IFRS Training to

Ethiopian Sugar
Corporation Staf
By
Department of Accounting and Finance
College of Business and Economics
Addis Ababa University
Nov 14-Nov 23, 2016
Addis Ababa

Introduction

This material is the property of Department of2 Accounting

and Finance, CoBE, AAU. Permission must be obtained from

Learning Objectives
At the completion of this topic, you
will be able to:

Understand the essence and spread of IFRS

Describe the structure of IASB
List
the
current
pronouncements
that
constitute IFRS
Identify the basic differences between IFRS
and US GAAP
Describe the Ethiopian new legal requirements
related to financial reporting
3
Describe the conceptual framework of IFRS

What is IFRS?
IFRS is a globally recognized set of
Standards for the preparation of financial
statements by business entities.
Those Standards prescribe:
the items that should be recognized as
assets, liabilities, income and expense
how to measure those items;
how to present them in a set of financial
statements; and
related disclosures about those items.

Principles-Based vs. Rules-Based Standards

IFRS are referred to as being principlesbased standards

Provide core principles (objectives) with
minimum guidance.
They are more loosely framed, allowing
for professional judgment to be applied
The judgments are expected to be
consistent with clear conceptual
framework
Results in accounting that is more flexible
to deal with unique economic and
business circumstances
5

US GAAP are referred to as being rulesbased standards:

They are more prescriptive
Provide a rule for every situation
Body of knowledge too large and
complicated
Although more guidance is a comfort to
some, it becomes difficult to ensure that
the standards are all consistent.

More on the diference between IFRS

and US GAAP later
6

Why IFRS?

Investors are acting on a global

market !!

National standards dont work on a

global market

Cross boarder business is hindered

by national standards
7

Benefits of IFRS

Credibility of local market to foreign

investors

More cross-border investment

Efficient capital allocation

Comparability across political

boundaries

Facilitates global education and training

8

Benefit of IFRS to
companies!

Lower cost of capital

Facilitates raising capital abroad

Integrated IT systems

One set of books + easier consolidation

Better understanding of financial

statements from business partners abroad

IFRS Adoption
More than 110 countries
International support to have global
accounting standards
G20
WB
IMF
Basel Committee,
International Organization of Securities
Commissions
International Federation of Accountants

10

IFRS World

11

IFRS in Ethiopia

Ethiopia passed a financial reporting law in

2014 which requires the use of IFRS by
commercial businesses operating in
Ethiopia.
Proclamation No. 847/2014
Regulation No. 332/2014

12

The proclamation requires:

Commercial organizations to follow
International Financial Reporting
Standards (IFRS), or
International Financial Reporting
Standards for Small and Medium
Enterprises (IFRS for SME)
Charities and societies to follow
International Public Sector Accounting
Standards (IPSAS)
Public auditors to follow International
Standards for Auditing.
13

Public interest entity (PIE) should use the

full IFRS.
A PIE is a reporting entity that is of
significant public relevance because of the
nature of its business, its size, its number
of employees.
PIE also includes banks, insurance
companies, and any other financial
institutions and public enterprises.

Small or medium enterprises (SME)= Not

public interest entity
14

Structure, strategic plan, and

roadmap of AABE
Accounting and Auditing Board of Ethiopia
is established by Regulation No. 332/2014
It is an autonomous government organ
accountable to MOFEC.
It is headed by the Director General
It has 12-member Board of Directors

15

AABE duties (among others)

Issue standards and directives relating to
financial reporting and auditing and
ensure their compliance.
Receive and register financial statements
of reporting entities
Review and monitor the accuracy and
fairness of FS to enforce compliance with
the reporting standards
Register and license public auditors

16

Oversee professional accountancy bodies

Establish, publish and review a code of
professional conduct and ethics for
certified public accountants and certified
auditors
Conduct or arrange for the conduct of
professional examination for the purpose
of registering certified public accountants

