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ESSNET ADMIN DATA

Work package 7: Statistics and Accounting Standards

Deliverable 7.2

Comparison of business statistics characteristics with

IAS/IFRS and EU accounting directive: the main

differences between statistical and accounting concepts

REFERENCE PERIOD:

SGA 2010 (28/04/2010–30/06/2011)

WP7 CO-PARTNERS:

INE Insituto Nacional de Estatistica Portugal

CBS Centraal Bureau voor de Statistiek Netherlands

SL Statistics Lithuania Lithuania

ISTAT Istituto Nazionale di Statistica Italy

2

Background

In order to make wider use of data from businesses‟ annual accounts, National Statistical

Institutions (NSIs) have to understand the differences and similarities between statistical and

accounting concepts. This knowledge may also help NSIs formulate questionnaires which are

easily understood by accountants. Providing NSIs with easily accessible links from business

statistics characteristics to IAS/IFRS1 and EU Accounting Directives

2 (and pointing out the

main differences) could be the first steps on the road to improving consistency between

statistical and accounting concepts.

Work done

WP7 started from analysis of three SBS financial variables:

- 12 11 0 Turnover,

- 13 11 0 Total purchases of goods and services, and

- 13 32 0 Wages and salaries.

Objectives of the analysis were:

- To compare SBS-R requirements (definitions) and IAS/IFRS statements;

- To find out the differences between SBS and IAS/IFRS concepts and describe them;

- To provide recommendations as to how to obtain a particular variable from Financial

Statements (hereafter – FS) of enterprises applying the IFRS.

The definitions of SBS variables (Commission Regulation (EC) No 250/2009 of 11 March

2009) were compared with the accounting standards accepted by Commission Regulation

(EC) No 1126/2008 of 3 November 2008 adopting certain international accounting standards

in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the

Council. The IFRS Taxonomy Illustrated, prepared by the International Accounting Standards

Committee Foundation in April 2010, was used as an additional source.

Then, the analysis was extended to include 5 other SBS variables:

- 12 13 0 Gross margin on sale,

- 13 12 0 Purchases resold in same condition,

- 13 21 0 Total changes in stocks,

- 13 21 1 Changes in stocks of purchases resold in same condition, and

- 13 21 3 Changes in stocks of products made by the unit.

The draft conclusions of the main findings on 4 SBS variables are provided in Table 1, a

detailed description of the results of investigation – in the Annexes 1-4.

The final conclusions and the description of the 8 SBS variables investigated during the SGA

2010 period will be completed during the SGA 2011 period.

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Table 1. Links from business statistics characteristics to IAS/IFRS and the main differences

between statistical and accounting concepts identified.

SBS

variable

The main

related

IAS/IFRS

Conclusions on the main differences between SBS

definitions and IAS/IFRS standards and/or

recommendations as to how to obtain a particular

variable from FS

12 11 0 -

Turnover

IAS 1 –

Presentation of

financial

statements

IAS 18 –

Revenue

IAS 11 –

Construction

contracts

Revenue is income arising from the following

transactions and events: a) the sale of goods; b) the

rendering of services; and c) the use by others of entity

assets yielding interest, royalties and dividends.

It is expected to have a match between SBS Turnover

and IAS Revenue variables by summing up the revenue

arising from the sale of goods and from the rendering of

services.

But if the items of Revenue are not material, there may

not be separately disclosed. In this case, there is no

match with the IAS Revenue, as this amount includes

revenue arising from interest, royalties and dividends.

The SBS definition of turnover includes the production

taxes but IAS excludes the excises (production taxes)

from revenue in most cases. The exclusion of production

taxes for these specific sectors leads to a substantial

underestimation of SBS turnover (for more details see

Annexe 1).

13 11 0 -

Total

purchases

of goods

and

services

IAS 1 –

Presentation of

financial

statements

IAS 2 –

Inventories

IAS 41 –

Agriculture

IAS 23 –

Borrowing costs

IAS 16 –

Property, plant

and equipment

IAS 36 –

Impairment of

assets

Even if a specific IAS is not yet available for purchases

of goods and services, IAS 18 and IAS 11 indirectly

describe the main guidelines for this item, since the costs

of goods and services for recognition and measurement

must be closely linked to the related income as requested

by the accountant matching rules.

If the expenses are presented using the expense method,

a close match with the variable Raw materials and

consumables used will be possible. The match won‟t be

straightforward because other expenses related to the

production process included in the residual item Other

expenses need also to be considered.

If the function of expense method is used, the

components of SBS Purchases of goods and services are

spread in the items Cost of sales, Distribution costs,

Administrative expenses and Other expenses. The first

three items mentioned include employee benefits,

depreciation and amortization expenses, whose values

shall not be included in the SBS variable. However, all

entities shall disclose additional information on the

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IAS 40 –

Investment

property

nature of expenses (namely, depreciation and

amortization expenses and employee benefits expenses).

In that case, these values should be subtracted from the

total of expenses, thus allowing to achieve a closer

match.

Nevertheless, the item Other expenses includes all kinds

of values, some of which are not related to the production

process, which reinforces the conclusion that it will only

be possible to have a partial match. Such items as the

write downs of bad/irrecoverable debt (IFRS 7.8(c),

7.21), provisions and reversals of provisions (IAS 37),

losses of disposal of property (IAS 16.68,71; IAS 40.69),

impairment losses (IAS 36.59, 126;) and loss arising

from the change in the fair value of investment property

(IAS 40.35, 76(d)), if they are included (and disclosed) in

the item other expenses, should be subtracted.

The total purchases of goods and services should also

include the value of purchased goods still not used/sold

(not recognised as costs) but registered as some kind of

inventories in the balance sheet (IAS 2.8). This part of

purchases should be calculated as changes in the

inventories of merchandise, production supplies,

materials, work in progress and finished goods (IAS

2.36(b); 2.37) and added to the total amount of

purchases. Unfortunately, (IAS 1.68) does not require to

disclose inventories by kind in the balance sheet (for

more details see Annexe 2).

13 32 0 -

Wages and

salaries

IAS 1 –

Presentation of

financial

statements

IAS 19 –

Employee

benefits

IAS 24 –

Related party

disclosures

IFRS 2 – Share-

based payment

IAS 19 makes available the guidelines for the recognition

and classification of the item Employee benefits.

In accordance with the SBS definition of the variable

Wages and salaries, a match between the SBS variable

and short-term employee benefits (total value) seems to

be possible, except for differences in profit-sharing

benefit (IAS 19.8(c)) as it is not mentioned in the SBS

Regulation and social security contributions payable by

the employer if they are included in the short-term

employee benefit (IAS 19.8(a)). IAS 19 does not require

specific disclosures about short-term employee benefits

in the income statement, so information about wages and

salaries is available only through the disclosures

included in the notes.

Consider also that other long-term employee benefits

might be the object of SBS Wages and salaries.

Examples of employee benefits prescribed in IAS 19.126

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are close to the SBS wages and salaries by implication.

But, in this case, misclassification of timeliness and

measurement occurs. The benefits in return for work

done during the accounting period are estimated and

included in the employees benefits at a discounted value,

but they would be payable for employees later and the

payable amount will be different than the one currently

measured (for more details see Annexe 3).

