PAS 1- PRESENTATION OF FINANCIAL STATEMENTS

Objective of PAS 1

The objective of IAS 1 (revised 1997) is to prescribe the basis for presentation of
general purpose financial statements, to ensure comparability both with the entity's
financial statements of previous periods and with the financial statements of other
entities. IAS 1 sets out the overall framework and responsibilities for the presentation of
financial statements, guidelines for their structure and minimum requirements for the
content of the financial statements. Standards for recognising, measuring, and
disclosing specific transactions are addressed in other Standards and Interpretations.

Scope

Applies to all general purpose financial statements based on International Financial

Reporting Standards. [IAS 1.2]

General purpose financial statements are those intended to serve users who do not
have the authority to demand financial reports tailored for their own needs. [IAS 1.3]

Objective of Financial Statements

The objective of general purpose financial statements is to provide 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. To meet that objective, financial
statements provide information about an entity's: [IAS 1.7]

Assets.

Liabilities.

Equity.

Income and expenses, including gains and losses.

Other changes in equity.

 Cash flows.

That information, along with other information in the notes, assists users of financial
statements in predicting the entity's future cash flows and, in particular, their timing and
certainty.

Components of Financial Statements

A complete set of financial statements should include: [IAS 1.8]

* a balance sheet,
* income statement,
* a statement of changes in equity showing either:
o all changes in equity, or
o changes in equity other than those arising from transactions with equity holders acting
in their capacity as equity holders;
* cash flow statement, and
* notes, comprising a summary of accounting policies and other explanatory notes.

Reports that are presented outside of the financial statements -- including financial
reviews by management, environmental reports, and value added statements -- are
outside the scope of IFRSs. [IAS 1.9-10]

Fair Presentation and Compliance with IFRSs

The financial statements must "present fairly" the financial position, financial
performance and cash flows of an entity. Fair presentation requires the faithful
representation of the effects of transactions, other events, and conditions in accordance
with the definitions and recognition criteria for assets, liabilities, income and expenses
set out in the Framework. The application of IFRSs, with additional disclosure when
necessary, is presumed to result in financial statements that achieve a fair presentation.
[IAS 1.13]

IAS 1 requires that an entity whose financial statements comply with IFRSs make an
explicit and unreserved statement of such compliance in the notes. Financial statements
shall not be described as complying with IFRSs unless they comply with all the
requirements of IFRSs (including Interpretations). [IAS 1.14]

Inappropriate accounting policies are not rectified either by disclosure of the accounting
policies used or by notes or explanatory material. [IAS 1.16]

IAS 1 acknowledges that, in extremely rare circumstances, management may conclude

that compliance with an IFRS requirement would be so misleading that it would conflict
with the objective of financial statements set out in the Framework. In such a case, the
entity is required to depart from the IFRS requirement, with detailed disclosure of the
nature, reasons, and impact of the departure. [IAS 1.17-18]

Going Concern

An entity preparing IFRS financial statements is presumed to be a going concern. If

management has significant concerns about the entity's ability to continue as a going
concern, the uncertainties must be disclosed. If management concludes that the entity
is not a going concern, the financial statements should not be prepared on a going
concern basis, in which case IAS 1 requires a series of disclosures. [IAS 1.23]

Accrual Basis of Accounting

IAS 1 requires that an entity prepare its financial statements, except for cash flow
information, using the accrual basis of accounting. [IAS 1.25]

Consistency of Presentation

The presentation and classification of items in the financial statements shall be retained
from one period to the next unless a change is justified either by a change in
circumstances or a requirement of a new IFRS. [IAS 1.27]

Materiality and Aggregation

Each material class of similar items must be presented separately in the financial
statements. Dissimilar items may be aggregated only if the are individually immaterial.
[IAS 1.29]

Offsetting> Assets and liabilities, and income and expenses, may not be offset unless
required or permitted by a Standard or an Interpretation. [IAS 1.32]

Comparative Information

IAS 1 requires that comparative information shall be disclosed in respect of the previous
period for all amounts reported in the financial statements, both face of financial
statements and notes, unless another Standard requires otherwise. [IAS 1.36]

If comparative amounts are changed or reclassified, various disclosures are required.

[IAS 1.38]

Structure and Content of Financial Statements in General

Clearly identify: [IAS 1.46]

* the financial statements

* the reporting enterprise
* whether the statements are for the enterprise or for a group
* the date or period covered
* the presentation currency
* the level of precision (thousands, millions, etc.)

Reporting Period

There is a presumption that financial statements will be prepared at least annually. If the
annual reporting period changes and financial statements are prepared for a different
period, the enterprise must disclose the reason for the change and a warning about
problems of comparability. [IAS 1.49]

Balance Sheet

An entity must normally present a classified balance sheet, separating current and
noncurrent assets and liabilities. Only if a presentation based on liquidity provides
information that is reliable and more relevant may the current/noncurrent split be
omitted. [IAS 1.51] In either case, if an asset (liability) category commingles amounts
that will be received (settled) after 12 months with assets (liabilities) that will be received
(settled) within 12 months, note disclosure is required that separates the longer-term
amounts from the 12-month amounts. [IAS 1.52]

Current assets are cash; cash equivalent; assets held for collection, sale, or
consumption within the enterprise's normal operating cycle; or assets held for trading
within the next 12 months. All other assets are noncurrent. [IAS 1.57]

Current liabilities are those to be settled within the enterprise's normal operating cycle or
due within 12 months, or those held for trading, or those for which the entity does not
have an unconditional right to defer payment beyond 12 months. Other liabilities are
noncurrent. [IAS 1.60]

Long-term debt expected to be refinanced under an existing loan facility is noncurrent,

even if due within 12 months. [IAS 1.64]

If a liability has become payable on demand because an entity has breached an

undertaking under a long-term loan agreement on or before the balance sheet date, the
liability is current, even if the lender has agreed, after the balance sheet date and before
the authorisation of the financial statements for issue, not to demand payment as a
consequence of the breach. [IAS 1.65] However, the liability is classified as non-current
if the lender agreed by the balance sheet date to provide a period of grace ending at
least 12 months after the balance sheet date, within which the entity can rectify the
breach and during which the lender cannot demand immediate repayment. [IA 1.66]

Minimum items on the face of the balance sheet [IAS 1.68]

* (a) property, plant and equipment;
* (b) investment property;
* (c) intangible assets;
* (d) financial assets (excluding amounts shown under (e), (h) and (i));
* (e) investments accounted for using the equity method;
* (f) biological assets;
* (g) inventories;
* (h) trade and other receivables;
* (i) cash and cash equivalents;
* (j) trade and other payables;
* (k) provisions;
* (l) financial liabilities (excluding amounts shown under (j) and (k));
* (m) liabilities and assets for current tax, as defined in IAS 12;
* (n) deferred tax liabilities and deferred tax assets, as defined in IAS 12;
* (o) minority interest, presented within equity; and
* (p) issued capital and reserves attributable to equity holders of the parent.

Additional line items may be needed to fairly present the entity's financial position. [IAS
1.69]

IAS 1 does not prescribe the format of the balance sheet. Assets can be presented
current then noncurrent, or vice versa, and liabilities and equity can be presented
current then noncurrent then equity, or vice versa. A net asset presentation (assets
minus liabilities) is allowed. The long-term financing approach used in UK and
elsewhere fixed assets + current assets - short term payables = long-term debt plus
equity is also acceptable.

Regarding issued share capital and reserves, the following disclosures are required:
[IAS 1.76]

* numbers of shares authorised, issued and fully paid, and issued but not fully paid
* par value
* reconciliation of shares outstanding at the beginning and the end of the period
* description of rights, preferences, and restrictions
* treasury shares, including shares held by subsidiaries and associates
* shares reserved for issuance under options and contracts
* a description of the nature and purpose of each reserve within owners' equity

Income Statement

In the 2003 revision to IAS 1, the IASB is now using "profit or loss" rather than "net profit
or loss" as the descriptive term for the bottom line of the income statement.

All items of income and expense recognised in a period must be included in profit or
loss unless a Standard or an Interpretation requires otherwise. [IAS 1.78]
Minimum items on the face of the income statement should include: [IAS 1.81]

* (a) revenue;
* (b) finance costs;
* (c) share of the profit or loss of associates and joint ventures accounted for using the
equity method;
* (d) a single amount comprising the total of (i) the post-tax profit or loss of discontinued
operations and (ii) the post-tax gain or loss recognised on the disposal of the assets or
disposal group(s) constituting the discontinued operation; and;
* (e) tax expense; and
* (f) profit or loss.

The following items must also be disclosed on the face of the income statement as
allocations of profit or loss for the period: [IAS 1.82]

* (a) profit or loss attributable to minority interest; and

* (b) profit or loss attributable to equity holders of the parent.

Additional line items may be needed to fairly present the enterprise's results of
operations.

No items may be presented on the face of the income statement or in the notes as
"extraordinary items". [IAS 1.85]

Certain items must be disclosed either on the face of the income statement or in the
notes, if material, including: [IAS 1.87]

* (a) write-downs of inventories to net realisable value or of property, plant and

equipment to recoverable amount, as well as reversals of such write-downs;
* (b) restructurings of the activities of an entity and reversals of any provisions for the
costs of restructuring;
* (c) disposals of items of property, plant and equipment;
* (d) disposals of investments;
* (e) discontinuing operations;
* (f) litigation settlements; and
* (g) other reversals of provisions.

Expenses should be analysed either by nature (raw materials, staffing costs,

depreciation, etc.) or by function (cost of sales, selling, administrative, etc.) either on the
face of the income statement or in the notes. [IAS 1.88] If an enterprise categorises by
function, additional information on the nature of expenses -- at a minimum depreciation,
amortisation, and staff costs -- must be disclosed. [IAS 1.93]

Cash Flow Statement

Rather than setting out separate standards for presenting the cash flow statement, IAS
1.102 refers to IAS 7, Cash Flow Statements

Statement of Changes in Equity

IAS 1 requires an entity to present a statement of changes in equity as a separate

component of the financial statements. The statement must show: [IAS 1.96]

* (a) profit or loss for the period;

* (b) each item of income and expense for the period that is recognised directly in
equity, and the total of those items;
* (c) total income and expense for the period (calculated as the sum of (a) and (b)),
showing separately the total amounts attributable to equity holders of the parent and to
minority interest; and
* (d) for each component of equity, the effects of changes in accounting policies and
corrections of errors recognised in accordance with IAS 8.

The following amounts may also be presented on the face of the statement of changes
in equity, or they may be presented in the notes: [IAS 1.97]

* (a) capital transactions with owners;

* (b) the balance of accumulated profits at the beginning and at the end of the period,
and the movements for the period; and
* (c) a reconciliation between the carrying amount of each class of equity capital, share
premium and each reserve at the beginning and at the end of the period, disclosing
each movement.

Notes to the Financial Statements

The notes must: [IAS 1.103]

* present information about the basis of preparation of the financial statements and the
specific accounting policies used;
* disclose any information required by IFRSs that is not presented on the face of the
balance sheet, income statement, statement of changes in equity, or cash flow
statement; and
* provide additional information that is not presented on the face of the balance sheet,
income statement, statement of changes in equity, or cash flow statement that is
deemed relevant to an understanding of any of them.

Notes should be cross-referenced from the face of the financial statements to the
relevant note. [IAS 1.104]

IAS 1.105 suggests that the notes should normally be presented in the following order:

* a statement of compliance with IFRSs;

* a summary of significant accounting policies applied, including: [IAS 1.108]
o the measurement basis (or bases) used in preparing the financial statements; and
o the other accounting policies used that are relevant to an understanding of the
financial statements.
* supporting information for items presented on the face of the balance sheet, income
statement, statement of changes in equity, and cash flow statement, in the order in
which each statement and each line item is presented; and
* other disclosures, including:
o contingent liabilities (see IAS 37) and unrecognised contractual commitments; and
o non-financial disclosures, such as the entity's financial risk management objectives
and policies (see IAS 32).

Disclosure of judgements. New in the 2003 revision to IAS 1, an entity must disclose, in
the summary of significant accounting policies or other notes, the judgements, apart
from those involving estimations, that management has made in the process of applying
the entity's accounting policies that have the most significant effect on the amounts
recognised in the financial statements. [IAS 1.113]

Examples cited in IAS 1.114 include management's judgements in determining:

* whether financial assets are held-to-maturity investments;

* when substantially all the significant risks and rewards of ownership of financial assets
and lease assets are transferred to other entities;
* whether, in substance, particular sales of goods are financing arrangements and
therefore do not give rise to revenue; and
* whether the substance of the relationship between the entity and a special purpose
entity indicates that the special purpose entity is controlled by the entity.

