What are IFRS Standards?

IFRS Standards are a globally recognized set of standards for the preparation of financial
statements by business entities.
IFRS Standards prescribe:
• The items that should be recognized as assets, liabilities, income and expense;
• How to measure those items;
• How to present them in a set of financial statements; and

• Related disclosures about those items.

 The Conceptual Framework sets out the concepts that underlie the preparation and
presentation of financial statements for external users.

The Conceptual Framework deals with:

• The objective of financial reporting (which 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);
• The qualitative characteristics of useful financial information;
• The definition, recognition and measurement of the elements from which financial statements
are constructed; and
• Concepts of capital and capital maintenance.

IFRS Standards
 IFRS 1 First-time Adoption of International Financial Reporting Standards
IFRS 1 requires an entity that is adopting IFRS Standards for the first time to prepare a complete
set of financial statements for its first IFRS reporting period and for the immediately preceding
year. The entity uses the same accounting policies throughout all periods presented in its first
IFRS financial statements. Those accounting policies shall comply with each Standard effective
at the end of its first IFRS reporting period. IFRS 1 provides limited exemptions from the
requirement to restate prior periods in specified areas in which the cost of complying with them
would be likely to exceed the benefits to users of financial statements. IFRS 1 also prohibits
retrospective application of IFRS Standards in some areas, particularly when retrospective
application would require judgments by management about past conditions after the outcome of
a particular transaction is already known. The Standard requires disclosures that explain how
the transition from previous GAAP to IFRS Standards affected the entities reported
financial position, financial performance and cash flows.

IFRS 2 Share-based Payment

IFRS 2 specifies the financial reporting by an entity when it undertakes a share-based payment
transaction, including issue of shares and share options. It requires an entity to recognize share-
based payment transactions in its financial statements, including transactions with employees or
other parties to be settled in cash, other assets or equity instruments of the entity. It also requires
an entity to reflect in its profit or loss and financial position the effects of share-based payment
transactions, including expenses associated with transactions in which share options are granted
to employees.
IFRS 3 Business Combinations
IFRS 3 establishes principles and requirements for how an acquirer in a business combination:
• recognizes and measures in its financial statements the identify able assets acquired, the
liabilities assumed and any non-controlling interest in the acquire
• recognizes and measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and
• determines what information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.
The core principle in IFRS 3 is that an acquirer of a business recognizes the assets acquired
and the liabilities assumed at their acquisition-date fair values and discloses information
that enables users to evaluate the nature and financial effects of the acquisition.

IFRS 4 Insurance Contracts

IFRS 4 specifies the financial reporting for insurance contracts by any entity that issues such
contracts until the Board completes its comprehensive project on insurance contracts. An
insurance contract is a contract under which one party (the insurer) accepts significant insurance
risk from another party (the policyholder) by agreeing to compensate the policyholder if a
specified uncertain future event (the insured event) adversely affects the policyholder.
IFRS 4 applies to all insurance contracts (including reinsurance contracts) that an entity issues
and to reinsurance contracts that it holds, except for specified contracts covered by other
Standards. It does not apply to other assets and liabilities of an insurer, such as financial assets
and financial liabilities within the scope of IFRS 9. Furthermore, it does not address accounting
by policyholders.
IFRS 4 exempts an insurer temporarily (i.e. until the comprehensive project is completed) from
some requirements of other Standards, including the requirement to consider the Conceptual
Framework in selecting accounting policies for insurance contracts. However, IFRS 4:
• prohibits provisions for possible claims under contracts that are not in existence at the end of
the reporting period (such as catastrophe and equalization provisions); requires a test for the
adequacy of recognized insurance liabilities and an impairment test for reinsurance assets; and
• requires an insurer to keep insurance liabilities in its statement of financial position until they
are discharged or cancelled, or expire, and to present insurance liabilities without offsetting them
against related reinsurance assets.