13 21 0 -

Changes in

stocks of

goods and

services

IAS 1 –

Presentation of

financial

statements

IAS 2 –

Inventories

IAS 23 –

Borrowing costs

IAS 2 prescribes the accounting treatment for inventories

and IAS 1 – disclosure requirements.

If the expenses are presented using the nature of

expenses method, a close match will be possible with the

item “Changes in inventories of finished goods and work

in progress”.

Changes in stocks of goods and services might be

calculated on the basis of data disclosed by classes of

inventories in the notes as a difference between the value

of the inventories by each class at the end of the

reference period and of the previous period.

The value of changes in stocks is affected by the

evaluation of inventories in net realisable value, while

SBS Regulation does not describe that.

Change in valuation rules for inventories might influence

the value of this variable (for more details see Annexe 4).

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ANNEXE 1

COMPARISON BETWEEN SBS REGULATION 250/2009, INTERNATIONAL

(IFRS/IAS) AND NATIONAL ACCOUNTING STANDARDS

TURNOVER

SBS code: 12 110

1. SBS Regulation

1.1. Definition

“For the statistics on activities defined in Section 3 of Annexes I to IV and VIII of Regulation

(EC) No 295/2008, except for the activities classified in NACE Rev. 2, Section K, turnover

comprises the totals invoiced by the observation unit during the reference period, and this

corresponds to market sales of goods or services supplied to third parties.

The sales of goods include the goods produced by the enterprise as well as the merchandise

purchased by a retailer or land and other property held for resale (if land and other property

were initially purchased for investment purposes they should not be included in turnover).

The rendering of services typically involves the performance by the enterprise of a

contractually agreed task over an agreed period of time. The revenue of long-term contracts

(e.g. building contracts) should be recognised by reference to the stage of completion of the

contract and not the finished contract method. Goods produced for own consumption or

investment should be excluded from turnover.

Turnover includes all duties and taxes on the goods or services invoiced by the unit with the

exception of the value added type taxes (VAT). VAT are collected in stages by the enterprise

and fully borne by the final purchaser. It also includes all other charges (transport, packaging,

etc.) passed on to the customer, even if these charges are listed separately in the invoice.

Reduction in prices, rebates and discounts as well as the value of returned packing must be

deducted.

Income classified as other operating income, financial income and extraordinary income in

company accounts according to the 4th Accounting Directive and revenue from the use by

others of enterprise assets yielding interest, royalties and dividends and other income

according to IAS/IFRS is excluded from turnover. Operating subsidies received from public

authorities or the institutions of the European Union are also excluded.”

1.2 Link to company accounts

1.2.1 4th

Accounting Directive: for statistical purposes comprises the accounting heading “Net

turnover including other taxes on products linked to turnover but not deductible”.

1.2.2 IAS Regulations: for statistical purposes comprise the accounting heading “Revenue

from the sales of goods and the rendering of services (IAS 18.35). If revenue of interests,

dividends and royalties is included in this item, they should be subtracted”.

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2. Matching SBS/IAS

2.1 Definition and disclosure

“Revenue is the gross inflow of economic benefits during the period arising in the course of

the ordinary activities of an entity when those inflows result in an increase in equity, other

than increases relating to contributions from equity participants” (IAS 18.7).

Revenue is income arising from the following transactions and events: a) the sale of goods; b)

the rendering of services; and c) the use by others of entity assets yielding interest, royalties

and dividends. The table below illustrates the differences between the SBS-R requirements

and revenue prescribed in IAS 18 “Revenue”.

Revenue SBS

Turnover

Disclosure

IAS 1 IAS 18

1 Sales of goods Yes

As a minimum the

face of the income

statement shall

include “Revenue”,

which is the sum of

the 5 components

Yes

Entities shall disclose

the amount of each

significant category of

revenue, arising from

the five components

listed

2 Rendering of

services (including

revenue from

construction

contracts

Yes Yes

3 Interest No Yes

4 Royalties No Yes

5 Dividends No Yes

In accordance with IAS 1.81, the face of the income statement shall include the total amount

of “Revenue”, as a minimum. When items of income are material, their nature and amount

shall be disclosed separately either on the face of the income statement or in the notes (IAS

1.86).

IAS 18.35 defines that an entity shall disclose the amount of each significant category of

revenue recognised during the period, including revenue arising from i) the sale of goods; ii)

the rendering of services; iii) interest; iv) royalties; v) dividends.

In addition, in IAS 11.39 it is stated that an entity shall disclose the amount of contract

revenue recognised as revenue in the period.

2.2 Recognition and measurement

Since IFRS privilege the economic (substantial) meaning of transactions more than formal

features (for accounting), they prefer to recognise any transaction only under conditions based

on its economic relevance.

IFRS in IAS 18 state the following: “Revenue should be measured at the fair value of the

consideration received or receivable.” “Revenue from the sale of goods should be recognised

when all the following conditions have been satisfied: (a) the enterprise has transferred to the

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buyer the significant risks and rewards of ownership of the goods; (b) the enterprise retains

neither continuing managerial involvement to the degree usually associated with ownership

nor effective control over the goods sold; (c) the amount of revenue can be measured reliably;

(d) it is probable that the economic benefits associated with the transaction will flow to the

enterprise; and (e) the costs incurred or to be incurred in respect of the transaction can be

measured reliably.

When the outcome of a transaction involving the rendering of services can be estimated

reliably, revenue associated with the transaction should be recognised by reference to the

stage of completion of the transaction at the balance sheet date. The outcome of a transaction

can be estimated reliably when all the following conditions are satisfied: (a) the amount of

revenue can be measured reliably; (b) it is probable that the economic benefits associated

with the transaction will flow to the enterprise; (c) the stage of completion of the transaction

at the balance sheet date can be measured reliably; and (d) the costs incurred for the

transaction and the costs to complete the transaction can be measured reliably.”

The above-mentioned conditions ask for the recognition of income that may differ from the

notion given in the Fourth Directive, and a timing that may differ from the invoicing or the

delivery of goods and services as defined by the risk transfer condition.

Another relevant issue is related to the unit of measurement of income. IFRS adopt fair value

as a way to measure income. The fair value notion is in some way “slippery” since it affects

the nominal value invoiced replaced with a discounted present value in the case of sales of

goods or services where payments are postponed.

Anyway, SBS does not specify any rules for the measurement and recognition of income

since it focuses on all sales invoiced in the reference period. On the other hand, the Fourth

Directive records some discrepancies in the moment of recognition and also in the fair value

not included in the Fourth Directive standards.

2.3 Classification

Classification issues mainly originate from two items that are no longer included in the IFRS

income statement: Extraordinary income and Variation in stocks of finished goods and in

work in progress. They have a positive impact on revenues since with the shift from the

Fourth Directive standards part of them is included in the revenues item.

2.3.1 Effects of the item Variation in stocks of finished goods and in work in progress

The heading Variation in stocks of finished goods and in work in progress is no longer

available; furthermore, the amount of work in progress is recognised only in accordance with

the stage of completion method.

