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International Financial Reporting Standards. Introduction to IFRS. Carl Rombaut CPA C. Rombaut CPA Belpairestraat 4 b 2.1 2600 Antwerp-Berchem Tel: +32 (03) 272 57 59 revisoren@ Agenda. Use of IFRS in the world, in Europe and in Belgium

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International Financial Reporting Standards

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Carl Rombaut


C. Rombaut CPA

Belpairestraat 4 b 2.1

2600 Antwerp-Berchem

Tel: +32 (03) 272 57 59

  • Use of IFRS in the world, in Europe and in Belgium
  • IASB structure, standards and driving principles
  • Brief comparison between IFRS and Belgian GAAP
  • Overview of a transition to IFRS
  • Concluding comments and questions
use of ifrs in the world
Use of IFRS in the world
  • European Regulation 1606/2002 dated July 19, 2002 requires all EU companies listed on a regulated market to prepare their consolidated financial statements in accordance with IFRS as from 2005
  • IFRS also required / permitted in other major countries
    • European Union – required 2005
    • Brazil – required 2010
    • Canada – required 2011
    • China – IFRS based required
    • India – IFRS based required
    • Japan – permitted 2010 with requirement expected in the coming years
    • US – Final decision pending

Understanding this common language is thus necessary for all

stakeholders of major companies, including shareholders, investors,

banks, employees, suppliers, clients, public authorities, auditors,…

use of ifrs in europe
Use of IFRS in Europe
  • European Regulation 1606/2002 dated July 19, 2002
    • All EU companies listed on a regulated market have to prepare their consolidated financial statements in accordance with International Financial Reporting Standards as from 2005 at the latest
    • Possibility to extend the obligation or to permit the application of IFRS to:
      • Non-listed companies for consolidated financial statements
      • Individual financial statements
    • But “Endorsement Mechanism” in order to pre-approve all IASB standards and interpretations to be applied in the EU
use of ifrs in europe endorsement
Use of IFRS in Europe – Endorsement


2m 1,5m 2m 1m







EU review


+ Co Ministers




use of ifrs in belgium overview
Use of IFRS in Belgium – Overview


IAS/IFRS notpermitted






IAS/IFRS permitted public and non-publicentities

IAS/IFRS mandatoryfor public entities (EuropeanRegulation)

IAS/IFRS permittedfornon-publicentities

use of ifrs in belgium
Use of IFRS in Belgium
  • Royal Decree 4 December 2003
    • Consolidated financial statements of listed entities
      • Allowed before 2005
      • Required from 2005 onwards
    • Individual financial statements => not permitted
    • Entities with only interest bearing securities listed and entities that are listed in a third country are exempted from IFRS-application until 2007
  • Royal Decree 5 December 2004
    • Non listed credit institutions shall apply IFRS for their consolidated financial from 2006 onwards
  • Royal Decree 18 January 2005
    • Non-listed entities are allowed to use IFRS for their consolidated financial statements
    • Decision is irrevocable
  • Royal Decree 21 June 2006
    • All Belgian listed Real Estate Investment Trusts (SICAF Immobilières/ Vastgoed BEVAK) shall apply IFRS also for the preparation of their individual financial statements as from 2007
  • Royal Decree 27 September 2009
    • As from 2012, Belgian insurance and reinsurance companies shall prepare their consolidated financial statements in accordance with IFRS as endorsed in the EU

IASB objective, structure

and drivingprinciples

iasb objectives
IASB – Objectives
  • Develop, in the public interest, a single set of high quality, understandable and enforceable global accounting standards that require high quality, transparent, and comparable information in financial statements and other financial reporting to help participants in the various capital markets of the world and other users of the information to make economic decisions.
  • To promote the use and rigorous application of those standards; and
  • To work actively with national standard setters to bring about convergence of national accounting standards and IFRSs to high quality solutions
iasb driving principles
IASB – Driving principles

Substance over form and principle-based


  • Classification of leases
  • Consolidation (including SPE)
  • Revenue recognition

Systematic recognition of items in the FS

  • Derivatives even embedded in host contracts
  • Share-based payments (including warrants)
  • Intangible assets and contingent liabilities in a business combination
  • Employee benefit obligations
  • Deferred taxes
iasb driving principles1
IASB – Driving principles

Frequent use of fair value

  • Financial instruments
  • Investment property
  • Items acquired / assumed in a business combination
  • Biological assets

No standard reporting format but extended

presentation and disclosure requirements

  • Statement of cash flows
  • Segment reporting
  • Discontinued operations
  • Related party disclosures
  • Earnings per share
  • Interim reporting

Tools – www.iasplus.comOur internet site IAS Plus that is updated on a daily basis with all important IFRS information and IFRS e-learning modules