Disclosure of key sources of estimation uncertainty. Also new in the 2003 revision to
IAS 1, an entity must disclose, in the notes, information about the key assumptions
concerning the future, and other key sources of estimation uncertainty at the balance
sheet date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year. [IAS 1.116] These
disclosures do not involve disclosing budgets or forecasts.

The following other note disclosures are required by IAS 1.126 if not disclosed
elsewhere in information published with the financial statements:

* domicile of the enterprise;

* country of incorporation;
* address of registered office or principal place of business;
* description of the enterprise's operations and principal activities;
* name of its parent and the ultimate parent if it is part of a group.

Disclosures about Dividends

The following must be disclosed either on the face of the income statement or the
statement of changes in equity or in the notes: [IAS 1.95]

* the amount of dividends recognised as distributions to equity holders during the

period, and
* the related amount per share.

The following must be disclosed in the notes: {IAS 1.125]

* the amount of dividends proposed or declared before the financial statements were
authorised for issue but not recognised as a distribution to equity holders during the
period, and the related amount per share; and
* the amount of any cumulative preference dividends not recognised.

August 2005 Amendments re Capital Disclosures

As part of its project to develop IFRS 7 Financial Instruments: Disclosures, the IASB
concluded also to amend IAS 1 to add requirements for disclosures of:

* the entity's objectives, policies and processes for managing capital;

* quantitative data about what the entity regards as capital;
* whether the entity has complied with any capital requirements; and
* if it has not complied, the consequences of such non-compliance.

These disclosure requirements apply to all entities, effective for annual periods
beginning on or after 1 January 2007, with earlier application encouraged. Illustrative
examples are provided as guidance.

IAS 37 - Provisions, Contingent Liabilities and Contingent Assets

Overview
IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting
for provisions (liabilities of uncertain timing or amount), together with contingent assets
(possible assets) and contingent liabilities (possible obligations and present obligations
that are not probable or not reliably measurable). Provisions are measured at the best
estimate (including risks and uncertainties) of the expenditure required to settle the
present obligation, and reflects the present value of expenditures required to settle the
obligation where the time value of money is material.
IAS 37 was issued in September 1998 and is operative for periods beginning on or after
1 July 1999.
 History of IAS 37

Date Development Comments

August 1997 Exposure Draft E59 Provi-

sions, Contingent Liabilities
and Contingent
Assetspublished

September 1998 IAS 37 Provisions, Contingent Operative for annual

Liabilities and Contingent financial statements
Assets issued covering periods beginning
on or after 1 July 1999

30 June 2005 Exposure Draft Amendments Comment deadline 28

to IAS 37 Provisions, Contin-
gent Liabilities and Contingent
Assets and IAS 19 Employee
Benefits published
October 2005 (proposals
were not finalised, instead
being reconsidered as a
longer term research
project)

Summary of IAS 37

Objective
The objective of IAS 37 is to ensure that appropriate recognition criteria and measure-
ment bases are applied to provisions, contingent liabilities and contingent assets and
that sufficient information is disclosed in the notes to the financial statements to enable
users to understand their nature, timing and amount. The key principle established by
the Standard is that a provision should be recognised only when there is a liability i.e. a
present obligation resulting from past events. The Standard thus aims to ensure that
only genuine obligations are dealt with in the financial statements planned future ex-
penditure, even where authorised by the board of directors or equivalent governing
body, is excluded from recognition.

Scope
IAS 37 excludes obligations and contingencies arising from: [IAS 37.1-6]
o financial instruments that are in the scope of IAS 39 Financial Instruments: Recogni-
tion and Measurement (or IFRS 9 Financial Instruments)
o non-onerous executory contracts
o insurance contracts (see IFRS 4 Insurance Contracts), but IAS 37 does apply to
other provisions, contingent liabilities and contingent assets of an insurer
o items covered by another IFRS. For example, IAS 11 Construction
Contracts applies to obligations arising under such contracts; IAS 12 Income
Taxes applies to obligations for current or deferred income taxes; IAS
17 Leases applies to lease obligations; and IAS 19 Employee Benefits applies to
pension and other employee benefit obligations.

Key definitions [IAS 37.10]

Provision: a liability of uncertain timing or amount.
Liability:
o present obligation as a result of past events
o settlement is expected to result in an outflow of resources (payment)
Contingent liability:
o a possible obligation depending on whether some uncertain future event occurs, or
o a present obligation but payment is not probable or the amount cannot be measured
reliably
Contingent asset:
o a possible asset that arises from past events, and
o whose existence will be confirmed only by the occurrence or non-occurrence of one
or more uncertain future events not wholly within the control of the entity.

Recognition of a provision
An entity must recognise a provision if, and only if: [IAS 37.14]
o a present obligation (legal or constructive) has arisen as a result of a past event (the
obligating event),
o payment is probable ('more likely than not'), and
o the amount can be estimated reliably.
An obligating event is an event that creates a legal or constructive obligation and,
therefore, results in an entity having no realistic alternative but to settle the obligation.
[IAS 37.10]
A constructive obligation arises if past practice creates a valid expectation on the part of
a third party, for example, a retail store that has a long-standing policy of allowing
customers to return merchandise within, say, a 30-day period. [IAS 37.10]
A possible obligation (a contingent liability) is disclosed but not accrued. However, dis-
closure is not required if payment is remote. [IAS 37.86]
In rare cases, for example in a lawsuit, it may not be clear whether an entity has a
present obligation. In those cases, a past event is deemed to give rise to a present
obligation if, taking account of all available evidence, it is more likely than not that a
 present obligation exists at the balance sheet date. A provision should be recognised for
that present obligation if the other recognition criteria described above are met. If it is
more likely than not that no present obligation exists, the entity should disclose a contin-
gent liability, unless the possibility of an outflow of resources is remote. [IAS 37.15]

Measurement of provisions
The amount recognised as a provision should be the best estimate of the expenditure
required to settle the present obligation at the balance sheet date, that is, the amount
that an entity would rationally pay to settle the obligation at the balance sheet date or to
transfer it to a third party. [IAS 37.36] This means:
o Provisions for one-off events (restructuring, environmental clean-up, settlement of a
lawsuit) are measured at the most likely amount. [IAS 37.40]
o Provisions for large populations of events (warranties, customer refunds) are
measured at a probability-weighted expected value. [IAS 37.39]
o Both measurements are at discounted present value using a pre-tax discount rate
that reflects the current market assessments of the time value of money and the
risks specific to the liability. [IAS 37.45 and 37.47]
In reaching its best estimate, the entity should take into account the risks and uncertain-
ties that surround the underlying events. [IAS 37.42]
If some or all of the expenditure required to settle a provision is expected to be reim-
bursed by another party, the reimbursement should be recognised as a separate asset,
and not as a reduction of the required provision, when, and only when, it is virtually
certain that reimbursement will be received if the entity settles the obligation. The
amount recognised should not exceed the amount of the provision. [IAS 37.53]
In measuring a provision consider future events as follows:
o forecast reasonable changes in applying existing technology [IAS 37.49]
o ignore possible gains on sale of assets [IAS 37.51]
o consider changes in legislation only if virtually certain to be enacted [IAS 37.50]

Remeasurement of provisions [IAS 37.59]

o Review and adjust provisions at each balance sheet date
o If an outflow no longer probable, provision is reversed.

Some examples of provisions

Circumstance Recognise a provision?

Restructuring by Only when the entity is committed to a sale, i.e. there is a

sale of an binding sale agreement [IAS 37.78]
operation
Restructuring by Only when a detailed form plan is in place and the entity
closure or reorgani- has started to implement the plan, or announced its main
sation features to those affected. A Board decision is insufficient
[IAS 37.72, Appendix C, Examples 5A & 5B]

Warranty When an obligating event occurs (sale of product with a

warranty and probable warranty claims will be made)
[Appendix C, Example 1]

Land contamination A provision is recognised as contamination occurs for any

legal obligations of clean up, or for constructive obligations
if the company's published policy is to clean up even if
there is no legal requirement to do so (past event is the
contamination and public expectation created by the
company's policy) [Appendix C, Examples 2B]

Customer refunds Recognise a provision if the entity's established policy is to

give refunds (past event is the sale of the product together
with the customer's expectation, at time of purchase, that a
refund would be available) [Appendix C, Example 4]

Offshore oil rig Recognise a provision for removal costs arising from the
must be removed construction of the the oil rig as it is constructed, and add
and sea bed to the cost of the asset. Obligations arising from the pro-
restored duction of oil are recognised as the production occurs
[Appendix C, Example 3]

Abandoned A provision is recognised for the unavoidable lease

leasehold, four payments [Appendix C, Example 8]
years to run, no re-
letting possible

CPA firm must staff No provision is recognised (there is no obligation to

training for recent provide the training, recognise a liability if and when the re-
changes in tax law training occurs) [Appendix C, Example 7]

Major overhaul or No provision is recognised (no obligation) [Appendix C,

repairs Example 11]
 Onerous (loss- Recognise a provision [IAS 37.66]
making) contract

Future operating No provision is recognised (no liability) [IAS 37.63]

losses

Restructurings
A restructuring is: [IAS 37.70]
o sale or termination of a line of business
o closure of business locations
o changes in management structure
o fundamental reorganisations.
Restructuring provisions should be recognised as follows: [IAS 37.72]
o Sale of operation: recognise a provision only after a binding sale agreement [IAS
37.78]
o Closure or reorganisation: recognise a provision only after a detailed formal plan
is adopted and has started being implemented, or announced to those affected. A
board decision of itself is insufficient.
o Future operating losses: provisions are not recognised for future operating losses,
even in a restructuring
o Restructuring provision on acquisition: recognise a provision only if there is an
obligation at acquisition date [IFRS 3.11]
Restructuring provisions should include only direct expenditures necessarily entailed by
the restructuring, not costs that associated with the ongoing activities of the entity. [IAS
37.80]

What is the debit entry?

When a provision (liability) is recognised, the debit entry for a provision is not always an
expense. Sometimes the provision may form part of the cost of the asset. Examples:
included in the cost of inventories, or an obligation for environmental cleanup when a
new mine is opened or an offshore oil rig is installed. [IAS 37.8]

Use of provisions
Provisions should only be used for the purpose for which they were originally recog-
nised. They should be reviewed at each balance sheet date and adjusted to reflect the
current best estimate. If it is no longer probable that an outflow of resources will be
required to settle the obligation, the provision should be reversed. [IAS 37.61]
 Contingent liabilities
Since there is common ground as regards liabilities that are uncertain, IAS 37 also
deals with contingencies. It requires that entities should not recognise contingent liabili-
ties but should disclose them, unless the possibility of an outflow of economic
resources is remote. [IAS 37.86]

Contingent assets
Contingent assets should not be recognised but should be disclosed where an inflow
of economic benefits is probable. When the realisation of income is virtually certain,
then the related asset is not a contingent asset and its recognition is appropriate. [IAS
37.31-35]

Disclosures
Reconciliation for each class of provision: [IAS 37.84]
o opening balance
o additions
o used (amounts charged against the provision)
o unused amounts reversed
o unwinding of the discount, or changes in discount rate
o closing balance
A prior year reconciliation is not required. [IAS 37.84]
For each class of provision, a brief description of: [IAS 37.85]
o nature
o timing
o uncertainties
o assumptions
o reimbursement, if any.

IAS 39 Financial Instruments: Recognition and Measurement

Overview
IAS 39 Financial Instruments: Recognition and Measurement outlines the requirements
for the recognition and measurement of financial assets, financial liabilities, and some
contracts to buy or sell non-financial items. Financial instruments are initially recognised
when an entity becomes a party to the contractual provisions of the instrument, and are
classified into various categories depending upon the type of instrument, which then de-
termines the subsequent measurement of the instrument (typically amortised cost or fair
value). Special rules apply to embedded derivatives and hedging instruments.
IAS 39 was reissued in December 2003, applies to annual periods beginning on or after
1 January 2005, and will be largely replaced by IFRS 9 Financial Instruments for annual
periods beginning on or after 1 January 2018.

