How Many Accounting Standards Are There?

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How Many Accounting Standards Are There
About Accounting Standards – Accounting Standards (AS) are principles of accounting which are issued by the world’s governing and accounting bodies so as to ensure that all organizations follow a uniform set of accounting rules. This will further establish uniformity in the format followed by organizations to prepare their financial statements including the accounting standards introduction,

  • Accounting standards are applicable throughout a country so that its whole economy can follow the same set of accounting standards list and terminology.
  • Thus, all business units and organizations in that nation will implement a uniform, accurate, and precise format for preparing their financial statements and records.

In India, the Institute of Chartered Accountants of India (ICAI) issues the Indian Accounting Standards (IAS). These accounting standards are adapted from the GAAP and modified accordingly with the Indian economy. The nomenclature and numbering of these standards bear similarity with the IFRS and accounting principles in India.

  • Total accounting standards in India sort out accounting conflicts in their detailing, treatment, rules, and directives by providing uniformity in their principles.
  • They are highly detailed and informative thus avoiding any confusion which may arise related to accounting.
  • This article also provides information on who issues Indian accounting principles.

The Indian Accounting Standards has a total of 32 accounting standards list, out of which the most common ones have been listed below which will help you to know how many indian accounting standards are there:

AS-1: Disclosure of Accounting Policies AS-2: Valuation of Inventories AS-3: Cash Flow Statements AS-7: Construction Accounting AS-9: Revenue Recognition AS-10: Accounting for Fixed Assets AS-15: Employee Benefits AS-20: Earnings per Share AS-26: Intangible Assets AS-28: Impairment of Assets

How many accounting standards are there in the world?

IFRS-compliant entities also use the following 25 international accounting standards (IAS) issued by the International Accounting Standards Board (IASB): IAS 1: Presentation of financial statements. IAS 2: Inventories. IAS 7: Statement of cash flows.

What are the 29 accounting standards?

AS-29 Provisions, Contingent Liabilities, and Contingent Assets The objective of AS 29 is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount.

  • The standard will not apply to provisions/liabilities resulting from executing controls and those covered under any other accounting standard.
  • This Standard is mandatory in nature from that date:
  • In its entirety, for the enterprises which fall in any one or more of the following categories, at any time during the accounting period:
  • Enterprises whose equity or debt securities are listed whether in India or outside India.
  • Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard.
  • Banks including co-operative banks.
  • Financial institutions.
  • Enterprises carrying on insurance business.
  • All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds 50 crore. Turnover does not include ‘other income’.
  • All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of 10 crore at any time during the accounting period.
  • Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

In its entirety, for the enterprises which do not fall in any of the categories in (a) above but fall in any one or more of the following categories:

  • All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds 40 lakhs but does not exceed 50 crore.
  • Turnover does not include ‘other income’.
  • All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of 1 crore but not in excess of 10 crore at any time during the accounting period.
  • Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
  • Where an enterprise has been covered in any one or more of the categories in (a) above and subsequently, ceases to be so covered, the enterprise will not qualify for exemption from this Standard, until the enterprise ceases to be covered in any of the categories in (a) above for two consecutive years.
  1. Where an enterprise has been covered in any one or more of the categories in (a) or (b) above and subsequently, ceases to be covered in any of the categories in (a) and (b) above, the enterprise will not qualify for exemption from this Standard, until the enterprise ceases to be covered in any of the categories in (a) and (b) above for two consecutive years.
  2. Scope
  3. This Statement should be applied in accounting for provisions and contingent liabilities and in dealing with contingent assets, other than
  • Those resulting from financial instruments that are carried at fair value;
  • Those resulting from executory contracts;
  • Those arising in insurance enterprises from contracts with policy-holders; and
  • Those covered by another Accounting Standard.
  • Definitions
  • Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent.
  • Examples of executory contracts include:
  • Employee contracts in respect of continuing employment;
  • Contracts for future delivery of services such as gas and electricity;
  • Obligations to pay local authority charges and similar levies; and
  • Most purchase orders.
  • A Provision is a liability which can be measured only by using a substantial degree of estimation.
  • A Liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.
  • An Obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.

A Contingent liability is :

(a) A possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; or

(b) A present obligation that arises from past events but is not recognised because: It is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or A reliable estimate of the amount of the obligation cannot be made.

  • A Contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.
  • Present obligation – an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not.
  • Possible obligation – an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is considered not probable.
  • A Restructuring is a programme that is planned and controlled by management, and materially changes either:
  • The scope of a business undertaken by an enterprise; or
  • The manner in which that business is conducted.

: AS-29 Provisions, Contingent Liabilities, and Contingent Assets

How many standard of IFRS are there?

Other pronouncements – Note The above tables list the most recent version (or versions if a pronouncement has not yet been superseded) of each pronouncement and the date that revisions was originally issued. Where a pronouncement has been reissued with the same or a different name, the date indicated in the above tables is the date the revised pronouncement was reissued (these are indicated with an asterisk (*) in the tables).

The majority of the pronouncements have also been amended through IASB or IFRS Interpretations Committee projects, for consequential amendments arising on the issue of other pronouncements, the annual improvements process, and other factors. Our page for each pronouncement has a full history of the pronouncement, its development, amendments and other information.

: International Financial Reporting Standards (IFRS) and IFRIC Interpretations

What is 42 accounting standards?

Why Is A Social Benefits Standard Needed? – The delivery of social benefits to the public is a primary objective of most governments, and accounts for a large proportion of their expenditure. Prior to IPSAS 42, Social Benefits, IPSAS did not provide guidance on accounting for social benefits.

What are 33 accounting standards?

IAS 33 deals with the calculation and presentation of earnings per share (EPS). It applies to entities whose ordinary shares or potential ordinary shares (for example, convertibles, options and warrants) are publicly traded. Non-public entities electing to present EPS must also follow the Standard.

An entity must present basic EPS and diluted EPS with equal prominence in the statement of comprehensive income. In consolidated financial statements, EPS measures are based on the consolidated profit or loss attributable to ordinary equity holders of the parent. Dilution is a potential reduction in EPS or a potential increase in loss per share resulting from the assumption that convertible instruments are converted, options or warrants are exercised, or ordinary shares are issued upon the satisfaction of specified conditions.

