International GAAP 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

4842 Pages·2019·33.7 MB·English

by  Ernst & Young

International
GAAP

®2019

Generally Accepted Accounting Practice
under International Financial Reporting Standards

Jeremy Barnes
Alan Garry
Richard Moore
Martin Beyersdorff Archie Groenewald
Tina Patel
Mike Bonham
Prahalad Halgeri
Michael Pratt
Linzi Carr
Jane Hurworth
Tim Rogerson
Rob Carrington
Ted Jones
Vadim Shelaginov
Victor Chan
Bernd Kremp
Anna Sirocka
Wei Li Chan
Sanjeev Kumar
David Stolker
Larissa Connor
Max Lienhard
Claire Taylor
Pieter Dekker
Dean Lockhart
Michael Varila
Tim Denton
Sharon MacIntyre
Tracey Waring
Dennis Deysel
Takahiro Makino
Jane Watson
Dennis Esterhuizen Amanda Marrion
Diego Fernandez
Emily Moll

This edition first published in 2019 by John Wiley & Sons Ltd.
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ISBN 978-1-119-55776-0 (paperback)
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About this book

The 2019 edition of International GAAP® has been fully revised and updated in order to:
•
Continue to investigate the implementation issues arising as entities adopt IFRS 9
(Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers).
•
Explore the complex implementation issues arising as entities adopt, in 2019,
IFRS 16 (Leases).
•
Include an updated chapter on the new insurance contracts standard IFRS 17
(Insurance Contracts), which reflects the recent discussions of the IASB’s
Transition Resource Group on implementation issues raised, proposed narrow-
scope amendments to IFRS 17 intended by the IASB, and also explores other
matters arising as users prepare for the adoption of this standard.
•
Include an amended chapter on the revised Conceptual Framework, which was
published in March 2018. The changes to the Conceptual Framework may affect
the application of IFRS in situations where no standard applies to a particular
transaction or event.
•
Address amended standards and new interpretations issued since the preparation
of the 2018 edition.
•
Explain the many other initiatives that are currently being discussed by the IASB and
by the IFRS Interpretations Committee and the potential consequential changes to
accounting requirements.
•
Provide insight on the many issues relating to the practical application of IFRS, based
on the extensive experience of the book’s authors in dealing with current issues.

The book is published in three volumes. The 52 chapters – listed on pages ix to xi – are
split between the three volumes as follows:
•
Volume 1 - Chapters 1 to 23,
•
Volume 2 - Chapters 24 to 39,
•
Volume 3 - Chapters 40 to 52.

Each chapter includes a detailed list of contents and list of illustrative examples.

Each of the three volumes contains the following indexes covering all three volumes:
•
an index of extracts from financial statements,
•
an index of references to standards and interpretations,
•
a general index.

v

Preface

The IASB reported earlier this year that 144 of the 166 jurisdictions they have
researched require the use of IFRS for all or most domestic publicly accountable entities
(listed companies and financial institutions) in their capital markets, and a further 12
jurisdictions permit the use of IFRS. Several large economies like China, India and Japan
do not require IFRS for all or most of their listed companies, but they have made
considerable progress to move towards or to converge with IFRS. The United States is
the only major economy that is unlikely to adopt IFRS in the near term.

While there is a strong rationale for global accounting standards, there are a number of
concerns that are commonly raised around IFRS: (1) a jurisdiction would need to give
up sovereignty in accounting standard setting, (2) the IASB has an unusual structure, as
it is a private sector body that acts in the public interest and (3) that standardisation may
require departure from traditional practices. Maintaining the current degree of
international convergence of accounting standards requires an ongoing commitment on
the part of all jurisdictions involved.

Some of the more vocal criticism of IFRS often comes from within the EU, with some
proposing that the EU should either adopt IFRS on a more selective basis, or even take
primary responsibility for setting accounting standards. In our view, either approach would
represent a regrettable and retrograde step, and would be significantly damaging to the
credibility of IFRS and the quest for a global accounting framework more generally. Allowing
IFRS to devolve into local flavours, in the hope of broader acceptance, would reduce the
existing benefits in terms of cost, quality and clarity of international financial reporting in
exchange for an uncertain future without a clear mechanism for longer-term convergence.

In March 2018, the IASB completed its revised Conceptual Framework for Financial
Reporting in which the Board was looking to underpin high-level concepts with
sufficient detail for it to set standards and to help others to better understand and
interpret the standards. While the completion of the new Conceptual Framework is an
important milestone for the IASB, it will generally not result in changes for the preparers
of financial statements as it only affects the application of IFRS in situations where no
standard applies to a particular transaction or event.

