IFRS No. 1 Presentation of Financial Statements

This standard is fundamental in determining the principles for the preparation and presentation of financial statements.

The objective of this Standard is to provide a basis for the presentation of general purpose financial statements so as to achieve comparability both with an entity's prior period financial statements and with the financial statements of other entities. To achieve this objective, this Standard establishes a number of considerations for the presentation of financial statements, guidance on their structure, and minimum content requirements.

Financial reporting is a structured presentation of information about the financial position, operations and performance of a company.

The purpose of financial reporting is to disclose information about the assets, liabilities, capital, income, expenses and financial results of the company.

This information should be useful to a wide range of users in making economic decisions. Financial reporting also characterizes the quality of company management, i.e. results of resource management (assets).

The management body of the enterprise (board of directors, administration) is responsible for the preparation and presentation of financial statements.

In accordance with paragraph 9 of IAS 1 Presentation of Financial Statements, the objective of general purpose financial statements is to present fairly information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. General purpose financial reporting refers to financial reporting intended for those users who are not in a position to require reporting that meets their specific information needs. Financial statements also show the results of the management of resources entrusted to the management of the company.

To achieve this goal, financial statements provide information about the following indicators of the company:

assets;

Obligations;

capital;

Income and expenses, including profit and loss;

Contributions and distributions to owners;

Cash flow.

This information, together with other information in the notes to the financial statements, helps users predict the company's future cash flows, in particular the timing and certainty of the generation of cash and cash equivalents.

At the same time, it must be remembered that the same transaction may be reflected in several basic forms of financial statements, therefore these forms are interconnected. For example, the purchase of goods can be shown as: national international financial standard

Assets in the statement of financial position;

Disposal of cash from the customer in the statement of financial position and statement of cash flows.

According to IFRS 1, financial statements must contain the following components:

Balance sheet;

Report about incomes and material losses;

A statement showing either all changes in equity or changes in equity other than capital transactions with owners;

Cash flow statement;

Accounting policy and explanatory notes.

In accordance with the general requirements of IFRS 1, "the statements must fairly present the financial position, financial performance and cash flows of the company."

Each material item must be presented separately in the financial statements.

Insignificant amounts should not be presented separately. They must be combined with amounts of a similar nature or purpose.

At a minimum, the balance sheet must include line items that represent:

fixed assets;

Intangible assets;

Financial assets;

Investments accounted for using the participation method;

Cash and cash equivalents;

Indebtedness of buyers and customers and other receivables;

Tax obligations and requirements;

reserves;

Long-term liabilities, including interest payments;

Minority share;

Issued capital and reserves.

Additional line items, headings and subtotals should be presented on the balance sheet when required by International Financial Reporting Standards or when such presentation is necessary to give a fair presentation of the entity's financial position.

An entity shall disclose on or in the balance sheet notes further subclasses of each of the line items presented, classified in accordance with the entity's operations. Each item should be subclassified according to its nature and the amount of payables and receivables of the parent company, related subsidiaries, associates and other related parties.

An entity shall disclose on the balance sheet or in the notes the following information:

1) for each class of share capital:

Number of shares authorized for issue;

The number of issued and fully paid shares, as well as shares issued but not fully paid;

The par value of the share, or an indication that the shares have no par value;

Reconciliation of the number of shares in circulation at the beginning and at the end of the year;

Rights, privileges and restrictions associated with the respective class, including restrictions on the distribution of dividends and capital refunds;

Company shares held by the company itself or its subsidiaries or associates;

Shares reserved for issuance under option or sale agreements, including terms and amounts;

2) a description of the nature and purpose of each reserve within the holders' capital;

3) when dividends have been offered but not officially approved for payment, the amount included (or not included) in liabilities is shown;

4) the amount of any unrecognized dividends on preferred cumulative shares.

As a minimum, the income statement should include the following line items:

Revenue;

Operating results;

Financing costs;

Share of profits and losses of associates and joint ventures accounted for using the participation method;

tax expenses;

Profit or loss from ordinary activities;

The results of extraordinary circumstances;

Minority share;

Net profit or loss for the period.

Additional line items, headings and subtotals must be presented in the income statement when required by International Financial Reporting Standards, or when such presentation is necessary to present fairly the financial results of the company.

The company must present in the income statement or in the notes thereto an analysis of income and expenses, using a classification based on the nature of income and expenses, or their function within the company.

The first type of analysis is called the cost nature method. Expenses are aggregated in the income statement according to their nature (for example, depreciation, purchase of materials, transportation costs, wages and salaries, advertising costs), and are not reallocated between different functional areas within the company. This method is easily applicable in small companies where there is no need to allocate operating expenses according to the functional classification.

The second variation of the analysis is called the cost function or "cost of sales" method, and classifies expenses according to their function as part of the cost of sales, distribution, or administrative activities. This presentation often provides users with more relevant information than classifying costs by nature, but the allocation of costs to functions can be controversial and largely subjective.

A company must present, as a separate form of its financial statements, a statement of changes in equity that shows:

Net profit or loss for the period;

Each item of income and expense, profit and loss, which, according to the requirements of other Standards, is recognized directly in equity, as well as the amount of such items;

The cumulative effect of changes in accounting policies and the adjustment of fundamental errors.

In addition, the company must present either in this report or in the notes to it:

Capital transactions with owners and distributions to them;

The balance of accumulated profit or loss at the beginning of the period and at the reporting date, as well as the change for the period;

A reconciliation between the carrying amount of each class of share capital, share premium and each provision at the beginning and end of the period, with separate disclosure of each change.

In a note to the financial statements, entities must:

Provide information about the basis for preparing financial statements and specific accounting policies selected and applied for significant transactions and events;

Disclose information required by International Financial Reporting Standards that is not presented elsewhere in the financial statements;

Provide additional information that is not presented in the financial statements themselves but is necessary for a fair presentation.

The accounting policy section of the notes to the financial statements should describe the following:

The measurement basis(s) used to prepare the financial statements (acquisition cost, replacement cost, realizable value, possible selling price, present value). When more than one measurement basis is used in the financial statements, for example, when only certain long-term assets are subject to revaluation, it is sufficient to indicate the categories of assets and liabilities to which each basis applies.

Each specific accounting policy matter that is material to a proper understanding of the financial statements.

Table 1

The main provisions of the regulation of financial (accounting) reporting

Introduction

In recent years, the content of financial statements, the procedure for their preparation and presentation have undergone significant changes. The most obvious of these transformations is due to the ongoing transition of companies around the world to IFRS. Many regions have been using IFRS for several years now, and the number of companies planning to do so is increasing all the time. For the most up-to-date information on the transition of various countries from national accounting standards to IFRS, please visit pwc.com/usifrs using the "Interactive IFRS adoption by country map".

Recently, the degree of influence on IFRS of political events has noticeably increased. The situation with the public debt of Greece, problems in the banking sector and attempts by politicians to resolve these issues have led to increased pressure on standards developers, who are expected to amend the standards, primarily in the standards governing the accounting of financial instruments. It is unlikely that this pressure will disappear, at least in the near future. The Board of the International Financial Reporting Standards Board (IASB) is actively working to address these issues, so we can expect more and more changes to the standards, and this process will continue over the coming months and even years.

Accounting principles and application of IFRS

The IASB has the authority to adopt IFRS and approve interpretations of those standards.

It is assumed that IFRS should be applied by enterprises focused on making a profit.

The financial statements of such enterprises provide information about the results of operations, financial position and cash flows that is useful to a wide range of users in the process of making financial decisions. These users include shareholders, creditors, employees and the public at large. A complete set of financial statements includes the following:

• balance sheet (statement of financial position);
• statement of comprehensive income;
• description of the accounting policy;
• notes to the financial statements.

The concepts underlying the practice of accounting in accordance with IFRS are set out in the Conceptual Framework for Financial Reporting published by the IASB in September 2010 (the “Framework”). This document replaces the "Basics for the preparation and presentation of financial statements" ("Fundamentals", or "Framework"). The concept includes the following sections:

• Objectives for the preparation of general purpose financial statements, including information about the economic resources and liabilities of the reporting entity.
• Reporting entity (currently being amended).
• Qualitative characteristics of useful financial information, namely relevance and fair presentation of information, as well as extended qualitative characteristics, including comparability, verifiability, timeliness and understandability.

The remaining sections of the Framework for the Preparation and Presentation of Financial Statements, issued in 1989 (currently being amended), include the following:

• underlying assumptions, the principle of business continuity;
• elements of financial reporting, including those related to the assessment of the financial position (assets, liabilities and capital) and to the assessment of performance (income and expenses);
• recognition of elements of financial statements, including the likelihood of future benefits, the reliability of the measurement and recognition of assets, liabilities, income and expenses;
• evaluation of elements of financial statements, including questions of measurement at historical cost and alternatives;
• the concept of capital and maintaining the value of capital.

For the sections of the Framework that are being amended, the IASB has issued a draft reporting entity standard and a discussion paper on the remaining sections of the Framework, including elements of financial statements, recognition and derecognition, differences between equity and liabilities, measurement, presentation and disclosure, fundamental concepts (such as business model, unit of account, going concern, and capital maintenance).

First time adoption of IFRS - IFRS 1

When moving from national accounting standards to IFRS, an entity must be guided by the requirements of IFRS (IFRS) 1. This standard applies to the first annual financial statements of an enterprise prepared in accordance with the requirements of IFRS, and to interim financial statements presented in accordance with the requirements of IFRS (IAS) 34 Interim Financial Statements for a portion of the period covered by the first IFRS financial statements. The standard is also applicable to enterprises on “repeated first use”. The main requirement is the full application of all IFRSs in effect at the reporting date. However, there are several optional exemptions and mandatory exceptions associated with the retrospective application of IFRS.

The exemptions affect standards for which the IASB considers that applying them retrospectively may be too difficult in practice or may result in costs that outweigh any benefit to users. Exemptions are optional.

Any or all of the exemptions may apply, or none of them may apply.

Optional exemptions apply to:

• business associations;
• fair value as deemed cost;
• accumulated differences when recalculated into another currency;
• combined financial instruments;
• assets and liabilities of subsidiaries, associates and joint ventures;
• classification of previously recognized financial instruments;
• transactions involving share-based payments;
• fair value measurements of financial assets and financial liabilities at initial recognition;
• insurance contracts;
• reserves for liquidation activities and restoration of the environment as part of the cost of fixed assets;
• rent;
• concession agreements for the provision of services;
• borrowing costs;
• investments in subsidiaries, jointly controlled entities and associates;
• receiving assets transferred by clients;
• redemption of financial liabilities with equity instruments;
• severe hyperinflation;
• joint activities;
• stripping costs.

The exceptions cover areas of accounting where retrospective application of IFRS requirements is considered inappropriate.

The following exceptions are mandatory:

• hedge accounting;
• settlement estimates;
• derecognition of financial assets and liabilities;
• non-controlling interests;
• classification and valuation of financial assets;
• embedded derivatives;
• government loans.

Comparative information is prepared and presented on the basis of IFRS. Nearly all adjustments arising from the first application of IFRS are recognized in retained earnings at the beginning of the first period presented under IFRS.

A reconciliation is also required for certain items due to the transition from national standards to IFRS.

Presentation of Financial Statements - IAS 1

short information

The purpose of financial statements is to provide information that will be useful to users in making economic decisions. The objective of IAS 1 is to ensure that the presentation of financial statements is comparable both with an entity's prior period financial statements and with the financial statements of other entities.

Financial statements should be prepared on a going concern basis, unless management intends to liquidate the entity, cease trading, or is forced to do so because there are no viable alternatives. Management prepares the financial statements on an accrual basis, with the exception of cash flow information.

There is no set format for financial reporting. However, a minimum amount of information should be disclosed in the main forms of financial statements and in the notes to them. The IAS 1 application guidance provides examples of acceptable formats.

The financial statements disclose relevant information for the prior period (comparatives), unless IFRS or its Interpretations permit or require otherwise.

Statement of financial position (balance sheet)

The statement of financial position reflects the financial position of an enterprise as of a specific point in time. While following the requirements for the presentation and disclosure of a certain minimum of information, management can make its own judgments regarding the form of its presentation, including the possibility of using a vertical or horizontal format, as well as which classification group should be presented and what information should be disclosed in the main report and notes.

The balance sheet must include at least the following items:

• Assets: fixed assets; investment property; intangible assets; financial assets; investments accounted for using the equity method; biological assets; Deferred tax assets; current income tax assets; reserves; trade and other receivables, and cash and cash equivalents.
• Equity: Issued capital and reserves attributable to the owners of the parent, as well as non-controlling interests presented in equity.
• Liabilities: deferred tax liabilities; liability for current income tax; financial obligations; reserves; trade and other payables.
• Assets and liabilities held for sale: the total of assets classified as held for sale and assets included in disposal groups classified as held for sale; liabilities included in disposal groups classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Current and non-current assets, as well as current and non-current liabilities, are presented in the report as separate classification groups, unless the presentation of information based on the degree of liquidity provides reliable and more relevant information.

Statement of comprehensive income

The statement of comprehensive income reflects the results of the enterprise's activities for a certain period. Enterprises may choose to report this information in one or two reports. When presented in a single statement, the statement of comprehensive income must include all items of income and expense and each component of other comprehensive income, all components classified by their nature.

When two statements are prepared, all components of profit or loss are presented in the income statement, followed by the statement of comprehensive income. It starts with the total profit or loss for the reporting period and reflects all components of other comprehensive income.

Items to be recognized in the statement of profit or loss and other comprehensive income

The profit and loss section of the statement of comprehensive income must, at a minimum, include the following line items:

• revenue;
• financing costs;
• the entity's share of the profit or loss of associates and joint ventures accounted for using the equity method;
• tax expenses;
• the amount of after-tax profit or loss from a discontinued operation, including after-tax gains or losses recognized at fair value less costs to sell (or on disposal) of the assets or disposal group(s) that make up the discontinued operation.

Additional articles and headings are included in this report if such presentation is relevant to understanding the financial performance of the entity.

Material Articles

The nature and amounts of material items of income and expenses are disclosed separately. Such information may be presented in the report or in the notes to the financial statements. Such income/expenses may include expenses related to restructuring; depreciation of inventories or the value of fixed assets; accrual of claims, as well as income and expenses associated with the disposal of non-current assets.

Other comprehensive income

In June 2011, the IASB published "Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)". The amendments separate items of other comprehensive income into those that will be reclassified to profit or loss in the future and those that will not be reclassified. These amendments apply to annual periods beginning on or after July 1, 2012.

An entity must disclose reclassification adjustments for components of other comprehensive income.

An entity may present components of other comprehensive income in the statement either (a) net of tax effects, or (b) before related tax effects, with aggregate tax on those items shown separately.