When the entity also discloses profit or loss from continuing operations, basic EPS and diluted EPS must be presented in respect of continuing operations. Furthermore, if an entity reports a discontinued operation, it must present basic and diluted amounts per share for the discontinued operation either in the statement of comprehensive income or in the notes.

IAS 33 sets out principles for determining the denominator (the weighted average number of shares outstanding for the period) and the numerator (‘earnings’) in basic EPS and diluted EPS calculations. The denominators used in the basic EPS and diluted EPS calculation might be affected by share issues during the year; shares to be issued upon conversion of a convertible instrument; contingently issuable or returnable shares; bonus issues; share splits and share consolidation; the exercise of options and warrants; contracts that may be settled in shares; and contracts that require an entity to repurchase its own shares (written put options).

IAS 33 requires an entity to disclose:

the amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to profit or loss. the weighted average number of ordinary shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other. a description of any other instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in the future, but that were not included in the calculation of diluted earnings per share. a description of ordinary share transactions that occur after the reporting period and that could have changed the EPS calculations significantly if those transactions had occurred before the end of the reporting period.

In April 2001 the International Accounting Standards Board (Board) adopted IAS 33 Earnings per Share, which had been issued by the International Accounting Standards Committee in February 1997. In December 2003 the Board revised IAS 33 and changed the title to Earnings per Share,

What is the 41 accounting standard?

IAS 41 prescribes the accounting treatment, financial statement presentation, and disclosures related to agricultural activity. Agricultural activity is the management of the biological transformation of biological assets (living animals or plants) and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

IAS 41 establishes the accounting treatment for biological assets during their growth, degeneration, production and procreation, and for the initial measurement of agricultural produce at the point of harvest. It does not deal with processing of agricultural produce after harvest (for example, processing grapes into wine, or wool into yarn).

IAS 41 contains the following accounting requirements:

bearer plants are accounted for using IAS 16; other biological assets are measured at fair value less costs to sell; agricultural produce at the point of harvest is also measured at fair value less costs to sell; changes in the fair value of biological assets are included in profit or loss; and biological assets attached to land (for example, trees in a plantation forest) are measured separately from the land.

The fair value of a biological asset or agricultural produce is its market price less any costs to sell the produce. Costs to sell include commissions, levies, and transfer taxes and duties. IAS 41 differs from IAS 20 with regard to recognition of government grants.

Unconditional grants related to biological assets measured at fair value less costs to sell are recognised as income when the grant becomes receivable. Conditional grants are recognised as income only when the conditions attaching to the grant are met. In April 2001 the International Accounting Standards Board (Board) adopted IAS 41 Agriculture, which had originally been issued by the International Accounting Standards Committee in February 2001.

In December 2003 the Board issued a revised IAS 41 as part of its initial agenda of technical projects. In June 2014 the Board amended the scope of IAS 16 Property, Plant and Equipment to include bearer plants related to agricultural activity. Bearer plants related to agricultural activity were previously within the scope of IAS 41.

What are the 28 accounting standards?

Accounting Standard (AS) 28, Impairment of Assets, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1-4-2004. The Standard is mandatory in nature from different dates for different levels of enterprises as below: (i) To Level I enterprises- from accounting periods commencing on or after 1.4.2004. (ii) To Level II enterprises- from accounting periods commencing on or after 1.4.2006. (iii) To Level III enterprises- from accounting periods commencing on or after 1.4.2008. The criteria for different levels are given in Annexure I.
Considering the feedback received from various interest-groups and the concerns expressed at various forums, it is felt that relaxation should be given to Level II and Level III enterprises (referred to as Small and Medium Sized Enterprises (SMEs)), from the measurement principles contained in AS 28, Impairment of Assets.
AS 28 defines, inter alia, the following terms: An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is the higher of an assets net selling price and its value in use. Net selling price is the amount obtainable from the sale of an asset in an arms length transaction between knowledgeable, willing parties, less the costs of disposal. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
The relaxations for SMEs in respect of AS 28 have been decided as below: (i) Considering that detailed cash flow projections of SMEs are often not readily available, SMEs are allowed to measure the value in use on the basis of reasonable estimate thereof instead of computing the value in use by present value technique. Therefore, the definition of the term value in use in the context of the SMEs would read as follows: Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life, or a reasonable estimate thereof. (ii) The above change in the definition of value in use implies that instead of using the present value technique, a reasonable estimate of the value in use can be made. Consequently, if an SME chooses to measure the value in use by not using the present value technique, the relevant provisions of AS 28, such as discount rate etc., would not be applicable to such an SME. Further, such an SME need not disclose the information required by paragraph 121(g) of the Standard. Subject to this, the other provisions of AS 28 would be applicable to SMEs.
An enterprise, which, pursuant to the above provisions, does not use the present value technique for measuring value in use, should disclose, the fact that it has measured its value in use on the basis of the reasonable estimate thereof and the manner in which the estimate has been arrived at including assumptions that govern the estimate.
Where an enterprise has been covered in Level I and subsequently, ceases to be so covered, the enterprise will not qualify for relaxation/exemption from the applicability of this Standard, until the enterprise ceases to be covered in Level I for two consecutive years.
Where an enterprise has previously qualified for the above relaxations (being not covered in Level 1) but no longer qualifies for relaxation in the current accounting period, this Standard becomes applicable from the current period without the above relaxations. However, the corresponding previous period figures in respect of the relevant disclosures need not be provided.
The above provisions are applicable in respect of the accounting periods commencing on or after 1-4-2006 (for Level II enterprises) and 1-4-2008 (for Level III enterprises). However, if an enterprise being a Level II enterprise starts applying AS 28 from accounting periods beginning on or after 1-4-2006, it will continue to apply this Standard even if it ceases to be covered in Level II and becomes a Level III enterprise.
Annexure I
Criteria for classification of enterprises
Level I Enterprises
Enterprises which fall in any one or more of the following categories, at any time during the accounting period, are classified as Level I enterprises: (i) Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business. (vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs.50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs.10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
Level II Enterprises
Enterprises which are not Level I enterprises but fall in any one or more of the following categories are classified as Level II enterprises: (i) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs.40 lakhs but does not exceed Rs.50 crore. Turnover does not include other income. (ii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs.1 crore but not in excess of Rs.10 crore at any time during the accounting period. (iii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
Level III Enterprises
Enterprises which are not covered under Level I and Level II are considered as Level III enterprises.
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What is difference between IAS and IFRS?