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 5 requires:
• Assets that meet the criteria to be classified as held for sale to be measured at the lower of the
carrying amount and fair value less costs to sell, and depreciation on such assets to cease;
• An asset classified as held for sale and the assets and liabilities included within a disposal
group classified as held for sale to be presented separately in the statement of financial position;
and
• The results of discontinued operations to be presented separately in the statement of
comprehensive income.
IFRS 5 requires an entity to classify a non-current asset (or disposal group) as held for sale if its
carrying amount will be recovered principally through a sale transaction instead of through
continuing use.
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 6 specifies the financial reporting for costs incurred for exploration for and evaluation of
mineral resources (for example, minerals, oil, natural gas and similar non-regenerative
resources), as well as the costs of determination of the technical feasibility and commercial
viability of extracting the mineral resource.
IFRS 6:
• permits an entity to develop an accounting policy for exploration and evaluation assets without
specifically considering the requirements of paragraphs 11–12 of IAS 8. Thus, an entity adopting
IFRS 6 may continue to use the accounting policies applied immediately before adopting IFRS 6.
• requires entities recognizing exploration and evaluation assets to perform an impairment test on
those assets when facts and circumstances suggest that the carrying amount of the assets may
exceed their recoverable amount.
• varies the recognition of impairment from that in IAS 36 Impairment of Assets but measures
the impairment in accordance with that Standard once the impairment is identified.

IFRS 7 Financial Instruments: Disclosures

IFRS 7 requires entities to provide disclosures in their financial statements that enable users to
evaluate:
• the significance of financial instruments for the entity’s financial position and performance• the
nature and extent of risks arising from financial instruments to which the entity is exposed during
the period and at the end of the reporting period, and how the entity manages those risks.
The qualitative disclosures describe management’s objectives, policies and processes for
managing those risks. The quantitative disclosures provide information about the extent to which
the entity is exposed to risk, based on information provided internally to the entity’s key
management personnel. Together, these disclosures provide an overview of the entity’s use of
financial instruments and the exposures to risks they create.
IFRS 7 applies to all entities, including entities that have few financial instruments (for example,
a manufacturer whose only financial instruments are cash, accounts receivable and accounts
payable) and those that have many financial instruments (for example, a financial institution
most of whose assets and liabilities are financial instruments).
IFRS 8 Operating Segments
IFRS 8 requires an entity to disclose information to enable users of its financial statements to
evaluate the nature and financial effects of the different business activities in which it engages
and the different economic environments in which it operates.
It specifies how an entity should report information about its operating segments in annual
financial statements and in interim financial reports.
It also sets out requirements for related disclosures about products and services, geographical
areas and major customers.

