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Details on Transition and effective date IFRS 8

Transition and effective date IFRS 8

Transition and effective date IFRS 8: This project indirectly arose out of the IASB’s project on effective dates and transition methods, which was being considered as part of the other ongoing larger ‘big four’ projects (revenue recognition, leases, insurance contracts and financial instruments).

At the IASB’s May 2012 meeting, the Board discussed a number of different topics related to disclosure considerations under IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in relation to effective dates and transition guidance for adoption of new or amended IFRSs.

As a result of that discussion, the IASB agreed to consider amendments to IAS 8 in the following areas:

  • removing the requirement that entities quantify the effect on the current period of a change in accounting policy as a result of a change in IFRSs
  • removing the requirement that entities quantify the effect on the current period of a voluntary change in accounting policy
  • clarify that an entity should be required to provide the disclosure for new or amended IFRSs that were issued by the date of its current statement of financial position.

Transition and effective date IFRS 8 : Required disclosures include:

  • general information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues
  • judgements made by management in applying the aggregation criteria to allow two or more operating segments to be aggregated [IFRS 8.22(aa)]#
  • information about the profit or loss for each reportable segment, including certain specified revenues* and expenses* such as revenue from external customers and from transactions with other segments, interest revenue and expense, depreciation and amortisation, income tax expense or income and material non-cash items
  • a measure of total assets* and total liabilities* for each reportable segment, and the amount of investments in associates and joint ventures and the amounts of additions to certain non-current assets (‘capital expenditure’)
  • an explanation of the measurements of segment profit or loss, segment assets and segment liabilities, including certain minimum disclosures, e.g. how transactions between segments are measured, the nature of measurement differences between segment information and other information included in the financial statements, and asymmetrical allocations to reportable segments
  • reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets*, segment liabilities* and other material items to corresponding items in the entity’s financial statements
  • some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services
  • analyses of revenues and certain non-current assets by geographical area – with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments
  • information about transactions with major customers

Transition and effective date IFRS 8: The International Financial Reporting Standards, usually called the IFRS Standards,are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external. IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units of constant purchasing power paradigm.

IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization quickly made the concept attractive around the world. However, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB) are still within use today and go by the name International Accounting Standards (IAS), while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards “International Financial Reporting Standards”.

Transition and effective date IFRS 8

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities.

Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in IAS 1 Presentation of Financial Statements.

The following terms are used in this Standard with the meanings specified: Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.

Transition and effective date IFRS 8

Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. International Financial Reporting Standards (IFRSs) are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise:

  1. International Financial Reporting Standards.
  2. International Accounting Standards.
  3. IFRIC Interpretations.
  4. SIC Interpretations.

1Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

  1. was available when financial statements for those periods were authorised for issue
  2. could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Transition and effective date IFRS 8

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if

(a)the effects of the retrospective application or retrospective restatement are not determinable

(b) the retrospective application or retrospective restatement requires assumptions about what management’s intent would have been in that period; or

(c) the retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that:

(i) provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recognised, measured or disclosed.

(ii) would have been available when the financial statements for that prior period were authorised for issue from other information. Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:

(a) applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and

(b) recognising the effect of the change in the accounting estimate in the current and future periods affected by the change.

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