Module 6:

Disclosure
 What you will learn?

 Statement of cash flows - IAS 7

 Operating segments - IFRS 8
 Related party disclosures - IAS 24
 Earnings per share - IAS 33
 Interim financial reporting - IAS 34
 First-time adoption of international financial
reporting standards – IFRS 1
 IAS 7: Statement of Cash Flows
Objective and Classification of Statement of Cash Flows

Cash

Give information
about the
historical changes
Cash
equivalents

Statement of Cash Flows

Operating
activities

Cash Cash Investing

inflows outflows Main headings activities

Financing
activities
 IAS 7: Statement of Cash Flows
Three main headings

Operating Investing Financing

activities activities activities

Receipts from Payments to

sales The proceeds of
acquire non-
share issues
current assets
Receipts from
royalties, fees, Proceeds of The proceeds of
commissions… sale of non- loan stock
current assets issues

Payments to
suppliers and Cash flows Repayments of
employees associated with amounts
loans made to borrowed
other parties
Tax payments
or refunds Payments to
reduce a lease
obligation
IAS 7: Statement of Cash Flows
Cash generated from operations

Sales receipts Purchase Overheads

Cash generated by operations

Cash flows from Operating Activities

Calculate

Directly Indirectly

Same
result
 IAS 7: Statement of Cash Flows
Example – the indirect method

$
Profit before tax X
Add back finance costs X
Add back depreciation X

Decrease / increase) in trade and

X/(X)
other receivables

Decrease / (increase) in inventories X/(X)

Increase / (decrease) in trade and

X/(X)
other payables

Cash generated from operations X

 IAS 7: Statement of Cash Flows
Additional points

not included in
Actual
exchange SOCF
Cash
rates
flows from Non-cash
a foreign transactions
Average disclosed in
subsidiary exchange
rates Notes

Changes in cash
liabilities transactions
Disclosure note arising from
financing non-cash
activities movements
 IAS 7: Statement of Cash Flows
Example

Operatin
Operatin
Operatin Investin Financi g or
g or
g g ng Financin
Investing
g

Tax paid
Equity dividends paid
Process of sales of
short term
investments
Payment of staff
wages
Cash payments to
reduce a lease
liability
Repayment of bank
loan
Interest received
Cash loan made to a
supplier
 IAS 7: Statement of Cash Flows
Example

Operatin
Operatin
Operatin Investin Financi g or
g or
g g ng Financin
Investing
g

Tax paid X
Equity dividends paid X
Process of sales of
short term X
investments
Payment of staff
X
wages
Cash payments to
reduce a lease X
liability
Repayment of bank
X
loan
Interest received X
Cash loan made to a
x
supplier
 IFRS 8: Operating Segments
Applicability

companies whose debt or equity

instruments are traded in a public market
IFRS 8
companies in the process of issuing
securities in a public market
only
applicable
in Parent

Consolidated if in the same

financial financial report
statements

Consolidated statements
 IFRS 8: Operating Segments
Operating segments
Earn
Engages in Revenue
business
activities Incur
Expense

Chief operating decision maker

(CODM)

review

Operating Component Operating

Decision
segment of an entity results

Discrete
financial
information
 IFRS 8: Operating Segments
Reportable operating segments

Reportable operating segment

Operating segments or
aggregation of operating
segments that have ≥ 10% of

Profit of all
Total revenue of
segments
all segments OR OR Total assets of all
(or loss of all
(internal and segments
segments if
external)
greater)

*The total external revenue of all reportable operating segments

must represent at least 75% of the entity's external revenue.
 IFRS 8: Operating Segments
Aggregation of Operating Segments

Combine operating
segments as a single
reportable segment

Provide information to Segments combined

evaluate the business have similar economic
and environment characteristics

Nature of Method to
Nature of Types of Nature of
products distribute
production class of regulatory
and products and
processes customer environment
services services
 IFRS 8: Operating Segments
Disclose requirement

General information

 Factors used to identify reportable segments

 Types of products and services from which each segment
derives revenues.

Reconciliations

Of each of the following items for reportable segments to entity

reported figure:
 Revenue
 Profit or loss
 Assets (if disclosed)
 Liabilities (if disclosed)
 Other material items.
 IFRS 8: Operating Segments
Disclose requirement

Information about profit or loss, assets and liabilities

 A measure of profit or loss for each reportable segment

 Specific amounts included in this measure (e.g. internal and
external revenues, interest and income tax)
 A measure of total assets and liabilities for each segment only
if these amounts are provided to the CODM
 Specific amounts included in this measure (e.g. investments in
associates and additions to non-current assets)