IFRS 9 Financial Instruments

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early
application permitted.
IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities,
and some contracts to buy or sell non-financial items.
IFRS 9 requires an entity to recognize a financial asset or a financial liability in its statement of
financial position when it becomes party to the contractual provisions of the instrument. At
initial recognition, an entity measures a financial asset or a financial liability at its fair value plus
or minus, in the case of a financial asset or a financial liability not at fair value through profit or
loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset
or the financial liability.
Financial assets when an entity first recognizes a financial asset, it classifies it based on the
entity’s business model for managing the asset and the asset’s contractual cash flow
characteristics, as follows:
Amortized cost—a financial asset is measured at amortized cost if both of the following
conditions are met:
• The asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
Fair value through other comprehensive income—financial assets are classified and measured
at fair value through other comprehensive income if they are held in a business model whose
objective is achieved by both collecting contractual cash flows and selling financial assets.
Fair value through profit or loss—any financial assets that are not held in one of the two
business models mentioned are measured at fair value through profit or loss.
When, and only when, an entity changes its business model for managing financial assets it must
reclassify all affected financial assets.
Financial liabilities an entity classifies all financial liabilities as subsequently measured at
amortized cost using the effective interest method, except for:
• Financial liabilities at fair value through profit or loss. Such liabilities, including derivatives
that are liabilities, are subsequently measured at fair value.
• Financial liabilities that arise when a transfer of a financial asset does not qualify for de
recognition or when the continuing involvement approach applies.
• Financial guarantee contracts (for which special accounting is prescribed).
• Commitments to provide a loan at a below-market interest rate (for which special accounting is
prescribed).
• Contingent consideration recognized by an acquirer in a business combination to which IFRS 3
applies. However, an entity may, at initial recognition, irrevocably designate a financial liability
as measured at fair value through profit or loss when permitted or when doing so results in more
relevant information. After initial recognition, an entity cannot reclassify any financial liability.
Fair value option an entity may, at initial recognition, irrevocably designate a financial
instrument that would otherwise have to be measured at amortized cost or fair value through
other comprehensive income to be measured at fair value through profit or loss if doing so would
eliminate or significantly reduce a measurement or recognition inconsistency (sometimes
referred to as an ‘accounting mismatch’) or otherwise results in more relevant information.
Impairment of financial assets is recognized in stages:
Stage 1—as soon as a financial instrument is originated or purchased, 12-month expected credit
losses are recognized in profit or loss and a loss allowance is established. This serves as a proxy
for the initial expectations of credit losses. For financial assets, interest revenue is calculated on
the gross carrying amount (i.e. without adjustment for expected credit losses).
Stage 2—if the credit risk increases significantly and the resulting credit quality is not
considered to be low credit risk, full lifetime expected credit losses are recognized in profit or
loss. Lifetime expected credit losses are only recognized if the credit risk increases significantly
from when the entity originates or purchases the financial instrument. The calculation of interest
revenue is the same as for Stage 1.
Stage 3—if the credit risk of a financial asset increases to the point that it is considered credit-
impaired, interest revenue is calculated based on the amortized cost (i.e. the gross carrying
amount adjusted for the loss allowance). Financial assets in this stage will generally be
individually assessed. Lifetime expected credit losses are recognized on these financial assets.
Hedge accounting
The objective of hedge accounting is to represent, in the financial statements, the effect of an
entity’s risk management activities that use financial instruments to manage exposures arising
from particular risks that could affect profit or loss or other comprehensive income. This
approach aims to convey the context of hedging instruments for which hedge accounting is
applied in order to allow insight into their purpose and effect.
Under IFRS 9, hedge accounting is aligned with an entity’s risk management activities. Risk
components of both financial and nonfinancial items qualify for hedge accounting. Rebalancing
(modifying) a hedging relationship after initial designation does not necessarily terminate hedge
accounting.
Hedge accounting is optional. An entity applying hedge accounting designates a hedging
relationship between a hedging instrument and a hedged item. For hedging relationships that
meet the qualifying criteria in IFRS 9, an entity accounts for the gain or loss on the hedging
instrument and the hedged item in accordance with the special hedge accounting provisions of
IFRS 9. IFRS 10 Consolidated Financial Statements
IFRS 10 establishes principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities. IFRS 10
• requires an entity (the parent) that controls one or more other entities (subsidiaries) to present
consolidated financial statements;
• defines the principle of control, and establishes control as the basis for consolidation;
• Sets out how to apply the principle of control to identify whether an investor controls an