Key Difference Between IAS and IFRS – The major difference between IAS and IFRS is that IAS is the earlier version of the accounting standards, while IFRS is a more up-to-date and widely used version worldwide. IFRS provides more detailed requirements for financial reporting and covers a broader range of accounting issues than IAS.

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What is 38 accounting standards?

IAS 38 sets out the criteria for recognising and measuring intangible assets and requires disclosures about them. An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights.

Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licences, trademarks, patents, films, copyrights and import quotas. Goodwill acquired in a business combination is accounted for in accordance with IFRS 3 and is outside the scope of IAS 38.

Internally generated goodwill is within the scope of IAS 38 but is not recognised as an asset because it is not an identifiable resource. Expenditure for an intangible item is recognised as an expense, unless the item meets the definition of an intangible asset, and:

it is probable that there will be future economic benefits from the asset; and the cost of the asset can be reliably measured.

The cost of generating an intangible asset internally is often difficult to distinguish from the cost of maintaining or enhancing the entity’s operations or goodwill. For this reason, internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised as intangible assets.

  • The costs of generating other internally generated intangible assets are classified into whether they arise in a research phase or a development phase.
  • Research expenditure is recognised as an expense.
  • Development expenditure that meets specified criteria is recognised as the cost of an intangible asset.

Intangible assets are measured initially at cost. After initial recognition, an entity usually measures an intangible asset at cost less accumulated amortisation. It may choose to measure the asset at fair value in rare cases when fair value can be determined by reference to an active market.

An intangible asset with a finite useful life is amortised and is subject to impairment testing. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.

In April 2001 the International Accounting Standards Board (Board) adopted IAS 38 Intangible Assets, which had originally been issued by the International Accounting Standards Committee in September 1998. That Standard had replaced IAS 9 Research and Development Costs, which had been issued in 1993, which itself replaced an earlier version called Accounting for Research and Development Activities that had been issued in July 1978.

The Board revised IAS 38 in March 2004 as part of the first phase of its Business Combinations project. In January 2008 the Board amended IAS 38 again as part of the second phase of its Business Combinations project. In May 2014 the Board amended IAS 38 to clarify when the use of a revenue‑based amortisation method is appropriate.

Other Standards have made minor consequential amendments to IAS 38. They include IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013), IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 16 Leases (issued January 2016), IFRS 17 Insurance Contracts (issued May 2017), Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018) and Amendments to IFRS 17 (issued June 2020).

What is accounting standard 31?

IAS 31 — Interests In Joint Ventures IAS 31 Interests in Joint Ventures sets out the accounting for an entity’s interests in various forms of joint ventures: jointly controlled operations, jointly controlled assets, and jointly controlled entities. The standard permits jointly controlled entities to be accounted for using either the equity method or by proportionate consolidation.

December 1989 Exposure Draft E35 Financial Reporting of Interests in Joint Ventures
December 1990 IAS 31 Financial Reporting of Interests in Joint Ventures
1 January 1992 Effective date of IAS 31 (1990)
1994 IAS 31 was reformatted
December 1998 IAS 31 was revised by IAS 39 effective 1 January 2001
18 December 2003 Revised version of IAS 31 issued by the IASB
1 January 2005 Effective date of IAS 31 (Revised 2003)
13 September 2007 Exposure Draft ED 9 Joint Arrangements issued. Proposes to replace IAS 31 with a new standard titled Joint Arrangements.
10 January 2008 Some significant revisions of IAS 31 were adopted as a result of the Business Combinations Phase II Project relating to loss of joint control
22 May 2008 IAS 31 amended for Annual Improvements to IFRSs 2007 for certain disclosures and reversals of impairment losses (equity method)
1 January 2009 Effective date of the May 2008 revisions to IAS 31
1 July 2009 Effective date of the January 2008 revisions to IAS 31
12 May 2011 IAS 31 is superseded by Joint Arrangements and Disclosure of Interests in Other Entities effective 1 January 2013

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  • Jointly Controlled Entities – Non-Monetary Contributions by Venturers. Superseded by Joint Arrangements effective 1 January 2013
  • IAS 31 applies to accounting for all interests in joint ventures and the reporting of joint venture assets, liabilities, income, and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place, except for investments held by a venture capital organisation, mutual fund, unit trust, and similar entity that (by election or requirement) are accounted for as under IAS 39 at fair value with fair value changes recognised in profit or loss.

    • Joint venture: a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.
    • Venturer: a party to a joint venture and has joint control over that joint venture.
    • Investor in a joint venture: a party to a joint venture and does not have joint control over that joint venture.
    • Control: the power to govern the financial and operating policies of an activity so as to obtain benefits from it.

    Joint control: the contractually agreed sharing of control over an economic activity. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers. Jointly controlled operations involve the use of assets and other resources of the venturers rather than the establishment of a separate entity.

    Each venturer uses its own assets, incurs its own expenses and liabilities, and raises its own finance. IAS 31 requires that the venturer should recognise in its financial statements the assets that it controls, the liabilities that it incurs, the expenses that it incurs, and its share of the income from the sale of goods or services by the joint venture.

    Jointly controlled assets involve the joint control, and often the joint ownership, of assets dedicated to the joint venture. Each venturer may take a share of the output from the assets and each bears a share of the expenses incurred. IAS 31 requires that the venturer should recognise in its financial statements its share of the joint assets, any liabilities that it has incurred directly and its share of any liabilities incurred jointly with the other venturers, income from the sale or use of its share of the output of the joint venture, its share of expenses incurred by the joint venture and expenses incurred directly in respect of its interest in the joint venture.