IAS 11 rules that, under the requirements of the completion methods, the goods and services

referred to two or more financial periods must be shifted into revenue if they can be assessed

as ordinary activity of the company. The SBS recasting definition of the variation in stocks of

finished goods and in work in progress exclude the finished contract method and include only

the completion method. In Italy, local GAAPs classify this revenue under the heading

Variation in stocks of finished goods and in work in progress and allows both the completion

method and the finished contract method.

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The work in progress concerns all the activities related to more than one exercise, and the

assessment of the ordinary activity of companies is made under the requirements of IFRS too.

(If they are not assessed as ordinary, they are classified under the item “other operative

income”).

Both variation of stocks of finished goods and work in progress are affected by the subjective

evaluation on whether they are ordinary activities or not.

The variation in stocks of finished goods and in work in progress is displayed:

1) in the Income statement if the nature of expense method has been chosen;

2) in the note if the function of expense method has been chosen.

The following table illustrates the changes in the income statement after it was moved from

Fourth Directive to IAS:

Table 1. FOURTH DIRECTIVE

REVENUES

OPERATIVE INCOME

OTHER OPERATIVE

INCOME

EXTRAORDINARY INCOME

IAS

REVENUES

OPERATIVE INCOME

OTHER OPERATIVE

INCOME

EXTRAORDINARY INCOME DOES NOT

EXIST ANYMORE

2.3.2 Effects of the item Extraordinary income

The heading Extraordinary income is also no longer available, as stated by IAS 1, and it must

be classified in accordance with the nature of income affecting, even if only marginally,

revenues and, more frequently, other operating income.

The Fourth Directive classifies the item Extraordinary income in a separate section of the

income statement since it was never considered as part of the Revenues or Other revenues

headings.

Also, in this case the net effect of change in accounting principles on SBS is positive for

revenues.

2.4 Excise duties

IAS 18.8 states that revenue includes only the gross inflows of economic benefits received by

the entity on its own account. Amounts collected on behalf of third parties, such as sales

taxes, goods and services taxes and value added taxes, are not economic benefits which flow

to the entity and do not result in increase in equity. Given that excise duties and production

taxes are aimed at taxing the production, the tax should be presented as a production cost;

10

however, in most cases a company never receives any of the benefits associated with these

taxes and for this reason revenue is generally presented as net of excise duties.

The SBS definition of turnover includes the production taxes but IAS excludes the excises

from revenue in most cases. Production taxes (excises) have a remarkable effect on the

amount of revenue in some sectors (production and distribution of fuel, manufacture of

tobacco and spirits). The exclusion of production taxes for these specific sectors leads to a

substantial underestimation of the global volume income made by SBS variables.

3. Conclusion

It is expected to have a match between SBS Turnover and IAS Revenue variables by summing

up the revenue arising from the sale of goods and from the rendering of services.

But if the items of Revenue are not material, there may not be separately disclosed. In this

case, there is no match with the IAS Revenue, as this amount includes revenue arising from

interest, royalties and dividends.

Production taxes (excises) have a remarkable effect on the amount of revenue in some sectors

(production and distribution of fuel, manufacture of tobacco and spirits). The SBS definition

of turnover includes the production taxes but IAS excludes the excises from revenue in most

cases. The exclusion of production taxes for these specific sectors leads to a substantial

underestimation of SBS turnover.

4. Cases

4.1 Portuguese case

Concerning revenue, there should be no major differences between the new Portuguese

accounting standard system (SNC) and the previous Official accounting plan (POC). The

previous POC comprised the Portuguese 26th

Directive which is similar to IAS 18 (Revenue);

however, in practice, some aspects were not followed by the majority of entities, for example,

the recognition of fair value by discounting all future receipts using an imputed rate of interest

when, for example, an entity provided interest-free credit to their customers.

The main difference compared to POC concerns the method for recognition of revenue arising

from construction contracts. The recognition of revenue by reference to the finished contract

method is not allowed anymore.

The Portuguese income statement includes a line with the summing up of sales and rendering

of services, which allows to obtain the SBS Turnover directly from the face of the income

statement.

4.2 Italian case

In Italy, the term “turnover” is mainly a tax item referred to the sum of the invoices released

in the reference period regardless of whether they are related to economic transactions of

other periods.

It follows a cash basis standard (invoices are recognised when they are released even if they

concern goods and services that are related to different accounting periods) and it is the base

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for the value added tax (VAT) payment. The adoption of the accrual basis standards for

balance sheets implies that turnover may differ a lot from the corresponding item in the

income statement, i.e. from revenues. Especially in the case of IFRS, the recognition of

revenues follows only after the enterprise has transferred to the buyer the significant risks

and rewards of ownership of the goods the relation turnover Revenues is weak. (Cash basis

accounting implies the recording of the operation outright, regardless when goods or services

are sold).

The SBS definition seems to be related to IFRS and the Fourth Directive standards (the SBS

Regulation links the accounting headings of two systems – net turnover and revenues).

The definition of SBS, even if fully matching IFRS revenues, comprises different

measurement methods; in addition, there is some impact of the classification shift of other

headings since the income statement structure according to IFRS is simpler than that provided

in the Fourth Directive.

In Italy, local GAAPs classify this revenue under the heading Variation in stocks of finished

goods and in work in progress and allow both the completion method and the finished

contract method.

4.3 Lithuanian case

The business accounting standard (BAS) 10 “Income” prescribes that company‟s operating

activity is grouped into two parts: ordinary activity and extraordinary items. Ordinary activity

is comprised from principal activities and untypical activities, such as other, financing and

investing activities.

The revenue is disclosed in the profit (loss) statement under the following headings:

- Sales revenue;

- Income from other activities;

- Income from financing and investing activities;

- Extraordinary gains.

The revenue arising from the principal activity, such as the sale of goods and the rendering of

services and construction contracts, is provided on the face of the profit (loss) statement under

the item sales revenue and matches turnover.

In some cases, there are differences between BAS and SBS-R. If part of operating activity,

such as the sale of goods and the rendering of services and construction contracts, is treated

by a company as untypical, revenue is recoded under the heading income from other activity

and is not included in the SBS turnover.

According to BAS, the revenues, such as interest, royalties and dividends arising from the use

by others of entity assets, are recognised as revenue from financing and investing activities.

4.4 Dutch case

Dutch GAAP (Generally Accepted Accounting Standards) covers:

* The Dutch Civil Code, Book 2, Part 9 („BW 2 T9‟);

* The General Administrative Order on model formats;

* The Resolution on fair value („Besluit actuele waarde‟); and

* The Dutch Accounting Standards („Richtlijnen voor de jaarverslaggeving‟).

Dutch company law is part of the Dutch Civil Code. The legal provisions relating to

companies limited by shares in the Netherlands are included in Book 2 of the Code, which

contains legal provisions relating to all legal persons and entities, including co-operatives and

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associations, as well as limited liability companies. The financial reporting regulatory

framework is built around the relevant elements of the Code and is supplemented by the

Dutch Accounting Standards, judicial precedence („de Ondernemingskamer‟) and, latterly,

International Financial Reporting

Standards and the Authority for Financial Markets („Autoriteit Financiële Markten‟ (AFM).

Concerning revenue, there should be no major differences between the Dutch GAAP and

IAS/IFRS.