History of IAS 39

Date Development Comments

October 1984 Exposure Draft E26 Accounting for

Investments

March 1986 IAS 25 Accounting for Investments Operative for

financial state-
ments covering
periods
beginning on or
after 1 January
1987

September 1991 Exposure Draft E40 Financial Instru-

ments

January 1994 E40 was modified and re-exposed as

Exposure Draft E48 Financial Instru-
ments

June 1995 The disclosure and presentation

portion of E48 was adopted as IAS
32

March 1997 Discussion Paper Accounting for

Financial Assets and Financial Liabil-
ities issued

June 1998 Exposure Draft E62 Financial Instru- Comment

ments: Recognition and Measure- deadline 30
ment issued September 1998
December 1998 IAS 39 Financial Instruments: Recog- Effective date 1
nition and Measurement (1998) January 2001

April 2000 Withdrawal of IAS 25 following the Effective for

approval of IAS 40 Investment financial state-
Property ments covering
periods
beginning on or
after 1 January
2001

October 2000 Limited revisions to IAS 39 Effective date 1

January 2001

17 December 2003 IAS 39 Financial Instruments: Recog- Effective for

nition and Measurement (2004) annual periods
issued beginning on or
after 1 January
2005

31 March 2004 IAS 39 revised to reflect macro Effective for

hedging annual periods
beginning on or
after 1 January
2005

17 December 2004 Amendment issued to IAS 39 for

transition and initial recognition of
profit or loss

14 April 2005 Amendment issued to IAS 39 for Effective for

cash flow hedges of forecast intra- annual periods
group transactions beginning on or
after 1 January
2006

15 June 2005 Amendment to IAS 39 for fair value Effective for

option annual periods
beginning on or
 after 1 January
2006

18 August 2005 Amendment to IAS 39 for financial Effective for

guarantee contracts annual periods
beginning on or
after 1 January
2006

22 May 2008 IAS 39 amended for Annual Improve- Effective for

ments to IFRSs 2007 annual periods
beginning on or
after 1 January
2009

30 July 2008 Amendment to IAS 39 for eligible Effective for

hedged items annual periods
beginning on or
after 1 July 2009

13 October 2008 Amendment to IAS 39 for reclassifi- Effective 1 July

cations of financial assets 2008

12 March 2009 Amendment to IAS 39 for embedded Effective for

derivatives on reclassifications of annual periods
financial assets beginning on or
after 1 July 2009

16 April 2009 IAS 39 amended for Annual Improve- Effective for

ments to IFRSs 2009 annual periods
beginning on or
after 1 January
2010

12 November 2009 IFRS 9 Financial Instruments issued, Original effective

replacing the classification and mea- date 1 January
surement of financial assets provi- 2013, later
sions of IAS 39 deferred and
 subsequently
removed*

28 October 2010 IFRS 9 Financial Instru- Original effective

ments reissued, incorporating new date 1 January
requirements on accounting for 2013, later
financial liabilities and carrying over deferred and
from IAS 39 the requirements for subsequently
derecognition of financial assets and removed*
financial liabilities

27 June 2013 Amended by Novation of Derivatives Effective for

and Continuation of Hedge annual periods
Accounting beginning on or
after 1 January
2014 (earlier ap-
plication
permitted)

19 November 2013 IFRS 9 Financial Instruments (Hedge Applies when

Accounting and amendments to IFRS IFRS 9 is
9, IFRS 7 and IAS 39) issued, permit- applied*
ting an entity to elect to continue to
apply the hedge accounting require-
ments in IAS 39 for a fair value
hedge of the interest rate exposure of
a portion of a portfolio of financial
assets or financial liabilities when
IFRS 9 is applied, and to extend the
fair value option to certain contracts
that meet the 'own use' scope
exception

24 July 2014 IFRS 9 Financial Instruments issued, Effective for

replacing IAS 39 requirements for annual periods
classification and measurement, im- beginning on or
pairment, hedge accounting and after 1 January
derecognition 2018#
 * IFRS 9 (2014) supersedes IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013), but these
standards remain available for application if the relevant date of initial application is
before 1 February 2015.
# When an entity first applies IFRS 9, it may choose as its accounting policy choice to
continue to apply the hedge accounting requirements of IAS 39 instead of the require-
ments of Chapter 6 of IFRS 9. The IASB currently is undertaking a project on macro
hedge accounting which is expected to eventually replace these sections of IAS 39.

Summary of IAS 39

Deloitte guidance on IFRSs for financial instruments

iGAAP 2012: Financial Instruments
Deloitte (United Kingdom) has developed iGAAP 2012: Financial Instru-
ments IFRS 9 and related Standards (Volume B) and iGAAP 2012:
Financial Instruments IAS 39 and related Standards (Volume C), which
have been published by LexisNexis. These publications are the authoritative
guides for financial instruments accounting under IFRSs. These two titles go
beyond and behind the technical requirements, unearthing common practices
and problems, and providing views, interpretations, clear explanations and
examples. They enable the reader to gain a sound understanding of the
standards and an appreciation of their practicalities.The iGAAP 2012 Financial
Instruments books can be purchased through www.lexisnexis.co.uk/deloitte.

Scope
Scope exclusions
IAS 39 applies to all types of financial instruments except for the following, which are
scoped out of IAS 39: [IAS 39.2]
o interests in subsidiaries, associates, and joint ventures accounted for
under IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments
in Associates, or IAS 31 Interests in Joint Ventures (or, for periods beginning on or
after 1 January 2013, IFRS 10 Consolidated Financial Statements, IAS 27 Separate
Financial Statements or IAS 28 Investments in Associates and Joint Ventures);
however IAS 39 applies in cases where under those standards such interests are to
be accounted for under IAS 39. The standard also applies to most derivatives on an
interest in a subsidiary, associate, or joint venture
o employers' rights and obligations under employee benefit plans to
which IAS 19 Employee Benefits applies
o forward contracts between an acquirer and selling shareholder to buy or sell an
acquiree that will result in a business combination at a future acquisition date
o rights and obligations under insurance contracts, except IAS 39 does apply to
financial instruments that take the form of an insurance (or reinsurance) contract but
that principally involve the transfer of financial risks and derivatives embedded in
insurance contracts
o financial instruments that meet the definition of own equity under IAS 32 Financial
Instruments: Presentation
o financial instruments, contracts and obligations under share-based payment trans-
actions to which IFRS 2 Share-based Payment applies
o rights to reimbursement payments to which IAS 37 Provisions, Contingent Liabilities
and Contingent Assets applies
Leases
IAS 39 applies to lease receivables and payables only in limited respects: [IAS 39.2(b)]
o IAS 39 applies to lease receivables with respect to the derecognition and impair-
ment provisions
o IAS 39 applies to lease payables with respect to the derecognition provisions
o IAS 39 applies to derivatives embedded in leases.
Financial guarantees
IAS 39 applies to financial guarantee contracts issued. However, if an issuer of financial
guarantee contracts has previously asserted explicitly that it regards such contracts as
insurance contracts and has used accounting applicable to insurance contracts, the
issuer may elect to apply either IAS 39 or IFRS 4 Insurance Contracts to such financial
guarantee contracts. The issuer may make that election contract by contract, but the
election for each contract is irrevocable.
Accounting by the holder is excluded from the scope of IAS 39 and IFRS 4 (unless the
contract is a reinsurance contract). Therefore, paragraphs 10-12 of IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors apply. Those paragraphs specify
criteria to use in developing an accounting policy if no IFRS applies specifically to an
item.
Loan commitments
Loan commitments are outside the scope of IAS 39 if they cannot be settled net in cash
or another financial instrument, they are not designated as financial liabilities at fair
value through profit or loss, and the entity does not have a past practice of selling the
loans that resulted from the commitment shortly after origination. An issuer of a commit-
ment to provide a loan at a below-market interest rate is required initially to recognise
the commitment at its fair value; subsequently, the issuer will remeasure it at the higher
of (a) the amount recognised under IAS 37 and (b) the amount initially recognised less,
where appropriate, cumulative amortisation recognised in accordance with IAS 18. An
issuer of loan commitments must apply IAS 37 to other loan commitments that are not
within the scope of IAS 39 (that is, those made at market or above). Loan commitments
are subject to the derecognition provisions of IAS 39. [IAS 39.4]
Contracts to buy or sell financial items
 Contracts to buy or sell financial items are always within the scope of IAS 39 (unless
one of the other exceptions applies).
Contracts to buy or sell non-financial items
Contracts to buy or sell non-financial items are within the scope of IAS 39 if they can be
settled net in cash or another financial asset and are not entered into and held for the
purpose of the receipt or delivery of a non-financial item in accordance with the entity's
expected purchase, sale, or usage requirements. Contracts to buy or sell non-financial
items are inside the scope if net settlement occurs. The following situations constitute
net settlement: [IAS 39.5-6]
o the terms of the contract permit either counterparty to settle net
o there is a past practice of net settling similar contracts
o there is a past practice, for similar contracts, of taking delivery of the underlying and
selling it within a short period after delivery to generate a profit from short-term fluc-
tuations in price, or from a dealer's margin, or
o the non-financial item is readily convertible to cash
Weather derivatives
Although contracts requiring payment based on climatic, geological, or other physical
variable were generally excluded from the original version of IAS 39, they were added to
the scope of the revised IAS 39 in December 2003 if they are not in the scope of IFRS
4. [IAS 39.AG1]

Definitions
IAS 39 incorporates the definitions of the following items from IAS 32 Financial Instru-
ments: Presentation: [IAS 39.8]

o financial instrument
o financial asset
o financial liability
o equity instrument.
Note: Where an entity applies IFRS 9 Financial Instruments prior to its mandatory appli-
cation date (1 January 2015), definitions of the following terms are also incorporated
from IFRS 9: derecognition, derivative, fair value, financial guarantee contract. The def-
inition of those terms outlined below (as relevant) are those from IAS 39.
Common examples of financial instruments within the scope of IAS 39

o cash
o demand and time deposits
o commercial paper
 o accounts, notes, and loans receivable and payable
o debt and equity securities. These are financial instruments from the perspectives of
both the holder and the issuer. This category includes investments in subsidiaries, as-
sociates, and joint ventures
o asset backed securities such as collateralised mortgage obligations, repurchase
agreements, and securitised packages of receivables
o derivatives, including options, rights, warrants, futures contracts, forward contracts,
and swaps.

A derivative is a financial instrument:

o Whose value changes in response to the change in an underlying variable such as
an interest rate, commodity or security price, or index;
o That requires no initial investment, or one that is smaller than would be required for
a contract with similar response to changes in market factors; and
o That is settled at a future date. [IAS 39.9]

Examples of derivatives

Forwards: Contracts to purchase or sell a specific quantity of a financial instrument, a

commodity, or a foreign currency at a specified price determined at the outset, with
delivery or settlement at a specified future date. Settlement is at maturity by actual
delivery of the item specified in the contract, or by a net cash settlement.
Interest rate swaps and forward rate agreements: Contracts to exchange cash flows
as of a specified date or a series of specified dates based on a notional amount and fixed
and floating rates.
Futures: Contracts similar to forwards but with the following differences: futures are
generic exchange-traded, whereas forwards are individually tailored. Futures are
generally settled through an offsetting (reversing) trade, whereas forwards are generally
settled by delivery of the underlying item or cash settlement.
Options: Contracts that give the purchaser the right, but not the obligation, to buy (call
option) or sell (put option) a specified quantity of a particular financial instrument,
commodity, or foreign currency, at a specified price (strike price), during or at a specified
period of time. These can be individually written or exchange-traded. The purchaser of
the option pays the seller (writer) of the option a fee (premium) to compensate the seller
for the risk of payments under the option.
Caps and floors: These are contracts sometimes referred to as interest rate options. An
interest rate cap will compensate the purchaser of the cap if interest rates rise above a
predetermined rate (strike rate) while an interest rate floor will compensate the purchaser
if rates fall below a predetermined rate.
 Embedded derivatives
Some contracts that themselves are not financial instruments may nonetheless have
financial instruments embedded in them. For example, a contract to purchase a
commodity at a fixed price for delivery at a future date has embedded in it a derivative
that is indexed to the price of the commodity.
An embedded derivative is a feature within a contract, such that the cash flows associ-
ated with that feature behave in a similar fashion to a stand-alone derivative. In the
same way that derivatives must be accounted for at fair value on the balance sheet with
changes recognised in the income statement, so must some embedded derivatives.
IAS 39 requires that an embedded derivative be separated from its host contract and
accounted for as a derivative when: [IAS 39.11]
o the economic risks and characteristics of the embedded derivative are not closely
related to those of the host contract
o a separate instrument with the same terms as the embedded derivative would meet
the definition of a derivative, and
o the entire instrument is not measured at fair value with changes in fair value recog-
nised in the income statement
If an embedded derivative is separated, the host contract is accounted for under the ap-
propriate standard (for instance, under IAS 39 if the host is a financial instrument).
Appendix A to IAS 39 provides examples of embedded derivatives that are closely
related to their hosts, and of those that are not.
Examples of embedded derivatives that are not closely related to their hosts (and
therefore must be separately accounted for) include:
o the equity conversion option in debt convertible to ordinary shares (from the per-
spective of the holder only) [IAS 39.AG30(f)]
o commodity indexed interest or principal payments in host debt contracts[IAS 39.
AG30(e)]
o cap and floor options in host debt contracts that are in-the-money when the instru-
ment was issued [IAS 39.AG33(b)]
o leveraged inflation adjustments to lease payments [IAS 39.AG33(f)]
o currency derivatives in purchase or sale contracts for non-financial items where the
foreign currency is not that of either counterparty to the contract, is not the currency
in which the related good or service is routinely denominated in commercial transac-
tions around the world, and is not the currency that is commonly used in such
contracts in the economic environment in which the transaction takes place. [IAS 39.
AG33(d)]
If IAS 39 requires that an embedded derivative be separated from its host contract, but
the entity is unable to measure the embedded derivative separately, the entire
 combined contract must be designated as a financial asset as at fair value through profit
or loss). [IAS 39.12]

Classification as liability or equity

Since IAS 39 does not address accounting for equity instruments issued by the
reporting enterprise but it does deal with accounting for financial liabilities, classification
of an instrument as liability or as equity is critical. IAS 32 Financial Instruments: Presen-
tation addresses the classification question.