    • A jointly controlled entity is a corporation, partnership, or other entity in which two or more venturers have an interest, under a contractual arrangement that establishes joint control over the entity.
    • Each venturer usually contributes cash or other resources to the jointly controlled entity.
    • Those contributions are included in the accounting records of the venturer and recognised in the venturer’s financial statements as an investment in the jointly controlled entity.

    IAS 31 allows two treatments of accounting for an investment in jointly controlled entities – except as noted below:

    • proportionate consolidation
    • equity method of accounting

    Proportionate consolidation or equity method are not required in the following exceptional circumstances:

    • An investment in a jointly controlled entity that is held by a venture capital organisation or mutual fund (or similar entity) and that upon initial recognition is designated as held for trading under IAS 39. Under IAS 39, those investments are measured at fair value with fair value changes recognised in profit or loss.
    • The interest is classified as held for sale in accordance with IFRS 5.
    • A parent that is exempted from preparing consolidated financial statements by paragraph 10 of IAS 27 may prepare separate financial statements as its primary financial statements. In those separate statements, the investment in the jointly controlled entity may be accounted for by the cost method or under IAS 39.
    • An investor in a jointly controlled entity need not use proportionate consolidation or the equity method if all of the following four conditions are met:
      1. the venturer is itself a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the venturer not applying proportionate consolidation or the equity method;
      2. the venturer’s debt or equity instruments are not traded in a public market;
      3. the venturer did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
      4. the ultimate or any intermediate parent of the venturer produces consolidated financial statements available for public use that comply with International Financial Reporting Standards.

    Under proportionate consolidation, the balance sheet of the venturer includes its share of the assets that it controls jointly and its share of the liabilities for which it is jointly responsible. The income statement of the venturer includes its share of the income and expenses of the jointly controlled entity.

    • The venturer may combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements; or
    • The venturer may include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements.

    Procedures for applying the equity method are the same as those described in Investments in Associates, In the separate financial statements of the venturer, its interests in the joint venture should be:

    • accounted for at cost; or
    • accounted for under IAS 39 Financial Instruments: Recognition and Measurement.

    If a venturer contributes or sells an asset to a jointly controlled entity, while the assets are retained by the joint venture, provided that the venturer has transferred the risks and rewards of ownership, it should recognise only the proportion of the gain attributable to the other venturers.

    The venturer should recognise the full amount of any loss incurred when the contribution or sale provides evidence of a reduction in the net realisable value of current assets or an impairment loss. The requirements for recognition of gains and losses apply equally to non-monetary contributions unless the gain or loss cannot be measured, or the other venturers contribute similar assets.

    Unrealised gains or losses should be eliminated against the underlying assets (proportionate consolidation) or against the investment (equity method). When a venturer purchases assets from a jointly controlled entity, it should not recognise its share of the gain until it resells the asset to an independent party.

    • in accordance with IAS 28 Investments in Associates – only if the investor has significant influence in the joint venture; or
    • in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

    If an investor loses joint control of a jointly controlled entity, it derecognises that investment and recognises in profit or loss the difference between the sum of the proceeds received and any retained interest, and the carrying amount of the investment in the jointly controlled entity at the date when joint control is lost. A venturer is required to disclose:

    • Information about contingent liabilities relating to its interest in a joint venture.
    • Information about commitments relating to its interests in joint ventures.
    • A listing and description of interests in significant joint ventures and the proportion of ownership interest held in jointly controlled entities. A venturer that recognises its interests in jointly controlled entities using the line-by-line reporting format for proportionate consolidation or the equity method shall disclose the aggregate amounts of each of current assets, long-term assets, current liabilities, long-term liabilities, income, and expenses related to its interests in joint ventures.
    • The method it uses to recognise its interests in jointly controlled entities.

    Venture capital organisations or mutual funds that account for their interests in jointly controlled entities in accordance with IAS 39 must make the disclosures required by IAS 31.55-56. : IAS 31 — Interests In Joint Ventures

    What are the 26 accounting standards?

    AS 26 – Intangible Assets Intangible asset is an non-physical non-monetary asset which is held for use in the production or supply of goods and services, or for rentals to others, etc. AS 26 should be applied by all enterprises in accounting of intangible assets, except: 1.

    Intangible assets that are within the scope of another standard financial assets 2. Rights and expenditure on the exploration for or development of minerals, oil, natural gas and similar non-regenerative resources 3. Intangible assets arising in insurance enterprise from contracts with policyholders, 4.

    Expenditure in respect of termination benefits.

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    Why did IFRS 4 replace IFRS 17?

    IFRS 17 replaces IFRS 4 Insurance Contracts. When introduced in 2004, IFRS 4—an interim Standard—was meant to limit changes to existing insurance accounting practices. Hence, IFRS 4 has allowed insurers to use different accounting policies to measure similar insurance contracts they write in different countries.

    Which has more standards GAAP or IFRS?

    We live in an increasingly global economy, so it’s important for business owners and accounting professionals to be aware of the differences between the two predominant accounting methods used around the world. International Financial Reporting Standards (IFRS) – as the name implies – is an international standard developed by the International Accounting Standards Board (IASB).U.S.

    • Generally Accepted Accounting Principles (GAAP) is only used in the United States.
    • GAAP is established by the Financial Accounting Standards Board (FASB).
    • Let’s look at the 10 biggest differences between IFRS and GAAP accounting.
    • 1: Local vs.
    • Global IFRS is used in more than 110 countries around the world, including the EU and many Asian and South American countries.

    GAAP, on the other hand, is only used in the United States. Companies that operate in the U.S. and overseas may have more complexities in their accounting. #2: Rules vs. Principles GAAP tends to be more rules-based, while IFRS tends to be more principles-based.

    1. Under GAAP, companies may have industry-specific rules and guidelines to follow, while IFRS has principles that require judgment and interpretation to determine how they are to be applied in a given situation.
    2. However, convergence projects between FASB and IASB have resulted in new GAAP and IFRS standards that share more similarities than differences.

    For example, the recent GAAP standard for revenue from contracts with customers, Auditing Standards Update (ASU) No.2014-09 (Topic 606) and the corresponding IFRS standard, IFRS 15, share a common principles-based approach. #3: Inventory Methods Both GAAP and IFRS allow First In, First Out (FIFO), weighted-average cost, and specific identification methods for valuing inventories.