investee and therefore must consolidate the investee;
• Sets out the accounting requirements for the preparation of consolidated financial statements;
and
• defines an investment entity and sets out an exception to consolidating particular subsidiaries of
an investment entity.
Consolidated financial statements are the financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity.
IFRS 11 Joint Arrangements
IFRS 11 establishes principles for financial reporting by entities that have an interest in
arrangements that are controlled jointly (joint arrangements). It requires a party to a joint
arrangement to determine the type of joint arrangement in which it is involved by assessing its
rights and obligations arising from the arrangement.
A joint arrangement is an arrangement of which two or more parties have joint control. Joint
control is the contractually agreed sharing of control of an arrangement, which exists only when
decisions about the relevant activities (i.e. activities that significantly affect the returns of the
arrangement) require the unanimous consent of the parties sharing control. IFRS 11 classifies
joint arrangements into two types—joint operations and joint ventures:
• A joint operation is a joint arrangement whereby the parties that have joint control of the
arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities,
relating to the arrangement; and
• A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement (i.e. joint ventures) have rights to the net assets of the arrangement.
IFRS 11 requires a joint operator to recognize and measure its share of the assets and liabilities
(and recognize the related revenues and expenses) in accordance with relevant Standards
applicable to the particular assets, liabilities, revenues and expenses. A joint venturer recognizes
its interest in the joint venture as an investment in the arrangement using the equity method (see
IAS 28).
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 requires an entity to disclose information that enables users of its financial statements
to evaluate:
• The nature of, and risks associated with, its interests in other entities; and
• The effects of those interests on its financial position, financial performance and cash flows.
IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate
or an unconsolidated structured entity. It establishes disclosure objectives and identifies the kind
of information an entity must disclose in its financial statements about its interests in those other
entities.
IFRS 13 Fair Value Measurement
IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires
disclosures about fair value measurements. It applies when another Standard requires or permits
fair value measurements or disclosures about fair value measurements (and measurements, such
as fair value less costs to sell, based on fair value or disclosures about those measurements),
except in specified circumstances in which other Standards govern. For example, IFRS 13 does
not specify the measurement and disclosure requirements for share-based payment transactions,
leases or impairment of assets. Nor does it establish disclosure requirements for fair values
related to employee benefits and retirement plans.
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (ie an exit
price). When measuring fair value, an entity uses the assumptions that market participants would
use when pricing the asset or the liability under current market conditions, including assumptions
about risk. As a result, an entity’s intention to hold an asset or to settle or otherwise fulfil a
liability is not relevant when measuring fair value.
IFRS 14 Regulatory Deferral Accounts
IFRS 14 describes regulatory deferral account balances as amounts of expense or income that
would not be recognized as assets or liabilities in accordance with other Standards, but that
qualify to be deferred in accordance with this Standard because the amount is included, or is
expected to be included, by the rate regulator in establishing the price(s) that an entity can charge
to customers for rate-regulated goods or services.
IFRS 14 permits a fi rst-time adopter within its scope to continue to account for regulatory
deferral account balances in its IFRS financial statements in accordance with its previous GAAP
when it adopts IFRS Standards. However, IFRS 14 introduces limited changes to some previous
GAAP accounting practices for regulatory deferral account balances, which are primarily related
to the presentation of these accounts.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with
earlier application permitted. IFRS 15 establishes the principles that an entity applies when
reporting information about the nature, amount, timing and uncertainty of revenue and cash
flows from a contract with a customer the core principle is that a company recognizes revenue to
depict the transfer of promised goods or services to the customer in an amount that reflects the
consideration to which the company expects to be entitled in exchange for those goods or
services. To recognize revenue under IFRS 15, an entity applies the following five steps:
• identify the contract(s) with a customer.
• identify the performance obligations in the contract. Performance obligations are promises in a
contract to transfer to a customer goods or services that are distinct.
• determine the transaction price. The transaction price is the amount of consideration to which a
company expects to be entitled in exchange for transferring promised goods or services to a
customer. If the consideration promised in a contract includes a variable amount, an entity must
estimate the amount of consideration to which it expects to be entitled in exchange for
transferring the promised goods or services to a customer.
• allocate the transaction price to each performance obligation on the basis of the relative stand-
alone selling prices of each distinct good or service promised in the contract.