Statement of changes in equity

The following items are included in the statement of changes in equity:

• total comprehensive income for the period, showing separately the totals attributable to owners of the parent and non-controlling interests;
• for each component of equity, the effect of retrospective application or retrospective restatement recognized in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
• for each component of equity, a reconciliation of the carrying amount at the beginning and end of the period, with separate disclosure of changes due to:
  • items of profit or loss;
  • items of other comprehensive income;
  • transactions with owners in their capacity as owners, showing separately contributions made by owners and distributions to owners, and changes in ownership interests in subsidiaries that do not result in a loss of control.

The entity must also present the amount of dividends recognized as distributions to owners during the period and the corresponding amount of dividends per share.

Cash flow statement

The cash flow statement is discussed in a separate chapter on the requirements of IAS 7.

Notes to the financial statements

The notes are an integral part of the financial statements. The notes contain information that supplements the amounts disclosed in the individual financial statements. They include descriptions of accounting policies and significant estimates and judgments, disclosures about equity and financial instruments with a repurchase obligation classified as equity.

Accounting Policies, Changes in Accounting Estimates and Errors – IAS 8

The company applies the accounting policies in accordance with the requirements of IFRS, which are applicable to the specific conditions of its activities. However, in some situations, the standards provide a choice; there are also other situations in which IFRS does not provide guidance on accounting. In such situations, management must choose the appropriate accounting policy on its own.

Management, based on its professional judgment, develops and applies accounting policies to ensure that objective and reliable information is obtained. Reliable information has the following characteristics: truthful presentation, substance over form, neutrality, prudence and completeness. In the absence of IFRS standards or their interpretations that can be applied in specific situations, management should consider applying the requirements provided for in IFRS to address similar or similar issues, and only then consider definitions, recognition criteria, methodologies for measuring assets, liabilities, income and expenses as set out in the Framework for Financial Reporting. In addition, management may take into account the most recent definitions of other accounting standards bodies, other additional accounting literature, and industry practice, as long as it does not conflict with IFRS.

Accounting policies must be applied consistently for similar transactions and events (unless a standard allows or specifically requires otherwise).

Accounting policy changes

Changes in accounting policies associated with the adoption of a new standard are accounted for in accordance with the transitional provisions, if any, established under that standard. If no special transition procedure is specified, a policy change (mandatory or voluntary) is reflected retrospectively (ie through an adjustment to opening balances) unless this is not possible.

Release of new/revised standards that are not yet effective

Standards are usually published ahead of the due date for their application. Before that date, management discloses in the financial statements the fact that a new/revised standard relating to the activities of the entity has been issued but has not yet become effective. It is also required to disclose information about the possible impact of the first application of the new/revised standard on the financial statements of the company, based on available data.

Changes in accounting estimates

An entity periodically reviews accounting estimates and recognizes changes to them by reflecting prospectively the results of changes in estimates in profit or loss in the reporting period in which they affect (the period in which the change in estimates occurred and future reporting periods), unless when changes in estimates have resulted in changes in assets, liabilities or equity. In such a case, recognition is carried out by adjusting the value of the relevant assets, liabilities or equity in the reporting period in which the change occurred.

Mistakes

Errors in financial statements can result from incorrect actions or misinterpretations of information.

Errors identified in the subsequent period are errors of previous reporting periods. Significant prior year errors identified in the current period are corrected retrospectively (that is, by adjusting opening figures as if prior period accounts were initially error-free), unless this is not possible.

Financial instruments

Introduction, purpose and scope

Financial instruments are subject to the following five standards:

• IFRS 7 Financial Instruments: Disclosures, which deals with disclosures about financial instruments;
• IFRS 9 Financial Instruments;
• IFRS 13 Fair Value Measurement, which provides information on fair value measurements and related disclosure requirements for financial and non-financial items;
• IAS 32 Financial Instruments: Presentation, which deals with the distinction between liabilities and equity and offsets;
• IAS 39 Financial Instruments: Recognition and Measurement, which contains recognition and measurement requirements.

The purpose of the above five standards is to establish requirements for all aspects of accounting for financial instruments, including the separation of liabilities and equity, offsets, recognition, derecognition, measurement, hedge accounting and disclosures.

The standards have a wide scope. They apply to all types of financial instruments, including receivables, payables, investments in bonds and shares (excluding interests in subsidiaries, associates and joint ventures), loans and derivative financial instruments. They also apply to certain contracts to buy or sell non-financial assets (such as commodities) that can be settled net in cash or another financial instrument.

Classification of financial assets and financial liabilities

The way in which financial instruments are classified under IAS 39 determines the method of subsequent measurement and the accounting treatment for subsequent changes in measurement.

Prior to the entry into force of IFRS 9, financial assets are classified in the accounting for financial instruments in the following four categories (under IAS 39): financial assets measured at fair value through profit or loss; held-to-maturity investments; loans and receivables; financial assets available-for-sale. When classifying financial assets, the following factors should be taken into account:

• Are the cash flows generated by the financial instrument fixed or variable? Does the instrument have a maturity date?
• Are the assets held for sale? Does management intend to hold the instruments to maturity?
• Is the financial instrument a derivative or does it contain an embedded derivative?
• Is the instrument quoted in an active market?
• Has management classified the instrument into a specific category since recognition?

Financial liabilities are measured at fair value through profit or loss if they are determined as such (depending on various terms), are held for trading or are derivative financial instruments (unless the derivative financial instrument is a contract of financial guarantee or if it is designated as a hedging instrument and is performing effectively). Otherwise, they are classified as "other financial liabilities".

Financial assets and liabilities are measured at fair value or amortized cost, depending on their classification.

Changes in value are recognized either in the income statement or in other comprehensive income.

Reclassification to transfer financial assets from one category to another is permitted in limited circumstances. Reclassification requires disclosure of information on a number of items. Derivative financial instruments and assets that have been classified under the fair value option as at fair value through profit or loss are not subject to reclassification.

Types and main characteristics

Financial instruments include various assets and liabilities such as receivables, payables, loans, financial lease receivables and derivative financial instruments. They are recognized and measured in accordance with the requirements of IAS 39, disclosed in accordance with IFRS 7, and fair value measurements are disclosed in accordance with IFRS 13.

Financial instruments represent a contractual right or obligation to receive or pay cash or other financial assets. Non-financial items have a more indirect, non-contractual relationship to future cash flows.

A financial asset is cash; a contractual right to receive cash or another financial asset from another entity; a contractual right to exchange financial assets or financial liabilities with another entity on terms that are potentially beneficial to the entity, or it is an equity instrument of another entity.

A financial liability is a contractual obligation to transfer cash or another financial asset to another entity, or an obligation to exchange financial instruments with another entity on terms that are potentially disadvantageous to the entity.

An equity instrument is a contract evidencing the right to a residual interest in an entity's assets after deducting all of its liabilities.

A derivative financial instrument is a financial instrument whose value is determined on the basis of a relevant price or price index; it requires little or no initial investment; calculations on it are carried out in the future.

Financial liabilities and equity

The classification of a financial instrument by its issuer as either a liability (debt) or equity (equity) can have a significant impact on a company's solvency (for example, debt-to-equity ratio) and profitability. It may also affect the compliance with special conditions of loan agreements.

The key characteristic of a liability is that, in accordance with the terms of the contract, the issuer must (or may be required to) pay the holder of such an instrument cash or transfer other financial assets, that is, it cannot avoid this obligation. For example, a bond issue on which the issuer is required to pay interest and subsequently redeem the bonds in cash is a financial liability.

A financial instrument is classified as equity if it establishes a right to a share in the net assets of the issuer after deducting all of its liabilities or, in other words, if the issuer is not contractually obligated to pay cash or transfer other financial assets. Ordinary shares, for which any payment is at the discretion of the issuer, are an example of an equity financial instrument.

In addition, the following classes of financial instruments may be recognized as equity (subject to certain conditions for such recognition):

• puttable financial instruments (for example, shares of members of cooperatives or certain shares in partnerships);
• instruments (or their respective components) that oblige the holder of the instrument to pay an amount proportional to a share of the company's net assets only at the time of liquidation of the company (for example, certain types of shares issued by companies with a fixed life).

The division by the issuer of financial instruments into debt and equity is based on the essence of the instrument established by the agreement, and not on its legal form. This means that, for example, redeemable preference shares, which are similar in economic substance to bonds, are accounted for in the same way as bonds. Therefore, redeemable preference shares are classified as a liability rather than equity, even though they are legally shares of the issuer.

Other financial instruments may not be as simple as those discussed above. In each particular case, a detailed analysis of the characteristics of the financial instrument by relevant classification criteria is required, especially given that some financial instruments combine elements of both equity and debt instruments. In the financial statements, the debt and equity components of such instruments (for example, bonds convertible into a fixed number of shares) are presented separately (the equity component is represented by a conversion option if all qualifying characteristics are met).

The presentation of interest, dividends, income and losses in the income statement is based on the classification of the respective financial instrument. For example, if the preferred share is a debt instrument, then the coupon is treated as an interest expense. Conversely, a coupon that is paid at the discretion of the issuer on an instrument treated as equity is treated as an equity distribution.

Recognition and derecognition

Confession

The recognition rules for financial assets and liabilities are usually not complex. An entity recognizes financial assets and liabilities when it becomes a party to a contractual relationship.

Derecognition

Derecognition is the term used to determine when a financial asset or liability is derecognized from the balance sheet. These rules are more difficult to apply.

Assets

A company holding a financial asset may raise additional funds to finance its activities, using the existing financial asset as collateral or as the main source of funds from which debt repayments will be made. The derecognition requirements in IAS 39 determine whether the transaction is a sale of financial assets (which causes the entity to derecognise them) or an asset-backed financing (in which case the entity recognizes a liability for the proceeds received).

Such an analysis can be quite simple. For example, it is clear that a financial asset is written off the balance sheet after it is unconditionally transferred to a third party independent of the enterprise, without any additional obligation to compensate it for the risks associated with the asset and without retaining rights to participate in its profitability. Conversely, derecognition is not permitted if the asset has been transferred but, in accordance with the terms of the contract, all the risks and potential rewards of the asset remain with the entity. However, in many other cases, the interpretation of the transaction is more complex. Securitization and factoring transactions are examples of more complex transactions where write-offs require careful consideration.

Commitments

An entity may derecognise (write off the balance sheet) a financial liability only after it has been settled, that is, when the liability is paid, canceled or terminated due to its expiration, or when the borrower is discharged by the lender or by law.

Valuation of financial assets and liabilities

In accordance with IAS 39, all financial assets and financial liabilities are measured at initial recognition at fair value (plus transaction costs in the case of a financial asset or financial liability not at fair value through profit or loss). The fair value of a financial instrument is the transaction price, ie the fair value of the consideration given or received. However, in some circumstances the transaction price may not reflect fair value. In such situations, it is appropriate to determine fair value on the basis of open data on current transactions in similar instruments or on the basis of technical valuation models, using only data from observable markets.

The measurement of financial instruments after initial recognition depends on their initial classification. All financial assets after initial recognition are measured at fair value, except for loans and receivables and held-to-maturity assets. In exceptional cases, equity instruments whose fair value cannot be measured reliably, as well as derivatives related to those unquoted equity instruments that are to be settled by delivery of those assets, are also not remeasured.

Loans and receivables and held-to-maturity investments are measured at amortized cost.

The amortized cost of a financial asset or financial liability is determined using the effective interest method.

Available-for-sale financial assets are measured at fair value through other comprehensive income. However, for available-for-sale debt instruments, interest income is recognized in profit or loss using the effective interest method. Dividends from available-for-sale equity instruments are charged to profit or loss when the holder's right to receive them is established. Derivatives (including embedded derivatives accounted for separately) are measured at fair value. Gains and losses arising from changes in their fair value are recognized in the income statement, except for changes in the fair value of hedging instruments in cash flow hedges or net investment hedges.

Financial liabilities are measured at amortized cost using the effective interest method, unless they are designated as liabilities at fair value through profit or loss. There are some exceptions in the form of loan commitments and financial guarantee contracts.

Financial assets and financial liabilities designated as hedged items may require additional adjustments to their carrying amounts in accordance with the provisions of hedge accounting (see section on hedge accounting).

All financial assets, other than those measured at fair value through profit or loss, are subject to an impairment test. If there is objective evidence that a financial asset is impaired, the identified impairment loss is recognized in the income statement.

Derivative financial instruments embedded in the host contract

Some financial instruments and other contracts combine derivatives and non-derivative financial instruments in one contract. The part of the contract that is a financial derivative is called an embedded derivative.

The specificity of such an instrument is that some of the cash flows of the contract change similarly to independent derivative financial instruments. For example, the face value of a bond may change simultaneously with fluctuations in the stock index. In this case, the embedded derivative is a debt derivative based on the underlying stock index.

Embedded derivatives that are not “closely related” to the host contract are separated and accounted for as stand-alone derivatives (that is, at fair value through profit or loss). Embedded derivatives are not “closely related” if their economic characteristics and risks do not match those of the underlying contract. IAS 39 provides many examples to help determine whether this condition is met or not.

Analyzing contracts for potential embedded derivatives is one of the most difficult aspects of IAS 39.

hedge accounting

A hedging is an economic transaction involving the use of a financial instrument (usually a derivative) aimed at reducing (partially or completely) the risks of the hedged item. So-called hedge accounting allows you to change the timing of gains and losses for a hedged item or hedging instrument so that they are recognized in the income statement in the same accounting period to reflect the economic substance of the hedge.

To apply hedge accounting, an entity must ensure that: (a) the hedging relationship between the hedging instrument and the qualifying hedged item is formally defined and documented at the start of the hedge, and (b) it must be demonstrated at the start of the hedge and throughout the life of the hedge that the hedge is highly effective .

There are three types of hedging relationships:

• fair value hedge – a hedge of the exposure to changes in the fair value of a recognized asset or liability, or a firm commitment;
• cash flow hedge – a hedge of the exposure to changes in future cash flows associated with a recognized asset or liability, a firm commitment or a forecast transaction that is more than highly probable;
• hedging of net investments – hedging of foreign exchange risk in terms of net investments in foreign operations.

For a fair value hedge, the hedged item is adjusted by the amount of income or expense attributable to the hedged risk. The adjustment is recognized in the income statement where it will offset the related gain or loss from the hedging instrument.

Gains and losses on a cash hedge that has been determined to be effective are initially recognized in other comprehensive income. The amount included in other comprehensive income is the lower of the fair value of the hedging instrument and the hedged item. Where the hedging instrument has a higher fair value than the hedged item, the difference is recognized in profit or loss as an indicator of hedge ineffectiveness. Deferred gains or losses recognized in other comprehensive income are reclassified to profit or loss when the hedged item affects the income statement. If the hedged item is a forecast acquisition of a non-financial asset or liability, an entity has the option of choosing to adjust the carrying amount of the non-financial asset or liability for hedging income or loss at the time of acquisition, or to retain the deferred hedging income or expense in equity and reclassify it to profit and loss when the hedged item will affect profit or loss.

Hedge accounting for net investments in foreign operations is treated in a manner similar to cash flow hedge accounting.