IASB Standard/



Brief comparison

between IFRS and

Belgian GAAP

pr esentation of ifrs financial statements
Presentation of IFRS financial statements

Overview of IFRS requirements

  • Conceptual framework identifying the qualitative characteristics of useful financial information and defining the key elements of financial statements
  • Content of a complete set of IFRS financial statements (IAS 1)
      • Statement of financial position (Balance Sheet)
      • Statement of comprehensive income (in one or two statements)
      • Statement of changes in equity
      • Statement of cash flows (IAS 7)
          • Distinction to be made between operating, investing and financing cash flows
          • Direct or indirect presentation of operating cash flows
      • Notes
  • Accounting policies and estimates (IAS 8)
      • Policies applied consistently within the group
      • Changes in policies applied retrospectively (in principle) and changes in estimates applied prospectively
      • Major judgments in applying policies and significant estimates to be disclosed (IAS 1)
presentation of ifrs financial statements
Presentation of IFRS financial statements

Overview of IFRS requirements

  • Comparative information to be presented for amounts in the statements and notes
  • Presentation format not predefined but:
    • Minimum line items to be presented
    • Current / non-current distinction in the BS
    • Operating expenses by function or nature in the IS
    • Lost of detailed disclosures, especially for listed companies (see below)
  • Non-current assets (and disposal groups) held for sale to be presented separately in the BS without further depreciation / amortisation (IFRS 5)
  • Discontinued operations to be presented separately in the IS (IFRS 5)
  • Transactions in a foreign currency to be translated at spot rate (average rate in practice) when initially recognized and recognition of realized and unrealized exchange differences on monetary items in the income statement (IAS 21)
  • Post-balance sheet events to be considered only if provide evidence of condition that existed at closing (adjusting events – IAS 10)
presentation of ifrs financial statements1
Presentation of IFRS financial statements

Main differences with Belgian GAAP

  • No conceptual Framework
  • Standard reporting format to be used:
      • No statement of cash flows and statement of (other) comprehensive income
      • Extraordinary income and expenses
      • Less detailed disclosures
  • Changes in accounting policies no addressed but adjustment of opening equity (retained earnings) not allowed
  • Dividends of the year to be treated as an adjusting event and recognized as a liability at closing
  • No specific requirement for non-current assets held for sale and discontinued operations
  • Unrealized exchange gains not recognized as income but deferred in the balance sheet
revenue recognition and provisions
Revenue recognition and provisions

Overview of IFRS requirements

  • Revenue (IAS 18)
      • Measured at the fair value of the consideration received or receivable
      • Recognized when (i) probable that future benefits will flow, (ii) amount of revenue can be measured reliably and (iii):
          • Sale of goods: significant risks and rewards have been transferred, effective control is lost and costs can be reliably measured
          • Rendering of services: stage of completion can be measured reliably
      • If transaction with multiple components, each one to be assessed separately
      • Comprehensive IASB / FASB revision project (ED)
  • Construction contracts (IAS 11)
      • Defined as a contract specifically negotiated for the construction of an asset or a combination of interrelated assets
      • Revenue recognized by reference to the stage of completion if outcome can be estimated reliably, otherwise revenue limited to recoverable costs incurred with any expected loss recognized immediately
  • Inventoried measured at lower of full cost and net realizable value with only FIFO and weighted average allowed (IAS 2)
revenue recognition and provisions1
Revenue recognition and provisions

Overview of IFRS requirements

  • Provisions (IAS 37)
    • Only recognized when:
      • Present (legal or constructive) obligation as a result of a past even
      • Probable outflow of resources
      • Amount of obligation can be measured reliably
    • Restructuring only recognized when:
      • Detailed restructuring plan
      • Restructuring started or announced before the balance sheet date
    • Measured at the best estimate of the settlement amount at closing with discounting if material
  • Contingent liabilities and assets not recognized but just disclosed (IAS 37)
revenue recognition and provisions2
Revenue recognition and provisions

Main differences with Belgian GAAP

  • Less precise guidance regarding revenue recognition but general alignment with IFRS principles
  • Completed contract method allowed for construction type contracts
  • Direct costing and LIFO method allowed for inventories
  • Provisions
      • Provisions for risks and charges are intended to cover losses or charges, the nature of which is clearly defined and which at the balance sheet date are either likely to be incurred or certain but uncertain as to their amount (prudence principle allows wide use of provisions)
      • Restructuring: decision of the Board of Directors sufficient to recognize such provision
      • Provision for major inspection/overhaul costs and dismantling, removal and restoration costs : mandatory progressive recognition of provision for such costs
fixed assets leases and impairment
Fixed assets, leases and impairment