• recognize revenue when a performance obligation is satisfied by transferring a promised good
or service to a customer (which is when the customer obtains control of that good or service). A
performance obligation may be satisfied at a point in time (typically for promises to transfer
goods to a customer) or over time (typically for promises to transfer services to a customer). For
a performance obligation satisfied over time, an entity would select an appropriate measure of
progress to determine how much revenue should be recognized as the performance obligation is
satisfied.
IFRS 16 Leases
IFRS 16 is effective for annual reporting periods beginning on or after 1 January 2019, with
earlier application permitted (as long as IFRS 15 is also applied). He objective of IFRS 16 is to
report information that (a) faithfully represents lease transactions and (b) provides a basis for
users of financial statements to assess the amount, timing and uncertainty of cash flows arising
from leases. To meet that objective, a lessee should recognize assets and liabilities arising from a
lease.
IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets
and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of
low value. A lessee is required to recognize a right-of-use asset representing its right to use the
underlying leased asset and a lease liability representing its obligation to make lease payments.
A lessee measures right-of-use assets similarly to other non-financial assets (such as property,
plant and equipment) and lease liabilities similarly to other financial liabilities. As a
consequence, a lessee recognizes depreciation of the right-of-use asset and interest on the lease
liability. The depreciation would usually be on a straight-line basis. In the statement of cash
flows, a lessee separates the total amount of cash paid into principal (presented within financing
activities) and interest (presented within either operating or financing activities) in accordance
with IAS 7.
Assets and liabilities arising from a lease are initially measured on a present value basis. The
measurement includes non-cancellable lease payments (including inflation-linked payments),
and also includes payments to be made in optional periods if the lessee is reasonably certain to
exercise an option to extend the lease, or not to exercise an option to terminate the lease. The
initial lease asset equals the lease liability in most cases.
The lease asset is the right to use the underlying asset and is presented in the statement of
financial position either as part of property, plant and equipment or as its own line item.
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to
account for those two types of leases differently.
IFRS 16 replaces IAS 17 effective 1 January 2019, with earlier application permitted. IFRS 16
has the following transition provisions:
• Existing finance leases: continue to be treated as finance leases.
• Existing operating leases: option for full or limited retrospective restatement to reflect the
requirements of IFRS 16.
IFRS 17 Insurance Contracts
IFRS 17 The following summary is based on a near-final draft of IFRS 17. IFRS 17 is expected
to be issued shortly after publication of this Pocket Guide. Until issued, a draft Standard is
subject to change. IFRS 17 is effective for annual reporting periods beginning on or after 1
January 2021, with earlier application permitted as long as IFRS 9 and IFRS 15 are also applied.
Insurance contracts combine features of both a financial instrument and a service contract. In
addition, many insurance contracts generate cash flows with substantial variability over a long
period. To provide useful information about these features, IFRS 17:
• combines current measurement of the future cash flows with the recognition of profit over the
period that services are provided under the contract;
• presents insurance service results (including presentation of insurance revenue) separately from
insurance finance income or expenses; and
• requires an entity to make an accounting policy choice of whether to recognize all insurance
finance income or expenses in profit or loss or to recognize some of that income or expenses in
other comprehensive income.
The key principles in IFRS 17 are that an entity:
• identifies as insurance contracts those contracts under which the entity accepts significant
insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
if a specified uncertain future event (the insured event) adversely affects the policyholder;
separates specified embedded derivatives, distinct investment components and distinct
performance obligations from the insurance contracts;
• divides the contracts into groups that it will recognize and measure;
• recognizes and measures groups of insurance contracts at:
(i) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that
incorporates all of the available information about the fulfilment cash flows in a way that is
consistent with observable market information; plus (if this value is a liability) or minus (if this
value is an asset)
(ii) An amount representing the unearned profit in the group of contracts (the contractual service
margin).
• recognizes the profit from a group of insurance contracts over the period for which the entity
provides insurance cover, and as the entity is released from risk. If a group of contracts is or
becomes loss-making, an entity recognizes the loss immediately;
• presents separately insurance revenue (that excludes the receipt of any investment component),
insurance service expenses (that excludes the repayment of any investment components) and
insurance finance income or expenses; and
• discloses information to enable users of financial statements to assess the effect that contracts
within the scope of IFRS 17 have on the financial position, financial performance and cash flows
of an entity.
IFRS 17 includes an optional simplified measurement approach, or premium allocation
approach, for simpler insurance contracts.