The main accounting standards

International

(IAS/IFRS)

Portugal

(NCRF1)

Italy (OIC2) Lithuania

(BAS3)

Netherlands (NL

GAAP4)

IAS 1 – Presentation

of financial

statements

NCRF 1 OIC 3

OIC 11

OIC 12

BAS 1-6 Prescriptive formats of

the balance sheet and

profit

and loss account are

applicable.

IAS 18 – Revenue NCRF 20 OIC 11

(general)

OIC 12

scheme and

composition

of balance

sheet and

income

statement)

OIC 15

(evaluation

credit)

BAS 10 No remarks

IAS 11 –

Construction

contracts

NCRF 19 OIC 13

(inventories)

OIC 23

(construction

contracts)

BAS 25 A construction

contract is defined in a

more broad

sense which might

lead to a broader

application of

the percentage of

completion method.

IAS 39 – Financial

instruments

(effective interest

method)

NCRF 27 OIC 20 BAS 18 Linear amortisation is

allowed if that does

not lead

to major differences in

1 Portuguese accounting and financial reporting standards. 2 Organismo Italiano di Contabilità. The Italian national accounting standards are under revision; they are updated up to May 2010 3 Business Accounting Standards. 4 Generally Accepted Accounting Standards in the Netherlands, comprising the Netherlands Civil Code and the Dutch Accounting Standards.

13

application of effective

interest method.

5. Miscellanea

Main changes in policy accountings: In the SBS Regulation 250/2009 the recognition of

revenue of construction contracts by reference to the finished contract method is not allowed

anymore. This recognition shall be made using the percentage of completion method.

14

ANNEXE 2



TOTAL PURCHASES OF GOODS AND SERVICES

SBS code: 13 110

1. SBS Regulation

1.1 Definition

“Purchases of goods and services include the value of all goods and services purchased during

the accounting period for resale or consumption in the production process, excluding capital

goods, the consumption of which is registered as consumption of fixed capital. The goods and

services concerned may be either resold with or without further transformation, completely

used up in the production process or, finally, be stocked.

Included in these purchases are the materials that enter directly into the goods produced (raw

materials, intermediary products, components), plus non-capitalised small tools and

equipment. Also included are: the value of ancillary materials (lubricants, water, packaging,

maintenance and repair materials and office materials) as well as energy products. Included in

this variable are the purchases of materials made for the production of capital goods by the

unit.

Services paid for during the reference period are also included regardless of whether they are

industrial or non-industrial. In this figure are payments for all work carried out by third parties

on behalf of the unit including current repairs and maintenance, installation work and

technical studies. Amounts paid for the installation of capital goods and the value of

capitalised goods are excluded.

Also included are payments made for non-industrial services such as legal and accountancy

fees, patents and licence fees (where they are not capitalised), insurance premiums, costs of

meetings of shareholders and governing bodies, contributions to business and professional

associations, postal, telephone, electronic communication, telegraph and fax charges,

transport services for goods and personnel, advertising costs, commissions (where they are

not included in wages and salaries), rents, bank charges (excluding interest payments) and all

other business services provided by third parties. Included are services which are transformed

and capitalised by the unit as capitalised production.

Expenditure classified as financial expenditure or as revenue in the form or interests and

dividends is excluded from the total purchases of goods and services.

Purchases of goods and services are valued at the purchase price, i.e. the price the purchaser

actually pays for the products, including any taxes less subsidies on the products bought,

excluding, however, value added type taxes.

15

All other taxes and duties on the products are therefore not deducted from the valuation of the

purchases of goods and services. The treatment of taxes on production is not relevant in the

valuation of these purchases.

For statistics on activities defined in Section 3 of Annexes I to IV of Regulation (EC) No

295/2008 of the European Parliament and of the Council, except for the enterprises with an

activity classified in NACE Rev. 2, Section K, expenditure classified as financial expenditure

in company accounts is excluded from the total purchases of goods and services (…)”.


1.2.1 4th

Accounting Directive:

Purchases of goods and services can be calculated from the accounting headings:

- Raw materials and consumables (before account is made of changes in goods and services);

- Other external charges (before account is made of changes in goods and services);

- Part of Other operating charges: the part included here concerns payments for goods and

services not included in the two headings. The part not included here concerns the payment of

taxes on production.

- Extraordinary charges.

1.2.2 IAS Regulations:

Purchases of goods and services can be calculated from the following accounting headings:

Nature of expense method:

- Raw materials and consumables used;

- Other expenses (before account is made of changes in goods and services).

Function of expense method:

- Cost of sales (before account is made of changes in goods and services);

- Distribution costs (made during the accounting period);

- Administrative expenses (made during the accounting period);

- Other expenses.

Note: employee benefits costs, depreciation and amortization costs shall be excluded.

2. Matching SBS/IAS

As defined in IAS 1.88 to IAS 1.94, entities are encouraged to present on the face of the

income statement the analysis of expenses using one of the two forms:

Nature of the expenses;

Function of the expenses within the entity.

2.1 Definition

Even if a specific IAS is not yet available for purchases of goods and services, IAS 18 and

IAS 11 indirectly describe the main guidelines for this item, since the costs of goods and

services for recognition and measurement must be closely linked to the related income as

requested by the accountant matching rules.

16

Furthermore, IAS 1, illustrating the structure of the income statement, points out how cost

items may be disclosed by nature (raw materials, staffing costs, depreciation, etc.) or by

function (cost of sales, administrative, etc.) according to the preference of the company.

The SBS regulation provides a solution to the issue of the method of the classification of costs

suggesting how to estimate the total purchases of goods and services for both IFRS methods

(functional or nature of costs). Anyway, many sub-items of the total purchases of goods and

services are not available anymore (i.e. costs of purchases of goods and services purchased for

resale in the same condition as they are received that are no longer disclosed in the income

statement), thus creating an additional burden for the respondent to find proper information

for other cost variables of SBS.

Even if the comparison IFRS-SBS does not show any specific issues relating to the definition

of goods and services, there are problems with the availability of the variable linked to Total

purchases of goods and services.

2.2 Recognition and measurement

Costs of goods and services recognition must follow the same conditions of revenues as

shown in IAS 18 (transfer of risks, economic benefits, etc.), also when referred to two or more

financial periods (in this case they have to follow the completion method), as shown in IAS

11.

An additional issue comes from the IFRS recognition methods of the cost of operational

leasing of goods (IAS 17) that are very far from the previous Fourth Directive standard and

can affect the total estimation of the costs of goods and services for two reasons: classification

of leasing (operational or financial), recognition of leasing (the IAS methodology is different

from the Fourth Directive).

IAS 17 classifies leasing in accordance with the substantial nature of the transaction and states

the following: “A lease is classified as a finance lease if it transfers substantially all the risks

and rewards incident to ownership. All other leases are classified as operating leases”. Thus

we have a wider application of the financial method to the income statement of the lessee. On

the other hand, IFRS for the recognition of leasing replace the straight-line method based on

lease rents that are widely accepted by local GAAPs with the adoption of a non-linear method

based on the implicit interest rate and capital amortisation.

