Illustrative Financial Statements for PICs

[Pages:249]Illustrative Financial Statements for PICs

International Financial Reporting Standards and Fourth Schedule to the Companies Act 2017

From the Desk of Technical Services The Institute of Chartered Accountants of Pakistan

Contents

Preface General Statement of financial position Statement of profit or loss & Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements

1

Corporate and general information

2

Basis of preparation

3

Summary of significant accounting policies

4

Group information

5

Property, plant and equipment

6

Right-of-use assets

7

Intangible assets

8

Investment property

9

Biological assets

10

Investment in associates

11

Investment in jointly controlled entity

12

Financial assets other than cash and bank

13

Long term deposits and prepayments

14

Inventories

15

Trade and other receivables

16

Contract assets

17

Prepayments, deposits and advances

18

Cash and bank balances

19

Assets held for sale

20

Share capital

21

Surplus on revaluation of property, plant and equipment

22

Other reserves

23

Financial liabilities

24

Deferred tax liability

25

Employee benefit obligations

26

Provisions

27

Deferred income ? Government grant

28

Trade and other payables

29

Contract liabilities

30

Current tax liability

31

Contingencies and commitments

Page No.

5 9 13 19 26 30 37

45 45 46 86 94 104 106 111 116 121 122 123 127 128 130 135 137 139 140 141 144 145 146 153 155 162 165 166 169 170 171

Contents

32

Revenue from contracts with customers

33

Cost of sales

34

Administrative and general expenses

35

Marketing and distribution expenses

36

Other operating expenses

37

Other income

38

Finance costs

39

Income tax expense

40

Profit/(loss) from discontinued operations

41

Earnings per share

42

Employee share option scheme

43

Operating segments

44

Remuneration of chief executive, directors and executives

45

Hedging activities and derivatives

46

Financial risk management

47

Fair value measurements of financial instruments

48

Capital management

49

Number of employees

50

Plant capacity and production

51

Related party transactions

52

Corresponding figures

53

Events after the end of reporting period

54

Authorisation of financial statements

Alternative disclosures Analysis of expenses Donations Key accounting estimates and judgements Alternative method of adopting IFRS 9, IFRS 15 and IFRS 16

Page No.

174 179 182 183 183 184 186 187 191 195 198 202 208 210 216 227 235 237 237 238 241 242 242

243 245 245 246

Illustrative Consolidated Financial Statements for Public Interest Companies

Preface

Purpose of publication

This publication has been prepared by the Technical Services Department of Institute of Chartered Accountants of Pakistan (ICAP) at the directions of the Accounting Standards Board (ASB).

It contains illustrative financial statements of a fictitious public interest company, PIC Pakistan Limited, prepared in accordance with the:

International Financial Reporting Standards (IFRSs / IFRS Standards); and

the provisions of and directives issued under the Companies Act, 2017.

The objectives of this publication are to facilitate ICAP members, assist the preparers of financial statements and provide guidance to all other stakeholders with regard to the preparation and presentation of statutory financial statements in accordance with the accounting and reporting standards as applicable in Pakistan to the public interest companies.

Scope

In the illustrative financial statements, the PIC Pakistan Limited is a listed public company incorporated in Pakistan under the repealed Companies Ordinance, 1984. This hypothetical company is engaged in manufacturing and trading activities and has interest in subsidiaries, associates and jointly controlled entities. It has been preparing statutory financial statements in accordance with the financial reporting framework applicable to public interest companies in Pakistan for last many years.

This publication aims to formulate a comprehensive source and provide maximum benefit and guidance to all the stakeholders, accordingly following important factors considered and included in this publication require readers' / users' attention:

These illustrative financial statements are designed to capture a wide set of circumstances and transactions, and in enhancing the relevance of the illustrative financial statements, all minimum disclosure requirements of IFRSs are complied with, generally without considering materiality thresholds.

