1. International Financial Reporting Standards, Dubai, June 2009 Stuart Frearson International Financial Reporting Standards, Dubai, June 2009 1

2.  Update, where we are  Participant objectives and expectations  Action planning  The IFRS set as a Excel spreadsheet with links – if there is a way of giving them to you. International Financial Reporting Standards, Dubai, June 2009 2

3. The Program this morning 3 2 nd June Morning Session 9.30 – 11am Stuart Frearson Disclosure issues  Events after the balance sheet date  Changes in accounting policies, estimates and accounting errors 11am – 11.15am TEA BREAK 11.15 – 12.30pm Disclosure issues  Related parties  Discontinued operations  Operating segments

4. International Financial Reporting Standards, Dubai, June 2009 4 Disclosure issues - Events after the balance sheet date: IAS 10, Events After the Reporting Period Some definitions Event after the reporting period: An event, which could be favourable or unfavourable, that occurs between the end of the reporting period and the date that the financial statements are authorised for issue. Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period, including an event that indicates that the going concern assumption in relation to the whole or part of the enterprise is not appropriate Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period.

5. International Financial Reporting Standards, Dubai, June 2009 5 We then: Adjust financial statements for adjusting events But do not adjust financial statements for non-adjusting events – these just appear in the Notes to the Financial Statements if material In other words, adjusting events are important enough that the Accounts themselves should be changed – such as the company becoming insolvent so not a going concern. What we normally see and think of are the non-adjusting events in the Notes: Disclosure issues - Events after the balance sheet date..... …/…

6. International Financial Reporting Standards, Dubai, June 2009 6 Disclosure Non-adjusting events should be disclosed if they are of such importance that non-disclosure would affect the ability of users to make proper evaluations and decisions. The required disclosure is (a)the nature of the event and (b)an estimate of its financial effect or a statement that a reasonable estimate of the effect cannot be made. A company should update disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that it receives after the reporting period about those conditions. Companies must disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the enterprise's owners or others have the power to amend the financial statements after issuance, the enterprise must disclose that fact. Disclosure issues - Events after the balance sheet date..... …/…

7. International Financial Reporting Standards, Dubai, June 2009 7 Disclosure issues - Changes in accounting policies, estimates and accounting errors IAS 8 Accounting Policies, Changes In Accounting Estimates And Errors This is a difficult one to summarise! …/…

8. Headings are: Selection and Application of Accounting Policies Consistency of Accounting Policies Changes in Accounting Policies Disclosures Relating to Changes in Accounting Policies Changes in Accounting Estimate Disclosures Relating to Changes in Accounting Estimate Errors Disclosures Relating to Prior Period Errors. International Financial Reporting Standards, Dubai, June 2009 8 Disclosure issues - Changes in accounting policies, estimates and accounting errors

9. I have printed this one as a handout and a subject for discussion. We can also find it on Deloitte’s www.iasplus.com International Financial Reporting Standards, Dubai, June 2009 9 Disclosure issues - Changes in accounting policies, estimates and accounting errors

10. Tea Break International Financial Reporting Standards, Dubai, June 2009 10

11. International Financial Reporting Standards, Dubai, June 2009 11 More disclosure issues! Disclosure issues - Related parties - Discontinued operations - Operating segments

12. Disclosure issues - Related parties International Financial Reporting Standards, Dubai, June 2009 12 IAS24 Related Party Disclosures Who Are Related Parties? Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence or joint control over the other party in making financial and operating decisions. The objective of IAS 24 is to ensure that an entity's financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties.

13. Because people are seen as trying to get round these rules, the IAS gives a prescriptive definition of a “related party”: International Financial Reporting Standards, Dubai, June 2009 13 Disclosure issues - Related parties A party is related to an entity if: (a) directly, or indirectly through one or more intermediaries, the party: (i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries); (ii) has an interest in the entity that gives it significant influence over the entity; or (iii) has joint control over the entity; (b) the party is an associate (as defined in IAS 28 Investments in Associates) of the entity; (c) the party is a joint venture in which the entity is a venturer (see IAS 31 Interests in Joint Ventures); (d) the party is a member of the key management personnel of the entity or its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

14. In summary A party is related to an entity if it: (a) directly, or indirectly (i) controls (ii) has an interest in (iii) has joint control (b) is an associate (c) is a joint venture (d) is a member of the key management personnel (e) is a close member of the family of the above (f) is an entity that is controlled (g) is a post-employment benefit plan International Financial Reporting Standards, Dubai, June 2009 14 Disclosure issues - Related parties

15. International Financial Reporting Standards, Dubai, June 2009 15 Examples of the Kinds of Transactions that Are Disclosed If They Are with a Related Party  Purchases or sales of goods.  Purchases or sales of property and other assets.  Rendering or receiving of services.  Leases.  Transfers of research and development.  Transfers under licence agreements.  Transfers under finance arrangements (including loans and equity contributions in cash or in kind).  Provision of guarantees or collateral.  Settlement of liabilities on behalf of the entity or by the entity on behalf of another party. Disclosure issues - Related parties

16. The amount of the transactions. and if relevant or they exist –Outstanding balances, including terms and conditions and guarantees. –Provisions for doubtful debts related to the amount of outstanding balances. –Expenses recognised during the period in respect of bad or doubtful debts due from related parties. International Financial Reporting Standards, Dubai, June 2009 16 Disclosure issues - Related parties What we have to show

17. International Financial Reporting Standards, Dubai, June 2009 17 Disclosure issues - Discontinued Operations IAS 35 Discontinuing Operations Definition: A discontinuing operation is a relatively large component of an enterprise - such as a business or geographical segment under IAS 14, segment reporting - that the enterprise, pursuant to a single plan, either is disposing of substantially in its entirety or is terminating through abandonment or piecemeal sale. Note The “discontinuing” instead of “discontinued” – the Standard requires that disclosure begins as soon as the discontinuation process begins, not just afterwards.

