Guide to annual financial statements – Illustrative ...

Ilustrative disclosures

Guide to annual financial statements IFRS Standards?

September 2018 ifrs

Contents

Contents

About this guide

2

Independent auditors' report

6

Consolidated financial statements

14

Financial highlights

15

Consolidated statement of financial position

16

Consolidated statement of profit or loss and

other comprehensive income

18

Consolidated statement of changes in equity

20

Consolidated statement of cash flows

22

Notes to the consolidated financial statements

24

Appendices

I New standards or amendments for 2018 and

forthcoming requirements

187

II Presentation of comprehensive income

? Twostatement approach

189

III Statement of cash flows ? Direct method

191

IV Other disclosures not illustrated in the

consolidated financial statements

192

Keeping in touch

198

Acknowledgements

200

Notes

Basis of preparation

24 Other information

155

1. Reporting entity

24 37. Loan covenant waiver

155

2. Basis of accounting

24 38. Operating leases

156

3. Functional and presentation currency

24 39. Commitments

157

4. Use of judgements and estimates

24 40. Contingencies

157

5. Changes in significant accounting policies

26 41. Related parties

158

Performance for the year

40 42. Subsequent events

161

6. Operating segments

40 Accounting policies

162

7. Discontinued operation

47 43. Basis of measurement

162

8. Revenue

49 44. Correction of errors

163

9. Income and expenses

56 45. Significant accounting policies

164

10. Net finance costs

57 46. Standards issued but not yet effective

185

11. Earnings per share

58

Employee benefits

60

12. Share-based payment arrangements

60

13. Employee benefits

63

Income taxes

67

14. Income taxes

67

Alternative performance measure

74

15. Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) 74

Assets

75

16. Biological assets

75

17. Inventories

79

18. Trade and other receivables

80

19. Cash and cash equivalents

81

20. Disposal group held for sale

82

21. Property, plant and equipment

84

22. Intangible assets and goodwill

87

23. Investment property

92

24. Equity-accounted investees

93

25. Other investments, including derivatives

95

Equity and liabilities

96

26. Capital and reserves

96

27. Capital management

100

28. Loans and borrowings

101

29. Trade and other payables

108

30. Deferred income

109

31. Provisions

110

Financial instruments

112

32. Financial instruments ? Fair values and risk

management

112

Group composition

147

33. List of subsidiaries

147

34. Acquisition of subsidiary

148

35. Non-controlling interests

152

36. Acquisition of NCI

154

2 | Guide to annual financial statements ? Illustrative disclosures

INTRODUCTION

About this guide

This guide has been produced by the KPMG International Standards Group (part of KPMG IFRG Limited).

It is intended to help entities to prepare and present financial statements in accordance with IFRS by illustrating one possible format for financial statements for a fictitious multinational corporation (the Group) involved in general business activities. This hypothetical reporting entity has been applying IFRS for some time ? i.e. it is not a first-time adopter of IFRS. For more information on adopting IFRS for the first time, see Chapter 6.1 in the 15th edition 2018/19 of our publication Insights into IFRS.

Auditors' report

Primary statements

Impact of the major new standards

IFRS 9 and IFRS 15

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers are effective for the first time for entities with an annual reporting period beginning on or after 1 January 2018. Applying the new standards is expected to significantly affect the disclosures included in the financial statements.

?? Disclosure of the nature and effect of changes in accounting policies: Entities are required to describe the nature and effect of initially applying the new standards. This will involve providing the transition disclosures in IFRS 7 Financial Instruments: Disclosures (as introduced by IFRS 9) and IFRS 15, as well as the general disclosure requirements in paragraph 28 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, when applicable.

Disclosures may differ depending on the transition method chosen by the entity. For example, entities applying IFRS 15 under the full retrospective method are required to follow the disclosure requirements in IAS 8, whereas those applying the cumulative effect method are exempted from providing the disclosures required by paragraph 28(f) of IAS 8 but are required to provide the disclosures included in paragraph C8 of IFRS 15 instead. In addition, when entities choose not to restate comparative information they may need to separately disclose their significant accounting policies for previous periods presented.

?? Ongoing disclosures: Entities are required to provide new `business as usual' disclosures that are included in IFRS 7 (as introduced by IFRS 9) and IFRS 15.

For revenue from contracts with customers, these include disaggregation of revenue and information on contract balances, performance obligations and significant judgements in the application of the standard. For financial instruments, these include information on investments in equity instruments designated at fair value through other comprehensive income and new or expanded disclosures about credit risk and hedge accounting.

IFRS 16

Users and regulators have shown a growing interest in the possible impact of IFRS 16 Leases, which has been issued but is not effective until 1 January 2019. As a consequence, significant focus is expected on the pre-transition disclosures about the possible impact of IFRS 16 that are required under IAS 8.

Regulators have communicated their expectation that, as the implementation of the new standard progresses, more information about its impact should become reasonably estimable and preparers will be able to provide progressively more entity-specific qualitative and quantitative information in their financial statements about the application of the new standard.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Notes

Appendices

INTRODUCTION

Auditors' report

Primary statements

Explain the changes What else is new in 2018? Standards covered

Need for judgement

About this guide | 3

Note 46 describes management's current assessment of the possible impacts that the application of IFRS 16 will have on the Group's consolidated financial statements in the period of initial application.

As preparers apply IFRS 15 and IFRS 9 in their 2018 annual financial statements, they should embrace the opportunity to think through how best to explain the changes and their effects. The quality and clarity of explanations of changes in accounting policies and their impacts are key. Investors and other stakeholders will be keenly interested in disclosures of key judgements and estimates.

