Accounting: The Language of Business - Vol. 2 (Intermediate: Part 76)

Attention should be paid to this question of our soul, and not simply to accounting procedures. Attention should be paid to the interest of those who are yet unborn, who should be able to see this generation as it saw itself, and the past generation as it saw itself.

George Lucas

Statements of Financial Position and Cash Flows and the Annual Report (Part N)

by

Charles Lamson

International Financial Reporting Standards (IFRS) Notes to the Financial Statements. IFRS requires similar information to GAAP in the notes to the financial statements such as significant accounting policies, subsequent events, going concern uncertainties, and related party transactions. However, the identification of subsequent events and disclosure of going concern uncertainties and related parties differ slightly. Additionally, IFRS requires disclosure of sources of uncertainty and the measurement of assets and liabilities.

Subsequent Events: IFRS. Under IFRS, a subsequent event must be reported if it occurs after the balance sheet date but before the final statements have been authorized for issuance [See IASC, International Accounting Standard 10 "Events After the Reporting Period" (London, UK: International Accounting Standards Committee, Revised)]. A company must disclose when the financial statements have been authorized and who authorized them. Commonly, a company's board of directors will authorize the financial statements for issuance. The authorization date is usually before the issuance date that U.S. GAAP uses. Therefore, a U.S. GAAP reporter may report a subsequent event that would not be reported under IFRS.

EXAMPLE 6.5 Subsequent Events: IFRS

PROBLEM: Augsburg Company's board of directors met and authorized its financial statements on February 2. The company plans to make its financial statements available to the public on February 10. On February 8, a flood destroyed Augsburg's major manufacturing facility. does Augsburg need to report the loss of the manufacturing facility as a subsequent event under IFRS?

SOLUTION: Under IFRS, Augsburg is not required to report the loss of the manufacturing facility as a subsequent event. Augsburg's board authorized its financial statements for issuance before the flood. Therefore, although the event occurred before Augsburg issued the financial statements. Augsburg is not required to report it as a subsequent event under IFRS.

Going Concern Uncertainties: IFRS. IFRS required disclosures about going concern uncertainties when management is aware of material uncertainties related to conditions that may cause significant doubt about the entity's ability to continue as a going concern. However, unlike IFRS, the assessment period is at least one year from the financial statement date with an upper time limit.

Related-Party Transactions: IFRS. IFRS defines related-party transactions and requires disclosure similar to U.S. GAAP. However, IFRS also includes specific disclosure requirements on executive compensation in total and by type, such as short-term employee benefits, post employment benefits, other long-term benefits, and share-based payments.

Sources of Estimation Uncertainty: IFRS. Under IFRS, companies are required to disclose information about the assumptions and estimates made at the end of the reporting period. Assumptions and estimates can result in estimation uncertainty about the carrying values reported for assets and liabilities. Given the assumptions and estimates made companies determine whether there is a significant risk of a material adjustment to the carrying amount of assets and liabilities. Exhibit 6.18 presents Unilever's disclosure to financial statement items where it made significant estimates and assumptions, including pension obligations and deferred taxes, referring to more detail on these items in the specific notes to the financial statements. 

EXHIBIT 6.18 Disclosure of Sources of Estimation Uncertainty, Unilever Group, Financial Statements, December 31, 2016

Source: Unilever 2016 Annual Report

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 260,261*

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