Information disclosure

Recently there have been significant changes in the concept and practice of risk management. New methods have been developed and implemented to assess and manage risks associated with financial instruments. These factors, along with significant volatility in the financial markets, have led to the need for more relevant information, more transparency about an entity's exposure to risks associated with financial instruments, and information about how an entity manages those risks. Users of financial statements and other investors need such information to form judgments about the risks to which an entity is exposed as a result of the use of financial instruments and the associated returns.

IFRS 7 and IFRS 13 set out the disclosures required by users to assess the significance of financial instruments in terms of an entity's financial position and financial performance, and to understand the nature and extent of the risks associated with those instruments. Such risks include credit risk, liquidity risk and market risk. IFRS 13 also requires disclosures about a three-level fair value measurement hierarchy and some specific quantitative information about financial instruments at the lowest level of the hierarchy.

Disclosure requirements do not apply only to banks and financial institutions. They apply to all businesses that hold financial instruments, even simple ones such as borrowings, receivables and payables, cash and investments.

IFRS 9

In November 2009, the IASB published the results of the first part of a three-stage project to replace IAS 39 with the new standard IFRS 9 Financial Instruments. This first part focuses on the classification and measurement of financial assets and financial liabilities.

In December 2011, the Board amended IFRS 9 to change the mandatory application date for annual periods beginning on or after 1 January 2013 to 1 January 2015 or after that date. However, in July 2013 the Board made a tentative decision to subsequently defer the mandatory application of IFRS 9 and that the mandatory application date should remain open until the impairment, classification and measurement requirements are finalized. Early application of IFRS 9 is still permitted. The application of IFRS 9 in the EU has not yet been approved. The Board also amended the transition provisions by providing an exemption from the restatement of comparative information and introducing new disclosure requirements to help users of financial statements understand the implications of moving to a classification and measurement model in accordance with IFRS 9.

Below is a summary of the key requirements of IFRS 9 (as currently revised).

IFRS 9 replaces the multiple classification and measurement models for financial assets in IAS 39 with a single model that has only two classification categories: amortized cost and fair value. Classification under IFRS 9 is determined by the entity's business model for managing financial assets and the contractual characteristics of the financial assets.

A financial asset is measured at amortized cost when two conditions are met:

• the objective of the business model is to hold the financial asset to collect contractual cash flows;
• the contractual cash flows represent solely payments of principal and interest.

The new standard removes the requirement to separate embedded derivatives from financial assets. The standard requires that a hybrid (compound) contract be classified as a whole either at amortized cost or at fair value, unless the contractual cash flows represent solely payments of principal and interest. Two of the three existing fair value measurement criteria are no longer applicable under IFRS 9 because the fair value business model assumes fair value and hybrid contracts that do not meet the contractual cash flow criteria in their entirety are classified as carried at fair value. The remaining fair value option in IAS 39 is carried over to the new standard, meaning that management can still designate a financial asset at initial recognition as at fair value through profit or loss if it significantly reduces the number of accounting discrepancies. The designation of assets as financial assets at fair value through profit or loss will remain irrevocable.

IFRS 9 prohibits reclassification from one category to another, except in the rare event of a change in an entity's business model.

There is specific guidance for contractual instruments that balance credit risk, which is often the case for investment tranches in securitizations.

The IFRS 9 classification principles require all equity investments to be measured at fair value. However, management may elect to recognize realized and unrealized gains and losses arising from changes in the fair value of equity instruments other than those held for trading in other comprehensive income. IFRS 9 removes the cost option for unquoted shares and their derivatives, but provides guidance on when cost may be considered an acceptable measure of fair value.

The classification and measurement of financial liabilities in accordance with IFRS 9 has not changed from IAS 39, except when an entity elects to measure the liability at fair value through profit or loss. For such liabilities, changes in fair value attributable to changes in own credit risk are recognized separately in other comprehensive income.

Amounts in other comprehensive income relating to own credit risk are not reclassified to the income statement even if the liability is derecognised and the related amounts are realised. However, this standard permits intra-capital transfers.

As before, where derivative financial instruments embedded in financial liabilities are not closely related to the host contract, entities will need to separate and account for them separately from the host contract.

Foreign currencies - IAS 21, IAS 29

Many enterprises have relationships with foreign suppliers or buyers or operate in foreign markets. This leads to two main features of accounting:

• Operations (transactions) of the enterprise itself are denominated in foreign currency (for example, those that are carried out jointly with foreign suppliers or customers). For financial reporting purposes, these transactions are expressed in the currency of the economic environment in which the entity operates (the “functional currency”).
• The parent enterprise may operate abroad, for example through subsidiaries, branches or associates. The functional currency of foreign operations may differ from the functional currency of the parent and therefore the accounts may be in different currencies. Because it would be impossible to aggregate amounts expressed in different currencies, results of foreign operations and financial position are translated into one currency, the currency in which the group's consolidated financial statements are presented (“presentation currency”).

The recalculation procedures applicable in each of these situations are summarized below.

Translation of foreign currency transactions into the entity's functional currency

A foreign currency transaction is translated to the functional currency at the exchange rate at the date of the transaction. Assets and liabilities denominated in a foreign currency, representing cash or amounts of foreign currency to be received or paid (so-called cash or monetary balance sheet items), are translated at the end of the reporting period at the exchange rate at that date. The exchange differences thus arising on monetary items are recognized in profit or loss in the appropriate period. Non-monetary balance sheet items that are not subject to fair value revaluation and are denominated in a foreign currency are measured using the functional currency exchange rate at the date of the respective transaction. If there was a revaluation of a non-monetary balance sheet item to its fair value, the exchange rate at the date when the fair value was determined is used.

Translation of financial statements in functional currency to presentation currency

Assets and liabilities are translated from the functional currency to the presentation currency at the rate of exchange at the reporting date at the end of the reporting period. Income statement figures are translated at the exchange rate as at the date of the transactions or at the average exchange rate if close to the actual exchange rates. All resulting exchange differences are recognized in other comprehensive income.

The financial statements of a foreign entity whose functional currency is the currency of a hyperinflationary economy are first translated to reflect changes in purchasing power in accordance with IAS 29. All financial statements are then translated into the group's presentation currency at the exchange rate at the end of the reporting period.

Insurance contracts - IFRS 4

Insurance contracts are contracts in which the insurer assumes significant insurance risk from another party (the insured) by agreeing to pay compensation to the latter if the occurrence of an insured event negatively affects the insured. The risk transferred under the contract must be an insurance risk, that is, any risk other than financial.

Accounting for insurance contracts is addressed in IFRS 4, which applies to all companies that enter into insurance contracts, whether or not the company has the legal status of an insurance company. This Standard does not apply to the accounting for insurance contracts by policyholders.

IFRS 4 is an interim standard that will remain in effect until the end of the second phase of the IASB project on accounting for insurance contracts. It allows entities to continue applying their accounting policies for insurance contracts if those policies meet certain minimum criteria. One of these criteria is that the amount of the liability recognized in terms of insurance liability is subject to testing for the adequacy of the amount of the liability. This test considers current estimates of all contractual and associated cash flows. If the liability adequacy test indicates that the recognized liability is inadequate, then the missing liability is recognized in the income statement.

The choice of accounting policy based on IAS 37 Provisions, Contingent Liabilities and Contingent Assets is appropriate for an insurer other than an insurance company and where country generally accepted accounting principles (GAAP) do not contain specific accounting requirements for insurance contracts (or the relevant country GAAP requirements apply only to insurance companies).

Because insurers are free to continue to use their country's GAAP accounting policies for valuation, disclosures are of particular importance for the presentation of insurance contracting activities. IFRS 4 provides two main principles for presenting information.

Insurers are required to disclose:

• information that identifies and explains the amounts recognized in their financial statements and arising from insurance contracts;
• information that enables users of their financial information to understand the nature and extent of the risks arising from insurance contracts.

Revenue and construction contracts – IAS 18, IAS 11 and IAS 20

Revenue is measured at the fair value of the consideration received or receivable. If the nature of the transaction implies that it includes separately identifiable elements, then revenue is determined for each element of the transaction, generally based on fair value. The timing of revenue recognition for each element is determined independently if it meets the recognition criteria discussed below.

For example, when selling a product with a subsequent condition for its service, the amount of revenue due under the contract must first of all be distributed between the element of the sale of goods and the element of the provision of service services. Thereafter, revenue from the sale of the product is recognized when the revenue recognition criteria for the sale of the product are met, and revenue from the provision of services is recognized separately when the revenue recognition criteria for that element are met.

Revenue – IAS 18

Revenue from the sale of a good is recognized when the entity has transferred to the buyer the significant risks and rewards of the good and is not involved in the management of the asset (good) to the extent that would normally involve ownership and control, and when it is highly probable the flow of economic benefits expected from the transaction to the company, and the ability to reliably measure revenue and costs.

When services are rendered, revenue is recognized if the outcome of the transaction can be measured reliably. To do this, the stage of completion of the contract at the reporting date is established using principles similar to those used for construction contracts. It is believed that the results of a transaction can be measured reliably if: the amount of proceeds can be measured reliably; there is a high probability that economic benefits will flow to the company; it is possible to reliably determine the stage of completion at which the implementation of the contract is; the costs incurred and expected to complete the transaction can be measured reliably.

• the company is liable for unsatisfactory performance of the sold goods, and such liability is beyond the scope of the standard warranty;
• the buyer has the right, under certain conditions stipulated in the sales contract, to refuse the purchase (return the goods), and the company does not have the opportunity to assess the likelihood of such a refusal;
• the shipped goods are subject to installation, with installation services being an essential part of the contract.

Interest income is recognized in accordance with the effective interest method. Royalty income (paid for the use of intangible assets) is recognized on an accrual basis in accordance with the terms of the contract over the life of the contract. Dividends are recognized in the period in which the shareholder's right to receive them is established.

IFRIC 13 Customer Loyalty Programs clarifies the treatment of incentives given to customers when they purchase goods or services, such as frequent flyer airline loyalty programs or supermarket customer loyalty programs. The fair value of the payments received or receivables from the sale is allocated between the award points and other components of the sale.

IFRIC 18 Accounting for Assets Received from Customers clarifies the accounting for items of property, plant and equipment that are transferred to an entity by a customer in exchange for the customer connecting to its network or providing the customer with continued access to the goods and services supplied. IFRIC 18 is most applicable to utilities, but may also apply to other transactions, such as when a customer transfers ownership of an item of property, plant and equipment as part of an outsourcing arrangement.

Construction Contracts - IAS 11

A construction contract is a contract concluded for the purpose of constructing an object or a complex of objects, including contracts for the provision of services directly related to the construction of an object (for example, supervision by an engineering organization or design work by an architectural bureau). These are usually fixed price or cost plus contracts. The percentage of completion method is used to determine the amount of revenue and expenses for construction contracts. This means that revenue, expenses, and therefore profit, are recognized as the work under the contract is completed.

When it is not possible to reliably measure the outcome of a contract, revenue is recognized only to the extent that costs incurred are expected to be recovered; Contract costs are expensed as incurred. If it is highly probable that the total contract costs will exceed the total contract revenue, the expected loss is expensed immediately.

IFRIC 15 Construction Agreements for Real Estate Clarifies whether IAS 18 Revenue or IAS 11 Construction Contracts should apply to specific transactions.

Government grants - IAS 20

Government grants are recognized in the financial statements when there is reasonable assurance that the entity will be able to fully comply with all conditions of the grant and that the grant will be received. Government grants to cover losses are recognized as income and recognized in profit or loss in the same period as the related costs they are supposed to compensate, depending on the company's compliance with the terms of the government grant. They are either mutually reduced by the amount of the corresponding costs, or are reflected in a separate line. The period of recognition in profit or loss will depend on the fulfillment of all the conditions and obligations of the grant.

Government grants related to assets are recognized on the balance sheet either by reducing the carrying amount of the grant asset or as deferred income. The government grant will be reflected in the profit and loss account either as a reduced depreciation charge or as a systematic income (over the useful life of the subsidized asset).

Operating segments - IFRS 8

Segment guidance requires entities to disclose information that enables users of financial statements to evaluate the nature and financial results of business operations and economic conditions from the point of view of management.

While many entities manage their operations using some level of “segmented” data, disclosure requirements apply to (a) entities that have listed or listed equity or debt instruments, and (b) entities in the registering or obtaining admission to the quotation of debt or equity instruments in the public market. If an entity that does not meet any of these criteria chooses to disclose segmented information in its financial statements, the information may only be classified as 'segment information' if it meets the segment requirements presented in the guidance. These requirements are set out below.

Defining an entity's operating segments is a key factor in assessing the level of segment disclosures. Operating segments are the components of an enterprise, determined based on an analysis of information in internal reports, that are regularly used by the head of the enterprise, making operational decisions to allocate resources and evaluate performance.

Reportable segments are individual operating segments or a group of operating segments for which segment information is required to be presented (disclosed) separately. Combining one or more operating segments into a single reportable segment is permitted (but not required) subject to certain conditions. The main condition is that the operating segments under consideration have similar economic characteristics (for example, profitability, price dispersion, sales growth rates, etc.). Significant professional judgment is required to determine whether multiple operating segments can be combined into a single reportable segment.

For all disclosed segments, an entity is required to report profit or loss measurements in a format that is reviewed by the chief operating officer, and to disclose information about asset and liability valuation, if these measures are also regularly reviewed by management. Other segment disclosures include revenue generated from customers for each group of identical products and services, revenue by geographic region, and by degree of reliance on key customers. Entities are required to disclose other, more detailed measures of activity and resource use by reportable segments if these measures are reviewed by the entity's chief operating decision maker. Reconciliation of the totals of indicators disclosed for all segments with the data in the main forms of financial statements is mandatory for data on revenue, profit and loss and other material items, the verification of which is carried out by the supreme body of operational management.

Employee benefits - IAS 19

The treatment of employee benefits, in particular pension liabilities, is a complex issue. Often the liability of defined benefit plans is substantial. Liabilities are long-term in nature and difficult to estimate, so it is also difficult to determine the expense for the year.

Employee benefits include all forms of payment made or promised by a company to an employee for their work. The following types of employee remuneration are distinguished: wages (includes salary, profit sharing, bonuses, as well as paid absence from work, for example, annual paid leave or additional leave for length of service); severance pay, which is compensation for termination of employment or redundancy, and post-employment benefits (such as pensions). Share-based employee benefits are dealt with in IFRS 2 (Chapter 12).

Post-employment benefits include pensions, life insurance, and post-employment health care. Pension contributions are categorized into defined contribution pension plans and defined benefit pension plans.

Recognition and measurement of the amount of short-term forms of remuneration does not cause difficulties, since the application of actuarial assumptions is not required and the liabilities are not discounted. However, for long-term forms of remuneration, especially post-employment benefit obligations, measurement is more difficult.

