Presentation on theme: "EGE CPA & AUDIT CO.. Who we are? Established by Halil Kaya Özer in 2004. Provides tax, audit, and consultancy services to leading firms in Turkey. Holds."— Presentation transcript:
Who we are? Established by Halil Kaya Özer in 2004. Provides tax, audit, and consultancy services to leading firms in Turkey. Holds - Certified Public Accountancy license from Ministry of Finance, - Independent Audit license from Capital Market Board, - Audit of Energy Companies license from Energy Market Regulatory Authority.
What we do? prepare independent audit report for companies which are listed on the Istanbul Stock Exchange and other SMEs auditing and evaluating of financial statements and financial data of companies which need to be publicly disclosed or submitted to Capital Market Board with “accuracy and reflect the truth fairly” policy.
Why do we need IFRS? In order to have common standards for financial reporting in the globalised world
What benefits SMEs can get from IFRS? Make it easier to find loans as banks always want to evaluate financial strenght of the borrowers If required in some cases adaptation to full IFRS will be easier
How to present Financial Statements? Fair Full - Statement of Financial Position - Statement of Comprehensive Income - Statement of Changes in Equity - Statement of Cash Flows - Notes Comparative (i.e. at least one year comparative financial statements and note data)
How to present Financial Statements? Fair presentation is 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. Comparative presentation means same presentation and classification each year unless an important change in the nature of the entity’s operations occurs
Qualitative Characteristics of Financial Statements Understandability Relevance Reliability Comparability Timeliness Materiality Balance between benefit & cost
What to cover in the notes? Basis of preparation Summarize the important accounting policies Provide information about judgements and items in financial statements
What are Financial Instruments? ◦ Cash ◦ Demand and fixed deposits ◦ Commercial paper and bills ◦ Accounts and notes receivable and payable ◦ Debt instruments where returns to the holder are fixed or referenced to an observable rate ◦ Investments in non-convertible and non-puttable ordinary and preference shares ◦ Most commitments to receive a loan
Financial Instruments (To do list) Amortised cost – apply effective interest method Test all amortised cost instruments for impairment Attention: Investments in convertible and puttable ordinary and preference shares, options, forwards, swaps, and other derivatives are at fair value through profit or loss!
Inventories FIFO or weighted average measured at the lower of: ◦ cost; and ◦ estimated selling price less costs to complete and sell Apply impairment (i.e. write down to estimated selling price less costs to complete and sell)
Inventories Inventories are assets which are: ◦ finished goods; ◦ in the process of production for sale; ◦ raw materials.
Intangibles An intangible asset is an asset which is identifiable, non-monetary with no physical substance. Must be separable from the entity and sold, rented, exchanged, transferred or licensed either individually or together with a related asset or liability.
Intangibles Internally generated intangible assets must not be recognised Intangibles that are purchased separately, acquired in a business combination, by grant, and by exchange of other assets must be amortised If not possible to estimate useful life, then use 10 years
Provisions & Contingencies Provision: An obligation arising from a past event and amount can be estimated reliably (uncertain timing or amount) Disclose contingent liability; A contingent liability is either a possible but uncertain obligation or a present obligation that is not recognised because it fails the recognition criteria Measure at best estimate ◦ If large population – calculate weighted average ◦ If single obligation – use adjusted most likely outcome Using estimation is critical part of presenting financial statements and does not harm their reliability.
Liabilities & Equity What is the criteria to classify an instrument as liability or equity? ◦ A liability is an instrument which the issuer could be required to pay cash ◦ Equity is an instrument which is puttable only on liquidation or death or retirement of owner
Borrowing Costs All charged to expense when incurred No capitalisation
Impairment of Assets Inventories - write down selling price less costs to complete and sell, if below carrying amount Other assets - write down to recoverable amount, if below carrying amount Recoverable amount is the greater of fair value less costs to sell and value in use
Employee Benefits If entity is able without undue cost or effort use projected unit credit calculation for defined benefit plans. Otherwise: ◦ Ignore estimated future salary increases ◦ Ignore future service of current employees ◦ Ignore possible future in-service mortality Actuarial gains / losses may be recognised in P&L
Income Tax Current tax: Amount of income tax payable/refundable based on taxable profit/loss for the current period or past periods Deferred tax: Tax payable/recoverable in the future period as a result of past transactions Tax basis: Measurement of asset, liability, or equity under the tax law Temporary difference: Difference in carrying amount of asset, liability, or other item in the financial statements and its tax basis
Income Tax If the tax basis of an asset or liability is different from its carrying amount then recognise deferred taxes If recovery or settlement of carrying amount is not expected to affect taxable profit do not recognise deferred tax on an asset or liability Recognise deferred tax assets in full, with valuation allowance ◦ Criterion is that realisation is probable (i.e. more likely than not)
Events after End of Reporting Period In case of events after the balance sheet date that give further evidence of conditions that existed at the end of the reporting period the financial statements must be adjusted For events or conditions that arose after the end of the reporting period financial statements do not need to be adjusted Dividends declared after end of period are not a liability!
Related Party Disclosures Government departments and agencies are not related parties simply by virtue of their normal dealings with an entity Disclosure of key management personnel compensation only as one number in total Fewer disclosures about transactions Disclose related party transactions - Significant balances and commitments - Terms & Conditions
Revenue Revenue from what? Sale of goods Rendering of services Construction contracts Use of an entity’s assets by others: interest, royalties, dividends received
Revenue What is revenue? Gross (not gains) inflow of cash or other assets during the period from ordinary activities of an entity resulting increases in equity
Revenue How to measure revenue? “Fair value of consideration received or receivable is the principle” means net of trade discounts and does not include amounts collected on behalf of others, such as value added tax or amounts collected while acting as an agent rather than principal seller (the commission is revenue though!)
Revenue When to recognise revenue? Recognise it when it is probable that any future cash associated with the item of revenue will flow to the entity, and the amount of revenue can be measured with reliability.
Revenue Recognition ◦ Goods: Revenue recognised when risks and rewards are transferred and the seller has no continuing involvement ◦ Services and construction contracts: Revenue recognised by percentage of completion Principle for measurement is fair value of consideration received or receivable
Goodwill On acquisition date goodwill is allocated to each cash-generating unit that is expected to benefit from the synergies of the business combination If goodwill cannot be allocated to cash- generating units on a non-arbitrary basis, then for the purposes of testing goodwill for impairment, the entity determines the recoverable amount of either the acquired entity in its entirety or the entire group of entities, excluding any entities that have not been integrated.