17

AABE Roadmap to IFRS

Implementation

18

Date
July 7, 2017

What is expected
Mandatory reporting
institutions

and

by
large

financial
public

enterprises
Adoption of IFRS by PIE (other than
financial institutions and large public
enterprises) and IPSAS by Charities
July 7, 2018

and Societies.
PIE (other than financial institutions
and large public enterprises) and IPSAS
by Charities and Societies issue IFRS
and IPSAs based financial statements

July 7, 2019

respectively
Small and Medium-sized19 Entities in
Ethiopia issue IFRS based financial

Back to IFRS
20

IASB and IFRS

IFRS

is developed by the International

Accounting Standards Board (IASB), which
operates under the oversight of the IFRS
Foundation.
IASB was formerly called International
Accounting Standards Committee (IASC)
IASB is based in London

21

How IASB Works

22

Standards development
process

23

List of Applicable IFRS

24

25

IFRS Comprises

International Accounting
Standards (IAS) -28
International Financial
Reporting Standards (IFRS)-16
Standing Interpretations
Committee (SIC)- 8
International Financial
Reporting Interpretations
Committee (IFRIC)- 18

International Accounting Standards

(IAS)
IAS 1: Presentation of Financial Statements
IAS 2: Inventories
IAS 7: Statement of Cash Flows
IAS 8: Accounting Policies, Changes in
Accounting Estimates and Errors
IAS 10: Events after the Reporting Period

27

IAS 11: Construction Contracts (will be

superseded by IFRS 15 as of 1 January
2018)
IAS 12: Income Taxes
IAS 16: Property, Plant and Equipment
IAS 17: Leases
IAS 18: Revenue (will be superseded by
IFRS 15 as of 1 January 2018)
IAS 19: Employee Benefits

28

IAS 20: Accounting for Government Grants

and Disclosure of Government Assistance
IAS 21: The Effects of Changes in Foreign
Exchange Rates
IAS 23: Borrowing Costs
IAS 24: Related Party Disclosures
IAS 26: Accounting and Reporting by
Retirement Benefit Plans
IAS 27: Separate Financial Statements

29

IAS 28: Investments in Associates and Joint

Ventures
IAS 29: Financial Reporting in
Hyperinflationary Economies
IAS 32: Financial Instruments: Presentation
IAS 33: Earnings per Share
IAS 34: Interim Financial Reporting
IAS 36: Impairment of Assets

30

IAS 37: Provisions, Contingent Liabilities

and Contingent Assets
IAS 38: Intangible Assets
IAS 39: Financial Instruments: Recognition
and Measurement (will be superseded by
IFRS 9 as of 1 January 2018)
IAS 40: Investment Property
IAS 41: Agriculture

31

International Financial Reporting

Standards
IFRS 1: First-time Adoption of International
Financial Reporting Standards
IFRS 2: Share-based Payment
IFRS 3: Business Combinations
IFRS 4: Insurance Contracts
IFRS 5: Non-current Assets Held for Sale
and Discontinued Operations
IFRS 6: Exploration for and Evaluation of
Mineral Resources
32

IFRS 7: Financial Instruments: Disclosures

IFRS 8: Operating Segments
IFRS 9: Financial Instruments (will replace
IAS 39 as of 1 January 2018)
IFRS 10: Consolidated Financial
Statements
IFRS 11: Joint Arrangements
IFRS 12: Disclosure of Interests in Other
Entities

33

IFRS 13: Fair Value Measurement

IFRS 14: Regulatory Deferral Accounts
IFRS 15: Revenue from Contracts with
Customers (will replace IAS 11 and IAS 18
as of 1 January 2018)
IFRS 16: Leases (replaces IAS 17 as of
January 1, 2019)

34

IFRS Interpretations Committee

Interpretations
IFRIC 1: Changes in Existing
Decommissioning, Restoration and Similar
Liabilities
IFRIC 2: Members Shares in Co-operative
Entities and Similar Instruments
IFRIC 4: Determining whether an
Arrangement contains a Lease (will be
superseded by IFRS 16 as of 1 January
2019)
IFRIC 5: Rights to Interests arising from
Decommissioning, Restoration and
35