Defined Contribution Pension Plans

The accounting approach for defined contribution plans is quite simple: an expense is the amount of contributions payable by the employer for the relevant accounting period.

Defined Benefit Pension Plans

Accounting for defined benefit plans is complex because actuarial assumptions and valuation methods are used to determine the present value of the liability and accrue the expense. The amount of expense recognized in a period is not necessarily equal to the amount of pension fund contributions made during that period.

The liability recognized in the balance sheet for a defined benefit plan is the present value of the pension obligation less the fair value of plan assets, adjusted for unrecognized actuarial gains and losses (see below for a description of the corridor recognition principle).

To calculate the liability for defined benefit plans, the benefit estimation model sets estimates (actuarial assumptions) of demographic variables (such as employee turnover and death rates) and financial variables (such as future increases in wages and health care costs). The estimated benefit is then discounted to its present value using the projected unit credit method. These calculations are usually carried out by professional actuaries.

In companies that fund defined benefit pension plans, plan assets are measured at fair value, which, in the absence of market prices, is calculated using the discounted cash flow method. Plan assets are severely restricted and only those assets that meet the definition of a plan asset can be offset against defined benefit obligations, i.e. the balance sheet shows a net deficit (liability) or surplus (asset) of the plan.

The plan assets and defined benefit liability are remeasured at each reporting date. The income statement reflects the change in the amount of the surplus or deficit, except for information about contributions to the plan and payments made under the plan, as well as business combinations and revaluation of profit and loss. The remeasurement of profit or loss includes actuarial gains and losses, gains on plan assets (less amounts included in net interest on the net liability or defined benefit asset), and any change in the impact of the asset ceiling (other than amounts in net interest on a net defined benefit liability or asset). The revaluation results are recognized in other comprehensive income.

The amount of pension expense (income) to be recognized in profit or loss consists of the following components (unless they are required or permitted to be included in the cost of assets):

• cost of services (present value of remuneration earned by existing employees in the current period);
• net interest expense (reversal of discount on defined benefit obligation and expected return on plan assets).

Service cost includes “current service cost”, which is the increase in the present value of the defined benefit obligation resulting from employee services in the current period, “past service cost” (as defined below and including any gain or loss resulting from sequestration ), as well as any gain or any settlement loss.

Net interest on a net defined benefit liability (asset) is defined as “the change in the net defined benefit liability (asset) over a period arising over time” (IFRS 19, paragraph 8). Net interest expense can be viewed as the sum of expected interest income on plan assets, interest expense on defined benefit obligations (representing the reversal of the discount on plan obligations), and interest associated with the impact of the asset ceiling (IFRS 19, para. 124).

Net interest on the net defined benefit liability (asset) is calculated by multiplying the net defined benefit liability (asset) by the discount rate. In this case, the values ​​that were established at the beginning of the annual reporting period will be used, taking into account any changes in the net liability (asset) under the defined benefit plan that occurred during the period as a result of contributions and payments made (IFRS 19, paragraph 123 ).

The discount rate applicable to any financial year is the appropriate high-quality corporate bond rate (or government bond rate, as appropriate). The net interest on the net liability (asset) under a defined benefit plan can be considered to include the expected interest income on plan assets.

Past service cost is the change in the present value of a defined benefit plan liability for employee services rendered in prior periods resulting from plan changes (introduction, cancellation or modification of a defined benefit plan) or sequestration (significant reduction in the number of employees included in the plan). As a general rule, past service costs should be recognized as an expense if the plan is amended or as a result of sequestration. Settlement gain or loss is recognized in the income statement when settlement is made.

IFRIC 14 IAS 19 Defined Benefit Asset Limit, Minimum Funding Requirements and Their Relationship provides guidance on estimating the amount that can be recognized as an asset when plan assets exceed a liability by defined benefit plan, resulting in a net surplus. The Interpretation also explains how an asset or liability may be affected by a statutory or contractual minimum funding requirement.

Share-based payment - IFRS 2

IFRS 2 applies to all share-based payment contracts. A share-based payment agreement is defined as “an agreement between a company (or another group company, or any shareholder of any group company) and another party (including an employee) that gives the other party the right to receive:

• cash or other assets of the company in an amount based on the price (or value) of equity instruments (including shares or share options) of the company or other group company, and
• equity instruments (including shares or share options) of a company or other group company.”

Share-based payments are most widely used in employee incentive programs such as stock options. In addition, companies can thus pay for other expenses (for example, the services of professional consultants) and the acquisition of assets.

The valuation principle of IFRS 2 is based on the fair value of the instruments used in the transaction. Both the valuation and accounting of remuneration can be difficult due to the need for complex models for calculating the fair value of options and the variety and complexity of payment plans. In addition, the standard requires disclosure of a large amount of information. The amount of a company's net income is usually reduced as a result of the application of the standard, especially for companies that widely use share-based payments as part of their employee compensation strategy.

Share-based payments are recognized as an expense (assets) over the period in which all specified vesting conditions under the share-based payment agreement must be met (the so-called vesting period). Equity-settled share-based payments are measured at fair value at the date the right to the payment is granted to account for employee benefits, and if the parties to the transaction are not employees of the company, at fair value at the date the assets received are recognized and services. When the fair value of the goods or services received cannot be measured reliably (for example, if the payment for employee services is involved, or if there are circumstances that prevent the goods and services from being accurately identified), the entity records the assets and services at the fair value of the equity instruments granted. In addition, management must consider whether any unidentifiable goods and services have been received or are expected to be received, as these must also be measured in accordance with IFRS 2. Share-based payments settled in equity instruments are not subject to remeasurement after how fair value is determined at vesting date.

The accounting for cash-settled share-based payments is treated differently: an entity must measure this type of award at the fair value of the liability incurred.

The liability is remeasured to its current fair value at each balance sheet date and settlement date, with changes in fair value recognized in the income statement.

Income taxes - IAS 12

IAS 12 deals only with income tax matters, including current tax charges and deferred tax. The current income tax expense for the period is determined by taxable income and deductible expenses that will be reflected in the tax return for the current year. The Company recognizes in the balance sheet a debt in respect of current income tax expenses for the current and previous periods to the extent of the unpaid amount. The current tax overpayment is recognized by the company as an asset.

Current tax assets and liabilities are determined by the amount that management believes will be payable to the tax authorities or recoverable from the budget under current or substantively applicable tax rates and laws. Taxes payable based on tax base rarely match income tax expense based on accounting profit before tax. Inconsistencies arise, for example, due to the fact that the criteria for recognition of items of income and expenses set out in IFRS differ from the approach of tax legislation to these items.

Deferred tax accounting is designed to address these inconsistencies. Deferred taxes are determined by temporary differences between the tax base of an asset or liability and its carrying amount in the financial statements. For example, if a property is positively revalued and the asset is not sold, a temporary difference arises (the carrying amount of the asset in the financial statements exceeds the acquisition cost, which is the tax base for that asset), which is the basis for accruing a deferred tax liability.

Deferred tax is recognized in full on all temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, unless the temporary differences arise from:

• initial recognition of goodwill (only for deferred tax liabilities);
• the initial recognition of an asset (or liability) in a transaction that is not a business combination that affects neither accounting nor taxable profit;
• investments in subsidiaries, branches, associates and joint ventures (subject to certain conditions).

Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to the period when the underlying asset is realized or the liability is settled, based on the tax rates (and tax laws) that were in effect at the reporting date or have been adopted in substance to date. Discounting of deferred tax assets and liabilities is not permitted.

The measurement of deferred tax liabilities and deferred tax assets should generally reflect the tax consequences that would result from the manner in which the entity expects to recover or settle the carrying amount of those assets and liabilities at the end of the reporting period. The proposed method of recovering the cost of land plots with an unlimited useful life is a sale operation. For other assets, the manner in which the entity expects to recover the carrying amount of the asset (through use, sale, or a combination of both) is reviewed at each reporting date. If a deferred tax liability or deferred tax asset arises from an investment property that is measured using the fair value model in accordance with IAS 40, then there is a rebuttable presumption that the carrying amount of the investment property will be recovered through sale.

Management recognizes deferred tax assets on deductible temporary differences only to the extent that it is highly probable that future taxable profits will be available against those temporary differences. The same rule applies to deferred tax assets with respect to the carry forward of tax losses.

Current and deferred income tax are recognized in profit or loss for the period, unless the tax arises from an acquisition of a business or a transaction held outside profit or loss, in other comprehensive income or directly in equity in the current or another reporting period . Tax accruals associated, for example, with changes in tax rates or tax laws, a review of the likelihood of recovering deferred tax assets, or changes in the expected manner in which assets are recovered are charged to profit or loss, unless the accrual relates to prior period transactions reflected in the capital accounts.

Earnings per share - IAS 33

Earnings per share is a metric often used by financial analysts, investors, and others to evaluate a company's profitability and share price. Earnings per share is usually calculated on the basis of the company's common stock. Thus, profit attributable to holders of ordinary shares is determined by subtracting from net profit its part attributable to holders of equity instruments of a higher (preferred) level.

A publicly traded company must disclose both basic and diluted earnings per share in its individual financial statements or in its consolidated financial statements if it is a parent company. In addition, entities that file or are in the process of filing financial statements with a securities commission or other regulatory body for the purpose of issuing ordinary shares (i.e., not for the purpose of a private placement) must also comply with the requirements of IAS 33.

Basic earnings per share is calculated by dividing the profit (loss) for the period attributable to shareholders of the parent company by the weighted average number of ordinary shares outstanding (adjusted for the premium distribution of additional shares among shareholders and the bonus component in the issue of shares on preferential terms ).

Diluted earnings per share are calculated by adjusting earnings (loss) and the weighted average number of ordinary shares for the dilutive effect of the conversion of potential ordinary shares. Potential ordinary shares are financial instruments and other contractual obligations that may result in the issue of ordinary shares, such as convertible bonds and options (including employee options).

Basic and diluted earnings per share both for the company as a whole and separately for continuing operations are disclosed uniformly in the statement of comprehensive income (or in the income statement, if the company presents such a statement separately) for each category of ordinary shares. Earnings per share for discontinued operations are disclosed as a separate line directly on the same reporting forms or in the notes.

Balance with notes

Intangible assets - IAS 38

An intangible asset is an identifiable non-monetary asset that has no physical form. The requirement of identifiability is met when the intangible asset is separable (that is, when it can be sold, transferred or licensed) or when it is the result of contractual or other legal rights.

Separately acquired intangible assets

Separately acquired intangible assets are initially recognized at cost. Cost is the purchase price of an asset, including import duties and non-refundable purchase taxes, and any direct costs incurred to get the asset ready for its intended use. The purchase price of a separately acquired intangible asset is considered to reflect the market's expectation of the future economic benefits that can be derived from the asset.

Self-created intangible assets

The process of creating an intangible asset includes a research stage and a development stage. The research stage does not result in the recognition of intangible assets in the financial statements. Development stage intangible assets are recognized when an entity can simultaneously demonstrate the following:

• Technical feasibility of development
• its intention to complete the development;
• the ability to use or sell an intangible asset;
• how the intangible asset will generate probable future economic benefits (for example, whether there is a market for the products that the intangible asset produces or for the intangible asset itself);
• availability of resources to complete development;
• its ability to reliably estimate development costs.

Any costs expensed in the research or development phase cannot be recovered for inclusion in the cost of an intangible asset at a later date when the project qualifies for recognition of an intangible asset. In many cases, costs cannot be attributed to the cost of any asset and are expensed as incurred. Start-up costs and marketing costs do not qualify for asset recognition. The costs of creating brands, customer databases, titles of printed publications and headings in them, and goodwill itself are also not subject to accounting as an intangible asset.

Intangible assets acquired in a business combination

If an intangible asset is acquired in the course of a business combination, it is deemed to meet the recognition criteria, and therefore the intangible asset will be recognized on initial accounting for the business combination, whether or not it was previously recognized in the acquiree's financial statements.

Valuation of intangible assets after initial recognition

Intangible assets are amortized, except for assets with an indefinite useful life. Depreciation is charged on a systematic basis over the useful life of an asset. The useful life of an intangible asset is indefinite if an analysis of all relevant factors indicates that there is no foreseeable limitation on the period over which the asset is expected to generate net cash inflows for the entity.

Intangible assets with a finite useful life are tested for impairment only when there is an indication of possible impairment. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually and whenever there is an indication of possible impairment.

Property, plant and equipment - IAS 16

An item of property, plant and equipment is recognized as an asset when its cost can be measured reliably and it is probable that the future economic benefits associated with it will flow to the entity. At initial recognition, property, plant and equipment is measured at cost. Cost consists of the fair value of the consideration paid for the item being acquired (net of any trade discounts and refunds) and any direct costs incurred to bring the item to a usable condition (including import duties and non-refundable purchase taxes).

Direct costs related to the acquisition of an item of property, plant and equipment include the cost of site preparation, delivery, installation and assembly, the cost of technical supervision and legal support of the transaction, as well as the estimated cost of mandatory dismantling and disposal of the item of property, plant and equipment and reclamation of the industrial site (to the same the extent to which an allowance is made for such costs). Property, plant and equipment (successively within each class) can be carried either at cost less accumulated depreciation and accumulated impairment losses (the cost model) or at revalued amounts less accumulated depreciation and impairment losses (the cost model). revaluation). The depreciable cost of property, plant and equipment, which is the cost of an item less an estimate of its salvage value, is written off on a systematic basis over its useful life.

Subsequent costs associated with an item of property, plant and equipment are included in the asset's carrying amount if they meet the general recognition criteria.

An item of property, plant and equipment may include components with different useful lives. Depreciation expense is calculated based on the useful life of each component. If one of the components is replaced, the replacement component is included in the asset's carrying amount to the extent that it meets the recognition criteria for an asset, and at the same time, a partial disposal is recognized within the carrying amount of the replaced components.

Costs of maintenance and overhaul of items of property, plant and equipment that are carried out regularly over the useful life of the item are included in the carrying amount of the item of property, plant and equipment (to the extent that they qualify for recognition) and depreciated in between.

The ICFR has published IFRIC 18, Transfers of Assets from Customers, which clarifies how arrangements with customers to transfer items of property, plant and equipment to a contractor as a condition of perpetual service are treated.

Borrowing costs

Under IAS 23 Borrowing Costs, entities are required to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset subject to capitalization.

Investment property - IAS 40

For financial reporting purposes, certain properties are classified as investment property in accordance with IAS 40 Investment Property because the characteristics of such property differ significantly from those of the property used by the owner. For users of financial statements, the current value of such property and its changes over the period are important.

Investment property is property (land or a building, or part of a building, or both) held to earn rentals and/or for capital appreciation. All other property is accounted for in accordance with:

• IAS 16 Property, Plant and Equipment as property, plant and equipment if these assets are used in the production of goods and services, or
• IAS 2 Inventories as inventories if the assets are held for sale in the ordinary course of business.