More important 2018 sees the first-time application of IFRS 9 – Financial Instruments
– and IFRS 15 – Revenue from Contracts with Customers – both of which have
required significant time and effort on the part of constituents. Although these standards
improve the quality of financial reporting, their requirements are at times complex and
the Interpretations Committee has discussed a number of implementation issues over
the past year. While it is too early to conclude on the overall impact of these new

vi
Preface

standards, it is clear that the impact is quite significant in individual cases and that the
new disclosures provide considerably more detailed information.

Similarly, the implementation of IFRS 16 – Leases (effective from 1 January 2019
onwards) and its interactions with other standards has given rise to challenging
implementation questions. The Interpretations Committee has discussed the interaction
with IAS 12 – Income Taxes and IFRS 11 – Joint Arrangements – and practitioners are
considering how the recognition of right-of-use assets and lease liabilities affects the
application of IAS 36 – Impairment of Assets – and IAS 37 – Provisions, Contingent
Liabilities and Contingent Assets.

IFRS 17 – Insurance Contracts – was published in June 2017, but only comes into effect
in 2021. The standard has already been endorsed in a number of important jurisdictions,
others are still considering the impact that the standard will have on the insurance
industry. The IASB has devoted additional resources in support of insurance companies
facing significant implementation challenges. The IFRS 17 Transition Resource Group
(TRG) has met three times to discuss implementation issues. Hans Hoogervorst, the
IASB’s chairman, noted at a conference in June 2018 that ‘[t]he discussions are also
useful for us at the IASB to see if any action is needed to assist with education, to address
unforeseen issues of inconsistencies, lack of clarity or unforeseen complexities when
implementing the new Standard. The experience with the previous Revenue
Recognition TRG has made clear that sometimes it can be necessary for the IASB to
consider amendments to address questions and indeed we have considered some for
IFRS 17 last week.’ At the time of writing, the IASB is expected to have a discussion at
its October 2018 meeting not just about the issues brought forward by the TRG but also
other requests by participants that may result in future amendments to IFRS 17.

The IASB is continuing to work on the projects in its work plan for the period from 2017
until 2021, which can be divided into three elements: the Better Communication in
Financial Reporting initiative, the research projects, and the standard-setting and
maintenance projects. Constituents will welcome the fact that the IASB’s standard-
setting and maintenance agenda is, for the first time, not dominated by the development
of a series of ambitious and major new standards, but rather focusses on narrow scope
projects that address certain aspects of existing standards.

The IASB made progress in 2018 on its Better Communication in Financial Reporting
initiative and published a practice statement on materiality and a discussion paper on
the wider principles of disclosure. In addition, the Board continues to work on other
aspects of the initiative, such as the presentation of financial statements, management
commentary and the taxonomy. Hans Hoogervorst acknowledged in a speech this year
‘…there is a lot going on in the world of wider corporate reporting. There is increasing
interest in trends like sustainability reporting, integrated reporting and reporting for
public policy interests. … there is a lot of broader financial information that is not
adequately captured in financial statements: intangibles, business model, economic
environment and increasingly sustainability issues (climate change).’ The IASB believes
that the natural place to consider these developments is in the context of its project on
updating the guidance on the management commentary section. Although the IASB has

Preface
vii

limited resources, we believe it should take an active role when it comes to the efforts
to improve the ‘broader financial report’.

As part of its active research agenda, the IASB published a discussion paper on financial
instruments with characteristics of equity. The discussion paper looks at ways to help
entities determine whether instruments are liabilities or equity by providing a clear
rationale for this distinction, while also providing investors with better information
about them. The IASB discussion papers on business combinations under common
control, dynamic risk management, and rate-regulated activities are now no longer
expected in 2018. We encourage the IASB to continue its work on these technically
complex but important projects as they deal with issues that have been the source of
many accounting questions. In particular, any improvements and simplifications that
may follow from the project on goodwill and impairment would be welcomed by
preparers, users and auditors alike.

This edition of International GAAP covers the many interpretations, practices and solutions
that have now been developed based on our work with clients, and discussions with
regulators, standard-setters and other professionals. We believe that International GAAP,
now in its fourteenth edition, plays an important role in helping companies as they apply
IFRS 9, IFRS 15 and IFRS 16 for the first time. Each of these standards introduces changes
that have given rise to implementation challenges and questions about the recognition,
measurement, presentation and disclosure requirements.

Our team of authors and reviewers hails from all parts of the world and includes not
only our global technical experts but also senior client-facing staff. This gives us an in-
depth knowledge of practice in many different countries and industry sectors, enabling
us to go beyond mere recitation of the requirements of standards to explaining their
application in many varied situations.

We are deeply indebted to many of our colleagues within the global organisation of EY
for their selfless assistance and support in the publication of this book. It has been a
truly international effort, with valuable contributions from EY people around the globe.