    However, GAAP also allows the Last In, First Out (LIFO) method, which is not allowed under IFRS. Using the LIFO method may result in artificially low net income and may not reflect the actual flow of inventory items through a company. #4: Inventory Write-Down Reversals Both methods allow inventories to be written down to market value.

    However, if the market value later increases, only IFRS allows the earlier write-down to be reversed. Under GAAP, reversal of earlier write-downs is prohibited. Inventory valuation may be more volatile under IFRS. #5: Fair Value Revaluations IFRS allows revaluation of the following assets to fair value if fair value can be measured reliably: inventories, property, plant & equipment, intangible assets, and investments in marketable securities.

    This revaluation may be either an increase or a decrease to the asset’s value. Under GAAP, revaluation is prohibited except for marketable securities. #6: Impairment Losses Both standards allow for the recognition of impairment losses on long-lived assets when the market value of an asset declines. When conditions change, IFRS allows impairment losses to be reversed for all types of assets except goodwill.

    GAAP takes a more conservative approach and prohibits reversals of impairment losses for all types of assets. #7: Intangible Assets Internal costs to create intangible assets, such as development costs, are capitalized under IFRS when certain criteria are met.

    1. These criteria include consideration of the future economic benefits.
    2. Under GAAP, development costs are expensed as incurred, with the exception of internally developed software.
    3. For software that will be used externally, costs are capitalized once technological feasibility has been demonstrated.
    4. If the software will only be used internally, GAAP requires capitalization only during the development stage.

    IFRS has no specific guidance for software. #8: Fixed Assets GAAP requires that long-lived assets, such as buildings, furniture and equipment, be valued at historic cost and depreciated appropriately. Under IFRS, these same assets are initially valued at cost, but can later be revalued up or down to market value.

    Any separate components of an asset with different useful lives are required to be depreciated separately under IFRS. GAAP allows for component depreciation, but it is not required. #9: Investment Property IFRS includes the distinct category of investment property, which is defined as property held for rental income or capital appreciation.

    Investment property is initially measured at cost, and can be subsequently revalued to market value. GAAP has no such separate category. #10: Lease Accounting While the approaches under GAAP and IFRS share a common framework, there are a few notable differences.

    IFRS has a de minimus exception, which allows lessees to exclude leases for low-valued assets, while GAAP has no such exception. The IFRS standard includes leases for some kinds of intangible assets, while GAAP categorically excludes leases of all intangible assets from the scope of the lease accounting standard.

    Understanding these differences between IFRS and GAAP accounting is essential for business owners operating internationally. Investors and other stakeholders need to be aware of these differences so they can correctly interpret financials under either standard.

    What is difference between GAAP and IFRS?

    What is difference between GAAP and IFRS? – GAAP stands for Generally Accepted Accounting Principles, which are the generally accepted standards for financial reporting in the United States. IFRS stands for International Financial Reporting Standards, which are a set of internationally accepted accounting standards used by most of the world’s countries.

    GAAP is a framework based on legal authority while IFRS is based on a principles-based approach. GAAP is more detailed and prescriptive while IFRS is more high-level and flexible. GAAP requires more disclosures while IFRS requires fewer disclosures. GAAP is more focused on the historical cost of assets while IFRS allows for more flexibility in the valuation of assets.

    What is 116 accounting standard?

    Under Ind AS 116, a contract is a lease if it conveys the right to control the use of an asset for a particular period of time, in return for money.

    What is 39 accounting standards?

    IAS 39 Financial Instruments: Recognition and Measurement IAS 39 is a standard fully replaced by the new standard on financial instruments IFRS 9 applicable from 1 January 2018. If you would like to know more about this process, please read our article,

    1. UPDATE 2018: IAS 39 is superseded for the periods starting on or after 1 January 2018 and you have to apply,
    2. I leave this summary here for your information.
    3. Special For You! Have you already checked out the IFRS Kit ? It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included.

    If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! IAS 39 prescribes rules for accounting and reporting of almost all types of financial instruments. Typical examples include cash, deposits, debt and equity securities (bonds, treasury bills, shares), derivatives, loans and receivables and many others.

    What is 36 international accounting standard?

    The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired.

    The entity must reduce the carrying amount of the asset to its recoverable amount, and recognise an impairment loss. IAS 36 also applies to groups of assets that do not generate cash flows individually (known as cash-generating units). IAS 36 applies to all assets except those for which other Standards address impairment.

    The exceptions include inventories, deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9, investment property measured at fair value, biological assets within the scope of IAS 41, some assets arising from insurance contracts, and non-current assets held for sale.

    • The recoverable amount of the following assets in the scope of IAS 36 must be assessed each year: intangible assets with indefinite useful lives; intangible assets not yet available for use; and goodwill acquired in a business combination.
    • The recoverable amount of other assets is assessed only when there is an indication that the asset may be impaired.

    Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use. Fair value less costs to sell is the arm’s length sale price between knowledgeable willing parties less costs of disposal. The value in use of an asset is the expected future cash flows that the asset in its current condition will produce, discounted to present value using an appropriate discount rate.

    Sometimes, the value in use of an individual asset cannot be determined. In that case, recoverable amount is determined for the smallest group of assets that generates independent cash flows (cash-generating unit). Whether goodwill is impaired is assessed by considering the recoverable amount of the cash-generating unit(s) to which it is allocated.

    An impairment loss is recognised immediately in profit or loss (or in comprehensive income if it is a revaluation decrease under IAS 16 or IAS 38). The carrying amount of the asset (or cash-generating unit) is reduced. In a cash-generating unit, goodwill is reduced first; then other assets are reduced pro rata.

    • The depreciation (amortisation) charge is adjusted in future periods to allocate the asset’s revised carrying amount over its remaining useful life.
    • An impairment loss for goodwill is never reversed.
    • For other assets, when the circumstances that caused the impairment loss are favourably resolved, the impairment loss is reversed immediately in profit or loss (or in comprehensive income if the asset is revalued under IAS 16 or IAS 38).