Classification of financial assets

IAS 39 requires financial assets to be classified in one of the following categories:
[IAS 39.45]
o Financial assets at fair value through profit or loss
o Available-for-sale financial assets
o Loans and receivables
o Held-to-maturity investments
Those categories are used to determine how a particular financial asset is recognised
and measured in the financial statements.
Financial assets at fair value through profit or loss. This category has two subcate-
gories:
o Designated. The first includes any financial asset that is designated on initial recog-
nition as one to be measured at fair value with fair value changes in profit or loss.
o Held for trading. The second category includes financial assets that are held for
trading. All derivatives (except those designated hedging instruments) and financial
assets acquired or held for the purpose of selling in the short term or for which there
is a recent pattern of short-term profit taking are held for trading. [IAS 39.9]
Available-for-sale financial assets (AFS) are any non-derivative financial assets des-
ignated on initial recognition as available for sale or any other instruments that are not
classified as as (a) loans and receivables, (b) held-to-maturity investments or (c)
financial assets at fair value through profit or loss. [IAS 39.9] AFS assets are measured
at fair value in the balance sheet. Fair value changes on AFS assets are recognised
directly in equity, through the statement of changes in equity, except for interest on AFS
assets (which is recognised in income on an effective yield basis), impairment losses
and (for interest-bearing AFS debt instruments) foreign exchange gains or losses. The
cumulative gain or loss that was recognised in equity is recognised in profit or loss when
an available-for-sale financial asset is derecognised. [IAS 39.55(b)]
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market, other than held for trading or desig-
nated on initial recognition as assets at fair value through profit or loss or as available-
for-sale. Loans and receivables for which the holder may not recover substantially all of
its initial investment, other than because of credit deterioration, should be classified as
available-for-sale.[IAS 39.9] Loans and receivables are measured at amortised cost.
[IAS 39.46(a)]
 Held-to-maturity investments are non-derivative financial assets with fixed or deter-
minable payments that an entity intends and is able to hold to maturity and that do not
meet the definition of loans and receivables and are not designated on initial recognition
as assets at fair value through profit or loss or as available for sale. Held-to-maturity in-
vestments are measured at amortised cost. If an entity sells a held-to-maturity invest-
ment other than in insignificant amounts or as a consequence of a non-recurring,
isolated event beyond its control that could not be reasonably anticipated, all of its other
held-to-maturity investments must be reclassified as available-for-sale for the current
and next two financial reporting years. [IAS 39.9] Held-to-maturity investments are
measured at amortised cost. [IAS 39.46(b)]

Classification of financial liabilities

IAS 39 recognises two classes of financial liabilities: [IAS 39.47]
o Financial liabilities at fair value through profit or loss
o Other financial liabilities measured at amortised cost using the effective interest
method
The category of financial liability at fair value through profit or loss has two subcate-
gories:
o Designated. a financial liability that is designated by the entity as a liability at fair
value through profit or loss upon initial recognition
o Held for trading. a financial liability classified as held for trading, such as an obliga-
tion for securities borrowed in a short sale, which have to be returned in the future

Initial recognition
IAS 39 requires recognition of a financial asset or a financial liability when, and only
when, the entity becomes a party to the contractual provisions of the instrument, subject
to the following provisions in respect of regular way purchases. [IAS 39.14]
Regular way purchases or sales of a financial asset. A regular way purchase or sale
of financial assets is recognised and derecognised using either trade date or settlement
date accounting. [IAS 39.38] The method used is to be applied consistently for all
purchases and sales of financial assets that belong to the same category of financial
asset as defined in IAS 39 (note that for this purpose assets held for trading form a
different category from assets designated at fair value through profit or loss). The choice
of method is an accounting policy. [IAS 39.38]
IAS 39 requires that all financial assets and all financial liabilities be recognised on the
balance sheet. That includes all derivatives. Historically, in many parts of the world, de-
rivatives have not been recognised on company balance sheets. The argument has
been that at the time the derivative contract was entered into, there was no amount of
cash or other assets paid. Zero cost justified non-recognition, notwithstanding that as
time passes and the value of the underlying variable (rate, price, or index) changes, the
derivative has a positive (asset) or negative (liability) value.
 Initial measurement
Initially, financial assets and liabilities should be measured at fair value (including trans-
action costs, for assets and liabilities not measured at fair value through profit or loss).
[IAS 39.43]

Measurement subsequent to initial recognition

Subsequently, financial assets and liabilities (including derivatives) should be measured
at fair value, with the following exceptions: [IAS 39.46-47]
o Loans and receivables, held-to-maturity investments, and non-derivative financial
liabilities should be measured at amortised cost using the effective interest method.
o Investments in equity instruments with no reliable fair value measurement (and de-
rivatives indexed to such equity instruments) should be measured at cost.
o Financial assets and liabilities that are designated as a hedged item or hedging in-
strument are subject to measurement under the hedge accounting requirements of
the IAS 39.
o Financial liabilities that arise when a transfer of a financial asset does not qualify for
derecognition, or that are accounted for using the continuing-involvement method,
are subject to particular measurement requirements.
Fair value is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm's length transaction. [IAS 39.9] IAS 39
provides a hierarchy to be used in determining the fair value for a financial instrument:
[IAS 39 Appendix A, paragraphs AG69-82]
o Quoted market prices in an active market are the best evidence of fair value and
should be used, where they exist, to measure the financial instrument.
o If a market for a financial instrument is not active, an entity establishes fair value by
using a valuation technique that makes maximum use of market inputs and includes
recent arm's length market transactions, reference to the current fair value of
another instrument that is substantially the same, discounted cash flow analysis,
and option pricing models. An acceptable valuation technique incorporates all
factors that market participants would consider in setting a price and is consistent
with accepted economic methodologies for pricing financial instruments.
o If there is no active market for an equity instrument and the range of reasonable fair
values is significant and these estimates cannot be made reliably, then an entity
must measure the equity instrument at cost less impairment.
Amortised cost is calculated using the effective interest method. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument to the net carrying amount of the
 financial asset or liability. Financial assets that are not carried at fair value though profit
and loss are subject to an impairment test. If expected life cannot be determined
reliably, then the contractual life is used.
IAS 39 fair value option
IAS 39 permits entities to designate, at the time of acquisition or issuance, any financial
asset or financial liability to be measured at fair value, with value changes recognised in
profit or loss. This option is available even if the financial asset or financial liability would
ordinarily, by its nature, be measured at amortised cost but only if fair value can be
reliably measured.
In June 2005 the IASB issued its amendment to IAS 39 to restrict the use of the option
to designate any financial asset or any financial liability to be measured at fair value
through profit and loss (the fair value option). The revisions limit the use of the option to
those financial instruments that meet certain conditions: [IAS 39.9]
o the fair value option designation eliminates or significantly reduces an accounting
mismatch, or
o a group of financial assets, financial liabilities or both is managed and its perfor-
mance is evaluated on a fair value basis by entity's management.
Once an instrument is put in the fair-value-through-profit-and-loss category, it cannot be
reclassified out with some exceptions. [IAS 39.50] In October 2008, the IASB issued
amendments to IAS 39. The amendments permit reclassification of some financial in-
struments out of the fair-value-through-profit-or-loss category (FVTPL) and out of the
available-for-sale category for more detail see IAS 39.50(c). In the event of reclassifi-
cation, additional disclosures are required under IFRS 7 Financial Instruments: Disclo-
sures. In March 2009 the IASB clarified that reclassifications of financial assets under
the October 2008 amendments (see above): on reclassification of a financial asset out
of the 'fair value through profit or loss' category, all embedded derivatives have to be
(re)assessed and, if necessary, separately accounted for in financial statements.
IAS 39 available for sale option for loans and receivables
IAS 39 permits entities to designate, at the time of acquisition, any loan or receivable as
available for sale, in which case it is measured at fair value with changes in fair value
recognised in equity.
Impairment
A financial asset or group of assets is impaired, and impairment losses are recognised,
only if there is objective evidence as a result of one or more events that occurred after
the initial recognition of the asset. An entity is required to assess at each balance sheet
date whether there is any objective evidence of impairment. If any such evidence exists,
the entity is required to do a detailed impairment calculation to determine whether an
impairment loss should be recognised. [IAS 39.58] The amount of the loss is measured
as the difference between the asset's carrying amount and the present value of
estimated cash flows discounted at the financial asset's original effective interest rate.
[IAS 39.63]
Assets that are individually assessed and for which no impairment exists are grouped
with financial assets with similar credit risk statistics and collectively assessed for im-
pairment. [IAS 39.64]
 If, in a subsequent period, the amount of the impairment loss relating to a financial asset
carried at amortised cost or a debt instrument carried as available-for-sale decreases
due to an event occurring after the impairment was originally recognised, the previously
recognised impairment loss is reversed through profit or loss. Impairments relating to in-
vestments in available-for-sale equity instruments are not reversed through profit or
loss. [IAS 39.65]
Financial guarantees
A financial guarantee contract is a contract that requires the issuer to make specified
payments to reimburse the holder for a loss it incurs because a specified debtor fails to
make payment when due. [IAS 39.9]
Under IAS 39 as amended, financial guarantee contracts are recognised:
o initially at fair value. If the financial guarantee contract was issued in a stand-alone
arm's length transaction to an unrelated party, its fair value at inception is likely to
equal the consideration received, unless there is evidence to the contrary.
o subsequently at the higher of (i) the amount determined in accordance with IAS
37 Provisions, Contingent Liabilities and Contingent Assets and (ii) the amount
initially recognised less, when appropriate, cumulative amortisation recognised in
accordance with IAS 18 Revenue. (If specified criteria are met, the issuer may use
the fair value option in IAS 39. Furthermore, different requirements continue to apply
in the specialised context of a 'failed' derecognition transaction.)
Some credit-related guarantees do not, as a precondition for payment, require that the
holder is exposed to, and has incurred a loss on, the failure of the debtor to make
payments on the guaranteed asset when due. An example of such a guarantee is a
credit derivative that requires payments in response to changes in a specified credit
rating or credit index. These are derivatives and they must be measured at fair value
under IAS 39.

