International Financial Reporting: A Practical Guide, Eighth edition
By Alan Melville
Contents:
Preface ix
Acknowledgements x
List of international standards xi
Part 1 Introduction to Financial Reporting
1 The regulatory framework 3
The need for regulation 4
Sources of regulation 4
Generally accepted accounting practice 6
The International Accounting Standards Board 7
The IASB® standard-setting process 9
The purpose of accounting standards 10
Worldwide use of international standards 11
First-time adoption of international standards 12
The International Sustainability Standards Board 14
2 The IASB conceptual framework 17
Purpose and status of the IASB
Objective of general purpose financial reporting 19
Qualitative characteristics of financial information 21
Financial statements and the reporting entity 24
Elements of financial statements 25
Recognition of the elements of financial statements 27
Measurement of the elements of financial statements 28
Presentation and disclosure 30
Concepts of capital and capital maintenance 30
Discounting and present value 34
3 Presentation of financial statements 37
Purpose of financial statements 38
Components of financial statements 38
General features 39
Structure and content of financial statements 41
The statement of financial position 42
The statement of comprehensive income 46
The statement of changes in equity 51
The notes to the financial statements 53
Interim financial reporting 54
Management commentary 55
Making materiality judgements 56
Exposure Draft ED/2019/7 58
4 Accounting policies, estimates and errors 68
Accounting policies 68
Accounting estimates 73
Prior period errors 73
Part 2 Financial Reporting in Practice
5 Property, plant and equipment 83
Definition of property, plant and equipment 84
Recognition of property, plant and equipment 85
Initial measurement of property, plant and equipment 87
Subsequent measurement of property, plant and equipment 88
Depreciation 90
Disclosure requirements 94
Borrowing costs 95
Government grants 97
Investment property 100
IFRS13 Fair Value Measurement 103
6 Intangible assets 108
Definition of an intangible asset 109
Initial recognition and measurement of intangible assets 110
Subsequent measurement of intangible assets 114
Amortisation of intangible assets 116
Derecognition 118
Disclosure requirements 118
Goodwill 119
IFRS3 Business Combinations 120
7 Impairment of assets 126
Indications of impairment 127
Recoverable amount 128
Recognition and measurement of an impairment loss 131
Cash-generating units 132
Reversal of impairment losses 136
Disclosure requirements 137
8 Non-current assets held for sale and discontinued operations 142
Classification of non-current assets as held for sale 143
Measurement of non-current assets held for sale 145
Presentation of non-current assets held for sale 149
Discontinued operations 150
9 Leases 156
Definition of a lease 157
Lease accounting by lessees 158
Lease accounting by lessors 162
Sale and leaseback transactions 165
10 Inventories 170
Inventories 171
Cost of inventories 171
Cost formulas 173
Net realisable value 176
Disclosures relating to inventories 177
11 Financial instruments 181
Definitions 182
Classification of financial instruments 183
Recognition and measurement 186
Initial measurement of financial assets and liabilities 186
Subsequent measurement of financial assets 187
The effective interest method 188
Subsequent measurement of financial liabilities 190
Disclosure requirements 191
12 Provisions and events after the
reporting period 196
Recognition of a provision 197
Measurement of a provision 199
Application of the recognition and measurement rules 200
Contingent liabilities and contingent assets 202
Disclosure requirements 203
Events after the reporting period 204
13 Revenue from contracts with customers 210
Purpose and scope of IFRS15 211
The five-step model 211
Identifying the contract 212
Identifying performance obligations 214
Determining the transaction price 215
Allocating the transaction price 217
Satisfaction of performance obligations 218
Contract costs 219
Presentation and disclosure 220
Guidance to the application of IFRS15 222
14 Employee benefits 226
Short-term employee benefits 227
Post-employment benefits 229
Accounting for defined contribution plans 229
Accounting for defined benefit plans 230
Other long-term employee benefits 235
Termination benefits 235
Share-based payments 236
15 Taxation in financial statements 242
Current tax 243
Deferred tax 245
The tax base concept 247
IAS12 requirements with regard to
deferred tax 252
Disclosure requirements 252
16 Statement of cash flows 259
Cash and cash equivalents 260
Classification of cash flows by activity 261
Interest, dividends and taxes 262
Reporting cash flows from operating activities 263
Disclosures 270
Exposure Draft ED/2019/7 271
17 Financial reporting in
hyperinflationary economies 285
Historical cost accounting and its weaknesses 286
Strengths of historical cost accounting 291
Alternatives to historical cost accounting 292
Hyperinflationary economies 293
The restatement of financial statements 293
Disclosures required by IAS29 298
Part 3 Consolidated Financial Statements
18 Groups of companies (1) 303
Requirement to prepare consolidated
financial statements 304
Group statement of financial position
at date of acquisition 305
Group statement of financial position
in subsequent years 309
Partly-owned subsidiaries 312
Preference shares 315
Elimination of intra-group balances 317
Unrealised profits 318
Reporting period and accounting
policies 319
Disclosure requirements 319
19 Groups of companies (2) 328
Group statement of comprehensive
income 329
Group statement of changes in equity 329
Subsidiary acquired part way through
an accounting period 335
20 Associates and joint arrangements 345
Associates and significant influence 346
The equity method 347
Application of the equity method 347
Joint arrangements 354
Disclosure requirements 355
21 Related parties and changes in
foreign exchange rates 361
Related parties 362
Definition of related party and related
party transaction 362
Disclosures required by IAS24 364
Foreign exchange accounting 365
Reporting foreign currency
transactions 366
Translation to a presentation currency 368
Part 4 Analysis of Financial Statements
22 Ratio analysis 375
Accounting ratios 376
Profitability ratios 377
Liquidity ratios 381
Efficiency ratios 383
Investment ratios 386
Limitations of ratio analysis 393
Multivariate ratio analysis 394
23 Earnings per share 404
Significance of EPS 404
Calculation of basic EPS 405
Shares issued during the accounting
period 407
Bonus issues 409
Rights issues 410
Calculation of diluted EPS 413
Presentation and disclosure
requirements 415
24 Segmental analysis 421
Operating segments 422
Reportable segments 422
Disclosures required by IFRS8 424
Part 5 Small and Medium-sized Entities
25 The IFRS for SMEs® Standard 433
Small and medium-sized entities 434
Concepts and pervasive principles 435
Financial statement presentation 436
Statement of financial position 437
25 The IFRS for SMEs Standard (cont.)
Statement of comprehensive income
and income statement 437
Statement of changes in equity and
Statement of income and retained earnings 438
Statement of cash flows 438
Notes to the financial statements 438
Consolidated and separate financial statements 439
Accounting policies, estimates and errors 439
Financial instruments 440
Inventories 440
Investments in associates and
joint ventures 440
Investment property 441
Property, plant and equipment 441
Intangible assets other than goodwill 442
Business combinations and goodwill 442
Leases 442
Provisions and contingencies 442
Liabilities and equity 443
Revenue 443
Government grants 444
Borrowing costs 444
Share-based payment 444
Impairment of assets 444
Employee benefits 445
Income tax 445
Foreign currency translation and Hyperinflation 445
Events after the end of the reporting period 445
Related party disclosures 446
Specialised activities 446
Transition to the IFRS for SMEs Standard 446
Part 6 Answers
Answers to exercises 449
Index 513