For some sectors (production and distribution of fuel, manufacture of tobacco and spirits),

production taxes (excises) remarkably affect the volume of income. The SBS definition of

total purchases of goods and services include production taxes (excises), although IAS/IFRS

excludes the production taxes from the income statement. Nevertheless, if we do not take into

account production taxes (excises), the volume of total purchases of goods and services is

going to be underestimated.

2.3 Classification

As for the revenue, extraordinary costs may also be included in the costs of goods and

services, and it is important to point out the possible negative effects of the shift of leasing

from operational to financial leasing on the total amount of the variable Total purchases of

17

goods and services, since financial leasing is excluded from the SBS definition of purchases

of goods and services.

3. Conclusion

If the expenses are presented using the expense method, a close match with the variable Raw

materials and consumables used will be possible. The match won‟t be straightforward

because other expenses related to the production process included in the residual item Other

expenses need also to be considered.

If the function of expense method is used, the components of SBS Purchases of goods and

services are spread in the items Cost of sales, Distribution costs, Administrative expenses and

Other expenses. The first three items mentioned include employee benefits, depreciation and

amortization expenses, whose values shall not be included in the SBS variable. However, all

entities shall disclose additional information on the nature of expenses (namely, depreciation

and amortization expenses and employee benefits expenses). In that case, these values should

be subtracted from the total of expenses, thus allowing to achieve a closer match.

Nevertheless, the item Other expenses includes all kinds of values, some of which are not

related to the production process, which reinforces the conclusion that it will only be possible

to have a partial match. Such items as the write downs of bad/irrecoverable debt (IFRS 7.8(c),

7.21), provisions and reversals of provisions (IAS 37), losses of disposal of property (IAS

16.68,71; IAS 40.69), impairment losses (IAS 36.59, 126;) and loss arising from the change

in the fair value of investment property (IAS 40.35, 76(d)), if they are included (and

disclosed) in the item other expenses, should be subtracted.

The total purchases of goods and services should also include the value of purchased goods

still not used/sold (not recognised as costs) but registered as some kind of inventories in the

balance sheet (IAS 2.8). This part of purchases should be calculated as changes in the

inventories of merchandise, production supplies, materials, work in progress and finished

goods (IAS 2.36(b); 2.37) and added to the total amount of purchases. Unfortunately, (IAS

1.68) does not require to disclose inventories by kind in the balance sheet.

4. Cases

4.1 Portuguese case

- The new Portuguese accounting standard system (SNC) comprises financial statements

generally similar to the ones defined in the international accounting standards, which leads to

the same problems mentioned above.

- Moreover, due to some changes in accounting policy within the SNC, entities have to

capitalise borrowing costs directly attributable to the acquisition, construction or production

of inventories as part of the cost of these inventories. In the previous POC, this capitalisation

was not possible (it was only allowed in cases of borrowing costs directly attributable to fixed

assets). This change will affect mainly entities from the real state sector and from Oporto

wine producing.

18

- Additionally, in the previous Official accounting plan (POC), LIFO was allowed to assign

the cost of inventories, but in the new Portuguese Accounting Standards System this is not

allowed anymore. This will particularly affect the amounts of the assets and cost of sales of

Porto wine producing companies, which used LIFO for tax reasons.

4.2 Italian case

The Italian case has already been explained in chapter 2 “Matching SBS/IAS”.

4.3 Lithuanian case

Related IAS/IFRS

- IAS/IFRS do not directly describe the purchases of goods and services. But it is known that

the purchases of goods and services are part of expenses and are also related to inventories.

- IAS 1.88 prescribes that an entity should present an analysis of expenses using a

classification based on either the nature of expenses or their function within the entity,

whichever provides information that is reliable and more relevant.

Ways to obtain variables

Using the nature of expense method, expenses are aggregated in the income statement

according to their nature (for example, depreciation, purchases of materials, transport costs,

employee benefits and advertising costs) and are not reallocated among various functions

within the entity. In such a case, the example of a classification of expenses is as follows:

changes in inventories of finished goods and work in progress;

raw materials and consumables used;

employee benefits expenses;

depreciation and amortisation expenses;

other expenses.

The purchases of goods and services should be calculated as a sum of lines: changes in

inventories of finished goods and work in progress, raw materials and consumables used and

other expenses plus changes in inventories of raw materials and goods and services for resale.

However, inventories are not broken down by kind of inventories on the face of the balance

sheet (IAS 1.68).

Using the function of expense or cost of sales method, expenses are classified according to

their function as part of costs of sales or, for example, the costs of distribution or

administrative activities. The example of a classification using the function of the expense

method in the income statement is as follows:

cost of sales;

distribution costs;

administrative expenses;

other expenses.

The purchases of goods and services should be calculated as a sum of all costs and expenses

minus depreciation and amortisation and employee benefits which have to be disclosed

according to IAS 1.93, plus changes in inventories of finished goods and work in progress,

raw materials, goods and services for resale.

19

Lithuanian entities mainly use the function of expense method to disclose expenses in the

income statement.

According to the practice and IAS 1, item 87, this estimation is not clear enough, as write

downs of bad/irrecoverable debt and other losses of assets (write downs of plant and

equipment to recoverable amount, disposals of items of property, plant and equipment and so

on) not related to production might be included in expenses.

4.4 Dutch case


The Dutch Civil Code, Book 2, Part 9 („BW 2 T9‟); including:



The Dutch Accounting Standards („Richtlijnen voor de jaarverslaggeving‟).








Standards and the Authority for Financial Markets („Autoriteit Financiële Markten‟ (AFM)).

Concerning this variable, the disclosure foreseen in the Dutch income statement is more-or-

less similar to the required disclosure information defined in the international accounting

standards, which leads to the same problems as those mentioned above.

Main accounting standards

International

(IAS/IFRS)

Portugal

(NCRF5)

Italy

(OIC6)

Lithuania

(BAS7)

Netherlands (NL

GAAP8)

IAS 1 – Presentation of

financial statements

NCRF 1 OIC 3

OIC 11

OIC 12

BAS 1–6 Prescriptive formats of


profit


applicable.

IAS 2 – Inventories NCRF 18 OIC 13 BAS 9 Inventories shall be

measured at the lower

of cost and net

realisable value.

IAS 41 – Agriculture NCRF 17 OIC 1 BAS 17 No specific

5 Portuguese accounting and financial reporting standards. 6 Organismo Italiano di Contabilità. The Italian national accounting standards are under revision and they are updated up to May 2010. 7 Business Accounting Standards. 8 Generally Accepted Accounting Standards in the Netherlands, comprising the Netherlands Civil Code and the Dutch Accounting Standards.

20

OIC 12

OIC 13

OIC 16

requirements for

agricultural activity.

IAS 23 – Borrowing

costs

NCRF 10 OIC 13

OIC 16

OIC 24

BAS 12 Capitalisation is an

available accounting

policy

choice.

IAS 16 – Property, plant

and equipment

OIC 2

OIC 16

OIC 24

BAS 12 Allowed to recognise a

provision for costs of

decommissioning,

restoration and similar

liabilities

over the useful life of

an item of property,

plant and

equipment.

IAS 36 – Impairment of

assets

OIC 1

OIC 16

OIC 20

OIC 21

OIC 24

OIC 29

BAS 23 An impairment test

shall be performed if an

indication of

impairment exists.

