:
- Increasing importance of sometimes
unrecognised intangible assets
o R&D
o Branding
o Software
o People
- Alternative real-time sources of financial
information (internet)
- Growing importance of non-financial
information
IMPACT CLIMATE ON FINANCIAL PERFORMANCE
- Carbon Tracker issued ‘Flying Blind’, signalling a lack of information about impact climate in
financial reports and auditor reports in 2021 and repeated this in 2022 and 2024
- ESMA issued report ‘The Heat is on’ in October 2023 with recommendations about the
disclosure of the impact of climate change in financial reports and in October 2024 a Public
Statement “Clearing the smog – Accounting for Carbon Allowances in Financial Statements”
GROWING NEED FOR SUSTAINABILITY INFORMATION IN GENERAL
Not just climate, but information about:
- the impact of sustainability risks and opportunities on the entity; and
- the impact of the entity on its environment, effected communities and society at large
SUSTAINABILITY RISKS AND OPPORTUNITIES MAY HAVE FINANCIAL IMPACT
- Regulations and permits may prohibit certain (planned) activities
- Lawsuits, penalties, pricing (such as carbon pricing) may make certain activities loss making
- Customers may ban certain products of companies altogether
- Reputational risks may also affect other parties in the value chain such as investors, suppliers,
business partners, etc.
WHAT WE HAVE SEEN OVER THE YEARS
- All sorts of requirements for non-financial information in financial statements or in annual report
o Remuneration management
o Corporate governance
3
, o Country-by-country reporting of tax payments
o Sustainability information
o Health and safety information
o Diversity information
o Inequality
- Annual report is considered by government / regulators as a convenient mailbox for disclosures
by organisations
- Disadvantages: piecemeal, ‘flavour of the day’, no integration, no clear link with strategy, value
chain or performance.
INITIATIVES
- Corporate Reporting
o ‘Core and More’ principle (Accountancy Europe)
- Integrated reporting
o International Integrated Reporting Council (IIRC)
▪ Focus on investors
o Global Reporting Initiative (GRI)
▪ Broader range of stakeholders
o In some countries (like South-Africa) integrated reporting is mandatory
- Strategic report (UK)
- Corporate Sustainability Reporting Directive (European Union)
CALL FOR CONSOLIDATION
- International Stock Exchange Supervisors (IOSCO) as well as investors and preparer
organisations asked the IFRS Foundation to become the independent global standard setter for
sustainability disclosures
o IFRS Foundation set up ISSB (International Sustainability Standards Board) next to the
IASB
o But kept a capital market focus, i.e. impact environment on company (outside in
perspective)
- IIRC, CDSB and SASB merged into the IFRS Foundation
- TCFD handed over its monitoring activities to the IFRS Foundation
- So now two global standards setters left: ISSB and Global Reporting Initiative (GRI)
- GRI keeps a multi-stakeholder view and focus on impact company on its environment (inside-out
perspective)
NEW STRUCTURE OF IFRS FOUNDATION (SIMPLIFIED)
4