Derecognition of a financial asset

The basic premise for the derecognition model in IAS 39 is to determine whether the
asset under consideration for derecognition is: [IAS 39.16]
o an asset in its entirety or
o specifically identified cash flows from an asset or
o a fully proportionate share of the cash flows from an asset or
o a fully proportionate share of specifically identified cash flows from a financial asset
Once the asset under consideration for derecognition has been determined, an assess-
ment is made as to whether the asset has been transferred, and if so, whether the
transfer of that asset is subsequently eligible for derecognition.
An asset is transferred if either the entity has transferred the contractual rights to
receive the cash flows, or the entity has retained the contractual rights to receive the
cash flows from the asset, but has assumed a contractual obligation to pass those cash
flows on under an arrangement that meets the following three conditions: [IAS 39.17-19]
o the entity has no obligation to pay amounts to the eventual recipient unless it
collects equivalent amounts on the original asset
o the entity is prohibited from selling or pledging the original asset (other than as
security to the eventual recipient),
o the entity has an obligation to remit those cash flows without material delay
Once an entity has determined that the asset has been transferred, it then determines
whether or not it has transferred substantially all of the risks and rewards of ownership
of the asset. If substantially all the risks and rewards have been transferred, the asset is
derecognised. If substantially all the risks and rewards have been retained, derecogni-
tion of the asset is precluded. [IAS 39.20]
If the entity has neither retained nor transferred substantially all of the risks and rewards
of the asset, then the entity must assess whether it has relinquished control of the asset
or not. If the entity does not control the asset then derecognition is appropriate; however
if the entity has retained control of the asset, then the entity continues to recognise the
asset to the extent to which it has a continuing involvement in the asset. [IAS 39.30]
These various derecognition steps are summarised in the decision tree in AG36.

Derecognition of a financial liability

A financial liability should be removed from the balance sheet when, and only when, it is
extinguished, that is, when the obligation specified in the contract is either discharged or
cancelled or expires. [IAS 39.39] Where there has been an exchange between an
existing borrower and lender of debt instruments with substantially different terms, or
there has been a substantial modification of the terms of an existing financial liability,
this transaction is accounted for as an extinguishment of the original financial liability
and the recognition of a new financial liability. A gain or loss from extinguishment of the
original financial liability is recognised in profit or loss. [IAS 39.40-41]

Hedge accounting
IAS 39 permits hedge accounting under certain circumstances provided that the
hedging relationship is: [IAS 39.88]
o formally designated and documented, including the entity's risk management
objective and strategy for undertaking the hedge, identification of the hedging instru-
ment, the hedged item, the nature of the risk being hedged, and how the entity will
assess the hedging instrument's effectiveness and
o expected to be highly effective in achieving offsetting changes in fair value or cash
flows attributable to the hedged risk as designated and documented, and effective-
ness can be reliably measured and
o assessed on an ongoing basis and determined to have been highly effective
Hedging instruments
Hedging instrument is an instrument whose fair value or cash flows are expected to
offset changes in the fair value or cash flows of a designated hedged item. [IAS 39.9]
 All derivative contracts with an external counterparty may be designated as hedging in-
struments except for some written options. A non-derivative financial asset or liability
may not be designated as a hedging instrument except as a hedge of foreign currency
risk. [IAS 39.72]
For hedge accounting purposes, only instruments that involve a party external to the
reporting entity can be designated as a hedging instrument. This applies to intragroup
transactions as well (with the exception of certain foreign currency hedges of forecast
intragroup transactions see below). However, they may qualify for hedge accounting
in individual financial statements. [IAS 39.73]
Hedged items
Hedged item is an item that exposes the entity to risk of changes in fair value or future
cash flows and is designated as being hedged. [IAS 39.9]
A hedged item can be: [IAS 39.78-82]
o a single recognised asset or liability, firm commitment, highly probable transaction
or a net investment in a foreign operation
o a group of assets, liabilities, firm commitments, highly probable forecast transactions
or net investments in foreign operations with similar risk characteristics
o a held-to-maturity investment for foreign currency or credit risk (but not for interest
risk or prepayment risk)
o a portion of the cash flows or fair value of a financial asset or financial liability or
o a non-financial item for foreign currency risk only for all risks of the entire item
o in a portfolio hedge of interest rate risk (Macro Hedge) only, a portion of the portfolio
of financial assets or financial liabilities that share the risk being hedged
In April 2005, the IASB amended IAS 39 to permit the foreign currency risk of a highly
probable intragroup forecast transaction to qualify as the hedged item in a cash flow
hedge in consolidated financial statements provided that the transaction is denomi-
nated in a currency other than the functional currency of the entity entering into that
transaction and the foreign currency risk will affect consolidated financial statements.
[IAS 39.80]
In 30 July 2008, the IASB amended IAS 39 to clarify two hedge accounting issues:
o inflation in a financial hedged item
o a one-sided risk in a hedged item.
Effectiveness
IAS 39 requires hedge effectiveness to be assessed both prospectively and retrospec-
tively. To qualify for hedge accounting at the inception of a hedge and, at a minimum, at
each reporting date, the changes in the fair value or cash flows of the hedged item at-
tributable to the hedged risk must be expected to be highly effective in offsetting the
changes in the fair value or cash flows of the hedging instrument on a prospective
basis, and on a retrospective basis where actual results are within a range of 80% to
125%.
 All hedge ineffectiveness is recognised immediately in profit or loss (including ineffec-
tiveness within the 80% to 125% window).
Categories of hedges
A fair value hedge is a hedge of the exposure to changes in fair value of a recognised
asset or liability or a previously unrecognised firm commitment or an identified portion of
such an asset, liability or firm commitment, that is attributable to a particular risk and
could affect profit or loss. [IAS 39.86(a)] The gain or loss from the change in fair value of
the hedging instrument is recognised immediately in profit or loss. At the same time the
carrying amount of the hedged item is adjusted for the corresponding gain or loss with
respect to the hedged risk, which is also recognised immediately in net profit or loss.
[IAS 39.89]
A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is at-
tributable to a particular risk associated with a recognised asset or liability (such as all
or some future interest payments on variable rate debt) or a highly probable forecast
transaction and (ii) could affect profit or loss. [IAS 39.86(b)] The portion of the gain or
loss on the hedging instrument that is determined to be an effective hedge is recognised
in other comprehensive income. [IAS 39.95]
If a hedge of a forecast transaction subsequently results in the recognition of a financial
asset or a financial liability, any gain or loss on the hedging instrument that was previ-
ously recognised directly in equity is 'recycled' into profit or loss in the same period(s) in
which the financial asset or liability affects profit or loss. [IAS 39.97]
If a hedge of a forecast transaction subsequently results in the recognition of a non-fi-
nancial asset or non-financial liability, then the entity has an accounting policy option
that must be applied to all such hedges of forecast transactions: [IAS 39.98]
o Same accounting as for recognition of a financial asset or financial liability any
gain or loss on the hedging instrument that was previously recognised in other com-
prehensive income is 'recycled' into profit or loss in the same period(s) in which the
non-financial asset or liability affects profit or loss.
o 'Basis adjustment' of the acquired non-financial asset or liability the gain or loss on
the hedging instrument that was previously recognised in other comprehensive
income is removed from equity and is included in the initial cost or other carrying
amount of the acquired non-financial asset or liability.
A hedge of a net investment in a foreign operation as defined in IAS 21 The Effects
of Changes in Foreign Exchange Rates is accounted for similarly to a cash flow hedge.
[IAS 39.102]
A hedge of the foreign currency risk of a firm commitment may be accounted for as
a fair value hedge or as a cash flow hedge.
Discontinuation of hedge accounting
Hedge accounting must be discontinued prospectively if: [IAS 39.91 and 39.101]
o the hedging instrument expires or is sold, terminated, or exercised
o the hedge no longer meets the hedge accounting criteria for example it is no
longer effective
o for cash flow hedges the forecast transaction is no longer expected to occur, or
o the entity revokes the hedge designation
In June 2013, the IASB amended IAS 39 to make it clear that there is no need to dis-
continue hedge accounting if a hedging derivative is novated, provided certain criteria
are met. [IAS 39.91 and IAS 39.101]
For the purpose of measuring the carrying amount of the hedged item when fair value
hedge accounting ceases, a revised effective interest rate is calculated. [IAS 39.BC35A]
If hedge accounting ceases for a cash flow hedge relationship because the forecast
transaction is no longer expected to occur, gains and losses deferred in other compre-
hensive income must be taken to profit or loss immediately. If the transaction is still
expected to occur and the hedge relationship ceases, the amounts accumulated in
equity will be retained in equity until the hedged item affects profit or loss.
[IAS 39.101(c)]
If a hedged financial instrument that is measured at amortised cost has been adjusted
for the gain or loss attributable to the hedged risk in a fair value hedge, this adjustment
is amortised to profit or loss based on a recalculated effective interest rate on this date
such that the adjustment is fully amortised by the maturity of the instrument. Amortisa-
tion may begin as soon as an adjustment exists and must begin no later than when the
hedged item ceases to be adjusted for changes in its fair value attributable to the risks
being hedged.

Disclosure
In 2003 all disclosures about financial instruments were moved to IAS 32, so IAS 32
was renamed Financial Instruments: Disclosure and Presentation. In 2005, the IASB
issued IFRS 7 Financial Instruments: Disclosures to replace the disclosure portions of
IAS 32 effective 1 January 2007. IFRS 7 also superseded IAS 30 Disclosures in the
Financial Statements of Banks and Similar Financial Institutions.

IAS 17 Leases

Overview
IAS 17 Leases prescribes the accounting policies and disclosures applicable to leases,
both for lessees and lessors. Leases are required to be classified as either finance
leases (which transfer substantially all the risks and rewards of ownership, and give rise
to asset and liability recognition by the lessee and a receivable by the lessor) and
operating leases (which result in expense recognition by the lessee, with the asset
remaining recognised by the lessor).
IAS 17 was reissued in December 2003 and applies to annual periods beginning on or
after 1 January 2005. IAS 17 will be superseded by IFRS 16 Leases as of 1 January
2019.
History of IAS 17

October 1980 Exposure Draft E19 Accounting for Leases

September 1982 IAS 17 Accounting for Leases

1 January 1984 Effective date of IAS 17 (1982)

1994 IAS 17 (1982) was reformatted

April 1997 Exposure Draft E56, Leases

December 1997 IAS 17 Leases

1 January 1999 Effective date of IAS 17 (1997) Leases

18 December 2003 Revised version of IAS 17 issued by the IASB

1 January 2005 Effective date of IAS 17 (Revised 2003)

16 April 2009 IAS 17 amended for Annual Improvements to IFRSs

2009 about classification of land leases

1 January 2010 Effective date of the April 2009 revisions to IAS 17, with
early application permitted (with disclosure)

1 January 2019 IAS 17 will be superseded by IFRS 16 Leases

Summary of IAS 17

Objective of IAS 17
The objective of IAS 17 (1997) is to prescribe, for lessees and lessors, the appropriate
accounting policies and disclosures to apply in relation to finance and operating leases.

Scope
IAS 17 applies to all leases other than lease agreements for minerals, oil, natural gas,
and similar regenerative resources and licensing agreements for films, videos, plays,
manuscripts, patents, copyrights, and similar items. [IAS 17.2]
 However, IAS 17 does not apply as the basis of measurement for the following leased
assets: [IAS 17.2]
o property held by lessees that is accounted for as investment property for which the
lessee uses the fair value model set out in IAS 40
o investment property provided by lessors under operating leases (see IAS 40)
o biological assets held by lessees under finance leases (see IAS 41)
o biological assets provided by lessors under operating leases (see IAS 41)

Classification of leases
A lease is classified as a finance lease if it transfers substantially all the risks and
rewards incident to ownership. All other leases are classified as operating leases. Clas-
sification is made at the inception of the lease. [IAS 17.4]
Whether a lease is a finance lease or an operating lease depends on the substance of
the transaction rather than the form. Situations that would normally lead to a lease being
classified as a finance lease include the following: [IAS 17.10]
o the lease transfers ownership of the asset to the lessee by the end of the lease term
o the lessee has the option to purchase the asset at a price which is expected to be
sufficiently lower than fair value at the date the option becomes exercisable that, at
the inception of the lease, it is reasonably certain that the option will be exercised
o the lease term is for the major part of the economic life of the asset, even if title is
not transferred
o at the inception of the lease, the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset
o the lease assets are of a specialised nature such that only the lessee can use them
without major modifications being made
Other situations that might also lead to classification as a finance lease are: [IAS 17.11]
o if the lessee is entitled to cancel the lease, the lessor's losses associated with the
cancellation are borne by the lessee
o gains or losses from fluctuations in the fair value of the residual fall to the lessee (for
example, by means of a rebate of lease payments)
o the lessee has the ability to continue to lease for a secondary period at a rent that is
substantially lower than market rent
When a lease includes both land and buildings elements, an entity assesses the classi-
fication of each element as a finance or an operating lease separately. In determining
whether the land element is an operating or a finance lease, an important consideration
is that land normally has an indefinite economic life [IAS 17.15A]. Whenever necessary
in order to classify and account for a lease of land and buildings, the minimum lease
 payments (including any lump-sum upfront payments) are allocated between the land
and the buildings elements in proportion to the relative fair values of the leasehold
interests in the land element and buildings element of the lease at the inception of the
lease. [IAS 17.16] For a lease of land and buildings in which the amount that would
initially be recognised for the land element is immaterial, the land and buildings may be
treated as a single unit for the purpose of lease classification and classified as a finance
or operating lease. [IAS 17.17] However, separate measurement of the land and
buildings elements is not required if the lessee's interest in both land and buildings is
classified as an investment property in accordance with IAS 40 and the fair value model
is adopted. [IAS 17.18]