IFRIC 6: Liabilities arising from

Participation in a Specific Market Waste
Electrical and Electronic Equipment
IFRIC 7: Applying the Restatement
Approach under IAS 29 Financial Reporting
in Hyperinflationary Economies
IFRIC 9: Reassessment of Embedded
Derivatives
IFRIC 10: Interim Financial Reporting and
Impairment

36

IFRIC 12: Service Concession

Arrangements
IFRIC 13: Customer Loyalty Programmes
(will be superseded by IFRS 15 as of 1
January 2018)
IFRIC 14: IAS 19 The Limit on a Defined
Benefit Asset, Minimum Funding
Requirements and their Interaction
IFRIC 15: Agreements for the Construction
of Real Estate (will be superseded by IFRS
15 as of 1 January 2018)

37

IFRIC 16: Hedges of a Net Investment in a

Foreign Operation
IFRIC 17: Distributions of Non-cash Assets
to Owners
IFRIC 18: Transfer of Assets from
Customers (will be superseded by IFRS 15
as of 1 January 2018)
IFRIC 19: Extinguishing Financial Liabilities
with Equity Instruments
IFRIC 20: Stripping Costs in the Production
Phase of a Surface Mine
IFRIC 21: Levies

38

Standing Interpretations
Committee Interpretations (SIC)
SIC-7: Introduction of the Euro
SIC-10: Government Assistance No
Specific Relation to Operating Activities
SIC-15: Operating Leases Incentives (will
be superseded by IFRS 16 as of 1 January
2019)
SIC-25: Income Taxes Changes in the Tax
Status of an Entity or its Shareholders

39

SIC-27: Evaluating the Substance of

Transactions Involving the Legal Form of a
Lease (will be superseded by IFRS 16 as of
1 January 2019)
SIC-29: Service Concession Arrangements:
Disclosures
SIC-31: Revenue Barter Transactions
Involving Advertising Services (will be
superseded by IFRS 15 as of 1 January
2018)
SIC-32: Intangible Assets Web Site Costs

40

Diference between IFRS and

US GAAP
Great strides have been made by the FASB
and the IASB to converge the content of
IFRS and U.S. GAAP.
There is continued support for the
objective of a single set of high-quality,
globally accepted accounting standards.

41

Virtually identical standards

share-based payments,
segment reporting,
business combinations,
consolidated financial statements,
fair value measurement,
joint arrangements,
investment entities, and
revenue

42

Unsuccessful joint projects

leases,
Insurance,
Financial instruments,
Conceptual framework

Major diferences between IFRS and

US GAAP are as follows:

43

Inventory costing method

US GAAP allows LIFO method
IFRS doesnt allow LIFO method
Reversal of inventory write-downs
US GAAP doesnt allow
IFRS allows
Valuation of property, plant, and
equipment
U.S.GAAP: Cost less accumulated
depreciation
IFRS: Cost less accumulated depreciation
(or) fair value(revaluation)

44

Valuation of intangible assets

U.S GAAP: Cost less accumulated
amortization. Revaluation prohibited
IFRS: Cost less accumulated
amortization (or) fair value(revaluation)
Research and development expenditures
U.S GAAP: Expensed in the period
incurred
IFRS:

Research: expensed in the period incurred

Development: that meet specified criteria:
45
capitalized

Contingencies
U.S. GAAP: accrue if it is probable and
can be reasonably estimated. GAAP
defines probable as likely to occur (a
higher threshold of occurrence than
under IFRS)
IFRS: threshold for probable is defined
as more likely than not (greater than
50%)
Valuation of long-term contingencies
U.S.GAAP: present valueonly when
timing of cash flows is certain
IFRS: present valuetime value of