On initial recognition, investment property is measured at cost. After the initial recognition of investment property, management may choose to use either the fair value model or the cost model in its accounting policy. The selected accounting policy is applied consistently to all objects of investment property of the enterprise.

If an entity chooses fair value accounting, investment property is measured at fair value during construction or development if that value can be measured reliably; otherwise investment property is carried at cost.

Fair value is “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”. Guidance on fair value measurement is provided in IFRS 13 Fair Value Measurement.

Changes in fair value are recognized in profit or loss in the period in which they occur. The cost model recognizes investment property at cost less accumulated depreciation and accumulated impairment losses (if any), which is in line with the accounting rules for property, plant and equipment. The fair value of such property is disclosed in the notes.

Impairment of Assets - IAS 36

Almost all assets - current and non-current - are subject to testing for possible impairment. The purpose of testing is to make sure that their book value is not overstated. The basic principle of impairment recognition is that the carrying amount of an asset cannot exceed its recoverable amount.

The recoverable amount is determined as the higher of the asset's fair value less costs to sell and value in use. Fair value less costs to sell is the price that would be received to sell the asset in a transaction between market participants at the measurement date, less the costs of disposal. Guidance on fair value measurement is provided in IFRS 13 Fair Value Measurement. To determine value in use, management needs to estimate the future pre-tax cash flows expected from use of the asset and discount them using a pre-tax discount rate that reflects current market estimates of the time value of money and the risks inherent in the asset.

All assets are subject to testing for possible impairment if there are signs of the latter. Certain assets (goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use) are subject to mandatory annual impairment testing even if there is no indication of impairment.

When considering the possibility of asset impairment, both external indicators of possible impairment (for example, significant adverse changes in technology, economic conditions or legislation, or an increase in interest rates in the financial market) and internal indicators (for example, signs of obsolescence or physical damage to the asset) are analyzed. or management accounting evidence of a past or expected deterioration in the economic performance of an asset).

The recoverable amount must be calculated for individual assets. However, it is extremely rare for assets to generate cash flows independently of other assets, so in most cases impairment testing is done on groups of assets called cash generating units. A cash generating unit is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of cash flows generated by other assets.

The carrying amount of the asset is compared to the recoverable amount. An asset or cash-generating unit is considered impaired when its carrying amount exceeds its recoverable amount. The amount of such excess (impairment amount) reduces the cost of the asset or is allocated to the cash-generating unit's assets; an impairment loss is recognized in profit or loss.

Goodwill recognized on initial accounting for a business combination is allocated to the cash-generating units or groups of cash-generating units that are expected to benefit from the combination. However, the largest group of cash-generating units for which goodwill can be tested for impairment is the operating segment prior to being grouped into reportable segments.

Leases - IAS 17

A lease agreement gives one party (the lessee) the right to use an asset for an agreed period in exchange for a rental payment to the lessor. Renting is an important source of medium and long term financing. Accounting for leases can have a significant impact on the financial statements of both the lessee and the lessor.

A distinction is made between finance and operating leases, depending on the risks and rewards that are transferred to the lessee. Under a finance lease, the lessee transfers all significant risks and rewards incidental to ownership of the leased asset. A lease that does not qualify as a finance lease is an operating lease. The classification of a lease is determined at the time it is initially recognized. In the case of leases of buildings, the lease of land and the lease of the building itself are treated separately in IFRS.

In a finance lease, the lessee recognizes the leased property as its asset and recognizes a corresponding liability to pay lease payments. Depreciation is charged on the leased property.

The lessee recognizes the leased property as a receivable. Accounts receivable are recognized at an amount equal to the net investment in the lease, ie the minimum lease payments expected to be received, discounted at the internal rate of return of the lease, and the unguaranteed residual value of the leased asset due to the lessor.

Under an operating lease, the lessee recognizes no asset (and liability) on its balance sheet, and the lease payments are generally recognized in the profit and loss account, distributed evenly over the lease term. The lessor continues to recognize the leased asset and depreciate it. Lease receipts are the lessor's income and are generally recognized in the lessor's profit and loss account on a straight-line basis over the lease term. Related transactions that have the legal form of a lease are accounted for on the basis of their economic substance.

For example, a sale and leaseback transaction where the seller continues to use the asset would not be a lease in substance if the "seller" retains the significant risks and rewards of ownership of the asset, i.e. substantially the same rights as before the operation.

The essence of such transactions is to provide financing to the seller-lessee under the guarantee of ownership of the asset.

Conversely, some transactions that do not have the legal form of a lease are, in substance, if (as stated in IFRIC 4) the fulfillment of one party's contractual obligations involves that party's use of a particular asset that the counterparty can physically or economically control. .

Inventories - IAS 2

Inventories are initially recognized at the lower of cost and net realizable value. The cost of inventories includes import duties, non-refundable taxes, transportation, handling and other costs directly attributable to the purchase of inventories, less any trade discounts and refunds. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs to sell.

In accordance with IAS 2 Inventories, the cost of inventories that are not fungible, as well as those inventories that have been allocated to a specific order, must be determined for each item of such inventory. All other inventories are valued using either the FIFO first-in, first-out (FIFO) formula or the weighted average cost formula. The use of the LIFO formula "last in - first out" (last-in, first-out, LIFO) is not allowed. The company must use the same cost formula for all inventories of the same type and scope. The use of a different cost formula may be justified in cases where the reserves are of a different nature or are used by the company in different areas of activity. The selected formula for calculating the cost is applied consistently from period to period.

Reserves, Contingent Liabilities and Contingent Assets - IAS 37

A liability (for financial reporting purposes) is “a present obligation of an entity arising from past events, the settlement of which is expected to result in the disposal of resources embodying economic benefits from the entity.” Provisions are included in the concept of a liability and are defined as "obligations with an indefinite maturity or obligations of an indefinite amount."

Recognition and initial measurement

A provision should be recognized when an entity has a present obligation to transfer economic benefits arising from a past event and it is highly probable (more likely than not) that an outflow of resources embodying the economic benefits will occur to settle that obligation; at the same time, its value can be reliably estimated.

The amount recognized as an allowance should represent the best estimate of the costs required to settle an existing obligation at the reporting date, in the amount of the expected amounts of cash required to settle the obligation, adjusted (discounted) for the effect of the time value of money.

A present obligation arises from the occurrence of a so-called obligating event and may take the form of a legal or voluntary obligation. An obligating event puts the company in a position where it has no choice but to fulfill the obligation caused by this event. If a company can avoid future costs as a result of its future actions, that company has no existing liabilities and no provision is required. Also, an entity cannot recognize a valuation allowance solely on the basis of its intention to incur expenses at some time in the future. Provisions are also not recognized for expected future operating losses, unless those losses are related to an onerous contract.

It is not necessary to wait for the entity's liabilities to take the form of a "legal" liability in order to recognize a valuation allowance. The company may have past practices that indicate to other parties that the company is assuming certain responsibilities and that have already created a reasonable expectation in those parties that the company will honor its obligations (meaning that the company has a voluntary agreement to yourself an obligation).

If an entity is liable under a contract that is onerous for it (the unavoidable costs of fulfilling the obligations under the contract exceed the expected economic benefits from fulfilling the contract), the existing obligation under such a contract is recognized as an allowance. Until a separate allowance is created, an entity recognizes impairment losses on any assets associated with an onerous contract.

Provisions for restructuring

Special requirements are provided for the creation of valuation reserves for restructuring costs. An allowance is created only if: a) there is a detailed formally accepted restructuring plan that sets out the main parameters of the restructuring, and b) the enterprise, having started the implementation of the restructuring plan or communicated its main provisions to all parties affected by it, has created reasonable expectations that the company will restructure. The restructuring plan does not create an existing liability at the balance sheet date if it is announced after that date, even if the announcement occurred before the approval of the financial statements. The company does not have any obligation to sell part of the business until the company is obligated to make such a sale, ie until a binding agreement to sell is entered into.

The allowance includes only direct costs that are inevitably associated with the restructuring. Expenses related to the ongoing activities of the company are not subject to reservation. Gains from the expected disposal of assets are not taken into account when measuring the allowance for restructuring.

Refunds

The allowance and expected amount are presented separately as a liability and an asset, respectively. However, an asset is recognized only if it is considered virtually certain that the consideration will be received if the company fulfills its obligation, and the amount of the consideration recognized should not exceed the amount of the allowance. The amount of expected recovery should be disclosed. The presentation of this item as a reduction of the recoverable liability is only permitted in the income statement.

Follow-up evaluation

At each balance sheet date, management shall review the allowance based on its best estimate, as at the balance sheet date, of the costs required to settle the existing liability at the balance sheet date. An increase in the carrying amount of an allowance that reflects the passage of time (as a result of applying a discount rate) is recognized as an interest expense.

Contingent liabilities

Contingent liabilities are possible liabilities whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events beyond the control of the entity, or existing liabilities for which a provision is not recognized because: an outflow of resources embodying economic benefits, or b) the amount of the liability cannot be measured reliably.

Contingent liabilities are not recognized in the financial statements. Contingent liabilities are disclosed in the notes to the financial statements (including estimates of their potential impact on the financial performance and indications of uncertainty about the amount or timing of a possible outflow of resources), unless the possibility of an outflow of resources is very remote.

Contingent Assets

Contingent assets are possible assets that will only be confirmed by the occurrence or non-occurrence of uncertain future events beyond the control of the entity. Contingent assets are not recognized in the financial statements.

Where the receipt of income is virtually certain, the asset is not a contingent asset and its recognition is appropriate.

Information about contingent assets is disclosed in the notes to the financial statements (including an estimate of their potential impact on the financial performance) if the inflow of economic benefits is probable.

Events after the end of the reporting period - IAS 10

Companies typically require time to prepare their financial statements, which is between the reporting date and the date the financial statements are authorized for issue. This raises the question of the extent to which events that occur between the balance sheet date and the date the financial statements are authorized (i.e., events after the end of the reporting period) should be reflected in the financial statements.

Events after the end of the reporting period are either adjusting events or events that do not require adjustment. So-called adjusting events provide additional evidence about conditions that existed at the reporting date, such as determining after the end of the reporting year the amount of consideration for assets sold before the end of that year. Events that do not require adjustment relate to conditions that arose after the reporting date, such as the announcement of a plan to cease operations after the end of the reporting year.

The carrying value of assets and liabilities at the reporting date is formed taking into account corrective events. In addition, an adjustment should also be made when events after the balance sheet date indicate that the going concern assumption is not applicable. The notes to the financial statements should disclose information about significant events after the balance sheet date that do not require adjustment, such as a share issue or a major business purchase.

Dividends recommended or declared after the balance sheet date but before the date the financial statements are authorized for issue are not recognized as a liability at the balance sheet date. Such dividends must be disclosed. The company discloses the date when the financial statements are approved for issue and the persons who approve their issue. If, after the release of the financial statements, the owners of the company or other persons are authorized to make changes to the financial statements, this fact must be disclosed in the financial statements.

Share capital and reserves

Equity, along with assets and liabilities, is one of the three elements of a company's financial position. The IASB's Framework for the Preparation and Presentation of Financial Statements defines equity as the residual interest in an entity's assets after offsetting all of its liabilities. The term "equity" is often used as a general category for a company's equity instruments and all of its reserves. In financial statements, capital can be referred to in different ways: as equity capital, capital invested by shareholders, share capital and reserves, equity of shareholders, funds, etc. The capital category combines components with very different characteristics. The definition of equity instruments for IFRS purposes and how they are accounted for is within the scope of IAS 32 Financial Instruments: Presentation in Financial Statements.

Equity instruments (for example, ordinary shares that cannot be redeemed) are generally recognized at the amount of resources received, which is the fair value of the consideration received, less transaction costs. After initial recognition, equity instruments are not remeasured.

Reserves include retained earnings as well as fair value reserves, hedging reserves, property, plant and equipment revaluation reserves and foreign exchange reserves, as well as other statutory provisions.

Treasury shares repurchased from shareholders Treasury shares are deducted from total equity. Buying, selling, issuing or redeeming a company's own equity instruments is not recognized in the income statement.

Non-controlling interest

Non-controlling interest (formerly defined as 'minority interest') is presented in the consolidated financial statements as a separate component of equity, distinct from equity and reserves attributable to shareholders of the parent company.

Information disclosure

The new edition of IAS 1 Presentation of Financial Statements requires different disclosures in relation to equity. This includes information about the total amount of issued share capital and reserves, the presentation of the statement of changes in equity, information about capital management policies and information about dividends.

Consolidated and separate financial statements

Consolidated and separate financial statements - IAS 27

Applicable to companies in EU countries. For companies operating outside the EU, see Consolidated and Separate Financial Statements – IFRS 10.

IAS 27 Consolidated and Separate Financial Statements requires the preparation of consolidated financial statements for an economically distinct group of companies (with rare exceptions). Consolidation of all subsidiaries. A subsidiary is any company controlled by another parent company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Control is presumed when an investor directly or indirectly owns more than half of the voting shares (interests) of an investee, and this presumption is rebuttable if there is clear evidence to the contrary. Control may exist when holding less than half of the voting shares (interests) of the investee if the parent company has the power to exercise control, for example, through a dominant position on the board of directors.

A subsidiary is included in the consolidated financial statements from the date of its acquisition, i.e. from the date on which control over the net assets and activities of the acquired company effectively passes to the acquirer. Consolidated financial statements are prepared as if the parent company and all of its subsidiaries were a single entity. Transactions between group companies (for example, sales of goods from one subsidiary to another) are eliminated on consolidation.

A parent company that has one or more subsidiaries presents consolidated financial statements unless and all of the following conditions are met:

• it is itself a subsidiary (unless any shareholder objects);
• its debt or equity securities are not publicly traded;
• the company is not in the process of issuing securities to the public;
• the parent company is itself a subsidiary and its ultimate or intermediate parent company publishes consolidated financial statements in accordance with IFRS.

There are no exceptions for groups in which the share of subsidiaries is small, or in cases where some subsidiaries have a different type of activity from other companies in the group.

Starting from the acquisition date, the parent company includes in its consolidated statement of comprehensive income the financial results of the subsidiary and recognizes in the consolidated balance sheet its assets and liabilities, including goodwill recognized on initial recognition of a business combination (see Section 25 Business Combinations – IFRS ( IFRS) 3").

In the parent company's separate financial statements, investments in subsidiaries, jointly controlled entities and associates must be accounted for at cost or as financial assets in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

A parent company recognizes dividends received from its subsidiary as income in its separate financial statements if it is entitled to receive the dividend. It is not necessary to establish whether dividends were paid out of the subsidiary's pre-acquisition or post-acquisition profits. The receipt of dividends from a subsidiary may be an indicator that the underlying investment may be impaired if the amount of the dividend exceeds the total comprehensive income of the subsidiary for the period in which the dividend is declared.

Special Purpose Companies

A special purpose entity (SPE) is a company created to perform a narrow, well-defined task. Such a company may operate in a predetermined manner in such a way that, once formed, no other party will have specific decision-making power over its activities.