IAS 40 – Fair value

changes of Investment

property measured at fair

value

OIC 16

OIC 24

BAS 12 Shall be recognised in

profit or loss. However,

a

revaluation reserve

shall be recognised for

the

difference between cost

and the fair value until

the

fair value is realised.

5. Miscellanea

The last version of IAS 23 was issued in March 2007 with an effective date of 1 January

2009. In accordance with this last version (§8), an entity shall capitalise borrowing costs that

are directly attributable to the acquisition, construction or production of a qualifying asset as

part of the cost of that asset. So, the previous possibility of recognising borrowing costs as an

expense in the period in which they were incurred, regardless of how the borrowings are

applied, is not allowed anymore. As the SBS Regulation 250/2009 is based on Regulation

(EC) 1725/2003, which comprises the previous version of IAS 23, how shall this issue be

treated?

21

The main changes in policy accounting:

- The inclusion of biological assets in inventories;

- LIFO is not allowed as a cost formula to assign the cost of inventories anymore;

- The recognition of borrowing costs directly attributable to the acquisition, construction or

production of a qualifying asset as an expense in the period in which they were incurred is not

allowed anymore.

22

ANNEXE 3



WAGES AND SALARIES

SBS code: 13 320

1. SBS Regulation

1.1 Definition

SBS defines wages and salaries as „„the total remuneration, in cash or in kind, payable to all

persons counted on the payroll (including homeworkers), in return for work done during the

accounting period”, regardless of whether it is paid on the basis of working time, output or

piece-work and whether it is paid regularly or not.

“Wages and salaries include the values of any social contributions, income taxes, etc. payable

by the employee even if they are actually withheld by the employer and paid directly to social

insurance schemes, tax authorities, etc. on behalf of the employee. Wages and salaries do not

include social contributions payable by the employer.

Wages and salaries include: all gratuities, bonuses, ex gratia payments, “thirteenth month

payments”, severance payments, lodging, transport, cost-of-living, and family allowances,

tips, commission, attendance fees, etc. received by employees, as well as taxes, social security

contributions and other amounts payable by employees and withheld at source by the

employer.

Wages and salaries which the employer continues to pay in the event of illness, occupational

accident, maternity leave or short-time working may be recorded here or under social security

costs, dependent upon the unit's accounting practices.

Payments for agency workers are not included in wages and salaries”.


1.2.1 4th

Accounting Directive:

Wages and salaries are recorded in company accounts under the heading Wages and

salaries.

1.2.2 IAS Regulations:

- Wages and salaries are part of the heading Employee benefits costs in the income

statement according to the nature of expenses;

- Wages and salaries are part of the heading Employee benefits costs disclosed in

addition to the income statement according to the function of expenses.

23

2. Matching SBS/IAS

With the introduction of IFRS, IAS 19 makes available the guidelines for the recognition and

classification of the item Employee benefits.

The objective of IAS 19 is just to prescribe the accounting and disclosure for employee

benefits, assessed as the overall consideration given by an entity in exchange for the services

rendered by employees.

IAS split the employee benefits item into four categories:

(a) short-term employee benefits, such as wages, salaries and social security contributions,

paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve

months after the end of the period) and non-monetary benefits (such as medical care, housing,

cars and free or subsidized goods or services) for current employees;

(b) post-employment benefits such as pensions, other retirement benefits, post-employment

life insurance and post-employment medical care;

(c) other long-term employee benefits, including long-service leave or sabbatical leave,

jubilee or other long-service benefits, long-term disability benefits and, if they are not payable

wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred

compensation;

(d) termination benefits.

Part (a) of employee benefits – short-term employee benefits – closely matches the SBS

definition of wages and salaries. IAS 19 (§8) states that Short-term employee benefits include

items such as:

- wages, salaries and social security contributions,

- short-term compensated absences,

- profit-sharing and bonuses, and

- non-monetary benefits.

But IAS 19 does not require specific disclosures about short-term employee benefits.

Disclosure of employee benefits in the Financial statement is affected by the form used for

classifying costs.

In case the Income statement adopts costs classified by nature of expense method (IAS

1.89, 1.91), entities are encouraged to present employee benefits expense separately on the

face of income statement.

In case the Income statement adopts costs classified by function of expense method (IAS

1.92, 1.93), entities shall disclose additional information on the nature of expenses, including

employee benefits expenses. It is not clear whether the disclosure should be provided on the

face of income statement or in the notes.

IFRS taxonomy 2010 prescribes chapter “Analysis of income and expense” in the notes,

where classes of employee benefits expenses are disclosed: wages and salaries; social security

contributions; other short-term employee benefits; post-employment benefit expense, etc.

According to this disclosure, the match is expected in summing up wages and salaries and

other short-term employee benefits.

24

3. Conclusion

In accordance with the SBS definition of the variable Wages and salaries, a match between

the SBS variable and short-term employee benefits (total value) seems to be possible, except

for differences in profit-sharing benefit (IAS 19.8(c)) as it is not mentioned in the SBS

Regulation and social security contributions payable by the employer if they are included in

the short-term employee benefit (IAS 19.8(a)). IAS 19 does not require specific disclosures

about short-term employee benefits in the income statement, so information about wages and

salaries is available only through the disclosures included in the notes.

Consider also that other long-term employee benefits might be the object of SBS Wages and

salaries. Examples of employee benefits prescribed in IAS 19.126 are close to the SBS wages

and salaries by implication. But, in this case, misclassification of timeliness and measurement

occurs. The benefits in return for work done during the accounting period are estimated and

included in the employees benefits at a discounted value, but they would be payable for

employees later and the payable amount will be different than the one currently measured.

4. Cases

4.1 Portuguese case

Concerning this variable, the disclosure foreseen in the Portuguese income statement is

similar to the required disclosure information defined in the international accounting

standards, which leads to the same problems as those mentioned above.

4.2 Italian case

- IAS19 establishes for each category specific rules for recognition and measurement. In order

to disclose the possible impact of the new accounting rules on the SBS data referring to wages

and salaries, we have to examine the Short-term employee benefits item. In particular, short-

term employee benefits include wages, salaries bonuses and non-monetary benefits (such as

medical care, housing, cars and free or subsidized goods or services) that are employee

benefits which fall due wholly within twelve months after the end of the period in which the

employees render the related service.

- Moreover, IAS 19 points out that the recognition for short-term employee benefits (SBS

wages and salaries variable) does not adopt any kind of a discounted present value for short-

term employee benefits.

- In this case there are no issues related to measurement and recognition between IFRS and

SBS, showing a good level of coherence. In the case of the SBS variable Personnel cost, IFRS

show some issues due to its method of measurement, since IAS 19 requires the discounting of

some long-term employee benefits.

- So there are no inconsistencies in classification issues, except for the above-mentioned

classification of costs by nature that may create some problems for the isolation of wages and

salaries from the total personnel costs.

4.3 Lithuanian case

25

- In essence, the definitions used in IAS 19 match those used in Commission Regulation (EC)

No 250/2009. However, there are some differences: in IAS 19, social security contributions

are included in Short-term employee benefits. To meet the requirements for the wages and

salaries variable, social security contributions payable by the employer have to be excluded

from Short-term employee benefits. Employee benefits expenses are disclosed in the income

statement, by nature of expense; there is detailed information in the notes.

