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Strategic Business Reporting

Strategic Business Reporting

Strategic Business Reporting

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Lea Hoenke
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Lea Hoenke
Diese Lernkarten decken die zentralen Aspekte des strategischen Geschäftsberichts nach IFRS ab, von der Erst- und Folgemessung von Vermögenswerten über die Behandlung von Investment Properties bis hin zu Segmentberichterstattung und Impairment-Tests. Sie richtet sich besonders an Studierende der Betriebswirtschaftslehre oder angehende Wirtschaftsprüfer, die ein tiefes Verständnis für internationale Rechnungslegungsstandards benötigen.
Flashcards
182
Students
1
Language
German
Category
Finance
Level
University
Created / Updated
27.08.2026 / 01.09.2026
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Flashcards

why are FV gains/losses of investment property not recognised in OCI?

Investment property (IAS 40):

Property is held to earn rentals and/or for capital appreciation.

The fair value movement is considered part of the economic performance of the investment for the period. The property is held as an investment, so changes in its fair value are treated as part of the investment's performance.

What is a lease and how to evaluate wether a contract is a lease?

Lease = Right to control use of an asset for a period of time in exchange for a consideration

  1. Identifiable asset
  2. customer must be able to get substantially all benefits while using
  3. customer must be able to direct how & for what the asset is used

Lessee accounting - initial recognition

  • Right of use asset at cost
    • Lease liability + payments made before, initial direct costs/restoration costs - lease incentives received
  • Lease liability = PV of lease payments @ EIR

 

ROUA / Lease liablity

delta goes to cash

Lessee accounting - subsequent recognition

  1. ROU Asset: Depreciate over useful life
    1. Depr. expense / ROUA
  2. Incre4ase & Reduction of lease liability through Interest (incr) & lease payments (decr):
    1. Interest (P&L) = EIR * Opening liab
      1. Interest expense / lease liability
    2. Principal repayment reduces liability
      1. Lease liab / cash
    3. Opening liability + Interest - lease payments
  3. .

special subsequent measurement rules for the ROU asset under IFRS 16

1. Underlying asset = PPE that is revalued

If the asset you're leasing is PPE, and the lessee uses the IAS 16 revaluation model for that class of PPE, the lessee may choose to apply the revaluation model to the corresponding ROU assets (normally: ROU asset → cost model → depreciation + impairment)

So if the ROU asset increases in value:

Revaluation gain → OCI
(subject to the normal IAS 16 revaluation rules)

And if it decreases:

P&L, subject to reversal of a previous revaluation surplus.

2. Underlying asset = Investment property

f the underlying asset is investment property and the lessee uses the IAS 40 fair value model, the ROU asset must be measured at fair value.

IFRS 16 says:

ROU asset → fair value

And changes in fair value are accounted for according to IAS 40.

Therefore:

FV increase → P&L
FV decrease → P&L

Just like the IAS 40 fair value model for investment property.

Lease recognition exemptions & treatment

Exemption

  • short-term leases <12m and NO purchase option
  • if underlying asset is o f low value <USD 5k

Treatment:

  • No ROUA & Lease liability
  • recognise lease payment as expense in P&L

Lease remeasurement cases

  1. revised discount rate
    1. change in lease term
    2. change in assessment of purchase option
  2. unchanged discount rate
    1. if payment change because of an index/rate

Adjust against ROUA/Liability

What do you do with separate lease components?

Deal with them separately

  1. non-lease components should be assessed under IFRS 15 for separate performance obligations
  2. lease components are treated as fin. liabilities under IFRS 16

How to account for a Sale & Leaseback?

  1. Sale occurs
    1. derecognise asset
    2. recognise ROUA + LEASE LIABILITY
      1. Calculate portion of assets retained: PV lease payments  / FV -> CA * share you keep
      2.  recognise lease liability as normal
      3. calulate gain to recognise in P&L: e.g. if you retain 40%, you calculate gain based on 60%
  2. Sale does not occur
    1. continue recognising fin. asset
    2. recognise fin. liability for cash received

Finance Lease vs Operating Lease

Finance Lease = transfers substantially all risk & rewards of the underlying asset (like lessee bought asset using a loan)

Operating lease = does not transfer all risk & rewards

Finance Lease Accounting - Initial recognition & subsequent accounting

Initial recognition

  • derecognise asset
  • recognise a lease receivable
    • PV of lease payment received + unguaranteed RV -> discounted at EIR

Subsequent accounting

  • recognise finance invome in P&L
  • Lease payment received reduce principal & unearned finance income
  • year end receivable: Receivable + finance income - lease payment

Accounting for operating Lease

Initial recognition

  • keep underlying asset on BS
  • NO receivable

Subsequent

  • recognise rental income on straight line basis in P&L
  • continue depreciation of underlying asset

Cash/Rental income

Depreciation expense / Accum depreciation

Imairment of lease treatment

ROU Asset - IAS 36 impairment model

lease liability = no impairment

Reversal of impairment possible, but CA cannot exceed amount that would have existed if no impairment had been recognised