Overview of IFRS requirements

  • Intangible assets (IAS 38)
    • Recognition and measurement principles depend on the situation
      • Separate acquisition:
        • Recognition if probable future economic benefits and reliable measurement
        • Initial measurement at cost
      • Internally generated intangible
        • Only development costs to be recognized under strict conditions
        • Initial measurement at cost
      • Acquisition as part of a business combination (see next slides)
        • Wider recognition basis (eg in-process R&D)
        • Initial measurement at fair value
    • Start-up costs, research costs, training costs, advertising costs to be expensed
    • Amortization over the useful life, unless it is indefinite in which case it is subject to annual impairment test
fixed assets leases and impairment1
Fixed assets, leases and impairment

Overview of IFRS requirements

  • Property, plant and equipment (IAS 16, IAS 23, IAS 20)
    • Initially measured at cost, including:
      • Costs necessary to bring the asset to the intended condition and location
      • Dismantling costs, if any under IAS 37
      • Borrowing costs if the PPE takes a substantial period of time to be constructed (IAS 23)
    • Component accounting to be applied to significant parts, including for major overhaul costs
    • Subsequent measurement under the cost or the revaluation model (under strict condition) with depreciation over the (economic) useful life
  • Leases (IFRIC 4 and IAS 17)
    • Arrangements having the substance of a lease to be treated as such (IFRIC 4)
    • Classification as finance or operating lease on the basis of the economic substance of lease
    • Finance lease if substantially all risks and rewards incident to ownership have been transferred to the lessee
fixed assets leases and impairment2
Fixed assets, leases and impairment

Overview of IFRS requirements

  • Impairment (IAS 36)
    • Impairment test to be performed
      • When there is an indication of impairment
      • Every year on goodwill and intangible assets with an indefinite useful life
    • Impairment loss to be recognized if the carrying amount of an asset (or cash generating unit – CGU) exceeds its recoverable amount, which is the higher of:
      • The fair value less cost to sell of the asset (or CGU)
      • The value in use of the asset (or CGU) which represents the discounted cash flows expected to arise from the asset (or CGU)
    • Goodwill tested at the level of the CGU(s) expected to benefit from the synergies of the combination and
      • Represents to lowest level at which the goodwill is monitored for internal management purposes
      • Is lot larger than an operating segment
fixed assets leases and impairment3
Fixed assets, leases and impairment

Main differences with Belgian GAAP

  • Fixed assets
    • Start-up costs, research cost, loan issue costs and capital increase costs may be capitalized as intangible asset under certain conditions
    • Tax driven amortization / depreciation allowed (double-declining)
    • Borrowing costs may be expensed
    • Dismantling obligations of a PPE not recognized against the cost of PPE
    • Component accounting (including for major overhaul) not applied in practice
    • Revaluation of PPE subject to less conditions
  • Leases
    • Identification and classification of leases rather based on the legal form of the contract
    • Financial lease only if lease payments cover – in addition to interest and ancillary costs – the entire fair value of the leased asset (full pay-out condition) with strike price of purchase option only taken into account for movable assets if less than 15% of fair value
  • Impairment
    • No detailed guidance on when and how to perform an impairment test
financial instruments
Financial instruments

Overview of IFRS requirements

  • Recognition and measurement (IAS 39)
    • All derivative financial instruments recognized on the balance sheet and measured at fair value
    • Non consolidated equity investments measured at fair value with changes recognized in equity (AFS) or in the income statement if held for trading
    • Loans and receivable measured at amortized cost
    • Financial liabilities measured at amortized cost, unless held for trading
    • Very strict conditions to apply hedge accounting
    • Very strict conditions to derecognize financial assets (securitization / factoring)
  • Presentation (IAS 32 and IFRIC 2)
    • Classification of an instrument as liability or equity based on the substance
    • Split accounting for compound financial instruments (eg convertible bond)
    • Own shares deducted from equity
  • Very detailed disclosures (IFRS 7)
  • Comprehensive revision project on the recognition and measurement of financial instruments with effective date expected in 2015 (IFRS 9)
financial instruments1
Financial instruments

Main differences with Belgian GAAP

  • Some derivatives kept off balance sheet
  • Equity investment usually measured at cost
  • Soft conditions to apply hedge accounting and to derecognize a financial asset
  • Classification as equity or liability rather based on the legal form of the instrument and no application of split accounting
  • Own share presented as an asset
  • Less detailed disclosures
deferred taxes
Deferred taxes

Overview of IFRS requirements

  • Differed taxes (DT) arise on:
    • Temporary differences: difference between the carrying amount of an asset or liability (i.e. book value in the IFRS consolidated financial statements) and its tax base (i.e. amount attributed to that asset or liability for tax purposes)
    • Unused tax losses and tax credits
  • A DT liability shall be recognized for all taxable temporary differences, except on goodwill and under specific conditions (initial recognition exemption)
  • A DT asset shall be recognized for all deductible temporary and unused tax losses / credits to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilized, unless the initial recognition exemption applies
  • DT are measured on an undiscounted basis at the tax rate expected to apply