A parent company consolidates special purpose vehicles if the substance of the relationship between the parent company and the special purpose vehicle indicates that the parent company controls the special purpose vehicle. Control may be predetermined by the way the special purpose vehicle operates at the time of its incorporation, or otherwise provided. A parent company is said to control a special purpose vehicle if it bears most of the risks and receives most of the benefits associated with the activities or assets of the special purpose vehicle.

Consolidated Financial Statements - IFRS 10

The principles of consolidated financial statements are set out in IFRS 10 Consolidated Financial Statements. IFRS 10 defines a single approach to the concept of control and replaces the principles of control and consolidation prescribed in the original version of IAS 27 Consolidated and Separate Financial Statements and SIC 12 Special Purpose Entity Consolidation.

IFRS 10 sets out the requirements for when an entity is required to prepare consolidated financial statements, defines the principles of control, explains how to apply them, and explains the accounting and preparation requirements for consolidated financial statements [IFRS 10 para. .2]. The key principle underlying the new standard is that control exists and consolidation is required only if the investor has power over the investee, is exposed to changes in returns from its participation in the property, and can use its power to influence on your income.

In accordance with IAS (IAS) 27, control was defined as the power to manage the company, in accordance with SIC 12 - as exposure to risks and the ability to earn income. IFRS 10 brings these two concepts together in a new definition of control and in the concept of exposure to income risk. The basic principle of consolidation remains unchanged and is that the consolidated entity presents its financial statements as if the parent company and its subsidiaries form a single company.

IFRS 10 provides guidance on the following issues in determining who controls an investee:

• assessment of the purpose and structure of the enterprise - the object of investment;
• the nature of the rights – whether they are real rights or rights of protection
• the impact of income risk;
• assessment of voting rights and potential voting rights;
• whether the investor acts as a guarantor (principal) or agent when exercising his right to control;
• relationships between investors and how those relationships affect control; and
• the existence of rights and powers only in relation to certain assets.

Some companies will be more affected by the new standard than others. For businesses with a simple group structure, the consolidation process should not change. However, the changes may affect companies with a complex group structure or structured enterprises. The following companies are most likely to be affected by the new standard:

• enterprises with a dominant investor that does not own a majority of voting shares, and the remaining votes are distributed among a large number of other shareholders (actual control);
• structured entities, also known as special purpose vehicles;
• entities that issue or have a significant amount of potential voting rights.

In complex situations, the analysis based on IFRS 10 will be influenced by specific facts and circumstances. IFRS 10 does not contain unambiguous criteria and, when assessing control, considers many factors, such as the existence of contractual arrangements and rights held by other parties. The new standard could be applied ahead of schedule, the requirement for its mandatory application came into force on January 1, 2013 (since January 1, 2014 in the EU countries).

IFRS 10 does not contain any reporting disclosure requirements; such requirements are contained in IFRS 12: this standard significantly increased the number of required disclosures. Entities preparing consolidated financial statements should plan and implement the processes and controls needed in the future to collect information. This may necessitate prior consideration of issues raised by IFRS 12, such as the extent of downscaling required.

In October 2012, the IASB amended IFRS 10 (effective 1 January 2014; not approved as of the date of this publication) to address investment entities' treatment of entities they control. Companies classified as investment companies under the applicable definition are exempted from the obligation to consolidate the entities they control. In turn, they must account for these subsidiaries at fair value through profit or loss in accordance with IFRS 9

Business Combinations - IFRS 3

A business combination is a transaction or event in which an entity (the "acquirer") obtains control of one or more businesses. IAS 27 defines control as “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities”. (Under IFRS 10, an investor controls an investee if the investor is exposed to or entitled to such variable returns from its participation in the investee and can exercise its power to influence its returns.)

A number of factors should be taken into account in determining which of the enterprises has received control, such as the share of ownership, control over the board of directors, and direct agreements between the owners on the distribution of controlling functions. Control is assumed to exist if an entity owns more than 50% of the capital of another entity.

Business combinations can be structured in different ways. For accounting purposes under IFRS, the focus is on the substance of the transaction, not its legal form. If a number of transactions are carried out between the parties involved in the transaction, the overall result of a series of related transactions is considered. Thus, any transaction, the terms of which are made dependent on the completion of another transaction, can be considered connected. Determining whether transactions should be treated as related requires professional judgment.

Business combinations other than transactions under common control are accounted for as acquisitions. In general, accounting for an acquisition involves the following steps:

• identification of the buyer (purchasing company);
• determination of the acquisition date;
• recognition and measurement of acquired identifiable assets and liabilities, as well as non-controlling interests;
• recognizing and measuring the consideration paid for the acquired business;
• recognition and measurement of goodwill or gain on purchase

Identifiable assets (including previously unrecognized intangible assets), liabilities and contingent liabilities of the acquired business are generally measured at their fair value. Fair value is determined based on arm's length transactions and does not take into account the buyer's intention to continue using the acquired assets. In case of acquisition of less than 100% of the company's capital, a non-controlling ownership interest is allocated. A non-controlling interest is an equity interest in a subsidiary that is not held, directly or indirectly, by the parent company of the consolidated group. The acquirer has the choice of whether to measure the non-controlling interest at its fair value or pro rata to the value of the net identifiable assets.

The total consideration under the transaction includes cash, cash equivalents and the fair value of any other consideration transferred. Any equity financial instruments issued as consideration are measured at fair value. If any payment has been deferred, it is discounted to reflect its present value as of the acquisition date if the effect of discounting is material. The consideration includes only amounts paid to the seller in exchange for control of the business. Payments do not include amounts paid to settle pre-existing relationships, payments that are contingent on future employee services, and acquisition costs.

The payment of the consideration may depend in part on the outcome of any future events or on the future performance of the acquired business (“contingent consideration”). Contingent consideration is also measured at fair value at the date the business is acquired. The treatment of contingent consideration after initial recognition at the acquisition date of the business depends on its classification in accordance with IAS 32 Financial Instruments: Presentation as a liability (in most cases will be measured at fair value at the reporting date with changes in fair value to the profit or loss account) or in equity (after initial recognition is not subject to subsequent remeasurement).

Goodwill reflects the future economic benefits of those assets that cannot be individually identified and therefore separately recognized on the balance sheet. If the non-controlling interest is carried at fair value, the carrying amount of goodwill includes that portion of the non-controlling interest. If the non-controlling interest is accounted for in proportion to the value of the identifiable net assets, then the carrying amount of goodwill will reflect only the parent company's interest.

Goodwill is recognized as an asset that is tested for impairment at least annually, or more frequently if there is an indication of impairment. In rare cases, such as when collateral is bought at a price that is favorable to the buyer, goodwill may not arise, but a gain will be recognized.

Disposals of Subsidiaries, Businesses and Selected Non-Current Assets - IFRS 5

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies if any sale is taking place or is contemplated, including the distribution of non-current assets to shareholders. The 'held for sale' criterion in IFRS 5 applies to non-current assets (or disposal groups) that will be recovered primarily through sale rather than continuing use in the current activity. It does not apply to assets that are decommissioned, in the process of being liquidated or disposed of. IFRS 5 defines a disposal group as a group of assets that are intended to be disposed of simultaneously, in a single transaction, either by sale or otherwise, and the liabilities directly associated with those assets that will be transferred as a result of the transaction.

A non-current asset (or disposal group) is classified as held for sale if it is available for immediate sale in its current condition and such a sale is highly probable. A sale is highly probable when the following conditions are met: there is evidence of a commitment by management to sell the asset, there is an active program to find a buyer and implement a sale plan, there is an active exposure of the asset offered for sale at a reasonable price, the sale is expected to be completed within 12 months from the classification date and the actions required to complete the plan indicate that the plan is unlikely to undergo significant changes or be shelved.

Non-current assets (or disposal groups) classified as held for sale:

• measured at the lower of their carrying amount and fair value less costs to sell;
• not depreciated;
• the assets and liabilities of the disposal group are shown separately in the balance sheet (no offset between assets and liabilities is allowed).

A discontinued operation is a component of an entity that can be financially and operationally separated from the rest of the entity's operations in the financial statements and:

• represents a separate significant line of business or geographical area of ​​operations,
• is part of a single, coordinated plan to dispose of a separate significant line of business or major geographic area of ​​operations, or
• is a subsidiary acquired solely for the purpose of resale.

An activity is classified as discontinued from the time its assets meet the criteria for classification as held for sale or the activity has been disposed of from the entity. Although the balance sheet information is not restated or remeasured for discontinued operations, the statement of comprehensive income must be restated for the comparative period.

Discontinued operations are presented separately in the income statement and in the cash flow statement. Additional disclosure requirements for discontinued operations are provided for in the notes to the financial statements.

The date of disposal of a subsidiary or disposal group is the date on which control is transferred. The consolidated income statement includes the results of operations of the subsidiary or disposal group for the entire period up to the date of disposal; disposal gains or losses are calculated as the difference between (a) the sum of the carrying amounts of net assets and the goodwill attributable to the disposal subsidiary or group, and the amounts accumulated in other comprehensive income (for example, foreign exchange differences and the fair value allowance for financial assets, available for sale) and (b) proceeds from the sale of the asset.

Investments in associates - IAS 28

IAS 28 Investments in Associates and Joint Ventures requires interests in such entities to be accounted for using the equity method. An associate is an entity in which the investor has significant influence and is neither a subsidiary of the investor nor a joint venture of the investor. Significant influence is the right to participate in the financial and operating policy decisions of an investee without having control over those policies.

An investor is presumed to have significant influence if it holds 20 percent or more of the voting rights of an investee. Conversely, if an investor owns less than 20 percent of the voting rights of an investee, then the investor is presumed to have no significant influence. These assumptions can be refuted if there is strong evidence to the contrary. The revised IAS 28 was issued following the publication of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosures of Interests in Other Entities and contains a requirement to account for shares in joint ventures using the equity method. A joint venture is a joint arrangement in which the parties that exercise joint control have rights to the net assets of the arrangement. These amendments are applicable from January 1, 2013 (for companies in EU countries - from January 1, 2014).

Associates and joint ventures are accounted for using the equity method unless they qualify for recognition as assets held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in an associate is initially recognized at cost. Subsequently, their carrying amount is increased or decreased by the investor's share of profit or loss and other changes in the net assets of the associate in subsequent periods.

Investments in associates or joint ventures are classified as non-current assets and are presented as a single line item in the balance sheet (including goodwill arising on acquisition).

Investments in each individual associate or joint venture are tested as a single asset for possible impairment in accordance with IAS 36 Impairment of Assets when there is evidence of impairment as described in IAS 39 Financial Instruments: Recognition and Measurement.

If the investor's share of the loss of the associate or joint venture exceeds the carrying amount of its investment, the carrying amount of the investment in the associate is reduced to zero. Additional losses are not recognized by the investor unless the investor has an obligation to finance the associate or joint venture or has been provided with a security guarantee for the associate or joint venture.

In the separate (non-consolidated) financial statements of an investor, investments in associates or joint ventures may be accounted for at cost or as financial assets in accordance with IAS 39.

Joint Ventures - IAS 31

For entities outside the EU, IFRS 11 Joint Arrangements applies. A joint arrangement is a contractual arrangement between two or more parties in which strategic financial and operating decisions are subject to the unanimous approval of the parties that have joint control.

A company may enter into a joint venture agreement (incorporated or unincorporated) with another party for many reasons. In its simplest form, a joint venture does not result in the creation of a separate entity. For example, "strategic alliances" in which companies agree to cooperate to promote their products or services may also be considered joint ventures. To determine the existence of strategic entrepreneurship, it is necessary, first of all, to determine the existence of a contractual relationship aimed at establishing control between two or more parties. Joint ventures fall into three categories:

• jointly controlled operations,
• jointly controlled assets,
• jointly controlled entities.

The accounting approach for a joint venture depends on the category to which it belongs.

Jointly Controlled Operations

A jointly controlled operation involves the use of the assets and other resources of the participants in lieu of forming a corporation, partnership or other entity. [IAS 31 para 13].

A participant in a jointly controlled operation must recognize in its financial statements:

• the assets it controls and the liabilities assumed;
• the costs it incurs and the share of income it receives from the sale of goods or services produced under the joint venture.

Jointly controlled assets

Some types of joint arrangement involve joint control of its participants over one or more assets contributed or acquired for the purposes of this joint arrangement. As with jointly controlled operations, these types of joint arrangements do not involve the formation of a corporation, partnership or other entity. Each joint venturer obtains control of its portion of the future economic benefits through its interest in the jointly controlled asset. [IAS 31 paras. 18 and 19].

For its interest in jointly controlled assets, a participant in an arrangement that controls assets shall recognize in its financial statements:

• its share of jointly controlled assets, classified according to the nature of those assets;
• any obligations assumed by him;
• its share of the obligations assumed jointly with other participants in the joint venture in relation to this joint venture;
• any income from the sale or use of its share in the joint venture's products, as well as its share of the expenses incurred by the joint venture;
• any expenses incurred by him in connection with his interest in this joint venture.

Jointly controlled entities

A joint venture is a type of joint venture that involves the creation of a separate entity, such as a corporation or partnership. Participants transfer assets or equity to a jointly controlled entity in exchange for an interest in it, and typically appoint members of the board or management committee to oversee operations. The level of assets or equity transferred, or the interest received, does not always reflect control of the entity. For example, if two members contribute 40% and 60% of the initial capital for the purposes of establishing a jointly controlled entity and agree to share the profits in proportion to their contributions, the joint venture will exist provided that the members have entered into an agreement for joint control of the economic activities of the entity.

Jointly controlled entities may be accounted for using either the proportionate consolidation method or the equity method. In cases where a participant transfers a non-cash asset to a jointly controlled entity in exchange for an interest in it, the relevant instructions and guidelines apply.

Other joint venture participants

Some parties to a contractual arrangement may not be among the parties exercising joint control. Such participants are investors who account for their interests in accordance with the guidance applicable to their investments.

Joint Arrangements - IFRS 11

A joint arrangement is an arrangement based on an agreement that gives two or more parties the right to jointly control the arrangement. Joint control exists only when decisions regarding the relevant activities require the unanimous approval of the parties exercising joint control.

Joint arrangements may be classified as joint operations or joint ventures. The classification is based on principles and depends on the degree of influence of the parties on the activity. If the parties only have rights to the net assets of the activity, then the activity is a joint venture.

Participants in joint operations are vested with rights to assets and liability for liabilities. Joint operations often do not take place within the structure of a separate entity. If a joint arrangement is separated into a separate entity, it may be a joint operation or a joint venture. In such cases, further analysis of the legal form of the enterprise, the terms and conditions included in the contractual agreements, and sometimes other factors and circumstances is necessary. This is because, in practice, other facts and circumstances may prevail over the principles determined by the organizational and legal form of an individual enterprise.

