case study 1 the ias 8 hierarchy - world...

The views expressed in this presentation are those of the presenter,

not necessarily those of the IASB or IFRS Foundation.

International Financial Reporting Standards

Case study 1 the IAS 8 hierarchy

Vienna, 3 June 2013

©IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

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© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

The requirements are set out in International Financial Reporting Standards (IFRSs), as issued by the IASB at 1 January 2013 with an effective date after 1 January 2013 but not the IFRSs they will replace.

Disclaimer: The IFRS Foundation, the authors, the presenters and the publishers do not accept responsibility for any loss caused by acting or refraining from acting in reliance on the material in this PowerPoint presentation, whether such loss is caused by negligence or otherwise.

Framework-based approach for applying IFRS


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• What are the economics of the phenomenon (eg

transaction or event)?

• What information about the phenomenon is

relevant for informing resource allocation

decisions by existing and potential investors and

lenders who cannot require information directly

and that can be faithfully represented etc?

• Then consider IFRS requirements

• Make judgements to develop accounting policy

• Make judgements and estimates to apply the

requirements with rigour and consistency

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Example 1― gold held as store of wealth

Amalgam holds 1,000,000 ounces of gold.

Purchased on 30/6/X2 at $1,000 per ounce.

Fair value at 31/12/X2 = $1,500 per ounce.

What information about the gold held as a store of

wealth is most relevant (capable of making a

difference) to resource allocation decisions by

existing and potential investors, lenders and other

creditors who are not in a position to require

information directly from Amalgam and that can be

faithfully represented etc?

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Example 1― gold held as store of wealth

Which IFRS specifies accounting for such gold?

Choose 1 of:

(a) no specific IFRS therefore apply the IAS 8 hierarchy;

(b) IAS 16 PPE; (c) IAS 38 Intangible Assets;

(d) IAS 39 or, if adopted early, IFRS 9 Financial

Instruments;

(e) IFRS 6 Exploration for and Evaluation of Mineral

Resources;

(f) IAS 40 Investment Property; (g) IAS 2 Inventories; or

(h) another IFRS.

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• Objective = information relevant to resource allocation decisions by existing and potential investors, lenders and other creditors who cannot require information directly and that can be faithfully represented etc.

• Process • 1st try to analogise to requirements in IFRS

dealing with similar and related issues; and

• 2nd definitions, recognition criteria and measurement ‘concepts’ in Framework

• may also use most recent pronouncements of others with similar conceptual framework, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in 1 and 2 above.

Applying the IAS 8 hierarchy

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Example 1― gold held as store of wealth continued

When applying the IAS 8 hierarchy to develop and

apply a policy that results in relevant, faithfully

represented etc information about the gold…

Choose 1 of: (a) carry at fair value by analogy to foreign

currency held in IAS 39 or IFRS 9 Financial Instruments;

(b) carry using cost model by analogy to IAS 40

Investment Property; (c) carry at fair value by analogy to

IAS 40; (d) carry at lower of cost or net realisable value

by analogy to IAS 2 Inventories; or

(e) cannot analogise to another IFRS therefore apply

Conceptual Framework.

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Example 2― artwork collection

Entity holds 10 artworks purchased on 30/9/X2 for $1 billion. Entity holds private art collection—does not trade in artwork but might need to sell some to fund purchase of more desirable pieces.

What information about the artworks held as a store

of wealth is most relevant (capable of making a

difference) to resource allocation decisions by

existing and potential investors, lenders and other

creditors who are not in a position to require

information directly from Amalgam and that can be

faithfully represented etc?

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Example 2― artwork collection

Which IFRS specifies accounting for such artworks?

Choose 1 of:

(a) no specific IFRS therefore apply the IAS 8 hierarchy;

(b) IAS 16 PPE;

(c) IAS 38 Intangible Assets; (d) IAS 39 or, if adopted

early, IFRS 9 Financial Instruments;

(e) IFRS 6 Exploration for and Evaluation of Mineral

Resources;

(f) IAS 40 Investment Property; (g) IAS 2 Inventories; or

(h) another IFRS.

