Guide to annual financial statements – Illustrative ...

Ilustrative disclosures

Guide to annual financial statements IFRS? Standards

September 2019 home.kpmg/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

22

Consolidated statement of cash flows

24

Notes to the consolidated financial statements

26

Appendices

I New standards or amendments for 2019 and

forthcoming requirements

186

II Presentation of comprehensive income ?

Twostatement approach

188

III Statement of cash flows ? Direct method

190

IV Other disclosures not illustrated in the

consolidated financial statements

191

Acknowledgements

197

Keeping in touch

198

Notes

Basis of preparation

26 Other information

151

1. Reporting entity

26 37. Loan covenant waiver

151

2. Basis of accounting

26 38. Leases

152

3. Functional and presentation currency

26 39. Commitments

155

4. Use of judgements and estimates

26 40. Contingencies

155

5. Changes in significant accounting policies

29 41. Related parties

156

Performance for the year

32 42. Subsequent events

159

6. Operating segments

32 Accounting policies

160

7. Discontinued operation

41 43. Basis of measurement

160

8. Revenue

43 44. Correction of errors

161

9. Income and expenses

49 45. Significant accounting policies

162

10. Net finance costs

50

11. Earnings per share

51

Employee benefits

53

12. Share-based payment arrangements

53

13. Employee benefits

56

Income taxes

61

14. Income taxes

61

Alternative performance measure

68

15. Adjusted earnings before interest, tax, depreciation and amortisation (adjusted EBITDA) 68

Assets

69

16. Biological assets

69

17. Inventories

73

18. Trade and other receivables

74

19. Cash and cash equivalents

75

20. Disposal group held for sale

76

21. Property, plant and equipment

78

22. Intangible assets and goodwill

81

23. Investment property

86

24. Equity-accounted investees

88

25. Other investments, including derivatives

91

Equity and liabilities

92

26. Capital and reserves

92

27. Capital management

96

28. Loans and borrowings

97

29. Trade and other payables

104

30. Deferred income

105

31. Provisions

106

Financial instruments

108

32. Financial instruments ? Fair values and risk

management

108

Group composition

143

33. List of subsidiaries

143

34. Acquisition of subsidiary

144

35. Non-controlling interests

148

36. Acquisition of NCI

150

INTRODUCTION

Auditors' report

2 | Guide to annual financial statements ? Illustrative disclosures

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 Standardsa 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 the Standards for some time ? i.e. it is not a first-time adopter. For more information on first-time adoption, see Chapter 6.1 in the 16th Edition 2019/20 of our publication Insights into IFRS.

Impact of the major new standard

IFRS 16

IFRS 16 Leases replaces the requirements in IAS 17 Leases and related interpretations, and is applicable for the first time for entities with an annual reporting period beginning on or after 1 January 2019.

Applying the new standard is expected to significantly affect the disclosures included in the financial statements of some entities.

?? 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 standard. This will involve providing the transition disclosures in IFRS 16, 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 16 under the full retrospective method are required to follow the disclosure requirements in IAS 8, whereas those applying the modified retrospective 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 C12 of IFRS 16 instead. In addition, when entities choose not to restate comparative information they may need to separately disclose their significant accounting policies for previous period(s) presented.

Note 5 illustrates one possible way of providing these disclosures.

?? Ongoing disclosures: Entities are required to provide the new `business as usual' disclosures that are included in IFRS 16. The appropriate level of disclosure will ultimately depend on the entity's facts and circumstances, the extent to which it is affected by the new standard, and regulators' expectations, if applicable.

Primary statements

Notes

Appendices

IAS 1.7, Preface 2

a. `IFRS? Standards' is the term used to indicate the whole body of authoritative literature, and includes:

?? IFRS? Standards issued by the International Accounting Standards Board (the Board);

?? IAS? Standards issued by the International Accounting Standards Committee (IASC, the Board's predecessor), or revisions thereof issued by the Board;

?? interpretations of IFRS Standards and IAS Standards developed by the IFRS Interpretations Committee (IFRIC? Interpretations) and approved for issue by the Board; and

?? interpretations of IAS Standards developed by the Standing Interpretations Committee (SIC? Interpretations) and approved for issue by the Board or IASC.

? 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

INTRODUCTION

Auditors' report

Primary statements

What else is new in 2019? Improved disclosures Standards covered

Need for judgement

About this guide | 3

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 2019 and those with a later effective date.

Except for IFRS 16, 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.

As preparers apply IFRS 16 in their 2019 annual financial statements for the first time, 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.

This may also be a good opportunity for entities to critically evaluate the relevance and clarity of their disclosures with respect to financial instruments and revenue in their second set of financial statements under these new standards.

This guide is based on standards, amendments and interpretations (broadly referred to in this guide as `standards') that have been issued as at 31 August 2019 and that are required to be applied by an entity with an annual reporting period beginning on 1 January 2019 (`currently effective requirements'). The early adoption of standards that are effective for annual periods beginning after 1 January 2019 (`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, the standards and their interpretation change over time. Accordingly, this guide should not be used as a substitute for referring to their requirements 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 Standards do not require the preparation of separate financial statements for the parent entity but laws in certain jurisdictions may require preparation of separate financial statements. This guide illustrates only consolidated financial statements and does not illustrate separate financial statements.

This guide is part of our suite of guides to financial statements and specifically focuses on compliance with IFRS Standards. Although it is not exhaustive, this guide illustrates the disclosures required 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

? 2019 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

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 items that are 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.

Specific guidance on materiality and its application to the financial statements is included in paragraphs 29?31 of IAS 1 Presentation of Financial Statements. Preparers may also consider Practice Statement 2 Making Materiality Judgements, which provides guidance and examples on applying materiality in the preparation of financial statements.

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 step-up 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 disclosure of 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 16th Edition 2019/20 of our publication Insights into IFRS.

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 2018 edition of this guide.

Notes

Appendices

? 2019 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

? 2019 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

? 2019 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Notes

Appendices

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