    On reversal, the asset’s carrying amount is increased, but not above the amount that it would have been without the prior impairment loss. Depreciation (amortisation) is adjusted in future periods. In April 2001 the International Accounting Standards Board (Board) adopted IAS 36 Impairment of Assets, which had originally been issued by the International Accounting Standards Committee in June 1998.

    1. That standard consolidated all the requirements on how to assess for recoverability of an asset.
    2. These requirements were contained in IAS 16 Property, Plant and Equipment, IAS 22 Business Combinations, IAS 28 Accounting for Associates and IAS 31 Financial Reporting of Interests in Joint Ventures,
    3. The Board revised IAS 36 in March 2004 as part of the first phase of its business combinations project.

    In January 2008 the Board amended IAS 36 again as part of the second phase of its business combinations project. In May 2013 IAS 36 was amended by Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36). The amendments required the disclosure of information about the recoverable amount of impaired assets, if that amount is based on fair value less costs of disposal and the disclosure of additional information about that fair value measurement.

    What is 105 accounting standards?

    Release of Educational Material on Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations Ind AS 105 prescribes the accounting treatment for non-current assets held for sale and, and the presentation and disclosure of discontinued operations.

    It sets out the criteria for classification of a non-current asset (or disposal groups) as held for sale and discontinued operations. The Educational Material on Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations addresses certain relevant aspects envisaged in the Standard by way of brief summary of the Standard and Frequently Asked Questions (FAQs) which are being/expected to be encountered while implementing the Standard.

    Relevant link to download the Educational Material: https://www.icai.org/resource/63163asb51109.pdf

    Is accounting a 16 standard?

    Accounting Standard 16 prescribes the accounting treatment for borrowing costs. This accounting standard must be applied in accounting for the borrowing cots. Furthermore, AS 16 does not deal with the actual or imputed costs of owner’s equity including preference share capital that is not categorized as a liability.

    What is accounting standard 40?

    IAS 40 permits treatment of property interest held in an operating lease as investment property, if the definition of investment property is otherwise met and fair value model is applied. In such cases, the operating lease would be accounted as if it were a finance lease.

    Is IAS 32 replaced by IFRS 7?

    Overview of IFRS 7 – IFRS 7:

    • adds certain new disclosures about financial instruments to those previously required by Financial Instruments: Disclosure and Presentation (as it was then cited)
    • replaces the disclosures previously required by Disclosures in the Financial Statements of Banks and Similar Financial Institutions
    • puts all of those financial instruments disclosures together in a new standard on Financial Instruments: Disclosures, The remaining parts of IAS 32 deal only with financial instruments presentation matters.

    What is accounting standard 30 31 and 32?

    AS 30, 31, & 32 – FINANCIAL INSTRUMENTS

    • AS 30, 31, & 32 – FINANCIAL INSTRUMENTS :
    • Applicability of AS 30, 31 and 32
    • These standards are not mandatory but earlier adoption is encouraged. It may be mentioned that it has not been adopted by NACAS and thus in case of a company an earlier adoption of these standards might not comply with certain standards like

    AS-13 investment: A Company needs to consult accounting experts in such situation. Needless to mention that in case the company wishes to adopt the standard than it shall adopt the entire standard and not a part of it. ICAI Clarification – Principle of Prudence Under situation where an item of financial instrument is suffering from losses, than based on principle of prudence the entity shall provide for such losses through its profit and loss account.

    1. Objectives and scope Financial instruments are addressed in three standards: AS-31, which deals with distinguishing debt from equity and with netting; AS 30, which contains requirements for recognition and measurement; and AS-32, which deals with disclosures.
    2. The objective of the three standards is to establish requirements for all aspects of accounting for financial instruments, including distinguishing debt from equity, netting, recognition, derecognition, measurement, hedge accounting and disclosure.

    The scope of the standards is wide-ranging. The standards cover all types of financial instrument, including receivables, payables, investments in bonds and shares, borrowings and derivatives. They also apply to certain contracts to buy or sell non-financial assets (such as commodities) that can be net settled in cash or another financial instrument.

    • Nature and characteristics of financial instruments Financial instruments include a wide range of assets and liabilities.
    • They can mostly be exchanged for cash.
    • They are recognised and measured according to AS-30 requirements and are disclosed in accordance with AS- 32.
    • Financial instruments represent contractual rights or obligations to receive or pay cash or other financial asset.

    A financial asset is cash; a contractual right to receive cash or another financial asset; a contractual right to exchange financial assets or liabilities with another entity under conditions that are potentially favourable; or an equity instrument of another entity.

    • A financial liability is a contractual obligation to deliver cash or another financial asset or to exchange financial instruments with another entity under conditions that are potentially unfavourable.
    • An equity instrument is any contract that evidences a residual interest in the entity’s assets after deducting all its liabilities.

    A derivative is a financial instrument that derives its value from an underlying price or index, requires little or no initial investment and is settled at a future date. In some cases contracts to receive or deliver a company’s own equity can also be derivatives.

    1. Embedded derivatives in host contracts Some financial instruments and other contracts combine, in a single contract, both a derivative element and a non-derivative element.
    2. The derivative part of the contract is referred to as an ‘embedded derivative’ and its effect is that some of the cash flows of the contract will vary in a similar way to a standalone derivative.

    For example, the principal amount of a bond may vary with changes in a stock market index. In this case, the embedded derivative is an equity derivative on the relevant stock market index. Embedded derivatives that are not ‘closely related’ to the rest of the contract are separated and accounted for as if they were stand-alone derivatives (i.e., measured at fair value, generally with changes in fair value recognised in profit or loss).

    1. Classification of financial instruments
    2. The way that financial instruments are classified under AS-30 drives how they are subsequently measured and where changes in measurement are accounted for.
    3. There are four classes of financial asset under AS-30: available for sale, held to maturity, loans and receivables, and fair value through profit or loss. The factors taken into account in classifying financial assets include:

    – The cashflows arising from the instrument — are they fixed or determinable? Does the instrument have a maturity date?