Main differences with Belgian GAAP

  • In individual financial statements: deferred taxes only recognized on capital grants and spread taxation of capital gains
  • In consolidated financial statements: deferred taxes to be recognized but

no specific guidance

m a and consolidation
M&A and consolidation

Overview of IFRS requirements

  • Business combination (IFRS 3R)
    • Transaction in which an entity (acquirer) takes control over a business (acquiree)
    • Identifiable assets acquired (including soft intangible assets) and (contingent) liabilities assumed measured at fair value at acquisition date
    • Goodwill is the difference between the consideration transferred to the seller and the share in the net assets (remeasured at fair value) of the acquiree with:
      • “Full goodwill” option available on a case by case basis
      • Goodwill not amortized but subject to a annual impairment test (see above)
      • Acquisition related costs to be expensed immediately
      • Contingent considerations measured at fair value with changes recognized in the income statement
    • Negative goodwill immediately recognized as income
    • Step acquisition treated as if the existing non controlling interest is initially sold at fair value (with a gain or loss recognized) and the controlling interest immediately acquired in one step
m a and consolidation1
M&A and consolidation

Overview of IFRS requirements

  • Consolidation
    • Consolidation of subsidiary into the presentation currency of the group (IAS 21)
      • All assets and liabilities are translated at the closing rate
      • Income and expenses are translated at transaction (average) rate
      • All resulting exchange difference is recognized in other comprehensive income (equity) with recycling in the income statement on disposal
m a and consolidation2
M&A and consolidation

Main differences with Belgian GAAP

  • Business combination
    • Goodwill measured by reference to the book value of the assets acquired / liabilities assumed (fair value allocation made to the extent possible and limited to the first consolidation difference) and amortized over a period not exceeding five years (unless justified)
    • Acquisition related costs included in goodwill
    • Contingent consideration only recognized when realized
    • Negative goodwill presented in equity and recognized insofar and when expectation of unfavorable future result materializes
    • Treatment of step acquisitions not specifically addressed
  • Consolidation
      • Non rebuttable presumption of control in case voting rights exceeds 50%
      • Potential voting rights no considered in the assessment of control / joint control / significant influence
      • Proportionate consolidation is the benchmark for joint ventures
      • No requirement to apply consistent accounting policies to associates
employee benefits
Employee benefits

Overview of IFRS requirements

  • Cost of providing employee benefits is recognized in the period in which the entity receives services from the employee, rather than when the benefits are paid or payable
  • Post-employment benefits (eg pensions and health care) are categorized as either:
    • Defined contribution plans: expense recognized in the period in which the contribution is payable
    • Defined benefits plans: liability recognized for the net of the present value of the defined benefit obligation and the fair value of any plan assets
      • Actuarial gains and losses are recognized immediately in other comprehensive income (IAS 19R)

Main differences with Belgian GAAP

  • No requirement to recognize a provision for unfunded defined benefit obligation
first time adoption to ifrs ifrs 1
First-time adoption to IFRS (IFRS 1)

Overview of an IFRS conversion process for a 2012 closing with one

comparative period

Date of transition to IFRS Opening IFRS BS

Closing date first IFRS Financial Statements



Closing last FS underprevious GAAP

Publicationfirst IFRS financial statements

first time adoption to ifrs ifrs 11
First-time adoption to IFRS (IFRS 1)

Opening Balance Sheet

  • Opening balance sheet to be prepared at the date of transition to IFRS (e.g. January 1, 2011)
  • This is the starting point for the entity’s subsequent accounting under IFRS

Accounting policies

  • Based on each IFRS effective at the reporting date of the first IFRS financial statements (e.g. December 31, 2012) unless:
    • Optional exceptions
    • Exceptions to retrospective application
  • Recognise all assets and liabilities to be recognised under IFRS
  • Derecognise assets or liabilities if IFRS does not permit recognition
  • Proper reclassification in accordance with IFRS (liabilities, equity, ...)
  • Apply IFRS in measuring all recognised assets and liabilities

Recognise adjustments directly in equity at date of transition (unless exceptions

first time adoption to ifrs ifrs 12
First-time adoption to IFRS (IFRS 1)

Explanation of transition to IFRS

  • Reconciliation of equity reported under previous GAAP to its equity under IFRS on:
    • The date of transition to IFRS
    • The end of the latest period presented in the entity’s most recent annual financial statements under previous GAAP
  • Reconciliation of the total comprehensive income reported under previous GAAP for the latest period in the entity’s most recent financial statements to its total comprehensive income under IFRS
  • Recognition or reversal of impairment losses for the first time in opening balance sheet (see IAS 36)