.

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Example 2― artwork collection continued



represented etc information about the artworks…

Choose 1 of: (a) carry at fair value by analogy to foreign

currency held in IAS 39 or IFRS 9 Financial Instruments;

(b) carry using cost model by analogy to IAS 40

Investment Property; (c) carry at fair value by analogy to

IAS 40; (d) carry at lower of cost or net realisable value

by analogy to IAS 2 Inventories; or



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Example 3― conditional grant/gift

In 20X2 entity was gifted $2 billion from the estate of an art philanthropist to expand its private art collection. Cash not spent on art before 31/12/X4 reverts to philanthropist’s estate. $0.5 billion spent on art in 20X2.

What information about the grant is most relevant

(capable of making a difference) to resource

allocation decisions by existing and potential

investors, lenders and other creditors who are not in

a position to require information directly from

Amalgam and that can be faithfully represented etc?

.

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Example 3― conditional grant/gift

Which IFRS specifies accounting for such grants?

Choose 1 of:

(a) IAS 20 Accounting for Government Grants and

Disclosure of Government Assistance;

(b) IAS 41 Agriculture;

(c) another IFRS; or

(d) no specific IFRS therefore apply the IAS 8 hierarchy.

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Example 3― conditional grant/gift continued



represented etc information about the grant…

Choose 1 of: (a) analogise to IAS 20 irrespective of

accounting policy for artwork; (b) analogise to IAS 41

Agriculture irrespective of accounting policy for artwork;

(c) analogise to IAS 41 only if artwork carried at fair

value; (d) analogise to another IFRS; or



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Example 3― conditional grant/gift continued

If analogy to IAS 20 what accounting policy would result

in relevant, faithfully represented etc information about

the grant?

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Example 4―combination of businesses under common control

Amalgam, Ation and Conglomerate are controlled by Mrs C. Amalgam acquires Ation from Conglomerate for $20 billion when:

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$’billions A B

Carrying

amount

Fair value

Carrying

amount

Fair value

Identifiable

assets 300 600 35 50

Liabilities 200 190 32 30

Contingent

liabilities – 10 – 2

100 400 3 18

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Example 4―combination under common control continued

What information about the combination of

businesses under common control is most relevant

(capable of making a difference) to resource

allocation decisions by existing and potential

investors, lenders and other creditors who are not in

a position to require information directly from

Amalgam and that can be faithfully represented etc?

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Which IFRS specifies accounting for combinations of

businesses under common control?

Choose 1 of:

(a) IFRS 3 Business Combinations;

(b) IAS 16 PPE;

(c) IAS 38 Intangible Assets;

(d) IAS 39 or, if adopted early, IFRS 9 Financial

Instruments; or

(e) no specific IFRS therefore apply the IAS 8 hierarchy.

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apply an accounting policy that results in relevant,

faithfully represented etc information about

combinations of businesses under common

control…

Choose 1 of: (a) must use acquisition accounting by

analogy to IFRS 3 Business Combinations;

(b) despite scope exclusion can choose to use

acquisition accounting by analogy to IFRS 3; or

(c) cannot use acquisition accounting because of the

scope exclusion in IFRS 3.

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Consistently with the objective of financial reporting,

whose information needs provide focus when

assessing the relevance of financial information?

Choose 1 of: (a) the ultimate parent Mrs C;

(b) the parent Conglomerate; (c) the non-controlling

interest in Amalgam; or (d) lenders and other creditors of

Amalgam that can require Amalgam to provide

information directly to them.

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Which method of accounting for such combinations

provides the most relevant information to, for

example, Amalgam’s NCI?

Choose 1 of: (a) acquisition accounting (as set out in

IFRS 3); (b) pooling of interests—on initial recognition

Amalgam uses Ation’s carrying amounts—as required or

permitted by some standards that have a similar

Conceptual Framework; or (c) fresh-start accounting—

the acquisition date fair values of Amalgam and Ation

assets and liabilities are the starting point for new

accounting

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Thank You


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case study 1 the ias 8 hierarchy - world...

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