Accounting by lessees
The following principles should be applied in the financial statements of lessees:
o at commencement of the lease term, finance leases should be recorded as an asset
and a liability at the lower of the fair value of the asset and the present value of the
minimum lease payments (discounted at the interest rate implicit in the lease, if
practicable, or else at the entity's incremental borrowing rate) [IAS 17.20]
o finance lease payments should be apportioned between the finance charge and the
reduction of the outstanding liability (the finance charge to be allocated so as to
produce a constant periodic rate of interest on the remaining balance of the liability)
[IAS 17.25]
o the depreciation policy for assets held under finance leases should be consistent
with that for owned assets. If there is no reasonable certainty that the lessee will
obtain ownership at the end of the lease the asset should be depreciated over the
shorter of the lease term or the life of the asset [IAS 17.27]
o for operating leases, the lease payments should be recognised as an expense in the
income statement over the lease term on a straight-line basis, unless another sys-
tematic basis is more representative of the time pattern of the user's benefit [IAS
17.33]
Incentives for the agreement of a new or renewed operating lease should be recognised
by the lessee as a reduction of the rental expense over the lease term, irrespective of
the incentive's nature or form, or the timing of payments. [SIC-15]

Accounting by lessors
The following principles should be applied in the financial statements of lessors:
o at commencement of the lease term, the lessor should record a finance lease in the
balance sheet as a receivable, at an amount equal to the net investment in the lease
[IAS 17.36]
o the lessor should recognise finance income based on a pattern reflecting a constant
periodic rate of return on the lessor's net investment outstanding in respect of the
finance lease [IAS 17.39]
o assets held for operating leases should be presented in the balance sheet of the
lessor according to the nature of the asset. [IAS 17.49] Lease income should be
recognised over the lease term on a straight-line basis, unless another systematic
basis is more representative of the time pattern in which use benefit is derived from
the leased asset is diminished [IAS 17.50]
Incentives for the agreement of a new or renewed operating lease should be recognised
by the lessor as a reduction of the rental income over the lease term, irrespective of the
incentive's nature or form, or the timing of payments. [SIC-15]
Manufacturers or dealer lessors should include selling profit or loss in the same period
as they would for an outright sale. If artificially low rates of interest are charged, selling
profit should be restricted to that which would apply if a commercial rate of interest were
charged. [IAS 17.42]
Under the 2003 revisions to IAS 17, initial direct and incremental costs incurred by
lessors in negotiating leases must be recognised over the lease term. They may no
longer be charged to expense when incurred. This treatment does not apply to manu-
facturer or dealer lessors where such cost recognition is as an expense when the selling
profit is recognised.

Sale and leaseback transactions

For a sale and leaseback transaction that results in a finance lease, any excess of
proceeds over the carrying amount is deferred and amortised over the lease term. [IAS
17.59]
For a transaction that results in an operating lease: [IAS 17.61]
o if the transaction is clearly carried out at fair value - the profit or loss should be
recognised immediately
o if the sale price is below fair value - profit or loss should be recognised immediately,
except if a loss is compensated for by future rentals at below market price, the loss
it should be amortised over the period of use
o if the sale price is above fair value - the excess over fair value should be deferred
and amortised over the period of use
o if the fair value at the time of the transaction is less than the carrying amount a
loss equal to the difference should be recognised immediately [IAS 17.63]

Disclosure: lessees finance leases [IAS 17.31]

o carrying amount of asset
o reconciliation between total minimum lease payments and their present value
o amounts of minimum lease payments at balance sheet date and the present value
thereof, for:
o the next year
o years 2 through 5 combined
o beyond five years
o contingent rent recognised as an expense
o total future minimum sublease income under noncancellable subleases
o general description of significant leasing arrangements, including contingent rent
provisions, renewal or purchase options, and restrictions imposed on dividends, bor-
rowings, or further leasing

Disclosure: lessees operating leases [IAS 17.35]

o amounts of minimum lease payments at balance sheet date under noncancellable
operating leases for:
o the next year
o years 2 through 5 combined
o beyond five years
o total future minimum sublease income under noncancellable subleases
o lease and sublease payments recognised in income for the period
o contingent rent recognised as an expense
o general description of significant leasing arrangements, including contingent rent
provisions, renewal or purchase options, and restrictions imposed on dividends, bor-
rowings, or further leasing

Disclosure: lessors finance leases [IAS 17.47]

o reconciliation between gross investment in the lease and the present value of
minimum lease payments;
o gross investment and present value of minimum lease payments receivable for:
o the next year
o years 2 through 5 combined
o beyond five years
o unearned finance income
o unguaranteed residual values
o accumulated allowance for uncollectible lease payments receivable
o contingent rent recognised in income
o general description of significant leasing arrangements

Disclosure: lessors operating leases [IAS 17.56]

o amounts of minimum lease payments at balance sheet date under noncancellable
operating leases in the aggregate and for:
o the next year
o years 2 through 5 combined
o beyond five years
o contingent rent recognised as in income
o general description of significant leasing arrangements

IAS 12 Income Taxes

Overview
IAS 12 Income Taxes implements a so-called 'comprehensive balance sheet method' of
accounting for income taxes which recognises both the current tax consequences of
transactions and events and the future tax consequences of the future recovery or set-
tlement of the carrying amount of an entity's assets and liabilities. Differences between
the carrying amount and tax base of assets and liabilities, and carried forward tax
losses and credits, are recognised, with limited exceptions, as deferred tax liabilities or
deferred tax assets, with the latter also being subject to a 'probable profits' test.
IAS 12 was reissued in October 1996 and is applicable to annual periods beginning on
or after 1 January 1998.

History of IAS 12

Date Development Comments

April 1978 Exposure Draft E13 Accounting

for Taxes on Income published

July 1979 IAS 12 Accounting for Taxes on

Incomeissued
January 1989 Exposure Draft E33 Accounting
for Taxes on Income published

1994 IAS 12 (1979) was reformatted

October 1994 Exposure Draft E49 Income

Taxespublished

October 1996 IAS 12 Income Taxes issued Operative for

financial statements
covering periods
beginning on or after
1 January 1988

October 2000 Limited Revisions to IAS 12 Operative for

published (tax consequences of financial statements
dividends) covering periods
beginning on or after
1 January 2001

31 March 2009 Exposure Draft Comment deadline

ED/2009/2 Income Taxpublished 31 July 2009
(proposals were not
finalised)

10 September 2010 Exposure Draft Comment deadline 9

ED/2010/11 Deferred Tax: November 2010
Recovery of Underlying Assets
(Proposed amendments to IAS
12)published

20 December 2010 Amended by Deferred Tax: Effective for annual

Recovery of Underlying Assets periods beginning on
or after 1 January
2012
 19 January 2016 Amended by Recognition of Effective for annual
Deferred Tax Assets for Unre- periods beginning on
alised Losses or after 1 January
2017

7 June 2017 IFRIC 23 Uncertainty over Effective for annual

Income Tax Treatments issued periods beginning on
or after 1 January
2019

Summary of IAS 12

Objective of IAS 12
The objective of IAS 12 (1996) is to prescribe the accounting treatment for income
taxes.
In meeting this objective, IAS 12 notes the following:
o It is inherent in the recognition of an asset or liability that that asset or liability will be
recovered or settled, and this recovery or settlement may give rise to future tax con-
sequences which should be recognised at the same time as the asset or liability
o An entity should account for the tax consequences of transactions and other events
in the same way it accounts for the transactions or other events themselves.

Key definitions
[IAS 12.5]
Tax base The tax base of an asset or liability is the amount attributed
to that asset or liability for tax purposes

Temporary dif- Differences between the carrying amount of an asset or

ferences liability in the statement of financial position and its tax bases

Taxable Temporary differences that will result in taxable amounts in

temporary dif- determining taxable profit (tax loss) of future periods when
ferences the carrying amount of the asset or liability is recovered or
settled

Deductible Temporary differences that will result in amounts that are de-
temporary dif- ductible in determining taxable profit (tax loss) of future
ferences
 periods when the carrying amount of the asset or liability is
recovered or settled

Deferred tax lia- The amounts of income taxes payable in future periods in
bilities respect of taxable temporary differences

Deferred tax The amounts of income taxes recoverable in future periods

assets in respect of:

a. deductible temporary differences

b. the carryforward of unused tax losses, and
c. the carryforward of unused tax credits

Current tax
Current tax for the current and prior periods is recognised as a liability to the extent that
it has not yet been settled, and as an asset to the extent that the amounts already paid
exceed the amount due. [IAS 12.12] The benefit of a tax loss which can be carried back
to recover current tax of a prior period is recognised as an asset. [IAS 12.13]
Current tax assets and liabilities are measured at the amount expected to be paid to
(recovered from) taxation authorities, using the rates/laws that have been enacted or
substantively enacted by the balance sheet date. [IAS 12.46]

Calculation of deferred taxes

Formulae
Deferred tax assets and deferred tax liabilities can be calculated using the following
formulae:

Temporary difference = Carrying amount - Tax base

Deferred tax asset or liability = Temporary difference x Tax rate

The following formula can be used in the calculation of deferred taxes arising from
unused tax losses or unused tax credits:
 Deferred tax asset = Unused tax loss or unused tax credits x Tax rate

Tax bases
The tax base of an item is crucial in determining the amount of any temporary differ-
ence, and effectively represents the amount at which the asset or liability would be
recorded in a tax-based balance sheet. IAS 12 provides the following guidance on de-
termining tax bases:
o Assets. The tax base of an asset is the amount that will be deductible against
taxable economic benefits from recovering the carrying amount of the asset. Where
recovery of an asset will have no tax consequences, the tax base is equal to the
carrying amount. [IAS 12.7]
o Revenue received in advance. The tax base of the recognised liability is its
carrying amount, less revenue that will not be taxable in future periods [IAS 12.8]
o Other liabilities. The tax base of a liability is its carrying amount, less any amount
that will be deductible for tax purposes in respect of that liability in future periods
[IAS 12.8]
o Unrecognised items. If items have a tax base but are not recognised in the
statement of financial position, the carrying amount is nil [IAS 12.9]
o Tax bases not immediately apparent. If the tax base of an item is not immediately
apparent, the tax base should effectively be determined in such as manner to
ensure the future tax consequences of recovery or settlement of the item is recog-
nised as a deferred tax amount [IAS 12.10]
o Consolidated financial statements. In consolidated financial statements, the
carrying amounts in the consolidated financial statements are used, and the tax
bases determined by reference to any consolidated tax return (or otherwise from the
tax returns of each entity in the group). [IAS 12.11]
Examples
The determination of the tax base will depend on the applicable tax laws and the
entity's expectations as to recovery and settlement of its assets and liabilities. The
following are some basic examples:
o Property, plant and equipment. The tax base of property, plant and
equipment that is depreciable for tax purposes that is used in the entity's opera-
tions is the unclaimed tax depreciation permitted as deduction in future periods
 o Receivables. If receiving payment of the receivable has no tax consequences,
its tax base is equal to its carrying amount
o Goodwill. If goodwill is not recognised for tax purposes, its tax base is nil (no
deductions are available)
o Revenue in advance. If the revenue is taxed on receipt but deferred for
accounting purposes, the tax base of the liability is equal to its carrying amount
(as there are no future taxable amounts). Conversely, if the revenue is recog-
nised for tax purposes when the goods or services are received, the tax base
will be equal to nil
o Loans. If there are no tax consequences from repayment of the loan, the tax
base of the loan is equal to its carrying amount. If the repayment has tax conse-
quences (e.g. taxable amounts or deductions on repayments of foreign
currency loans recognised for tax purposes at the exchange rate on the date
the loan was drawn down), the tax consequence of repayment at carrying
amount is adjusted against the carrying amount to determine the tax base
(which in the case of the aforementioned foreign currency loan would result in
the tax base of the loan being determined by reference to the exchange rate on
the draw down date).