18. International Financial Reporting Standards, Dubai, June 2009 18 Disclosure issues - Discontinued Operations What we have to show (“Disclosure of a discontinuing operation requires:”) a description business or geographical segment(s) in which it is reported date and nature of initial disclosure event timing of expected completion carrying amounts of total assets and total liabilities to be disposed of amounts of revenue, expenses, and pre-tax profit or loss attributable net cash flows amount of any gain or loss on disposal of assets or settlement of liabilities net selling price.

19. International Financial Reporting Standards, Dubai, June 2009 19 Disclosure Issues - Operating Segments IAS 14 Segmented Reporting Definition: A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. Factors that should be considered: (a) the nature of the products or services; (b) the nature of the production processes; (c) the type or class of customer for the products or services; (d) the methods used to distribute the products or provide the services; (e) if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities..

20. The Standard only applies to Publicly Quoted Entities (otherwise it is voluntary). But if you use it, be consistent International Financial Reporting Standards, Dubai, June 2009 20 Disclosure Issues - Operating Segments

21. International Financial Reporting Standards, Dubai, June 2009 21 Disclosure Issues - Operating Segments What we have to show segment sales or other operating revenues, distinguishing between revenue derived from customers outside the enterprise and revenue derived from other segments; segment result segment assets and liabilities the basis of inter-segment pricing. cost of property, plant, equipment, and intangible assets acquired during the period; depreciation and amortisation expense; other non-cash expense the enterprise's share of the net profit or loss of an associate, joint venture, or other investment accounted for under the equity method if substantially all of the associate's operations are within only that segment, and the amount of the related investment.

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23. International Financial Reporting Standards, Dubai, June 2009 23 The Program this afternoon 1.30 – 3.00 pm Stuart Frearson Revenue recognition of  Goods  Services  Interest, Royalties and Dividends After- noon Session 3pm – 3.15pm TEA BREAK 3.15pm – 4pm Group discussion: Reporting revenue gross or net – what are the key indicators to determine whether an entity is acting as an agent or a principal?

24. International Financial Reporting Standards, Dubai, June 2009 24 Revenue recognition of  Goods  Services  Interest, royalties and dividends IAS 18 Revenue Recognition Definition: This Standard applies in accounting for revenue arising from the following transactions and events: (a) the sale of goods; (b) the rendering of services; and (c) the use by others of enterprise assets yielding interest, royalties and dividends.

25. International Financial Reporting Standards, Dubai, June 2009 25 Revenue recognition of Goods, Services and Interest, royalties and dividends 1. SALE OF GOODS Revenue from the sale of goods should be recognised when all the following conditions have been satisfied: (a) the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods (reservation of title... ); (b) the enterprise retains neither continuing managerial involvement nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the enterprise; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

26. International Financial Reporting Standards, Dubai, June 2009 26 Revenue recognition of Goods, Services and Interest, royalties and dividends 3. INTEREST, ROYALTIES AND DIVIDENDS Revenue arising from the use by others of enterprise assets yielding interest, royalties and dividends should be recognised when (a) it is probable that the economic benefits associated with the transaction will flow to the enterprise; and (b) the amount of the revenue can be measured reliably. (c) interest should be recognised on a time proportion basis that takes into account the effective yield on the asset; (d) royalties should be recognised on an accrual basis in accordance with the substance of the relevant agreement; and (e) dividends should be recognised when the shareholder's right to receive payment is established.

27. International Financial Reporting Standards, Dubai, June 2009 27 Revenue recognition of Goods, Services and Interest, royalties and dividends 2. RENDERING OF SERVICES When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction should be recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the enterprise; (c) the stage of completion of the transaction at the balance sheet date can be measured reliably;  == This is the catch! (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Fairly useless definition:

28. International Financial Reporting Standards, Dubai, June 2009 28 “the stage of completion of the transaction at the balance sheet date can be measured reliably... “ Revenue recognition of Goods, Services and Interest, royalties and dividends - IAS 11 Construction Contracts says the same thing! - Not that helpful - Left to the user to find the way of doing this.

29. International Financial Reporting Standards, Dubai, June 2009 29 Tea Break International Financial Reporting Standards, Dubai, June 2009 29

30. International Financial Reporting Standards, Dubai, June 2009 30 Group discussion: Reporting revenue gross or net – what are the key indicators to determine whether an entity is acting as an agent or a principal?

31. International Financial Reporting Standards, Dubai, June 2009 31 Group discussion: Reporting revenue gross or net – what are the key indicators to determine whether an entity is acting as an agent or a principal? Agency  Net Principal  Gross See attached Excel examples

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