46

Treatment of convertible debt

U.S. GAAP: entire issue price is recorded
as a liability
IFRS: convertible debt is divided into its
liability (bonds) and equity (conversion
option) elements

47

 Distinction

between debt and equity

for preferred stock
U.S. GAAP: most preferred stock
is included in stockholders equity,
with the dividends reported as a
reduction in retained earnings
IFRS: most preferred stock is
reported as debt, with the dividends
reported in the income statement as
interest expense
48

Reacquired shares:
IFRS does not permit retirement of
shares
U.S. GAAP: All buybacks are treated as
treasury stock
Cash outflows for interest payments
U.S. GAAP: operating cash flows
IFRS: either operating or financing cash
flows

49

Cash inflows from interest and dividends

received
U.S. GAAP: operating cash flows
IFRS: either operating or investing cash
flows

Disclosure of noncash activities

U.S. GAAP: Reported either on the face of
the statement of cash flows or in a
disclosure note
IFRS: Disallows presentation on the face
of the statement and requires reporting
in a disclosure note
50

Discontinued operations
U.S. definition is broader than its
international counterpart
IFRS considers a component to be
primarily either a major line of business
or geographical area of operations
Extraordinary items
U.S. GAAP: provides separate reporting
IFRS: recording or disclosure not
allowed

51

Conceptual Framework

52

Conceptual Framework sets out the

concepts that underlie IFRS financial
statements
It comprises of:
the objective of general purpose
financial reporting
qualitative characteristics
elements of financial statements
recognition
measurement
presentation and disclosure
Other concepts all flow from the objective
53

Purpose of the Conceptual

Framework

To assist IASB in setting and revising standards

To assist preparers to make the judgements that are
necessary to apply IFRSs
To assist auditors and regulators assess judgments of
preparers
To assist users to consider those judgments when using
IFRS financial information to inform their decisions
To assist in understanding of standard-setting by IFRS
To reduce conflicts between Framework and Standards

54

Objective of General Purpose

Financial Reporting
Provide financial information about the
reporting entity that is useful to existing and
potential investors, lenders and other
creditors in making decisions about
providing resources to the entity

55

To provide information about

Economic resources and claims (SFP)
Changes in economic resources and
claims (SPLOCI)
Financial performance reflected by
past cash flows (SCF)
Changes in economic resources and
claims not resulting from financial
performance (SCE)
56

Qualitative Characteristics of
Useful Financial Information
Fundamental
Relevance
Faithful representation
Enhancing
Comparability
Verifiability
Timeliness
Understandability

57

58

Relevance: Capable of making a difference

in users decisions
predictive value
confirmatory value
materiality (entity-specific)
Faithful representation: Faithfully
represents the phenomena it purports to
represent
completeness (depiction including
numbers and words)
neutrality (unbiased)
free from error (ideally)

59

Comparability: like things look alike;

different things look different
Verifiability: knowledgeable and
independent observers could reach
consensus, but not necessarily complete
agreement, that a depiction is a faithful
representation
Timeliness: having information available to
decision-makers in time to be capable of
influencing their decisions
Understandability: Classify, characterize,
and present information clearly and
concisely

60

Elements of financial
statements
Asset
resource controlled by
the entity
result of past event
expected inflow of
economic benefits
Liability
present obligation
arising from past
event
expected outflow of
economic benefits
Equity = assets less
liabilities

Income
recognised increase in
asset/decrease in
liability in current
reporting period
that result in
increased equity
except contributions
from owners
Expense
recognised decrease
in asset/increase in
liability in current
reporting period
that result in
61
decreased equity

Recognition
Accrual basis of accounting used
Recognise element when:
The element satisfies definition
probable that benefits will flow to/from
the entity
has cost or value that can be measured
reliably

62

 What

does probable mean?

It means more likely than not
The meaning of probable is determined at the
standards level. Therefore, inconsistent use
across IFRSs (usually more than 50%)

What

does measure reliably mean?