    • – Are the assets held for trading; does management intend to hold the instruments to maturity?
    • – Is the instrument a derivative or does it contain an embedded derivative?
    • – Is the instrument quoted on an active market?
    • – Has management designated the instrument into a particular classification at inception?

    Financial liabilities are classified as fair value through profit or loss if they are so designated (subject to various conditions) or if they are held for trading. Otherwise they are classed as ‘other liabilities’. Financial assets and liabilities are measured either at fair value or at amortised cost, depending on this classification.

    • Changes are taken to either the income statement or directly to equity.
    • Financial liabilities and equity The classification of a financial instrument by the issuer as either a liability (debt) or equity can have a significant impact on an entity’s reported earnings, its borrowing capacity, and debt-to-equity and other ratios that could affect the entity’s debt covenants.
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    The substance of the contractual arrangements of a financial instrument, rather than its legal form, governs its classification. This means, for example, that since a preference share redeemable (puttable) by the holder is economically the same as a bond, it is accounted for in the same way as the bond.

    Therefore, the redeemable preference share is treated as a liability rather than equity, even though legally it is a share of the issuer. The critical feature of debt is that under the terms of the instrument the issuer is, or can be, required to deliver either cash or another financial asset to the holder and cannot avoid this obligation.

    For example, a debenture, under which the issuer is required to make interest payments and redeem the debenture for cash, is a financial liability. An instrument is classified as equity when it represents a residual interest in the issuer’s assets after deducting all its liabilities.

    1. Ordinary shares or common stock, where all the payments are at the discretion of the issuer, are examples of equity of the issuer.
    2. A special exception exists to the general principal of classification for certain subordinated redeemable (puttable) instruments that participate in the pro rata net assets of the entity.

    Where specific criteria are met such instruments would be classified as equity of the issuer. Some instruments contain features of both debt and equity. For these instruments, an analysis of the terms of each instrument in light of the detailed classification requirements will be necessary.

    Such instruments, such as bonds that are convertible into a fixed number of equity shares either mandatorily or at the holder’s option, must be split into debt and equity (being the option to convert) components. A financial instrument, including a derivative, is not an equity instrument solely because it may result in the receipt or delivery of the entity’s own equity instruments.

    The classification of contracts that will or may be settled in the entity’s own equity instruments is dependent on whether there is variability in either the number of own equity delivered and/or variability in the amount of cash or other financial assets received, or whether both are fixed.

    The treatment of interest, dividends, losses and gains in the income statement follows the classification of the related instrument. So, if a preference share is classified as debt, its coupon is shown as interest. But the dividend payments on an instrument that is treated as equity are shown as a distribution.

    : AS 30, 31, & 32 – FINANCIAL INSTRUMENTS

    What IFRS is equivalent to IAS 32?

    September 1991 Exposure Draft E40 Financial Instruments
    January 1994 E40 was modified and re-exposed as Exposure Draft E48 Financial Instruments
    June 1995 The disclosure and presentation portion of E48 was adopted as IAS 32 Financial Instruments: Disclosure and Presentation
    1 January 1996 Effective date of IAS 32 (1995)
    December 1998 IAS 32 was revised by IAS 39, effective 1 January 2001
    17 December 2003 Revised version of IAS 32 issued by the IASB
    1 January 2005 Effective date of IAS 32 (2003)
    18 August 2005 Disclosure provisions of IAS 32 are replaced by IFRS 7 Financial Instruments: Disclosures effective 1 January 2007. Title of IAS 32 changed to Financial Instruments: Presentation
    22 June 2006 Exposure Draft of proposed amendments relating to Puttable Instruments and Obligations Arising on Liquidation
    14 February 2008 IAS 32 amended for Puttable Instruments and Obligations Arising on Liquidation
    1 January 2009 Effective date of amendments for puttable instruments and obligations arising on liquidation
    6 August 2009 Exposure Draft Classification of Rights Issues proposing to amend IAS 32
    8 October 2009 Amendment to IAS 32 about Classification of Rights Issues
    1 February 2010 Effective date of the October 2009 amendment
    16 December 2011 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) issued
    17 May 2012 Amendments resulting from Annual Improvements 2009-2011 Cycle (tax effect of equity distributions). Click for More Information
    1 January 2013 Effective date of May 2012 amendments ( Annual Improvements 2009-2011 Cycle )
    1 January 2014 Effective date of December 2011 amendments

    ul> IAS 32 (2003) superseded SIC-5 Classification of Financial Instruments – Contingent Settlement Provisions IAS 32 (2003) superseded SIC-16 Share Capital – Reacquired Own Equity Instruments (Treasury Shares) IAS 32 (2003) superseded SIC-17 Equity – Costs of an Equity Transaction IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments

    Financial Instruments with Characteristics of Equity (Liabilities and Equity)

    The stated objective of IAS 32 is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and liabilities. IAS 32 addresses this in a number of ways:

    clarifying the classification of a financial instrument issued by an entity as a liability or as equity prescribing the accounting for treasury shares (an entity’s own repurchased shares) prescribing strict conditions under which assets and liabilities may be offset in the balance sheet

    IAS 32 is a companion to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 9 Financial Instruments, IAS 39 and IFRS 9 deal with initial recognition of financial assets and liabilities, measurement subsequent to initial recognition, impairment, derecognition, and hedge accounting.

    interests in subsidiaries, associates and joint ventures that are accounted for under IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates or IAS 31 Interests in Joint Ventures (or, for annual periods beginning on or after 1 January 2013, IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures ). However, IAS 32 applies to all derivatives on interests in subsidiaries, associates, or joint ventures. employers’ rights and obligations under employee benefit plans (see IAS 19 Employee Benefits ) insurance contracts(see IFRS 4 Insurance Contracts ). However, IAS 32 applies to derivatives that are embedded in insurance contracts if they are required to be accounted separately by IAS 39 financial instruments that are within the scope of IFRS 4 because they contain a discretionary participation feature are only exempt from applying paragraphs 15-32 and AG25-35 (analysing debt and equity components) but are subject to all other IAS 32 requirements contracts and obligations under share-based payment transactions (see IFRS 2 Share-based Payment ) with the following exceptions:

    this standard applies to contracts within the scope of IAS 32.8-10 (see below) paragraphs 33-34 apply when accounting for treasury shares purchased, sold, issued or cancelled by employee share option plans or similar arrangements