Our thanks go particularly to those who reviewed, edited and assisted in the preparation
of drafts, most notably: Elisa Alfieri, John Alton, Danielle Austin, Paul Beswick, Silke
Blaschke, Brian Byrne, Wan Yi Cao, Larissa Clark, Tony Clifford, Angela Covic, Tai
Danmola, Laney Doyle, Josh Forgione, Tommy Fung, Peter Gittens, Laure Guégan, Paul
Hebditch, Jason Janoff, Junyoung Jeong, Guy Jones, Steinar Kvifte, Vincent de La
Bachelerie, Twan van Limpt, Michiel van der Lof, James Luke, Mark Mahar, Hassam
Malik, John O’Grady, Margaret Pankhurst, Christiana Panayidou, Pierre Phan van phi,
Gerard van Santen, Nicola Sawaki, Alison Spivey, Leo van der Tas, Paula Tashima,
Evangelia Tsakiroglou, Hans van der Veen, Arne Weber and Luci Wright.

Our thanks also go to everyone who directly or indirectly contributed to the book’s
creation, including the following members of the Financial Reporting Group in the UK:
Denise Brand, Maria Kingston, Anna Malcolm, Andrea Maylor, Mqondisi Ndlovu and
Anna Pickup.

We also thank Jeremy Gugenheim for his assistance with the production technology
throughout the period of writing.

viii
Preface

London,
Jeremy Barnes
Alan Garry
Richard Moore

October 2018
Martin Beyersdorff
Archie Groenewald
Tina Patel

Mike Bonham
Prahalad Halgeri
Michael Pratt

Linzi Carr
Jane Hurworth
Tim Rogerson

Rob Carrington
Ted Jones
Vadim Shelaginov

Victor Chan
Bernd Kremp
Anna Sirocka

Wei Li Chan
Sanjeev Kumar
David Stolker

Larissa Connor
Max Lienhard
Claire Taylor

Pieter Dekker
Dean Lockhart
Michael Varila

Tim Denton
Sharon MacIntyre
Tracey Waring

Dennis Deysel
Takahiro Makino
Jane Watson

Dennis Esterhuizen
Amanda Marrion

Diego Fernandez
Emily Moll

ix

Lists of chapters

Volume 1

1 International GAAP ............................................................................................................ 1
2 The IASB’s Conceptual Framework ............................................................................. 35
3 Presentation of financial statements and accounting policies ............................... 107
4 Non-current assets held for sale and discontinued operations .............................. 181
5 First-time adoption ....................................................................................................... 209
6 Consolidated financial statements .............................................................................. 357
7 Consolidation procedures and non-controlling interests .................................... 463
8 Separate and individual financial statements ............................................................ 531
9 Business combinations .................................................................................................. 587
10 Business combinations under common control ....................................................... 705
11 Investments in associates and joint ventures ............................................................ 745
12 Joint arrangements ........................................................................................................ 823
13 Disclosure of interests in other entities ..................................................................... 875
14 Fair value measurement ................................................................................................ 931
15 Foreign exchange ......................................................................................................... 1105
16 Hyperinflation ................................................................................................................ 1175
17 Intangible assets ........................................................................................................... 1209
18 Property, plant and equipment .................................................................................. 1293
19 Investment property .................................................................................................... 1349
20 Impairment of fixed assets and goodwill ................................................................. 1421
21 Capitalisation of borrowing costs .............................................................................. 1547
22 Inventories ..................................................................................................................... 1575

Index of extracts from financial statements .............................................................. index 1
Index of standards ........................................................................................................... index 7
Index ............................................................................................................................... index 105

The lists of chapters in volumes 2 and 3 follow overleaf.

x
Lists of chapters

Volume 2

23 Leases (IAS 17) ............................................................................................................... 1601
24 Leases (IFRS 16) ............................................................................................................ 1685
25 Government grants ........................................................................................................ 1771
26 Service concession arrangements ............................................................................. 1793
27 Provisions, contingent liabilities and contingent assets ...................................... 1863
28 Revenue .......................................................................................................................... 1957
29 Income taxes ................................................................................................................ 2333
30 Share-based payment ................................................................................................. 2499
31 Employee benefits ........................................................................................................ 2761
32 Operating segments ..................................................................................................... 2843
33 Earnings per share ....................................................................................................... 2887
34 Events after the reporting period .............................................................................. 2941
35 Related party disclosures ............................................................................................ 2961
36 Statement of cash flows ............................................................................................. 2997
37 Interim financial reporting ......................................................................................... 3043
38 Agriculture ..................................................................................................................... 3127
39 Extractive industries .................................................................................................... 3179

Index of extracts from financial statements .............................................................. index 1
Index of standards ........................................................................................................... index 7
Index ..............................................................................................................................index 105

The list of chapters in volume 3 follows overleaf.