Participants in joint operations recognize their assets and liability for liabilities. Participants in joint ventures recognize their interest in a joint venture using the equity method.

Other matters

Related party disclosures - IAS 24

Under IAS 24, entities are required to disclose information about transactions with related parties. Related parties of the company include:

• parent companies;
• subsidiaries;
• subsidiaries of subsidiaries;
• associates and other members of the group;
• joint ventures and other members of the group;
• persons who are part of the key management personnel of the enterprise or the parent enterprise (as well as their close relatives);
• persons exercising control, joint control or significant influence over the enterprise (as well as their close relatives);
• companies operating post-employment benefit plans.

The main creditor of the company, which has influence on the company only by virtue of its activities, is not its related party. Management discloses the name of the parent company and the ultimate controlling party (which may be an individual) if it is not the parent company. Information about the relationship between the parent company and its subsidiaries is disclosed regardless of whether there were transactions between them or not.

If transactions with related parties took place during the reporting period, management discloses the nature of the relationship that makes the parties related and information about the transactions and the amount of settlement balances on transactions, including contractual obligations, necessary to understand their impact on the financial statements. Information is disclosed in aggregate for homogeneous categories of related parties and for homogeneous types of transactions, unless separate disclosure of a transaction is required to understand the effect of related party transactions on the entity's financial statements. Management discloses information that transactions with a related party were conducted on terms that are identical to the terms of transactions between unrelated parties only if such terms can be justified.

An entity is exempt from disclosure requirements for transactions with related parties and related party balances if the relationship between the related entities is due to government control or significant influence over the entity; or there is another entity that is a related party because the same government authorities control or have significant influence over the entity. If an entity applies for an exemption from such requirements, it must disclose the name of the government agency and the nature of its relationship with the entity. It also discloses information about the nature and amount of each individual significant transaction, as well as the qualitative or quantitative indications of the scale of other transactions that are not individually significant, but in the aggregate.

Statement of cash flows - IAS 7

The cash flow statement is one of the main forms of financial reporting (along with the statement of comprehensive income, balance sheet and statement of changes in equity). It reflects information on the receipt and use of cash and cash equivalents by type of activity (operating, investment, financial) over a certain period of time. The report allows users to evaluate the company's ability to generate cash flows and the ability to use them.

Operating activity is the activity of the company, bringing it the main income, revenue. Investing activities represent the purchase and sale of non-current assets (including business combinations) and financial investments that are not cash equivalents. Financial activities are understood as operations that lead to a change in the structure of own and borrowed funds.

Management may present cash flows from operating activities directly (representing gross cash flows for homogeneous groups of receipts) or indirectly (representing an adjustment to net profit or loss by excluding the effect of non-operating activities, non-cash transactions and changes in working capital).

For investing and financing activities, cash flows are shown on a gross basis (ie, separately for groups of the same type of transactions: gross cash receipts and gross cash payments), except for a few specially stipulated conditions. Cash flows associated with the receipt and payment of dividends and interest are disclosed separately and classified sequentially from period to period as operating, investing or financing activities, depending on the nature of the payment. Income tax cash flows are presented separately as part of operating activities, unless the related cash flow can be attributed to a specific transaction within a financing or investing activity.

The total cash flow from operating, investing and financing activities represents the change in the balance of cash and cash equivalents for the reporting period.

Separately, information must be provided on significant non-cash transactions, such as, for example, issuing own shares to acquire a subsidiary, acquiring assets through barter, converting debt into shares, or acquiring assets through a finance lease. Non-cash transactions include the recognition or reversal of impairment losses; depreciation and amortization; gains / losses from changes in fair value; accrual of reserves from profit or loss.

Interim Financial Reporting - IAS 34

There is no requirement in IFRS for the publication of interim financial statements. However, in a number of countries the publication of interim financial statements is either required or encouraged, especially for public companies. The RDA rules do not require the application of IAS 34 when preparing six-monthly financial statements. Companies listed on the AIM may either prepare six-monthly financial statements in accordance with IAS 34 or make minimum disclosures in accordance with Rule 18 of the AIM.

When an entity elects to publish interim financial statements in accordance with IFRS, IAS 34 Interim Financial Reporting applies, which sets out the minimum requirements for the content of interim financial statements and the principles for recognizing and measuring business transactions included in interim financial statements. and balance sheet accounts.

Companies may prepare a complete set of IFRS financial statements (in accordance with the requirements of IAS 1 Presentation of Financial Statements) or condensed financial statements. The preparation of condensed financial statements is the more common approach. The condensed financial statements include a condensed statement of financial position (balance sheet), a condensed statement or statements of profit or loss and other comprehensive income (a statement of profit or loss and a statement of other comprehensive income, if presented separately), a condensed statement of movements of cash, a condensed statement of changes in equity and selective notes.

Generally, a company applies the same accounting policies for recognizing and measuring assets, liabilities, revenues, expenses, profits and losses for both interim financial statements and current year financial statements.

There are special requirements for estimating certain costs that can only be calculated on an annual basis (for example, taxes, which are determined based on the full year's estimated effective rate) and for the use of estimates in interim financial statements. An impairment loss recognized in the previous interim period in respect of goodwill or investments in equity instruments or financial assets carried at cost is not reversed.

As a mandatory minimum, the interim financial statements disclose information for the following periods (abbreviated or complete):

• statement of financial position (balance sheet) - as of the end of the current interim period and comparative data as of the end of the previous financial year;
• statement of profit or loss and other comprehensive income (or, if they are presented separately, the statement of profit or loss and statement of other comprehensive income) - data for the current interim period and for the current financial year up to the reporting date, with comparative data for similar periods (interim and one year before the reporting date);
• cash flow statement and statement of changes in equity - for the current financial period up to the reporting date, with comparative data for the same period of the previous financial year;
• notes.

IAS 34 establishes some criteria for determining what information is required to be disclosed in interim financial statements. They include:

• materiality in relation to the interim financial statements as a whole;
• non-standard and irregularity;
• volatility from prior periods that has a significant effect on the interim financial statements;
• Relevance to understanding the estimates used in the interim financial statements.

The main objective is to provide users of interim financial statements with complete information that is important for understanding the financial position and financial results of the company for the interim period.

Service Concession Arrangements - SIC 29 and IFRIC 12

There is currently no separate IFRS for public service concessions entered into by public authorities with the private sector. IFRIC 12 Service Concession Arrangements interprets various standards that set out the accounting requirements for service concession agreements; SIC 29 Disclosure: Service Concession Agreements contains disclosure requirements.

IFRIC 12 applies to public service concession contracts whereby a public authority (right holder) controls and/or regulates services provided by a private company (operator) using infrastructure controlled by the right holder.

Usually, concession agreements specify to whom the operator should provide services and at what price. In addition, the rights holder must control the residual value of all significant infrastructure.

Because the infrastructure is controlled by the right holder, the operator does not record the infrastructure as property, plant and equipment. The operator also does not recognize financial lease receivables in connection with the transfer of infrastructure facilities built by it under the control of the state body. An operator recognizes a financial asset if it has an unconditional contractual right to receive cash, regardless of the intensity of use of the infrastructure. The operator reflects intangible in case (license) to collect fees from users of public services.

For both the recognition of financial assets and the recognition of an intangible asset, the operator recognizes income and expenses associated with the provision of services to the right holder for the construction or modernization of infrastructure facilities in accordance with IAS 11. The operator recognizes income and expenses associated with provision of infrastructure services to them in accordance with IAS 18. Contractual obligations to maintain infrastructure (other than upgrade services) are recognized in accordance with IAS 37.

Accounting and reporting for pension plans - IAS 26

Pension plan financial statements prepared in accordance with IFRS must comply with the requirements of IAS 26 Accounting and Reporting for Pension Plans. All other standards apply to the financial statements of pension plans, to the extent not superseded by IAS 26.

In accordance with IAS 26, the financial statements of a defined contribution plan must include:

• a statement of the net assets of the pension plan that can be used for payments;
• statement of changes in the net assets of the pension plan that can be used for payments;
• a description of the pension plan and any changes to the plan during the period (including their impact on the plan's reporting figures);
• description of the pension plan financing policy.

In accordance with IAS 26, the financial statements of a defined benefit plan must include:

• a statement presenting the net assets of the pension plan that can be used for payments and the actuarial present (discounted) value of pensions due, as well as the resulting surplus/deficit of the pension plan, or a reference to this information in the actuarial report accompanying the financial statements;
• statement of changes in net assets that can be used for payments;
• cash flow statement;
• the main provisions of the accounting policy;
• a description of the plan and any changes to the plan during the period (including their impact on the plan's reporting figures).

In addition, the financial statements should include an explanation of the relationship between the actuarial present value of pensions due and the net assets of the pension plan that can be used for benefits, and a description of the policy for financing pension liabilities. Investments that make up the assets of any pension plan (both defined benefit and defined contribution) are carried at fair value.

Fair value measurement - IFRS 13

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” (IFRS 13, paragraph 9 ). The key here is that fair value is the exit price from the point of view of market participants who hold the asset or have the liability at the measurement date. This approach relies on the perspective of market participants rather than the perspective of the entity itself, so fair value is not affected by the entity's intention with respect to the asset, liability or equity measured at fair value.

To measure fair value, management must determine four items: the specific asset or liability that is being measured (corresponding to its unit of account); the most efficient use of the non-financial asset; main (or most attractive) market; assessment method.

In our view, many of the requirements set out in IFRS 13 are broadly consistent with valuation practices that are already in place today. Therefore, IFRS 13 is unlikely to result in many significant changes.

However, IFRS 13 does introduce some changes, namely:

• a fair value hierarchy for non-financial assets and liabilities, similar to that currently prescribed by IFRS 7 for financial instruments;
• requirements to determine the fair value of all liabilities, including derivative liabilities, based on the assumption that the liability will be transferred to another party rather than settled or otherwise settled;
• abolition of the requirement to use the offer and demand prices for financial assets and financial liabilities, respectively, that are actively quoted on the stock exchange; instead, the most representative price within the range of the bid/ask price spread should be used;
• requirements for disclosure of additional information related to fair value.

IFRS 13 addresses the question of how to measure fair value, but does not specify when fair value can or should be applied.

International Financial Reporting Standards (IFRS) are a set of international accounting standards that specify how certain types of transactions and other events should be treated in financial statements. IFRS are published by the International Accounting Standards Board and they specify exactly how accountants should maintain and present accounts. IFRS were created to have a "common language" for accounting because business standards and record keeping can differ both from company to company and country to country.

The purpose of IFRS is to maintain stability and transparency in the financial world. This allows businesses and individual investors to make informed financial decisions as they can see exactly what is happening with the company they want to invest in.

IFRS are standard in many parts of the world, including the European Union and many countries in Asia and South America, but not in the United States. The Securities and Exchange Commission (SEC) is in the process of deciding whether to adopt standards in America. The countries that benefit the most from standards are those that do and invest in international business. Experts suggest that the global implementation of IFRS will save money on comparative opportunity costs, as well as allow for more free transfer of information.

In countries that have adopted IFRS, both companies and investors benefit from using this system, as investors are more likely to invest in a company if the company's business practices are transparent. In addition, the cost of investment is usually lower. Companies that conduct international business benefit the most from IFRS.

IFRS standards

Below is a list of current IFRS standards:

Presentation of financial statements in accordance with IFRS

IFRS cover a wide range of accounting transactions. There are certain aspects of business practice for which IFRS establish mandatory rules. Fundamentals of IFRS are the elements of financial reporting, the principles of IFRS and the types of basic reports.

Elements of financial reporting in accordance with IFRS: assets, liabilities, capital, income and expenses.

IFRS principles

Fundamental Principles of IFRS:

• accrual principle. Under this principle, events are recorded in the period in which they occur, regardless of cash flows.
• the principle of business continuity, which implies that the company will continue to work in the near future, and the management has neither plans nor the need to wind down activities.

Reporting in accordance with IFRS should contain 4 reports:

Statement of financial position: It is also called balance. IFRS affect how the components of the balance sheet are interconnected.

Statement of comprehensive income: this can be one form, or it can be divided into an IFRS income statement and a statement of other income, including property and equipment.

Statement of changes in equity: also known as the retained earnings statement. It reflects the changes in earnings for a given financial period.

Cash flow statement: This report summarizes a company's financial transactions for a given period, with cash flows broken down into operating, investment, and funding flows. Guidance for this report is contained in IFRS 7.

In addition to these basic reports, the company must also submit attachments summarizing its accounting policies. The full report is often reviewed in comparison to the previous report to show changes in profit and loss. The parent company must create separate statements for each of its subsidiaries, as well as consolidated IFRS financial statements.

Comparison of IFRS standards and American standards (GAAP)

There are differences between IFRS and generally accepted accounting standards in other countries that affect the calculation of financial ratios. For example, IFRS is not as strict in defining revenue and allows companies to report earnings faster, so therefore the balance sheet under this system can show a higher revenue stream. IFRS also have other expense requirements: for example, if a company spends money on development or investments for the future, it does not have to show it as an expense (i.e., it can be capitalized).

Another difference between IFRS and GAAP is how inventories are accounted for. There are two ways to track inventory: FIFO and LIFO. FIFO means that the most recent inventory item remains unsold until previous inventory is sold. LIFO means that the most recent inventory item will be sold first. IFRS prohibit LIFO, while US and other standards allow participants to use them freely.

History of IFRS

IFRS originated in the European Union with the intention of spreading them across the continent. The idea quickly spread around the world as the "common language" of financial reporting allowed for greater connections around the world. The United States has not yet adopted IFRS as many view US GAAP as the "gold standard". However, as IFRS become more of a global norm, this could change if the SEC decides that IFRS are appropriate for American investment practice.

Currently, about 120 countries use IFRS, and 90 of them require companies to report in full in accordance with IFRS.

IFRS are supported by the IFRS Foundation. The mission of the IFRS Foundation is to "ensure transparency, accountability and efficiency in financial markets around the world". The IFRS Foundation not only provides and monitors financial reporting standards, but also makes various suggestions and recommendations to those who deviate from practical recommendations.

The purpose of the transition to IFRS is to simplify international comparisons as much as possible. It's tricky because every country has its own set of rules. For example, US GAAP is different from Canadian GAAP. The synchronization of accounting standards around the world is an ongoing process in the international accounting community.

Transformation of financial statements in accordance with IFRS

One of the main methods of preparing financial statements in accordance with the requirements of IFRS is transformation.

The main stages of the transformation of financial statements in accordance with IFRS:

• Development of accounting policy;
• Choice of functional and presentation currency;
• Calculation of opening balances;
• Development of a transformation model;
• Evaluation of the corporate structure of the company in order to determine the subsidiaries, associates, affiliates and joint ventures included in the accounting;
• Determining the characteristics of the company's business and collecting the information necessary to calculate the transformation adjustments;
• Regrouping and reclassification of financial statements according to national standards up to IFRS.