Entity wide disclosures

 External revenue by product and service

 External revenue by geographical area (country of domicile/
other countries)
 Non-current assets by geographical are (country of domicile /
other countries)
 IFRS 24: Related Party Disclosures
Definition
A party that is related to a reporting entity may be an individual or
another reporting entity
Individuals Reporting entities that are related
 A person who has  Members of the same group
control or joint control  Associates or joint ventures and their
over the reporting parents (or companies within the same
entity group as their parent)
 A person who has  Two joint ventures of the same third party
significant influence  An associate and a joint venture of the
over the reporting same parent entity
entity  A reporting entity and the post-
 A member of key employment benefit plan for its
management personnel employees
of the reporting entity  An entity that is controlled or jointly
or its parent controlled by an individual and an entity
 A close member of that is a related party of the same
family of any person individual
mentioned  An entity that is controlled or jointly
controlled by an individual and another
entity that the same individual has
significant influence over or is key
management personnel of
 An entity and an entity that provides it
with key management personnel services
IFRS 24: Related Party Disclosures
Definition

Parent Key management

Fellow
Related party Key management
subsidiary

Subsidiary Associate
IFRS 24: Related Party Disclosures
Exception

The following are not related parties:

 Two entities simply because they have a director in
common
 Two joint venturers simply because they share control of a
joint venture
 Providers of finance, trade unions, public utilities and
government departments that do not control, jointly
control or significantly influence an entity
 Customers and suppliers with whom an entity transacts a
significant volume of business.
 IFRS 24: Related Party Disclosures
Disclosure

Name of parent
Parent-subsidiary
relationship Name of ultimate
controlling party

Share-based payments

Short and long term benefits

3 areas Key management
personnel
required Post-employment benefits

to Termination benefits
disclose
Amount of transactions

Amount outstanding
Related party
transactions Provisions for doubtful debts

Expense for irrecoverable

debts
 IFRS 24: Related Party Disclosures
Exception for Disclosure

The IAS 24 disclosure requirements do not apply to transactions

between a reporting entity and:
 A government that has control, joint control or significant
influence over the entity and
 Another entity that is related to the reporting entity because
the same government controls, jointly controls or
significantly influences both
 IAS 33: Earnings Per Share
Types of EPS

Diluted EPS (DEPS)

Basis EPS Diluted EPS (DEPS)

Disclose on face of Disclose on face of

statement of statement of
comprehensive comprehensive
income income
 IAS 33: Earnings Per Share
Basic EPS

EPS is calculated as:

Profit / (loss) attributable to ordinary shareholders
Weighted average number of ordinary shares (WANOS)

The profit attributable to ordinary shareholders is profit after

tax:
 Attributable to the owners of the parent and
 After deducting preference share dividends that are not
included within finance costs (i.e. irredeemable preference
shares).

The weighted average number of ordinary shares is calculated

by:
 Pro-rating the number of shares outstanding where there
have been share issues in the period
 Adjusting any shares in issue before a bonus issue by a bonus
fraction
 Adjusting any shares in issue before a rights issue by a bonus
fraction.
 IAS 33: Earnings Per Share
Example Basic EPS

Lowry earns a profit of $1,000,000 net of taxes in Year 1

Lowry owes $200,000 in dividends to the holder of its cumulative
preferred stock.

Lowry had 4,000,000 common shares outstanding at the beginning of

Year 1.
On April 1, it sold 200,000 common shares
On October 1, it sold 400,000 shares
On July 1, it issued 500,000 shares to the owners of a newly-acquired
subsidiary.
On December 1, it bought back 60,000 shares.

Question:
1. Calculate the numerator of its basis earnings per share
2. Calculate the weighted-average number of common shares
outstanding
3. Calculate EPS
 IAS 33: Earnings Per Share
Example Basic EPS

[Link] numerator of its basis earnings per share = 1,000,000 –

200,000 = 800,000
[Link] weighted-average number of common shares outstanding:

Weighted
Date Shares Weighting (months)
Avarage
Jan 1 4,000,000 12/12 4,000,000
Apr 1 200,000 9/12 150,000
Jul 1 500,000 6/12 250,000
Oct 1 400,000 3/12 100,000
Dec 1 -60,000 1/12 -5,000
The weighted-average number of common shares 4,495,000

Adjusted profit $800,000

3. EPS = = = $0.18
per share Weighted-average 4,495,000
shares
 IAS 33: Earnings Per Share
Diluted EPS

Dilluted earnings per share is calculated as:

Profit for basic EPS adjusted for effect of dilutive potential
ordinary shares
Number of shares for basic EPS adjusted for dilutive potential
ordinary shares
 Potential ordinary shares are dilutive when their conversion
would decrease net profit per share.

 Potential ordinary shares include options, convertible

instruments (e.g. loan stock or preference shares) and
contingently issuable shares.