Appendix I provides a comprehensive list of all of the new standards, distinguishing between those that are effective for an entity with an annual period beginning on 1 January 2018 and those with a later effective date.

Except for IFRS 15 and IFRS 9, the Group has no transactions that would be affected by the newly effective standards or its accounting policies are already consistent with the new requirements. As such, these new requirements are not illustrated in this guide.

This guide reflects standards, amendments and interpretations (broadly referred to in this guide as `standards') that have been issued by the International Accounting Standards Board (the Board) as at 15 August 2018 and that are required to be applied by an entity with an annual reporting period beginning on 1 January 2018 (`currently effective requirements'). The early adoption of standards that are effective for annual periods beginning after 1 January 2018 (`forthcoming requirements') has not been illustrated.

This guide does not illustrate the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 4 Insurance Contracts, IFRS 6 Exploration for and Evaluation of Mineral Resources, IFRS 14 Regulatory Deferral Accounts, IAS 26 Accounting and Reporting by Retirement Benefit Plans, IAS 27 Separate Financial Statements, IAS 29 Financial Reporting in Hyperinflationary Economies and IAS 34 Interim Financial Reporting. IAS 34 requirements are illustrated in our Guide to condensed interim financial statements ? Illustrative disclosures.

In addition, IFRS and its interpretation change over time. Accordingly, this guide should not be used as a substitute for referring to the standards and other relevant interpretative guidance.

Preparers should also consider applicable legal and regulatory requirements. This guide does not consider the requirements of any particular jurisdiction ? e.g. IFRS does not require the presentation of separate financial statements for the parent entity. Consequently, this guide includes only consolidated financial statements.

This guide is part of our suite of publications ? Guides to financial statements ? and specifically focuses on compliance with IFRS. Although it is not exhaustive, this guide illustrates the disclosures required by IFRS for a hypothetical reporting entity, merely for illustrative purposes and, as such, largely without regard to materiality.

The preparation and presentation of financial statements require the preparer to exercise judgement ? e.g. in terms of the choice of accounting policies, the ordering of notes to the financial statements, how the disclosures should be tailored to reflect the reporting entity's specific circumstances, and the relevance of disclosures considering the needs of the users.

Notes

Appendices

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

INTRODUCTION

Auditors' report

Primary statements

4 | Guide to annual financial statements ? Illustrative disclosures

Materiality

Specific guidance on materiality and its application to the financial statements is included in paragraphs 29?31 of IAS 1 Presentation of Financial Statements. In September 2017, the Board issued Practice Statement 2 Making Materiality Judgements, which provides guidance on applying materiality in the preparation of financial statements.

Materiality is relevant to the presentation and disclosure of the items in the financial statements. Preparers need to consider whether the financial statements include all of the information that is relevant to understanding an entity's financial position at the reporting date and its financial performance during the reporting period.

Preparers also need to take care not to reduce the understandability of their financial statements by obscuring material information with immaterial information or by aggregating material information that is different by nature or function. Individual disclosures that are not material to the financial statements do not have to be presented ? even if they are a minimum requirement of a standard. Preparers need to consider the appropriate level of disclosure based on materiality for the reporting period.

Remember the bigger picture

References and abbreviations

Financial reporting is not just about technical compliance, but also effective communication. Investors continue to ask for a stepup in the quality of business reporting, so preparers should be careful not to become buried in compliance to the exclusion of relevance. In preparing their financial statements, entities need to focus on improving their communication by reporting financial information in a meaningful way.

Entities may also consider innovating their financial statement presentation and disclosure in the broader context of better business reporting. For more information, see our Better business reporting website.

References are included in the lefthand margin of this guide. Generally, the references relate only to presentation and disclosure requirements.

IAS 1.82(a)

Paragraph 82(a) of IAS 1.

[IAS 16.41]

Paragraph 41 of IAS 16. The square brackets are used only in significant accounting policies (e.g. Note 45 to the financial statements) to indicate that the paragraph relates to recognition and measurement requirements, as opposed to presentation and disclosure requirements.

Insights 2.3.60.10 Paragraph 2.3.60.10 of the 15th edition 2018/19 of our publication Insights into IFRS.

IFRS 7

IFRS 7 as amended by IFRS 9 (applicable from 1 January 2018).

IFRS 7S

IFRS 7 before amendments by IFRS 9 (applicable before 1 January 2018).

The following markings in the left-hand margins indicate the following.

In the context of consolidated financial statements, the disclosures in respect of operating segments (see Note 6) and EPS (statement of profit or loss and OCI, and Note 11) apply only if the parent:

?? has debt or equity instruments (operating segments) or ordinary shares/ potential ordinary shares (EPS) that are traded in a public market ? i.e. a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets; or

?? files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.

Major changes since the 2017 edition of this guide.

Notes

Appendices

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

INTRODUCTION

About this guide | 5

The following abbreviations are used often in this guide.

CGU EBITDA ECL EPS FVOCI FVTPL NCI Notes OCI

Cash-generating unit Earnings before interest, tax, depreciation and amortisation Expected credit loss Earnings per share Fair value through other comprehensive income Fair value through profit or loss Non-controlling interests Notes to the financial statements Other comprehensive income

Auditors' report

Primary statements

Notes

Appendices

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Introduction

AUDITORS' REPORT

Primary statements

6 | Guide to annual financial statements ? Illustrative disclosures

[Name of the Company]

Independent auditors' report

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Notes

Appendices

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