Goodwill impairment cantbe reversed

Operating Lease

  • Underlying asset = IAS 36 impairment
  • Net inv in lease = IFRS 9 ECL

aside of sales prices & related costs, what is another primary factor to consider regarding determination of functional currency?

currency of the country whose competitive forces & regulations mainly determine the prices

what happens if the functional currency is not obvious, even after considering all facts?

mgmt should apply judgement to determine the FC which most faithfully represents the economic effects of the underlying transactions

What does IAS 21 say to consider for subsidiaries in regard to using the same functional currency as parent

same functional currency as parent makes sense when:

  • subsidiary is an extension of the parent, rather than autonomous
  • transactions with the parent are a high proportion of its activities
  • subsidiaries cf directly affectt he parents cf
  • the subsidiary doesnt generate enouh cash to service its own funding

What are indicators of significant influence

  • representations on BoD
  • participation in policy making processes, material transactions, interchange of personnel or provision of essentia technical information

What happens on the date that control is lost but significant influence remains?

What happens if even significant influence is lost?

  1. goodwill, net assets & NCI of subsidiary would be derecognised
  2. regord gain or loss on disposal in P&L
  3. start with equity accounting

If significant influence is lost

  • financial asset and remeasured at FV at each reporting date

What is a financial asset/liability

a contractual obligation to transfer/receive cash

What is special if a loan is granted without interest rates?

  • not a transaction at arm's length
  • no interest rate = amount received does not equal FV because an ordinary market loan would charge interest
  • use usual rate of borrowing to discount PV of future expected CF

Current assets/current liabilities

IFRS 18 Presentation

Current asset

  • i8t expected to be realised in entity's normal operating cycle
  • held primarily for trading
  • expected to be realised within 12 months
  • cash or cash equivalent

Current liability:

  • expected to be settled in normal operating cycle
  • held primarily for trading
  • due to be settled within 12 months
  • entity does not have the right to defer settlement for at least 12 months

 

Who is a related party?

  • someone that has sufficiently close relationship with a company through control, influence, mgmt, family connections

A person:

  • if they control the ocmpany
  • have joint control
  • have significant influence
  • Key management person

Company:

  • parent
  • subsidiary
  • associate /JV

Internal vs external factors for Impairment

  • both are fine
  • external sources of info are usually more broader and less clearly linked to the specific asset

What might have to be considered when testing a CGU for impairment?

IAS 36 says that sometimes you must consider a liability when testing a CGU. This happens when a buyer would have to assume the liability (when lease liability e.g. is inseparable from CGU)

In this situation, lease liability is deducted from both:

  • CGU's carrying amount
  • VIU

what does IAS 10 say

IAS 10 – Events after the Reporting Period deals with events occurring between the reporting date and the date the financial statements are authorised for issue.

Did the event provide evidence about a condition that already existed at year-end, or did it create a new condition after year-end?

An adjusting event gives additional evidence about a condition that already existed at the reporting date.

→ Adjust the amounts in the financial statements. / Old condition + new information = ADJUST

2. Non-adjusting event → don't adjust, disclose if material

A non-adjusting event indicates that the condition arose after the reporting date.

Why can an explanation of key judgements be valuable to investors?

  • helps the assess an entity's financial position and performance
  • enables an understanding of sensitivities to changes in assumptions
  • a description of mgmt's thinking in an area with possible quantification of information will enable investors to assess the quality of mgmt's accounting policies
  • allows investor to gauge how changes in estimates could affect the future results
  • can help investors understand the potential cash flow implications and help with their future cashflow moddeling

Is a disclosure of key judgements necessary?

yes, according to IAS 8 Basis of Preparation of Financial Statements

An entity must disclose:

the judgements that management has made in applying the entity's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Is a contract a lease under IFRS 16?Potentially ✅

Determining whether a lease extension is reasonably certainPotentially ✅

Whether an entity has control over another entity under IFRS 10Potentially ✅

Whether revenue is recognised over time or at a point in time under IFRS 15Potentially ✅

Whether an asset qualifies as investment property under IAS 40Potentially ✅

Useful life of PPE❌ Usually an estimate, not a judgement

Discount rate used in impairment❌ Estimate/assumption, not a judgement

Expected future cash flows for impairment❌ Estimate

Judgement vs uncertainty

Judgement:

"Which accounting treatment should we apply?"

Estimation uncertainty:

"What amount/assumption should we use?"

Accounting policy vs estimate

IAS 8 defines accounting policies as the specific principles, bases, conventions, rules and practices an entity uses to prepare its financial statements.

Think:

Accounting policy = HOW do we account for something?

A change in the measurement basis is a change in accounting policy, not an estimate.

IAS 8 now defines an accounting estimate as:

a monetary amount in the financial statements that is subject to measurement uncertainty.

Think:

Accounting estimate = WHAT AMOUNT do we recognise?