Most of the usual disclosures typically found in the financial statements of public interest companies whose activities include manufacturing and trading have been captured in this illustrative publication.

Following notes/ information has also been included:

- Presentation of discount on issue of shares - Disclosure of change in accounting policy - Disclosure of correction of error - Disclosure of change in estimate - Disclosure of reclassification of corresponding figures - Disclosure and presentation of government grants - Disclosure of interest -free loan - Alternate disclosures for various items - Detailed disclosures for biological assets

Further, the original texts of the presentation and disclosure requirements (as contained in the IFRSs and fourth schedule to the Companies Act, 2017) have been produced before the component / items of financial statements and the respective disclosures.

As the presentation and disclosures contained in this publication cover wide range of items and transactions, therefore it is important to highlight that the illustrative presentation and disclosures should be considered in context of the company specific materiality, events, transactions and circumstances and user needs. Accordingly, all the illustrative presentation and disclosures may not be relevant and required. Further, there could be a requirement to include a disclosure in the financial statements in consideration of specific information as the disclosures in these illustrative financial statements are not meant to be exhaustive.

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Illustrative Consolidated Financial Statements for Public Interest Companies

Preface Continued...

Accounting and reporting standards as applicable in Pakistan The Companies Act, 2017 has been enacted on May 30, 2017. The third schedule to the Companies Act, 2017 outlines the classification of companies and also prescribes the financial reporting frameworks for such classes of companies. The requirements of Companies Act, 2017 related to the preparation of annual statutory financial statements are applicable for the periods ended after December 31, 2017.

A public interest company categorized in the third schedule to the Companies Act, 2017 is required to comply with the requirements of the IFRSs and the fourth schedule of the Companies Act, 2017.

Under the third schedule to the Companies Act, 2017, a public interest company could be a:

a) Listed company b) Non-listed Company which is:

(i) a public sector company as defined in the Act; or;

(ii) registered and/or licensed under the Administered Legislation or Rules, or regulations made thereunder, as follows, -

a) Non-banking Finance Companies which are Asset Management Companies, Pension Fund Managers, REIT Management Companies or Deposit Taking NBFCs;

b) Modaraba Company

c) Insurer

d) Securities Exchange

e) Commodity Exchange

f) Central Depository

g) Clearing House; or

(iii) Registered, notified and/or licensed under the Banking Companies Ordinance, 1962 (LVII of 1962) or Microfinance Institutions Ordinance, 2001 (LV of 2001), as follows:

a. Banking Company including Foreign Banking Company

b. Microfinance Bank c) Development Finance Institution (DFI)"

It is important to highlight that a public interest company which is a non-listed company as mentioned in (b) above has to follow the requirements of fifth schedule instead of fourth schedule. However, as the fourth schedule already covers all the disclosure requirements in the fifth schedule, this illustrative can be equally useful for public interest companies which are non-listed. Further, where a public interest company is involved in transactions covered with in the scope of Islamic Financial Accounting Standards (IFAS) issued by ICAP, it is also required to comply with the requirements of IFAS.

IFRSs These illustrative financial statements have been prepared on the basis of IFRSs which have been notified for adoption by the Securities and Exchange Commission of Pakistan (SECP) as of June 30, 2020.

The SECP and the SBP have also granted certain general or specific waivers and exemptions from IFRS requirements to companies in different sectors. These exemptions and waivers are briefly outlined below:

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Illustrative Consolidated Financial Statements for Public Interest Companies

Preface Continued...

Relevant IFRS IFRS 2 Share Based Payments

Details of waiver/exemption

- SECP, through S.R.O. 587 (I)/2011 dated 7 June 2011 has deferred the applicability of IFRS 2 requirements to the extent of accounting of the BESOS.

IFRS 7 Financial Instruments: - SECP, through S.R.O. 411(1)/2008 dated April 28, 2008, has

Disclosures

deferred the applicability of IFRS 7 to the Banks and DFIs.