    IAS 32 applies to those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, except for contracts that were entered into and continue to be 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.

    cash an equity instrument of another entity a contractual right

    to receive cash or another financial asset from another entity; or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or

    a contract that will or may be settled in the entity’s own equity instruments and is:

    a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

    Financial liability: any liability that is:

    a contractual obligation:

    to deliver cash or another financial asset to another entity; or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or

    a contract that will or may be settled in the entity’s own equity instruments and is

    a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include: instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments; puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

    Equity instrument: Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Fair value: the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

    The definition of financial instrument used in IAS 32 is the same as that in IAS 39, Puttable instrument: a financial instrument that gives the holder the right to put the instrument back to the issuer for cash or another financial asset or is automatically put back to the issuer on occurrence of an uncertain future event or the death or retirement of the instrument holder.

    The fundamental principle of IAS 32 is that a financial instrument should be classified as either a financial liability or an equity instrument according to the substance of the contract, not its legal form, and the definitions of financial liability and equity instrument.

    Two exceptions from this principle are certain puttable instruments meeting specific criteria and certain obligations arising on liquidation (see below). The entity must make the decision at the time the instrument is initially recognised. The classification is not subsequently changed based on changed circumstances.

    A financial instrument is an equity instrument only if (a) the instrument includes no contractual obligation to deliver cash or another financial asset to another entity and (b) if the instrument will or may be settled in the issuer’s own equity instruments, it is either:

    a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.

    Illustration – preference shares If an entity issues preference (preferred) shares that pay a fixed rate of dividend and that have a mandatory redemption feature at a future date, the substance is that they are a contractual obligation to deliver cash and, therefore, should be recognised as a liability.

    In contrast, preference shares that do not have a fixed maturity, and where the issuer does not have a contractual obligation to make any payment are equity. In this example even though both instruments are legally termed preference shares they have different contractual terms and one is a financial liability while the other is equity.

    Illustration – issuance of fixed monetary amount of equity instruments A contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity’s own equity instruments to be received or delivered equals the fixed monetary amount of the contractual right or obligation is a financial liability.

    Illustration – one party has a choice over how an instrument is settled When a derivative financial instrument gives one party a choice over how it is settled (for instance, the issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument.

    Contingent settlement provisions If, as a result of contingent settlement provisions, the issuer does not have an unconditional right to avoid settlement by delivery of cash or other financial instrument (or otherwise to settle in a way that it would be a financial liability) the instrument is a financial liability of the issuer, unless:

    the contingent settlement provision is not genuine or the issuer can only be required to settle the obligation in the event of the issuer’s liquidation or the instrument has all the features and meets the conditions of IAS 32.16A and 16B for puttable instruments

    Puttable instruments and obligations arising on liquidation In February 2008, the IASB amended IAS 32 and IAS 1 Presentation of Financial Statements with respect to the balance sheet classification of puttable financial instruments and obligations arising only on liquidation.

    As a result of the amendments, some financial instruments that currently meet the definition of a financial liability will be classified as equity because they represent the residual interest in the net assets of the entity. Classifications of rights issues In October 2009, the IASB issued an amendment to IAS 32 on the classification of rights issues.

    For rights issues offered for a fixed amount of foreign currency current practice appears to require such issues to be accounted for as derivative liabilities. The amendment states that if such rights are issued pro rata to an entity’s all existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated.

    • Some financial instruments – sometimes called compound instruments – have both a liability and an equity component from the issuer’s perspective.
    • In that case, IAS 32 requires that the component parts be accounted for and presented separately according to their substance based on the definitions of liability and equity.

    The split is made at issuance and not revised for subsequent changes in market interest rates, share prices, or other event that changes the likelihood that the conversion option will be exercised. To illustrate, a convertible bond contains two components.

    One is a financial liability, namely the issuer’s contractual obligation to pay cash, and the other is an equity instrument, namely the holder’s option to convert into common shares. Another example is debt issued with detachable share purchase warrants. When the initial carrying amount of a compound financial instrument is required to be allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component.

    Interest, dividends, gains, and losses relating to an instrument classified as a liability should be reported in profit or loss. This means that dividend payments on preferred shares classified as liabilities are treated as expenses. On the other hand, distributions (such as dividends) to holders of a financial instrument classified as equity should be charged directly against equity, not against earnings.

    Transaction costs of an equity transaction are deducted from equity. Transaction costs related to an issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds. The cost of an entity’s own equity instruments that it has reacquired (‘treasury shares’) is deducted from equity.

    Gain or loss is not recognised on the purchase, sale, issue, or cancellation of treasury shares. Treasury shares may be acquired and held by the entity or by other members of the consolidated group. Consideration paid or received is recognised directly in equity.

    has a legally enforceable right to set off the amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

    Costs of issuing or reacquiring equity instruments are accounted for as a deduction from equity, net of any related income tax benefit. Financial instruments disclosures are in IFRS 7 Financial Instruments: Disclosures, and no longer in IAS 32. The disclosures relating to treasury shares are in IAS 1 Presentation of Financial Statements and IAS 24 Related Parties for share repurchases from related parties.

    What is 39 accounting standards?

    IAS 39 Financial Instruments: Recognition and Measurement IAS 39 is a standard fully replaced by the new standard on financial instruments IFRS 9 applicable from 1 January 2018. If you would like to know more about this process, please read our article,

    UPDATE 2018: IAS 39 is superseded for the periods starting on or after 1 January 2018 and you have to apply, I leave this summary here for your information. Special For You! Have you already checked out the IFRS Kit ? It’s a full IFRS learning package with more than 40 hours of private video tutorials, more than 140 IFRS case studies solved in Excel, more than 180 pages of handouts and many bonuses included.

    If you take action today and subscribe to the IFRS Kit, you’ll get it at discount! IAS 39 prescribes rules for accounting and reporting of almost all types of financial instruments. Typical examples include cash, deposits, debt and equity securities (bonds, treasury bills, shares), derivatives, loans and receivables and many others.