Accounting policy changes vs estimate changes

4. What happens if the estimate changes?

Suppose you originally estimate:

Useful life = 10 years

After 4 years, you reassess and conclude:

Remaining useful life = 3 years

That's not an error.

You have new information / more experience, so it's a change in accounting estimate. IAS 8 says changes in estimates arise from new information, new developments or more experience.

Treatment → PROSPECTIVE

You do not go back and restate previous years.

You change depreciation from the current period onwards.

5. What happens if an accounting policy changes?

A change in accounting policy is generally applied retrospectively, unless:

  • another IFRS Standard has specific transitional rules, or
  • retrospective application is impracticable.

Example

Suppose a company changes its inventory accounting policy from:

FIFO → weighted average

That's a change in policy.

Generally:

Restate previous periods as if the new policy had always been applied.

So:

Policy change → retrospective

Estimate change → prospective

 

What if you're unsure whether it's policy or estimate?

IAS 8.35 gives you an important exam rule:

If it is difficult to distinguish a change in accounting policy from a change in accounting estimate, treat it as a change in accounting estimate.

So:

Unsure → estimate → prospective.

change in estimate vs an error

Change in estimate

You had reasonable information at the time, but new information later becomes available.

→ Prospective

Prior-period error

You failed to use, or misused, reliable information that was already available when the original financial statements were prepared.

→ Retrospective correction for material errors.

 

What does IAS 8 say?

A prior-period error is an omission or misstatement resulting from failing to use, or misusing, reliable information that was already available when the original financial statements were prepared. Examples include:

  • mathematical mistakes
  • applying an accounting policy incorrectly
  • overlooking information
  • misinterpreting facts
  • fraud

Treatment of a material prior-period error

The rule is:

Correct material prior-period errors retrospectively.

This means:

1. Restate the comparative figures for the period(s) in which the error occurred.

or, if the error occurred before the earliest period presented:

2. Restate the opening balances of assets, liabilities and equity for the earliest period presented.

Importantly, the correction does not go through the current year's P&L. You are essentially making the financial statements look as if the error had never happened.

what does IFRS say about materiality? how to decide what is material or not?

The main guidance comes from IAS 1 / IAS 8 and IFRS Practice Statement 2 – Making Materiality Judgements.

Information is material if:

Omitting, misstating or obscuring it could reasonably be expected to influence the decisions of the primary users of the financial statements.

Materiality depends on:

  • nature of the information,
  • magnitude of the information,
  • or both.

And you assess it in the context of the financial statements as a whole

IAS 8 also requires materiality to be considered both individually and collectively.

what does IFRS Practice Statement 2 say about materiality?

Suggests a 4 step approach to identify materiaity

  1. Identify
    1. Identify information that could potentially be material.
  2. Assess
    1. Ask whether it is actually material.
      1. Quantitative: Amount
      2. Qualitative: Nature of info
  3. Organise

    1. If the information is material, make sure it is: 

      1. presented clearly,

      2. appropriately classified,
      3. not hidden in excessive detail.

    2. This is important because obscuring material information can itself make the financial statements misleading

  4. Review
    1. Look at the financial statements as a whole.
    2.  

Examples of areas where judgement is required?

  • Whether an investee is a subsidiary or associate
  • whether an acquisition is of a business or group of assets
  • determining acquisition date
  • estimated goodwill impairment
  • classification of joint arrangements
  • FV of subsidiary's identifiable net assets
  • FV of NCI at acquisition
  • Is a contract actually a lease?
  • are goods/services distinct performance obligations
  • Does a present obligation exist?

What does IAS 32 Financial instruments say about offsetting financial assets/liabilities?

Financial assets/liabilities should be offset and the net amount presented in statement of financial position when the entity

  1. currently has a legally enforceable right to set off the recognised amounts
  2. intends to either settle on a net basis or release asset & liability simultaneously

Offsett not possible with different parties

WHat is the approach to developing an accounting policy? which standard?

IAS 8 Basis of Preparation of FS states that mgmt must use its judgement in developing & applying an accounting policy which results in information which is relevant & reliable

In making that judgement, mgmt must refer to, and consider applicability of th efollowing resources in descending order:

  1. requirements & standards in IFRS accounting standards dealing with similar and related issues
  2. definitions, recognition criteria & measurement concepts for assets, liabilities, income & expense in IASB's conceptual framework

What is a provision

  • There needs to be a present obligation from a past event
  • There needs to be a reliable estimate, and
  • There needs to be a probable outflow of resources embodying economic benefits (eg cash)

What if outflow is not probable but only possible?

If it appears that there is a possible outflow then no provision is recorded. In this situation, a contingent liability would be reported. A contingent liability is simply a disclosure note shown in the notes to the accounts. There is no double entry recorded in respect of this. Instead, a description of the event should be given to the users with an estimate of the potential financial effect. In addition to this, the expected timing of when the event should be resolved should also be included.

 

What is a contingent asset?

Similar to the concept of a contingent liability is the concept of a contingent asset. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Like a contingent liability, a contingent asset is simply disclosed rather than a double entry being recorded. A

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