To a large extent, financial reports are based
on estimates, judgements and models rather
than exact depictions.
63

Measurement
Measurement is the process of
determining monetary amounts at which
elements are recognised and carried.
To a large extent, financial reports are
based on estimates, judgements and
models rather than exact depictions.

64

Measurement methods include

Historical cost: cash paid or fair value of
consideration given
Current cost: Cash that would be paid if
acquired now
Realisable (settlement) value: cash that
could be obtained by selling the asset now
Present value: present discounted value of
future net cash inflows that the item is
expected to generate

65

Constraints

Cost vs. benefit: cost of information is

justified by the benefits of reporting that
information.
Benefits include more efficient
functioning of capital markets and a
lower cost of capital for the economy.
Costs include collecting, processing,
verifying and disseminating financial
information and the costs of analysing
and interpreting the information
provided.
66

Underlying assumptions of financial

reporting:
Going concern, and
Accruals accounting

67

Financial Statements
A statement of financial position as at the
end of the period
A statement of profit or loss and other
comprehensive income for the period
A statement of changes in equity for the
period
A statement of cash flows for the period
Notes, comprising
A summary of significant accounting
policies
Other explanatory information

IASB Books

IASB publishes IFRS in 3 books every year

Red Book
Blue Book
Green Book

Each book is published as 2 books

69

70

Red book
Standards with effective date after 1 January
of the year the book refers to.
It excludes standards that are being replaced
and/or superseded.

71

Blue Book:
Standards with an effective date before 1
January of the year the book refers to.
It does not contain Standards with an
effective date after 1 January.

72

Green Book:
Standards issued at 1 July of the year the
book refers to, including standards with an
effective date after 1 July.
It excludes standards that are being
replaced and/or superseded

73

IFRS for SMEs

Final standard issued 9 July 2009

230 pages (vs. 3,000+ in full IFRS)
Simplified IFRSs, but built on an IFRS
foundation
Completely stand-alone and divided into
39 Sections
Designed specifically for SMEs
Internationally recognized
74

How simplified
1.

Some topics in IFRSs omitted if irrelevant

to private entities

2.

Where IFRSs have options, include only

simpler option

3.

Recognition and measurement

simplifications

4.

Reduced disclosures

5.

Simplified drafting
75

Who are SMEs?

Small or medium enterprise is:

A reporting entity, and
is not a public interest entity

76

List of IFRS for SME

Section 1: Small and Medium-sized Entities
Section 2: Concepts and Pervasive
Principles
Section 3: Financial Statement
Presentation
Section 4: Statement of Financial Position
Section 5: Statement of Comprehensive
Income and Income Statement
Section 6: Statement of Changes in Equity
and Statement of Comprehensive Income
and Retained Earnings

77

Section 7: Statement of Cash Flows

Section 8: Notes to the Financial
Statements
Section 9: Consolidated and Separate
Financial Statements
Section 10: Accounting Policies, Estimates
and Errors
Section 11: Basic Financial Instruments
Section 12: Additional Financial
Instruments Issues

78

Section 13:
Section 14:
Section 15:
Section 16:
Section 17:
Section 18:
Goodwill

Inventories
Investments in Associates
Investments in Joint Ventures
Investment Property
Property, Plant and Equipment
Intangible Assets other than

79

Section 19:
Goodwill
Section 20:
Section 21:
Section 22:
Section 23:
Section 24:

Business Combinations and

Leases
Provisions and Contingencies
Liabilities and Equity
Revenue
Government Grants

80

Section
Section
Section
Section
Section
Section

25:
26:
27:
28:
29:
30:

Borrowing Costs
Share-based Payment
Impairment of Assets
Employee Benefits
Income Tax
Foreign Currency Translation

81

Section 31: Hyperinflation

Section 32: Events after the End of the
Reporting Period
Section 33: Related Party Disclosures
Section 34: Specialized Activities
Section 35: Transition to the IFRS for SMEs

82

Questions
83