- According to IAS 1.93, entities classifying expenses by function should disclose information

on the nature of expenses, including depreciation and amortisation expenses and employee

benefits expenses, and this information should be presented either on the face of the income

statement or in the notes.

- Experience shows that entities in Lithuania mainly use the income statement classifying

costs by function of expenses and employees‟ benefits are not disclosed.

4.4 Dutch case














Concerning this variable, the disclosure foreseen in the Dutch income statement is similar to

the required disclosure information defined in the international accounting standards, which

leads to the same problems as those mentioned above.


International

(IAS/IFRS)

Portugal

(NCRF9)

Italy

(OIC10

)

Lithuania

(BAS11

)

Netherlands (NL GAAP12

)



NCRF 1 OIC 3

OIC 11

OIC 12

BAS 1-6 Prescriptive formats of the

balance sheet and profit


applicable.

9 Portuguese accounting and financial reporting standards. 10 Organismo Italiano di Contabilità. The Italian national accounting standards are under revision and they are updated up to May 2010. 11 Business Accounting Standards. 12 Generally Accepted Accounting Standards in the Netherlands, comprising the Netherlands Civil Code and the Dutch Accounting Standards.

26

IAS 19 – Employee

benefits

NCRF 28 OIC 19 BAS - 31 No remarks

IAS 24 – Related party

disclosures (§ 17)

NCRF 5 OIC 12 BAS - 30 Significant transactions that

have been entered into

by the entity with related

parties under irregular

market („not at arm‟s length‟)

conditions must be disclosed.

This disclosure requirement

does not

apply to medium-sized legal

entities, unless the

legal entity is a public limited

liability company, and

small-sized legal entities.

IFRS 2 – Share-based

payment

Not

transposed

OIC 3

(fair

value)

BAS-31 Alternative treatment allowing

to measure equity share-based

payments with

employees at their intrinsic

value at the grant date

and this value is recognised

immediately as an expense.

5. Miscellanea IFRS 2 (Share-based payments) was issued by IASB in 2004, not being part of Regulation

(EC) No 1725/2003 used as a basis for the SBS Regulation 250/2009. According to this IFRS

(§12), shares, share options or other equity instruments are granted to employees as part of

their remuneration package, in addition to a cash salary and other employment benefits.

Furthermore, shares or share options are sometimes granted as part of a bonus arrangement,

rather than as part of basic remuneration (e.g. as an incentive to the employees to remain in

the entity‟s employment or to reward them for their efforts in improving the entity‟s

performance). How should this issue be treated in the scope of SBS?

27

ANNEXE 4



CHANGES IN STOCKS OF GOODS AND SERVICES

SBS code: 13 210

1. SBS Regulation

1.1. Definition

“Change in stocks (positive or negative) is the difference between the value of the stocks at

the end and the beginning of the reference period. Change in stocks may be measured by the

value of entries into stocks less the value of withdrawals and the value of any recurrent losses

of goods held in stocks. Stocks are recorded at purchaser's prices exclusive of VAT if they are

purchased from another unit, otherwise at production cost.

Among stocks (and the changes in stocks), the following breakdown can be made:

- stocks of finished goods

- stocks of work in progress

- stocks of goods and services purchased for resale in the same condition as received,

- stocks of raw materials and consumables.

Included are the stocks of finished products or in the course of production, which have been

produced by the unit and which have not yet been sold. These products include work in

progress belonging to the unit, even if the products in question are in the possession of third

parties. Equally, products held by the unit which belong to third parties are excluded.

Also included are the stocks of goods and services bought for the sole purpose of reselling

them in the same condition.

Excluded are stocks of goods and services which are provided to third parties on a

commission basis.

Products purchased for resale and stocked by services enterprises can include goods

(industrial equipment in the case of „turnkey‟ engineering contracts, or buildings in the case of

property development, etc.) as well as services (rights to use advertising space, transport,

accommodation, etc.).

When services are stocked the services concerned are the output from service activities, rights

to use predetermined services, or physical supports for services.

Included also are the stocks of raw and ancillary materials, intermediary products,

components, energy, non-capitalised small tools and services which belong to the unit”.


4th

Accounting Directive: Changes in stocks of goods and services can be calculated from

the following headings:

Variation in stocks of finished goods and in work in progress

Part of raw materials and consumables

Part of other external charges

28

Part of other operating charges

IAS Regulations: Changes in stocks of goods and services can be calculated from the

following headings in the income statement according to the nature of expenses:

Changes in inventories of finished goods and work in progress;

Part of raw materials and consumables used;

Part of other expenses.

Changes in stocks of goods and services can be calculated from the following headings in the

income statement according to the function of expenses:

Part of cost of sales;

Part of distribution costs;

Part of administrative expenses;

Part of other expenses.

2. Matching SBS/IAS

The SBS-R states that “stocks are recorded at purchaser‟s prices exclusive of VAT if they are

purchased from another unit, otherwise at production cost”. The cost of inventories prescribed

in IAS 2.10-15 matches the SBS definition of recorded prices.

But IAS 2.9 states that “inventories shall be measured at the lower of cost and net realisable

value”, where “net realisable value is the estimated selling price in the ordinary course of

business less the estimated costs of completion and the estimated costs necessary to make the

sale”. The standard allows presenting inventories at another lower value (net realisable value)

than purchaser‟s prices or production cost, mentioned in the SBS-R. The amount of any write-

down of inventories to net realisable value and all losses of inventories is recognised as an

expense in the period the write-down or loss occurs.

According to IFRS the general recognition method is the FIFO (First In First Out) with the

exclusion of the LIFO (Last In First Out) and the inclusion, as in IV directive, of weighted

average cost formula for some classes of „similar‟ goods.

The breakdown of stocks in the Regulation in principle matches the common classifications of

inventories described in IAS 2.37.

As a minimum, the face of balance sheet should present inventories in the total (IAS 1.68(g)).

Information in the balance sheet is provided at the end of the reference period and contains

comparable information for the previous period. Classified inventories shall be disclosed in

financial statements (IAS 2.37), but as it is not required by IAS 1 to present them on the face

of the balance sheet, it will be presented in the notes.

This variable is partly available in the income statement as “Variation in stocks of finished

goods and in work in progress” in accordance with the IV directive or as the “Changes in

inventories of finished goods and work in progress” heading in the nature of expenses income

statement.

29

3. Conclusion

If the expenses are presented using the nature of expenses method, a close match will be

possible with the item “Changes in inventories of finished goods and work in progress”.

Changes in stocks of goods and services might be calculated on the basis of data disclosed by

classes of inventories in the notes as a difference between the value of the inventories by each

class at the end of the reference period and of the previous period.

The value of changes in stocks is affected by the evaluation of inventories in net realisable

value, while SBS Regulation does not describe that.

Change in valuation rules for inventories might influence the value of this variable.

4. Cases

4.1 Portuguese case

The new Portuguese accounting standard system (SNC) comprises financial statements

generally similar to the ones defined in the international accounting standards, which leads to

the same problems.