 Where there are a number of groups of potential ordinary

shares in issue, the effects of these are added into the DEPS
calculation one by one, starting with most dilutive. Diluted
EPS is the lowest EPS calculated at any stage.
 IAS 33: Earnings Per Share
Example for Diluted EPS

In 20X7 Farrah Co had a basic EPS of $1.05 based on earnings

of $105,000 and 100,000 ordinary $1 shares.
It also had in issue $40,000 with interest of 15%, which is
convertible in two years' time at the rate of four ordinary
shares for every $5 of stock.
The rate of tax is 30%.
In 20X7 gross profit of $150,000 was recorded.

Question:
Calculate the diluted EPS
 IAS 33: Earnings Per Share
Example for Diluted EPS

Calculate Adjusted Profit: Calculate Adjusted WANOS:

• Gross profit = $150,000 • Current shares = 100,000
• Saving interest = $40,000 x • Potential shares = 40000 x 4/5
15% = $6,000 = 32,000
New gross profit = $156,000  Adjusted WANOS = 132,000

• Tax = $156,000 x 30% =

$46,800
 Adjusted profit =
$156,000 - $46,800 = $109,200

$109,200
 Diluted EPS = = $0.827
132,000
 IAS 34: Interim Financial Reporting
Definition and Measurement

Financial
reporting period

Interim period
< 1 year
Complete set of FSs (a quarter or half-
(IAS 1) year )
Interim
or financial
report
Condensed FSs
(IAS 34)

Measurement

Comparative
Disclose nature and
Year-to-date figures for previous
amount of significant
basis interim period and
remesurements
previous full years
 IAS 34: Interim Financial Reporting
Requirement for disclosure

Foreign currency transaction gains and losses:

Same principles as year end

Charge depreciation for assets

Not provide year end bonus, unless reliably

measurement and constructive obligation to pay
Points that
entity is
required to Income tax expense is recognized based on the
consider best estimate of the weighted-average annual
income tax rate expected for the full financial year

Cost and expense are recognized as incurred and

treated similarly to annual FSs

Seasonal, cyclical or occasional revenue are

treated similarly to annual FSs
 IAS 34: Interim Financial Reporting
Requirement for disclosure

 Assess materiality in relation to the interim period

Materiality
financial data, not forecasted annual data.

 Apply the same accounting policy for interim

reporting and annual FSs
Accounting
 Except for accounting policy changes made after the
policies
date of the most recent annual financial statements
that are to be reflected in the next annual FSs

 Notes to the financial statements must include

Disclose disclosure of significant events and transactions
since the end of the last full period.
IFRS 1: First-time Adoption of IFRS
5 issues need to be addressed

Available exemption

Explaination and disclosure in transition year

How to account gains and lossess arising when adopting IFRS

Which IFRS Standards should be adopted

Date of transition to IFRS

 IFRS 1: First-time Adoption of IFRS
Date of transition

The beginning of the earliest period for which

Date of an entity presents full comparative
transition information under IFRS Standards in its first
financial statements produced using IFRS

Adopted IFRS Standards for

the first time
1/1/20X8 1/1/20X9 31/12/20X9

Date of The first IFRS FSs comply

transition with IFRS Standards
effective
Produce an
Opening IFRS SOFP
 IFRS 1: First-time Adoption of IFRS
Opening IFRS Statement of Financial Position at transition date

Recognize All assets and liabilities required by IFRSs

Not recognize Assets and liabilities not permitted by IFRSs

All assets, liabilities and equity components

Reclassify
in accordance with IFRSs

All assets and liabilities in accordance with

Measure
IFRSs

Recognize Any gains or losses arising on the adoption

directly in RE of IFRS Standards
 IFRS 1: First-time Adoption of IFRS
Explaination and Disclosure

How the transition to IFRS Standards affects:

 reported financial performance
Explaination
 financial position
 cash flows

 Identified errors while preparing IFRS FSs

separately
 Fair value of property, plant and
Disclose
equipment, intangible assets and
investment properties can be used as
“deemed cost”
 IFRS 1: First-time Adoption of IFRS
Exemptions

Derecognition of financial instruments

Hedge accounting

Non-controlling interest
Exemptions

Classification and measurement of financial assets

Impairment of financial assets

Embedded derivatives

Government loans
 IFRS 1: First-time Adoption of IFRS
Other optional exemptions

Previous business combinations

Past translation gains and losses on an overseas subsidiary

Other optional exemptions

can deemed to nil

Capitalised borrowing cost component

Convertile debt have been repaid by the date of transition,

no matter their proceeds are split into a liability or equity
component

If a subsidiary adopt IFRS later than it parents, assets and

liabilities can be valued at the transition date of
subsidiary of parent
 IFRS 1: First-time Adoption of IFRS
Example

1 Jan
If IFRS Standards The date of transition is...
20X8
are first adopted
in the financial
statements for
the year ended The first IFRS financial
31/12/20X9 statements should comply 31 Dec
with IFRS Standards 20X9
effective at...

Retained
The company should apply IFRS Any Earnings
Standards in measuring all adjustments
recognised assets and liabilities should be or
in its date of transition recognised
statement of financial position. directly in...
Equity