Recognition and measurement of deferred taxes

Recognition of deferred tax liabilities
The general principle in IAS 12 is that a deferred tax liability is recognised for all taxable
temporary differences. There are three exceptions to the requirement to recognise a
deferred tax liability, as follows:
o liabilities arising from initial recognition of goodwill [IAS 12.15(a)]
o liabilities arising from the initial recognition of an asset/liability other than in a
business combination which, at the time of the transaction, does not affect either the
accounting or the taxable profit [IAS 12.15(b)]
o liabilities arising from temporary differences associated with investments in sub-
sidiaries, branches, and associates, and interests in joint arrangements, but only to
the extent that the entity is able to control the timing of the reversal of the differ-
ences and it is probable that the reversal will not occur in the foreseeable future.
[IAS 12.39]

Example
 An entity undertaken a business combination which results in the recognition of
goodwill in accordance with IFRS 3 Business Combinations. The goodwill is not tax
depreciable or otherwise recognised for tax purposes.
As no future tax deductions are available in respect of the goodwill, the tax base is
nil. Accordingly, a taxable temporary difference arises in respect of the entire
carrying amount of the goodwill. However, the taxable temporary difference does
not result in the recognition of a deferred tax liability because of the recognition
exception for deferred tax liabilities arising from goodwill.

Recognition of deferred tax assets

A deferred tax asset is recognised for deductible temporary differences, unused tax
losses and unused tax credits to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences can be utilised, unless the
deferred tax asset arises from: [IAS 12.24]
o the initial recognition of an asset or liability other than in a business combination
which, at the time of the transaction, does not affect accounting profit or taxable
profit.
Deferred tax assets for deductible temporary differences arising from investments in
subsidiaries, branches and associates, and interests in joint arrangements, are only
recognised to the extent that it is probable that the temporary difference will reverse in
the foreseeable future and that taxable profit will be available against which the
temporary difference will be utilised. [IAS 12.44]
The carrying amount of deferred tax assets are reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow the benefit of part or all of that deferred tax asset to be utilised.
Any such reduction is subsequently reversed to the extent that it becomes probable that
sufficient taxable profit will be available. [IAS 12.37]
A deferred tax asset is recognised for an unused tax loss carryforward or unused tax
credit if, and only if, it is considered probable that there will be sufficient future taxable
profit against which the loss or credit carryforward can be utilised. [IAS 12.34]
Measurement of deferred tax
Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realised or the liability is settled, based on tax
rates/laws that have been enacted or substantively enacted by the end of the reporting
period. [IAS 12.47] The measurement reflects the entity's expectations, at the end of the
reporting period, as to the manner in which the carrying amount of its assets and liabili-
ties will be recovered or settled. [IAS 12.51]
IAS 12 provides the following guidance on measuring deferred taxes:
o Where the tax rate or tax base is impacted by the manner in which the entity
recovers its assets or settles its liabilities (e.g. whether an asset is sold or used), the
measurement of deferred taxes is consistent with the way in which an asset is
recovered or liability settled [IAS 12.51A]
o Where deferred taxes arise from revalued non-depreciable assets (e.g. revalued
land), deferred taxes reflect the tax consequences of selling the asset [IAS 12.51B]
o Deferred taxes arising from investment property measured at fair value
under IAS 40 Investment Property reflect the rebuttable presumption that the invest-
ment property will be recovered through sale [IAS 12.51C-51D]
o If dividends are paid to shareholders, and this causes income taxes to be payable at
a higher or lower rate, or the entity pays additional taxes or receives a refund,
deferred taxes are measured using the tax rate applicable to undistributed profits
[IAS 12.52A]
Deferred tax assets and liabilities cannot be discounted. [IAS 12.53]

Recognition of tax amounts for the period

Amount of income tax to recognise
The following formula summarises the amount of tax to be recognised in an accounting
period:

Tax to recognise for = Current tax for the + Movement in deferred tax
the period period balances for the period

Where to recognise income tax for the period

Consistent with the principles underlying IAS 12, the tax consequences of transactions
and other events are recognised in the same way as the items giving rise to those tax
consequences. Accordingly, current and deferred tax is recognised as income or
expense and included in profit or loss for the period, except to the extent that the tax
arises from: [IAS 12.58]
o transactions or events that are recognised outside of profit or loss (other compre-
hensive income or equity) - in which case the related tax amount is also recognised
outside of profit or loss [IAS 12.61A]
o a business combination - in which case the tax amounts are recognised as identifi-
able assets or liabilities at the acquisition date, and accordingly effectively taken into
account in the determination of goodwill when applying IFRS 3 Business Combina-
tions. [IAS 12.66]
Example
 An entity undertakes a capital raising and incurs incremental costs directly attribut-
able to the equity transaction, including regulatory fees, legal costs and stamp
duties. In accordance with the requirements of IAS 32 Financial Instruments: Pre-
sentation, the costs are accounted for as a deduction from equity.
Assume that the costs incurred are immediately deductible for tax purposes,
reducing the amount of current tax payable for the period. When the tax benefit of
the deductions is recognised, the current tax amount associated with the costs of
the equity transaction is recognised directly in equity, consistent with the treatment
of the costs themselves.
IAS 12 provides the following additional guidance on the recognition of income tax for
the period:
o Where it is difficult to determine the amount of current and deferred tax relating to
items recognised outside of profit or loss (e.g. where there are graduated rates or
tax), the amount of income tax recognised outside of profit or loss is determined on
a reasonable pro-rata allocation, or using another more appropriate method [IAS
12.63]
o In the circumstances where the payment of dividends impacts the tax rate or results
in taxable amounts or refunds, the income tax consequences of dividends are con-
sidered to be more directly linked to past transactions or events and so are recog-
nised in profit or loss unless the past transactions or events were recognised
outside of profit or loss [IAS 12.52B]
o The impact of business combinations on the recognition of pre-combination deferred
tax assets are not included in the determination of goodwill as part of the business
combination, but are separately recognised [IAS 12.68]
o The recognition of acquired deferred tax benefits subsequent to a business combi-
nation are treated as 'measurement period' adjustments (see IFRS 3 Business
Combinations) if they qualify for that treatment, or otherwise are recognised in profit
or loss [IAS 12.68]
o Tax benefits of equity settled share based payment transactions that exceed the tax
effected cumulative remuneration expense are considered to relate to an equity item
and are recognised directly in equity. [IAS 12.68C]

Presentation
Current tax assets and current tax liabilities can only be offset in the statement of
financial position if the entity has the legal right and the intention to settle on a net basis.
[IAS 12.71]
Deferred tax assets and deferred tax liabilities can only be offset in the statement of
financial position if the entity has the legal right to settle current tax amounts on a net
basis and the deferred tax amounts are levied by the same taxing authority on the same
 entity or different entities that intend to realise the asset and settle the liability at the
same time. [IAS 12.74]
The amount of tax expense (or income) related to profit or loss is required to be
presented in the statement(s) of profit or loss and other comprehensive income. [IAS
12.77]
The tax effects of items included in other comprehensive income can either be shown
net for each item, or the items can be shown before tax effects with an aggregate
amount of income tax for groups of items (allocated between items that will and will not
be reclassified to profit or loss in subsequent periods). [IAS 1.91]

Disclosure
IAS 12.80 requires the following disclosures:
o major components of tax expense (tax income) [IAS 12.79] Examples include:
o current tax expense (income)
o any adjustments of taxes of prior periods
o amount of deferred tax expense (income) relating to the origination and reversal
of temporary differences
o amount of deferred tax expense (income) relating to changes in tax rates or the
imposition of new taxes
o amount of the benefit arising from a previously unrecognised tax loss, tax credit
or temporary difference of a prior period
o write down, or reversal of a previous write down, of a deferred tax asset
o amount of tax expense (income) relating to changes in accounting policies and
corrections of errors.
IAS 12.81 requires the following disclosures:
o aggregate current and deferred tax relating to items recognised directly in equity
o tax relating to each component of other comprehensive income
o explanation of the relationship between tax expense (income) and the tax that would
be expected by applying the current tax rate to accounting profit or loss (this can be
presented as a reconciliation of amounts of tax or a reconciliation of the rate of tax)
o changes in tax rates
o amounts and other details of deductible temporary differences, unused tax losses,
and unused tax credits
o temporary differences associated with investments in subsidiaries, branches and as-
sociates, and interests in joint arrangements
o for each type of temporary difference and unused tax loss and credit, the amount of
deferred tax assets or liabilities recognised in the statement of financial position and
the amount of deferred tax income or expense recognised in profit or loss
o tax relating to discontinued operations
o tax consequences of dividends declared after the end of the reporting period
o information about the impacts of business combinations on an acquirer's deferred
tax assets
o recognition of deferred tax assets of an acquiree after the acquisition date.
Other required disclosures:
o details of deferred tax assets [IAS 12.82]
o tax consequences of future dividend payments. [IAS 12.82A]
In addition to the disclosures required by IAS 12, some disclosures relating to income
taxes are required by IAS 1 Presentation of Financial Statements, as follows:
o Disclosure on the face of the statement of financial position about current tax
assets, current tax liabilities, deferred tax assets, and deferred tax liabilities [IAS
1.54(n) and (o)]
o Disclosure of tax expense (tax income) in the profit or loss section of the statement
of profit or loss and other comprehensive income (or separate statement if
presented). [IAS 1.82(d)]

IAS 19 Employee Benefits (2011)

Overview
IAS 19 Employee Benefits (amended 2011) outlines the accounting requirements for
employee benefits, including short-term benefits (e.g. wages and salaries, annual
leave), post-employment benefits such as retirement benefits, other long-term benefits
(e.g. long service leave) and termination benefits. The standard establishes the principle
that the cost of providing employee benefits should be recognised in the period in which
the benefit is earned by the employee, rather than when it is paid or payable, and
outlines how each category of employee benefits are measured, providing detailed
guidance in particular about post-employment benefits.
IAS 19 (2011) was issued in 2011, supersedes IAS 19 Employee Benefits (1998), and is
applicable to annual periods beginning on or after 1 January 2013.
History of IAS 19

Date Development Comments

April 1980 Exposure Draft E16 Accounting for

Retirement Benefits in Financial
Statements of
Employers published

January 1983 IAS 19 Accounting for Retirement Operative for

Benefits in Financial Statements of financial state-
Employers issued ments covering
periods beginning
on or after 1
January 1985

December 1992 E47 Retirement Benefit

Costs published

December 1993 IAS 19 Retirement Benefit Operative for

Costs issued financial state-
ments covering
periods beginning
on or after 1
January 1995

October 1996 E54 Employee Benefits published Comment deadline

31 January 1997

February 1998 IAS 19 Employee Benefits issued Operative for

financial state-
ments covering
periods beginning
on or after 1
January 1999

July 2000 E67 Pension Plan

Assets published
October 2000 Amended to change the definition Operative for
of plan assets and to introduce annual financial
recognition, measurement and dis- statements
closure requirements for reim- covering periods
bursements beginning on or
after 1 January
2001

May 2002 Amended to prevent the recogni- Operative for

tion of gains solely as a result of annual financial
actuarial losses or past service statements
cost and the recognition of losses covering periods
solely as a result of actuarial gains ending on or after
31 May 2002

5 December 2002 ED 2 Share-based Comment deadline

Payment published, proposing to 7 March 2003
replace the equity compensation
benefits requirements of IAS 19

February 2004 Equity compensation benefits re- Effective for annual

quirements replaced by IFRS reporting periods
2 Share-based Payment beginning on or
after 1 January
2005

29 April 2004 Exposure Draft Proposed Amend- Comment deadline

ments to IAS 19 Employee 31 July 2004
Benefits: Actuarial Gains and
Losses, Group Plans and Disclo-
surespublished

19 December 2004 Actuarial Gains and Losses, Group Effective for annual
Plans and Disclosures issued periods beginning
on or after 1
January 2006
 22 May 2008 Amended by Annual Improvements Effective for annual
to IFRSs (negative past service periods beginning
costs and curtailments) on or after 1
January 2009

20 August 2009 ED/2009/10 Discount Rate for Comment deadline

Employee Benefits (Proposed 30 September
amendments to IAS 19)published 2009
(proposals were
not finalised)

29 April 2010 ED/2010/3 Defined Benefit Plans Comment deadline

(Proposed amendments to 6 September 2010
IAS 19) published

16 June 2011 IAS 19 Employee Effective for annual

Benefits (amended 2011) issued periods beginning
on or after 1
January 2013

25 March 2013 ED/2013/4 Defined Benefit Plans: Comment deadline

Employee Contributions (Proposed 25 July 2013
amendments to IAS 19) published

21 November 2013 Defined Benefit Plans: Employee Effective for annual

Contributions (Amendments to periods beginning
IAS 19) issued on or after 1 July
2014

25 September Amended by Improvements to Effective for annual

2014 IFRSs 2014(discount rate: regional periods beginning
market issue) on or after 1
January 2016

Related Interpretations

o IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Require-
ments and their Interaction
 Amendments under consideration by the IASB

o IAS 19/IFRIC 14 Remeasurement at a plan amendment, curtailment or settle-

ment / Availability of a refund of a surplus from a defined benefit plan
o Research project Discount rates
o Post-employment Benefits Comprehensive reconsideration of IAS 19 (longer
term project)
In addition, the IASB has signalled an intention to conduct a post-implementation
review, commencing in 2015.