Lists of chapters
xi

Volume 3

40 Financial instruments: Introduction ......................................................................... 3401
41 Financial instruments: Definitions and scope ........................................................ 3409
42 Financial instruments: Derivatives and embedded derivatives ......................... 3443
43 Financial instruments: Financial liabilities and equity ......................................... 3483
44 Financial instruments: Classification ........................................................................ 3591
45 Financial instruments: Recognition and initial measurement ............................. 3657
46 Financial instruments: Subsequent measurement ................................................. 3681
47 Financial instruments: Impairment ........................................................................... 3719
48 Financial instruments: Derecognition ...................................................................... 3875
49 Financial instruments: Hedge accounting .............................................................. 3963
50 Financial instruments: Presentation and disclosure .............................................. 4163
51 Insurance contracts (IFRS 4) ...................................................................................... 4277
52 Insurance contracts (IFRS 17) ..................................................................................... 4419

Index of extracts from financial statements .............................................................. index 1
Index of standards ........................................................................................................... index 7
Index ............................................................................................................................... index 105

xii
Lists of chapters

xiii

Abbreviations

The following abbreviations are used in this book:

Professional and regulatory bodies:

AASB
Australian Accounting Standards Board

AcSB
Accounting Standards Board of Canada

AICPA
American Institute of Certified Public Accountants

AOSSG
Asian-Oceanian Standard-Setters Group

APB
Accounting Principles Board (of the AICPA, predecessor of the FASB)

ARC
Accounting Regulatory Committee of representatives of EU Member States

ASAF
Accounting Standards Advisory Forum

ASB
Accounting Standards Board in the UK

ASBJ
Accounting Standards Board of Japan

ASU
Accounting Standards Update

CASC
China Accounting Standards Committee

CESR
Committee of European Securities Regulators, an independent committee
whose members comprised senior representatives from EU securities
regulators (replaced by ESMA)

CICA
Canadian Institute of Chartered Accountants

EC
European Commission

ECB
European Central Bank

ECOFIN
The Economic and Financial Affairs Council

EDTF
Enhanced Disclosure Task Force of the (FSB)

EFRAG
European Financial Reporting Advisory Group

EITF
Emerging Issues Task Force in the US

EPRA
European Public Real Estate Association

ESMA
European Securities and Markets Authority (see CESR)

EU
European Union

FAF
Financial Accounting Foundation

FASB
Financial Accounting Standards Board in the US

FCAG
Financial Crisis Advisory Group

xiv
Abbreviations

FEE
Federation of European Accountants

FSB
Financial Stability Board (successor to the FSF)

FSF
Financial Stability Forum

G4+1
The (now disbanded) group of four plus 1, actually with six members, that
comprised an informal ‘think tank’ of staff from the standard setters from
Australia, Canada, New Zealand, UK, and USA, plus the IASC

G7
The Group of Seven Finance Ministers (successor to G8)

G8
The Group of Eight Finance Ministers

G20
The Group of Twenty Finance Ministers and Central Bank Governors

GPPC
Global Public Policy Committee of the six largest accounting networks

HKICPA
Hong Kong Institute of Certified Public Accountants

ICAI
Institute of Chartered Accountants of India

IASB
International Accounting Standards Board

IASC
International Accounting Standards Committee. The former Board of the
IASC was the predecessor of the IASB

IASCF
International Accounting Standards Committee Foundation (predecessor of
the IFRS Foundation)

ICAEW
Institute of Chartered Accountants in England and Wales

ICAS
Institute of Chartered Accountants of Scotland

IFAC
International Federation of Accountants

IFASS
International Forum of Accounting Standard Setters

IFRIC
The IFRS Interpretations Committee (formerly the International Financial
Reporting Interpretations Committee) of the IASB

IGC
Implementation Guidance Committee on IAS 39 (now disbanded)

IOSCO
International Organisation of Securities Commissions

IPSASB
International Public Sector Accounting Standards Board

IPTF
International Practices Task Force (a task force of the SEC Regulations
Committee)

ISDA
International Swaps and Derivatives Association

IVSC
International Valuation Standards Council

KASB
Korea Accounting Standards Board

RICS
Royal Institution of Chartered Surveyors

SAC
Standards Advisory Council, predecessor of the IFRS Advisory Council
which provides advice to the IASB on a wide range of issues

SEC
Securities and Exchange Commission (the US securities regulator)

SIC
Standing Interpretations Committee of the IASC (replaced by IFRIC)

TEG
Technical Expert Group, an advisor to the European Commission