IFRS 9 Financial Instruments

- SECP, through S.R.O. 985 (I)/2019 dated September 02, 2019, has deferred the application of expected credit losses method of IFRS 9, till June 30, 2021, to all companies that are holding financial assets from Government of Pakistan.

- SECP, through S.R.O. 986 (I)/2019 dated September 02, 2019 has granted exemption to all companies which have entered into power purchase arrangements before January 1, 2019, from the derivative accounting of IFRS 9.

- SECP, through S.R.O. 273(I)/2020, dated March 20, 2020, modified the effective date of IFRS 9 for the non-banking finance companies and making it effective for the year ending June 30, 2021.

IFRS 10 Consolidated Financial Statements

- SECP, through S.R.O 56(I)/2016 dated January 28, 2016, has directed that the requirement of consolidation under IFRS 10 is not applicable in the case of investments by companies in mutual funds managed under the trust structure.

IFRS 16 Leases

- SECP, through S.R.O. 986 (I)/2019 dated September 02, 2019 has granted exemption from IFRS 16 to all companies to the extent of the power purchase arrangements executed before January 1, 2019.

IAS 21 The Effects of Changes in Foreign Currency

- SECP, through S.R.O. 986 (I)/2019 dated September 02, 2019 has granted all companies which have entered into power purchase arrangements before January 1, 2019, to capitalize foreign exchange losses.

IAS 39 Financial Instruments: Recognition & Measurement

- SECP through Circular 19 Ref. No. SECP/ICAP/EM/34/2003/474 dated August 13, 2003 granted relaxation from IAS 39 and IAS 40 to the NBFC's providing Investment Finance Services, Discounting Services and Housing Finance Services with the direction that such companies shall continue observing the SBP BSD Circular No. 11 dated September 11, 2002 regarding the application of said IAS till further decision.

IAS 40 Investment Property

- Please see IAS 39 above.

- SBP, vide its BSD circular letter no. 10 dated August 26, 2002, has deferred applicability of IAS 40 to banks and DFIs.

IFRIC 12 Service Concession - SECP, vides its S.R.O. No. 24(I)/2012 has deferred applicability

Arrangements

of IFRIC 12 to all companies.

Further, the presentation and disclosure requirements of IAS 29 `Financial Reporting in Hyperinflationary Economies' have not been covered as Pakistan is not considered to be a hyperinflationary economy.

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Illustrative Consolidated Financial Statements for Public Interest Companies

Preface Continued...

Layout of illustrative financial statements Source references for presentation and disclosure requirements have been included in the right hand margin of the financial statements. The source reference of IFRSs provides reference to the standard and paragraph e.g. IAS 16.10 refers to International Accounting Standard (IAS) 16 ? Property, plant and equipment and 10 refers to paragraph 10 of IAS 16. Similarly, the reference to the Companies Act has been provided as CA 2017 225 (1), where CA 2017 means the Companies Act 2017, 225 is the reference to the section and (1) refers to the subsection. The illustrative statement of financial position presents non-current assets followed by current assets, and presents equity followed by non-current liabilities (i.e. most liquid items presented last). The sequencing may also be reversed (i.e. most liquid items first), and that is also permitted by the IFRSs. Important notes This publication is intended as an illustrative guide rather than a definitive statement. Reference should be made to the relevant section of IFRSs and Companies Act for specific disclosure requirements. It is neither a substitute for reference to the IFRSs, related interpretations and provisions of the Companies Act, 2017, nor does it constitute accounting or other professional advice. Accordingly, this publication should not be relied upon as a substitute for seeking professional advice concerning the appropriate accounting treatment for specific individual situations or ensuring compliance with the IFRSs and/or Companies Act, 2017. While care has been taken to ensure the accuracy of information, this publication may contain errors or omissions that may be relevant to any particular reader. ICAP, its staff and ASB accepts no responsibility for losses incurred by any party acting or not acting as a result of this material.

From the Desk of Technical Services | 8

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