IFRS Automation

It is difficult to imagine the transformation of IFRS financial statements in practice without its automation. There are various programs on the 1C platform that allow you to automate this process. One such solution is WA: Financier. In our solution, it is possible to broadcast accounting data, map to IFRS chart of accounts accounts, make various adjustments and reclassifications, and eliminate intra-group turnovers when consolidating financial statements. In addition, 4 main IFRS reports are configured:

Fragment of the Statement of financial position IFRS in "WA: Financier": IFRS tab "Fixed assets".

When the global financial system reached intercontinental dimensions, and the financial interaction of businesses from different countries became ubiquitous, at the level of perception of financial information, it became necessary to form certain international standards.

Standards were needed so that business stakeholders from different countries, financial regulators and supervisory authorities could speak the same language when discussing financial information about a particular commercial company. Financial standards, like any other standards, must ensure that the forms and types of content of one company's public financial information are similar to those of others.

We will talk about what the international financial reporting standard IFRS (IAS) 1 is, what is included in it and how modern business structures use it - we will talk in this article.

General information on the IFRS standard (IAS) 1

IFRS Standard (IAS) 1 was developed with the aim that information from these types of financial statements could be used by a wide range of interested users. It can be said that this standard was originally planned as the most widely used standard in international financial reporting: a kind of starting point in immersing a stakeholder in the financial statements of a commercial company. At the same time, the IAS 1 English standard or any other country is the most general non-specific type of statement of financial position of a company for users who do not have the authority or ability to request financial data in a special form.

In a word, developing this standard and accepting it for execution at the level of financial systems within countries, the task was to create a certain consistent system for compiling a general report on the company's financial results. Since the specifics of a business in terms of its field of activity or, for example, on a geographical basis can impose significant adjustments to financial data, a certain set of indicators included in the standard was adopted, which can quite fully and reliably present the financial side of the company's business to those who need to know this. .

For example, investors and lenders can monitor business performance indicators to assess the likelihood of defaults on obligations or non-fulfillment of commitments made to implement investment programs and pay dividends. Company managers, using data on the current financial position and results from financial operations, can plan their work more carefully and focus on choosing solutions that will ensure maximum economic productivity.

Auditors and external consultants, based on the international financial reporting standard IAS 1, can plan and offer the company's owners the most balanced options for the development of the company's financial system, demonstrating as an example other companies in similar market conditions or even direct competitors. The scope of IFRS 1 is very broad. Suffice it to say in addition that the analytical potential of this reporting standard is huge, both for internal users and for external, for example, financial regulators or authorities who want to study the company's business.

Since, in a broad sense, the scope of reporting under IFRS 1 is limited only by the talent of a specialist who works with this information, it becomes clear that the standard includes a wide range of interrelated and interdependent indicators, each of which can be worked within the framework of the task. The main idea of ​​any standard in the field of finance is not only digestibility (in the sense of understanding information by a wide range of specialists), but also the maximum truthfulness and transparency of business information, which cannot be reflected in the context of finance without using the following indicators:

• Assets, liabilities and capital as a grouping of indicators of the company's financial position and its dynamic changes under the influence of any external business factors or decisions that were made at the intracorporate level.
• The income and expenses of the firm, including data on changes in the ratio of profits and losses, depending on the market position of the company and other external and internal factors.
• Deposits and payments to the owners of the company as an indicator of the dividend policy and financial efficiency of the business in terms of the main task of making profit.
• Cash flow data show the dynamics of financial movements within the company, expenses, sources of cash and the effectiveness of the financial responsibility centers. This information grouping, among other things, allows you to make forecasts for future cash flows and make important management decisions on these issues in advance.

Figure 1. Ratios used in financial statements.

In addition to the fact that the annual standardized presentation of financial information allows management to evaluate the business "in the language of numbers", breaking away from operational problems, such reporting shows how effectively management allocates and uses the resources that are entrusted to it, which is extremely important if we mean international non-local business.

Globally, the standard is designed so that the reporting of different companies has the same characteristics, and any person who needs it to perform their official duties can familiarize themselves with such information and analyze it. Therefore, the standard "IFRS IAS 1 presentation of financial statements" assumes the most complete, structured (in accordance with the standard) and reliable presentation of the company in terms of its financial results, current economic position and cash flows, which are fixed in the form of a set of financial statements documentation.

Reliability requires financial management to consistently and carefully analyze the actions taken in the company that caused or affected the actual results, as well as a comprehensive review of the company's financial issues in order to set out the required list of information as clearly as possible.

Substantive aspects of reporting IFRS IAS 1

"Unwavering" Credibility

The very idea of ​​financial reporting standards suggests that the implementation and application of IFRS standards, as is customary - “without reservations”, will provide a company with a transparent financial management system, and therefore a financial reporting system that meets the criterion of fair presentation, even without taking into account the possibilities for additional disclosures. The standards are initially focused on maximum transparency and unambiguity of data, therefore, an organization that submits reports under IFRS, “as it were”, has no opportunity to maneuver in financial data, although in reality the situation is different.

In general, the problem of intentional misrepresentation of information is caused, first of all, by the needs of the business. Usually, external parties, whether they are investors or auditors, new shareholders or other users, look at reporting in the context of three indicators - revenue, net income and assets.

If the reporting owner needs to present the company in a more favorable light, for example, in order to satisfy someone's expectations or get some points, the task may be to change the reporting in a certain way. Typically, the changes relate to the profit and loss statement, the balance sheet, and the data of the notes to the statements are adjusted. In fact, it will not be difficult for a talented financier (if initially planned) to carry out financial management in such a way that the reporting turns out as it should. Consider, as an example, simple possibilities for “decorating” financial statements:

• Distort information about the revenue and profit of the company, using the scheme of counter transactions for the purchase and sale of goods or services. With this method of data improvement, the product is sold twice: the first time - fictitiously, with a refund to the buyer when the goods are allegedly returned to the seller, and the second time is already real - to the buyer from the market. So the company can reflect the revenue at the time when it is profitable.
• Recognition of revenue and expenses separately in order to inflate profit figures. For example, revenue is recognized as received in the last month at the junction of quarters, and expenses for its receipt - in the first month of a new quarter. Then the profit of the first quarter significantly improves the reporting figures, although it does not quite correspond to reality.
• Hiding expenses, without going beyond the accounting standard, is carried out by transferring part of the expenses to controlled companies, allowing embellishing profitability indicators.
• Fictitious receivables arise in the company from transactions that either never took place or were carried out with defective or non-existent goods. Such contractual relationships with semi-fictitious controlled companies allow to increase the amount of declared revenue and thereby show interested parties different from the real business achievements.

As can be seen from these examples, the reflection of real data in the reporting remains at the discretion of management and financial management, since, if we take into account that we are talking about a multibillion-dollar business, organizing the process of “decorating” IFRS reporting costs much less than those acquired from such actions. privilege.

Continuity

By preparing financial statements in accordance with IFRS, the company's management guarantees to persons for whom the statements are of interest that the company plans its activities in the future. If management is aware of any facts that can have a significant impact on the business and cast doubt on its continuity, then these data should be set out in the notes to the financial statements.

Returning to the previous point, I would like to note that deliberate reservations in the notes are an extremely convenient tool for improving reporting data on the principle of “know less, sleep better”. Therefore, although the presentation of financial statements in accordance with IFRS, “as if” excludes this, but in fact, there are many examples in history when the omission of important data about guarantees, obligations, reputational risks or leaks greatly improved the mood when perceiving the statements, but subsequently resulted in big intra-corporate scandals.

Comparison principle

When preparing current financial statements, the company must disclose comparative data for the same period in the past, so that users of the financial statements can best understand the company's business in dynamics. It is customary to provide comparative data for the current, past and first (earliest) comparative period.

Data materiality principle

Reporting on the financial condition of a company's business is a huge array of information that has been processed and combined. Data aggregation is acceptable when it does not compromise the intrinsic meaning and disclosure of the data, and not when data compression provides a limited or truncated representation.

• Non-offsetting implies that the company must reflect as fully as possible all the necessary items in a fair formula, whether it be assets, liabilities, income or expenses of the company.
• Periodicity, as one of the basic principles, is, in fact, also a criterion that ensures the reliability, comparability and identity of reporting. If you call a spade a spade, then putting reporting on the rails of periodicity makes financial management "live" according to a certain calendar, that is, it always demonstrates the achievements of its business in approximately the same form. Of course, the flexibility of the standard provides for the possibility to change the timing of the frequency of reporting, but a reservation is made regarding how financial managers will have to supplement such reporting and explain how to compare data for shorter or longer reporting periods. The normal reporting interval is one year.

Figure 2. Basic reporting principles under IFRS 1.

The listed basic principles of IFRS 1, in fact, are the basis on which this standard stands, but in order to better understand how the standard demonstrates the company's business "at a glance", it is necessary to consider its constituent parts in more detail.

Components of financial statements in accordance with IAS 1 Presentation of Financial Statements

The indicators that are analyzed and interpreted in the preparation of financial statements ultimately form a specific set of documents, which, in accordance with the standard, is a comprehensive set of financial statements:

1. Statement of financial position ("SFP" or Statement of financial position) - a report that reflects the value of assets as of the date of the period, the amount of liabilities of various nature and the equity of the company. “OFP” is one of the main accounting reports under IFRS, which is similar to Russian standards, so we immediately note that in RAS the full “namesake-analogue” is the balance sheet. IAS 1 standardizes the minimum composition of items of assets, liabilities and equity that an enterprise must reflect in its financial statements and, if necessary, decipher in order to most fully demonstrate its financial position.

The statement of financial position must be based on the actual performance of the company's business and include, as a minimum, the amounts of property, plant and equipment, investment property, intangible and financial assets, equity investments, inventories, trade and receivables, the amount of assets held for sale, reserves, deferred tax and financial liabilities and shares. All this information must be fully disclosed and classified in such a way that will enable the most transparent presentation of the financial position of the enterprise.

2. The profit and loss statement demonstrates and classifies the financial performance of the organization in the format of the ways in which income and expenses are generated and dynamically changed. Comparing income and expenses, analyzing the composition and dynamics of profit, the organization gets a comprehensive idea of ​​its own financial productivity. Using this knowledge, firstly, it is possible to control the effectiveness of the organization's "financial authorities", and secondly, based on the analysis, to find missed opportunities to increase the company's profitability and increase the return on its capital. The report on losses and profits is very important from the point of view of the investment assessment of the enterprise, since it can show future creditors the level of efficiency of the financial model of the enterprise and support or, conversely, slow down the turnover of their investments in the assets of this company.

Some companies separate the profit and loss statement and make a second statement (say, expanded), which also includes information on comprehensive income. Others immediately produce a large detailed statement of comprehensive income. Both the first and second approaches are allowed by the standard, but in any case, it requires financial management to present a certain set of data in the reporting (regarding this grouping of indicators), including:

• Revenue;
• Expenses;
• tax burden;
• Profit detailing before and after taxes;
• Actual profit or operating loss;
• The total and possible income of the company from the share in the profits of subsidiaries.

3. Statement of Changes in Equity "SCE" or "Statement of Changes in Equity" demonstrates to stakeholders how the capital structure of the company, which is owned by business owners, has changed. Owners' equity can change depending on various circumstances, so the IFRS 1 statement of changes in equity answers a number of questions regarding the indicators, values ​​and reasons for changes in the equity of business shareholders:

• Growth or fall in net profit attributable to shareholders of the company?
• Increase or outflow of share capital during the reporting period?
• Size and characteristics of past dividend payments to shareholders?
• The effectiveness of accounting policies and changes?
• Efficiency of managerial decisions made on the basis of past mistakes?

This report helps analysts to determine the reasons for changes in equity over the reporting period. This type of report is a broader tool for analyzing shareholders' equity, since, unlike the statement of financial position, it contains an expanded list of indicators and decrypted information that allows you to get the most complete picture of the situation. The following classified data is included in the statement of changes in equity: total income and income of the owners of the enterprise, the carrying amount and its changes, the amount of dividends attributable to the owners and the amount of dividends per share.

4. The cash flow statement is the basic tool of any financial analysis, as well as one of the main standard reports that can demonstrate the actual values ​​and causes of certain production results of the company in financial terms. This type of report is widely used by all organizations, regardless of the size of the business, since it is, in a sense, an intuitive report that shows the incoming cash receipts and outgoing cash expenses of the company, classified by types, types and directions during the period. Based on the data of the cash flow statement, it is possible to draw conclusions and make forecasts regarding the short-term liquidity of the company, as well as its current creditworthiness with a forecast for the future period. In a general sense, this report is the simplest tool for conducting a financial analysis of a company.

Information from the cash flow statement is essentially aggregated information that characterizes the economic efficiency of the company, that is, its ability to generate cash flows.

5. Notes to the financial statements that may explain the main specific points of accounting policies or features of the interpretation of financial data, as well as the reasons for such changes compared to generally accepted practice. The notes can include a wide range of possible additions, which, in essence, disclose to external stakeholders part of the company's management information about the most effective decisions that made it possible to achieve certain figures reflected in the financial statements:

• About forecasts and assumptions on the basis of which management makes financial decisions in the company;
• About restrictions of a managerial nature that cannot be reflected in the financial statements, but which may have a significant impact on the company's business.

6. A statement of financial position in the earliest available period if the company maintains a retrospective accounting policy and applies restatements to its financial statements.

Along with the financial statements, a good team of financial managers provides their IFRS statements with comprehensive supplements that are necessary to explain the key characteristics of the company's business, and explain the facts of uncertainty that the numbers from the report cannot reveal. Such summary supplements contain information about the factors and causes of factors that affect the financial statements or the business of the enterprise as a whole. For enterprises to which this is relevant, various management and official data from the sections of man-made and environmental impact are disclosed, which can help interested users of financial statements draw conclusions and draw parallels between the data of financial results and this grouping.

The principle of the totality of documents prepared according to the standard assumes that when considering a set, external and internal users use all the information aggregated in the reporting. According to this, the IFRS 1 scheme involves the preparation and subsequent consideration of statements as a whole, that is, such an information set of documentation that is able to most fully, transparently and, most importantly, reliably state the situation of the financial condition of the company in question.

Figure 3. Components of financial statements under IFRS 1.

Today, the IFRS 1 standard The presentation of financial statements is a necessary part of the financial system of enterprises that conduct serious business. The largest market players, for whom external sources of financing and investment, business prestige and transparency are important, are switching to international financial reporting standards, because today it is becoming something of a mandatory element for companies from a large segment.

At the same time, it should be noted that the implementation of IFRS 1 does not guarantee the company a managed financial system and reliable reporting, but rather requires the company to comply with these principles. Entering a kind of "major league", IFRS companies assume not only obligations to comply with these standards not only in the financial system, but also obligations to rationally expand this approach to business organization as a whole. We can say that today a new era has begun, when large companies should realize the productivity and importance of the transition to IFRS, which will significantly increase the speed of widespread implementation of this standard in all industries.