Moreover, regarding some changes in policy accountings, within the SNC entities shall

capitalise borrowing costs directly attributable to the acquisition, construction or production

of inventories as part of the cost of these inventories. In the previous POC this capitalisation

was not possible (being only allowed with borrowing costs directly attributable to fixed

assets).

Finally, in the previous Official accounting plan (POC), LIFO was allowed to assign the cost

of inventories but in the new Portuguese Accounting Standards System this is not allowed

anymore.

4.2 Italian case

This variable is available in the income statement as part of „Variation in stocks of finished

goods and in work in progress‟ in accordance with the IV directive or part of the „Changes in

inventories of finished goods and work in progress‟ heading in the nature of expenses income

statement.

In accordance with IV directive and IFRS, inventories must follow a sub classification fully

comparable with SBS definition:

- stocks of finished goods;

- stocks of work in progress;

- stocks of goods and services purchased for resale in the same condition as received;

- stocks of raw materials and consumables.

Relevant documents are IAS 1, IAS2 and IAS 18.

According to IFRS the general recognition method is the FIFO (First In First Out) with the

exclusion of the LIFO (Last In First Out) and the inclusion, as in the IV directive, of weighted

average cost formula for some classes of „similar‟ goods.

Inventories shall be measured at the lower cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business less the

estimated costs of completion and the estimated costs necessary to make the sale.

In case of a write down due to a cost minor than the net realisable value an additional cost is

recorded into the income statement.

30

Since the inflation rate is generally positive, according to IFRS the exclusion of LIFO

evaluation method and the inclusion of FIFO method has a positive net effect on the estimates

of SBS variable.

4.3 Lithuanian case

4.3.1 Related IAS/IFRS

IAS 2 prescribes the accounting treatment for inventories. IAS 2.6 defines that inventories are

assets:

a) held for sale in the ordinary course of business;

b) in the process of production for such sale; or

c) in the form of materials or supplies to be consumed in the production process or in the

rendering of services

IAS 1 prescribes presentation of information on financial statements.

4.3.2 Main findings

IAS 2 describes treatment for inventories quite in detail, while the definition in the SBS

Regulation is quite limited.

The SBS-R states that “stocks are recorded at purchaser‟s prices exclusive of VAT if they are

purchased from another unit, otherwise at production cost”. The cost of inventories prescribed

in IAS 2.10-15 matches the SBS definition of recorded prices.

But IAS 2.9 states that “inventories shall be measured at the lower of cost and net realisable

value”, where “net realisable value is the estimated selling price in the ordinary course of

business less the estimated costs of completion and the estimated costs necessary to make the

sale”.

The standard allows presenting inventories at another lower value (net realisable value) than

purchaser‟s prices or production cost, mentioned in the SBS-R. The amount of any write-

down of inventories to net realisable value and all losses of inventories is recognised as an

expense in the period the write-down or loss occurs.

The breakdown of stocks in the Regulation in principle matches the common classifications of

inventories described in IAS 2.37. The inventories class should be equated to the SBS-R

breakdown as follows:

- stocks of finished goods finished goods

- stocks of work in progress work in progress

- stocks of goods and services for resale

in the same condition as received merchandise, other inventories

- stocks of raw materials and consumables raw materials, production supplies

There is no description of the inventories recognised under the heading “other inventories”.

To avoid any overestimation of production value and value added, the class “other

inventories” should be treated as stocks of goods and services for resale in the same condition

as received.

31

As a minimum, the face of balance sheet should present inventories in the total (IAS 1.68(g)).

Classified inventories shall be disclosed in financial statements (IAS 2.37), but, as it is not

required by IAS 1 to present them on the face of the balance sheet, it will be presented in the

notes.

Information in the balance sheet is provided at the end of the reference period and contains

comparable information for the previous period. So, changes in stocks of goods and services

should be calculated on the basis of data disclosed by classes of inventories in the notes as a

difference between the value of the inventories by each class at the end of the reference period

and the end of the previous period.

As the net realisable value is not used in SBS, the value of changes in stocks should be

measured (corrected) by the amount of any write-down (+) and reversals of write-down (-).

The experience shows that the write-down of inventories is quite a rare phenomenon; its

impact on SBS data is not measured. The value of changes in stocks is not corrected by the

amount of any write-down at Statistics Lithuania, as those data are not structured and are

available only in the notes.

The movement of inventories might be illustrated as follows:

The value of the inventories at the beginning of the reference period:

+ Purchases

- Sales

- Write-downs

+ Reversals of write-downs

= The value of the inventories at the end of the reference period

So, the value of the inventories at the end of the reference period:

- The value of the inventories at the beginning of the reference period

=

Purchases

- Sales

- Write-downs

+ Reversals of write-downs (does it increase the value of inventories?)

The alternative way to calculate changes in goods and services is showed above.

Unfortunately, the purchases of inventories are disclosed neither on the face of the income

statement nor in the notes. Therefore, this way of calculating changes in goods and services is

not possible.

4.3.3 Main differences

- A different wording and definitions are used in the SBS Regulation and IAS 2, but the

meaning is very close (or quite the same);

- The standard allows presenting inventories at another, lower value (net realisable

value) than purchaser‟s prices or production cost, mentioned in the SBS-R.

32

4.3.4 Conclusions

Changes in stocks of goods and services might be calculated on the basis of data disclosed by

classes of inventories in the notes as a difference between the value of the inventories by each

class at the end of the reference period and of the previous period.

As the net realisable value is not used in SBS, the value of changes in stocks should be

measured (corrected) by the amount of any write-down (+) and reversals of write-down (-).

4.4 Dutch case







companies limited by shares in the Netherlands are included in Book 2 of the Code which



framework is built around the relevant elements of the Code, and is supplemented by the




Concerning this variable, the disclosure foreseen in the Dutch income statement is similar to

the required disclosure information defined in the international accounting.


International

(IAS/IFRS)

Portugal

(NCRF13

)

Italy

(OIC14

)

Lithuania

(BAS15

)

Netherlands (NL

GAAP16

)



NCRF 1 OIC 3

OIC 11

OIC 12

BAS 1–6 Prescriptive formats of


profit


applicable.

IAS 2 – Inventories NCRF 18 OIC 13 BAS 9 Inventories shall be

measured at the lower

of cost and net

realisable value.

IAS 23 – Borrowing

costs

NCRF 10 OIC 13

OIC 16

BAS 12 Capitalisation is an

available accounting

13 Portuguese accounting and financial reporting standards. 14 Organismo Italiano di Contabilità. The Italian national accounting standard are under revision and they are updated up to May 2010 15 Business Accounting Standard 16 Generally Accepted Accounting Standards in the Netherlands, comprising the Netherlands Civil Code and the Dutch Accounting Standards

33

OIC 24 policy choice.

5. Miscellanea

Main changes in policy accountings:

LIFO is not allowed anymore as a cost formula to assign the cost of inventories;

The recognition of borrowing costs directly attributable to the acquisition,

construction or production of a qualifying asset as an expense in the period in which

they were incurred is not allowed anymore.

comparison of business statistics characteristics with ias ... 2010_deliverable_7.2_0.pdf · 7.21),...

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