Summary of IAS 19 (2011)

Amended version of IAS 19 issued in 2011

IAS 19 Employee Benefits (2011) is an amended version of, and supersedes,
IAS 19 Employee Benefits (1998), effective for annual periods beginning on or after
1 January 2013. The summary that follows refers to IAS 19 (2011). Readers inter-
ested in the requirements of IAS 19 Employee Benefits (1998) should refer to
our summary of IAS 19 (1998).
Changes introduced by IAS 19 (2011) as compared to IAS 19 (1998) include:
o Introducing a requirement to fully recognise changes in the net defined benefit
liability (asset) including immediate recognition of defined benefit costs, and
require disaggregation of the overall defined benefit cost into components and
requiring the recognition of remeasurements in other comprehensive income
(eliminating the 'corridor' approach)
o Introducing enhanced disclosures about defined benefit plans
o Modifications to the accounting for termination benefits, including distinguishing
between benefits provided in exchange for service and benefits provided in
exchange for the termination of employment, and changing the recognition and
measurement of termination benefits
o Clarification of miscellaneous issues, including the classification of employee
benefits, current estimates of mortality rates, tax and administration costs and
risk-sharing and conditional indexation features
o Incorporating other matters submitted to the IFRS Interpretations Committee.

Objective of IAS 19 (2011)

The objective of IAS 19 is to prescribe the accounting and disclosure for employee
benefits, requiring an entity to recognise a liability where an employee has provided
service and an expense when the entity consumes the economic benefits of employee
service. [IAS 19(2011).2]
 Scope
IAS 19 applies to (among other kinds of employee benefits):
o wages and salaries
o compensated absences (paid vacation and sick leave)
o profit sharing and bonuses
o medical and life insurance benefits during employment
o non-monetary benefits such as houses, cars, and free or subsidised goods or
services
o retirement benefits, including pensions and lump sum payments
o post-employment medical and life insurance benefits
o long-service or sabbatical leave
o 'jubilee' benefits
o deferred compensation programmes
o termination benefits.
IAS 19 (2011) does not apply to employee benefits within the scope of IFRS 2 Share-
based Paymentor the reporting by employee benefit plans (see IAS 26 Accounting and
Reporting by Retirement Benefit Plans).

Short-term employee benefits

Short-term employee benefits are those expected to be settled wholly before twelve
months after the end of the annual reporting period during which employee services are
rendered, but do not include termination benefits.[IAS 19(2011).8] Examples include
wages, salaries, profit-sharing and bonuses and non-monetary benefits paid to current
employees.
The undiscounted amount of the benefits expected to be paid in respect of service
rendered by employees in an accounting period is recognised in that period.
[IAS 19(2011).11] The expected cost of short-term compensated absences is recog-
nised as the employees render service that increases their entitlement or, in the case of
non-accumulating absences, when the absences occur, and includes any additional
amounts an entity expects to pay as a result of unused entitlements at the end of the
period. [IAS 19(2011).13-16]

Profit-sharing and bonus payments

An entity recognises the expected cost of profit-sharing and bonus payments when, and
only when, it has a legal or constructive obligation to make such payments as a result of
past events and a reliable estimate of the expected obligation can be made. [IAS 19.19]
 Types of post-employment benefit plans
Post-employment benefit plans are informal or formal arrangements where an entity
provides post-employment benefits to one or more employees, e.g. retirement benefits
(pensions or lump sum payments), life insurance and medical care.
The accounting treatment for a post-employment benefit plan depends on the economic
substance of the plan and results in the plan being classified as either a defined contri-
bution plan or a defined benefit plan:
o Defined contribution plans. Under a defined contribution plan, the entity pays
fixed contributions into a fund but has no legal or constructive obligation to make
further payments if the fund does not have sufficient assets to pay all of the
employees' entitlements to post-employment benefits. The entity's obligation is
therefore effectively limited to the amount it agrees to contribute to the fund and ef-
fectively place actuarial and investment risk on the employee
o Defined benefit plans These are post-employment benefit plans other than a
defined contribution plans. These plans create an obligation on the entity to provide
agreed benefits to current and past employees and effectively places actuarial and
investment risk on the entity.

Defined contribution plans

For defined contribution plans, the amount recognised in the period is the contribution
payable in exchange for service rendered by employees during the period.
[IAS 19(2011).51]
Contributions to a defined contribution plan which are not expected to be wholly settled
within 12 months after the end of the annual reporting period in which the employee
renders the related service are discounted to their present value. [IAS 19.52]

Defined benefit plans

Basic requirements
An entity is required to recognise the net defined benefit liability or asset in its statement
of financial position. [IAS 19(2011).63] However, the measurement of a net defined
benefit asset is the lower of any surplus in the fund and the 'asset ceiling' (i.e. the
present value of any economic benefits available in the form of refunds from the plan or
reductions in future contributions to the plan). [IAS 19(2011).64]
Measurement
The measurement of a net defined benefit liability or assets requires the application of
an actuarial valuation method, the attribution of benefits to periods of service, and the
use of actuarial assumptions. [IAS 19(2011).66] The fair value of any plan assets is
deducted from the present value of the defined benefit obligation in determining the net
deficit or surplus. [IAS 19(2011).113]
The determination of the net defined benefit liability (or asset) is carried out with suffi-
cient regularity such that the amounts recognised in the financial statements do not
differ materially from those that would be determined at end of the reporting period.
[IAS 19(2011).58]
 The present value of an entity's defined benefit obligations and related service costs is
determined using the 'projected unit credit method', which sees each period of service
as giving rise to an additional unit of benefit entitlement and measures each unit sepa-
rately in building up the final obligation. [IAS 19(2011).67-68] This requires an entity to
attribute benefit to the current period (to determine current service cost) and the current
and prior periods (to determine the present value of defined benefit obligations). Benefit
is attributed to periods of service using the plan's benefit formula, unless an employee's
service in later years will lead to a materially higher of benefit than in earlier years, in
which case a straight-line basis is used [IAS 19(2011).70]
Actuarial assumptions used in measurement
The overall actuarial assumptions used must be unbiased and mutually compatible, and
represent the best estimate of the variables determining the ultimate post-employment
benefit cost. [IAS 19(2011).75-76]:
o Financial assumptions must be based on market expectations at the end of the
reporting period [IAS 19(2011).80]
o Mortality assumptions are determined by reference to the best estimate of the
mortality of plan members during and after employment [IAS 19(2011).81]
o The discount rate used is determined by reference to market yields at the end of the
reporting period on high quality corporate bonds, or where there is no deep market
in such bonds, by reference to market yields on government bonds. Currencies and
terms of bond yields used must be consistent with the currency and estimated term
of the obligation being discounted [IAS 19(2011).83]
o Assumptions about expected salaries and benefits reflect the terms of the plan,
future salary increases, any limits on the employer's share of cost, contributions
from employees or third parties*, and estimated future changes in state benefits that
impact benefits payable [IAS 19(2011).87]
o Medical cost assumptions incorporate future changes resulting from inflation and
specific changes in medical costs [IAS 19(2011).96]
* Defined Benefit Plans: Employee Contributions (Amendments to IAS 19 Employee
Benefits) amends IAS 19(2011) to clarify the requirements that relate to how contribu-
tions from employees or third parties that are linked to service should be attributed to
periods of service. In addition, it permits a practical expedient if the amount of the contri-
butions is independent of the number of years of service, in that contributions, can, but
are not required, to be recognised as a reduction in the service cost in the period in
which the related service is rendered. These amendments are effective for annual
periods beginning on or after 1 July 2014.
Past service costs
 Past service cost is the term used to describe the change in a defined benefit obligation
for employee service in prior periods, arising as a result of changes to plan arrange-
ments in the current period (i.e. plan amendments introducing or changing benefits
payable, or curtailments which significantly reduce the number of covered employees) .
Past service cost may be either positive (where benefits are introduced or improved) or
negative (where existing benefits are reduced). Past service cost is recognised as an
expense at the earlier of the date when a plan amendment or curtailment occurs and
the date when an entity recognises any termination benefits, or related restructuring
costs under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
[IAS 19(2011).103]
Gains or losses on the settlement of a defined benefit plan are recognised when the set-
tlement occurs. [IAS 19(2011).110]
Before past service costs are determined, or a gain or loss on settlement is recognised,
the net defined benefit liability or asset is required to be remeasured, however an entity
is not required to distinguish between past service costs resulting from curtailments and
gains and losses on settlement where these transactions occur together.
[IAS 19(2011).99-100]
Recognition of defined benefit costs
The components of defined benefit cost is recognised as follows: [IAS 19(2011).120-
130]
Component Recognition

Service cost attributable to the current and past Profit or loss

periods

Net interest on the net defined benefit liability or Profit or loss

asset, determined using the discount rate at the
beginning of the period

Remeasurements of the net defined benefit liability Other comprehensive

or asset, comprising: income
(Not reclassified to profit
o actuarial gains and losses or loss in a subsequent
period)
o return on plan assets
o some changes in the effect of the asset ceiling

Other guidance
IAS 19 also provides guidance in relation to:
o when an entity should recognise a reimbursement of expenditure to settle a defined
benefit obligation [IAS 19(2011).116-119]
o when it is appropriate to offset an asset relating to one plan against a liability
relating to another plan [IAS 19(2011).131-132]
o accounting for multi-employer plans by individual employers [IAS 19(2011).32-39]
o defined benefit plans sharing risks between entities under common control
[IAS 19.40-42]
o entities participating in state plans [IAS 19(2011).43-45]
o insurance premiums paid to fund post-employment benefit plans [IAS 19(2011).46-
49]
Disclosures about defined benefit plans
IAS 19(2011) sets the following disclosure objectives in relation to defined benefit plans
[IAS 19(2011).135]:
o an explanation of the characteristics of an entity's defined benefit plans, and the as-
sociated risks
o identification and explanation of the amounts arising in the financial statements from
defined benefit plans
o a description of how defined benefit plans may affect the amount, timing and uncer-
tainty of the entity's future cash flows.
Extensive specific disclosures in relation to meeting each the above objectives are
specified, e.g. a reconciliation from the opening balance to the closing balance of the
net defined benefit liability or asset, disaggregation of the fair value of plan assets into
classes, and sensitivity analysis of each significant actuarial assumption.
[IAS 19(2011).136-147]
Additional disclosures are required in relation to multi-employer plans and defined
benefit plans sharing risk between entities under common control. [IAS 19(2011).148-
150].

Other long-term benefits

IAS 19 (2011) prescribes a modified application of the post-employment benefit model
described above for other long-term employee benefits: [IAS 19(2011).153-154]
o the recognition and measurement of a surplus or deficit in an other long-term
employee benefit plan is consistent with the requirements outlined above
o service cost, net interest and remeasurements are all recognised in profit or loss
(unless recognised in the cost of an asset under another IFRS), i.e. when compared
to accounting for defined benefit plans, the effects of remeasurements are not
recognised in other comprehensive income.

Termination benefits
A termination benefit liability is recognised at the earlier of the following dates:
[IAS 19.165-168]
o when the entity can no longer withdraw the offer of those benefits - additional
guidance is provided on when this date occurs in relation to an employee's decision
to accept an offer of benefits on termination, and as a result of an entity's decision to
terminate an employee's employment
o when the entity recognises costs for a restructuring under IAS 37 Provisions, Con-
tingent Liabilities and Contingent Assets which involves the payment of termination
benefits.
Termination benefits are measured in accordance with the nature of employee benefit,
i.e. as an enhancement of other post-employment benefits, or otherwise as a short-term
employee benefit or other long-term employee benefit. [IAS 19(2011).169]