Read between the
line items.

Unaddressed! Where the Standard leaves it to you!

Close readings of the questions IFRS leaves open, each with a worked example.

All Unaddressed! posts

• Company Law · Distributable profits: Profit on paper Unrealised fair value gains on investment property and financial instruments can create huge IFRS retained earnings that are still unlawful to pay out.
• IAS 8 · Accounting policies: Borrowed rules When no IFRS deals with a transaction, IAS 8.12 lets you look to US GAAP, but only at the bottom of a hierarchy.
• IFRS 2 · Share-based payment: The exit that keeps moving If share options vest only on a sale or IPO, the vesting period has to be estimated and keeps moving.
• IAS 20 · Government grants: Fifty jobs, three years A grant that depends on keeping 50 jobs for three years: when do you recognise it, and what happens if you miss the target in year two?
• IAS 23 · Borrowing costs: The months nobody worked IAS 23.20 suspends capitalisation during "extended periods" when active development stops.
• IAS 36 · Impairment: Two tests, one store There are two accepted ways to test a cash-generating unit with leases under IAS 36, and they can give very different headroom.

WTF: What The Financials. Did you know?

• You built the road. It’s not your PP&E. A toll-road operator never records the road it built as property, plant and equipment. The grantor controls its use, so the operator books a receivable or a toll licence. Reference: IFRIC 12 Service Concession Arrangements, paragraph 11
• Drivers pay you? Your loan interest is an asset. Borrowing costs on a concession are expensed if the grantor pays the operator. If users pay through tolls, the same costs are capitalised while the road is built. Reference: IFRIC 12 Service Concession Arrangements, paragraph 22
• Going broke can book you a gain. When your credit rating collapses, debt you carry at fair value is suddenly worth less, so you record a gain. IFRS 9 doesn’t stop it; it just sends it to OCI. Reference: IFRS 9 Financial Instruments, paragraph 5.7.7
• Options nobody exercises still cost you. Staff share options can expire worthless and never be used, yet once they have vested, the expense already booked is never reversed. Reference: IFRS 2 Share-based Payment, paragraph 23
• A leased superyacht can stay off the books. Lease it for 12 months or less, with no purchase option, and the payments can simply be expensed. No right-of-use asset, no lease liability. Reference: IFRS 16 Leases, paragraphs 5 and 6
• Written-off goodwill never comes back. Even if the business fully recovers the very next year, a goodwill impairment can never be reversed. Most other assets get that second chance. Reference: IAS 36 Impairment of Assets, paragraph 124
• A decision in February can sink December. Solvent at the year-end? If management decides to liquidate before the accounts are signed, they can no longer be prepared on a going concern basis. Reference: IAS 10 Events after the Reporting Period, paragraph 14
• Get paid €4,000, book €4,494 of revenue. When a customer pays years in advance, you are treated as borrowing from them: interest expense goes up, and so does revenue. Reference: IFRS 15 Revenue from Contracts with Customers, paragraphs 60 to 65
• A takeover going badly can boost profit. If the acquired business underperforms, the earn-out you expect to pay falls, and after the measurement period that fall is a gain. Reference: IFRS 3 Business Combinations, paragraph 58(b)(i)
• The buyer can be the one that got bought. In a reverse acquisition, the company that legally issues the shares is the acquiree, and the “target” is treated as the buyer. Reference: IFRS 3 Business Combinations, paragraph B19
• Some parents are banned from consolidating. An investment entity must not consolidate the subsidiaries it controls. It carries them at fair value through profit or loss instead. Reference: IFRS 10 Consolidated Financial Statements, paragraph 31
• Sell shares at a big profit. Profit never sees it. Gains on equity investments designated at fair value through OCI never reach profit or loss, not even when you sell. Reference: IFRS 9 Financial Instruments, paragraphs 5.7.5 and B5.7.1
• Lend €1m interest-free, lose money on day one. A below-market loan starts at fair value, so the gap between the cash lent and its present value is an expense from the start. Reference: IFRS 9 Financial Instruments, paragraph B5.1.1
• A pension surplus can still be a liability. If minimum funding rules force contributions you can never get back, a liability arises even while the plan is in surplus. Reference: IFRIC 14 The Limit on a Defined Benefit Asset, paragraph 24
• In hyperinflation, holding cash is a loss. As prices soar, cash and receivables lose purchasing power, and that loss on the net monetary position goes to profit or loss. Reference: IAS 29 Financial Reporting in Hyperinflationary Economies, paragraphs 27 and 28
• A tax bill due in 50 years counts in full today. Deferred tax is never discounted, however far off it reverses. A liability due decades from now sits on the balance sheet at full value. Reference: IAS 12 Income Taxes, paragraph 53
• A whole year’s levy can hit on one day. If trading on 1 January triggers a levy, the full annual charge is recognised that day, even in interim accounts. Reference: IFRIC 21 Levies, paragraphs 8 and 13
• Your owners’ capital can be a liability. If members can hand their shares back for cash, as in many co-operatives, that capital is a financial liability unless strict exceptions apply. Reference: IAS 32 Financial Instruments: Presentation, paragraph 18(b)
• You can keep a lawsuit’s details secret. In extremely rare cases where disclosure would seriously prejudice your position, you can withhold it, saying only what the dispute is about and why. Reference: IAS 37 Provisions, Contingent Liabilities and Contingent Assets, paragraph 92
• Missed the share-price target? Still an expense. If options depend on a share-price target, the cost is still recognised as long as staff stay, even if the target is never hit. Reference: IFRS 2 Share-based Payment, paragraph 21
• Cancelling staff options makes them cost more now. Cancel options before they vest and all the remaining expense is recognised at once, as if they had vested on the spot. Reference: IFRS 2 Share-based Payment, paragraph 28(a)
• Plan to sell a factory and it stops wearing out. Once classified as held for sale, an asset stops being depreciated, even while its machines keep running until the buyer takes over. Reference: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, paragraph 25
• You own 0% of it. It’s still your subsidiary. Not one share, not one vote: if you control it, IFRS 10 puts every asset and liability on your balance sheet. Banks have consolidated vehicles held in trust for a charity. Reference: IFRS 10 Consolidated Financial Statements, paragraphs 7 and B8
• A calf growing up is income. Living animals are measured at fair value less costs to sell, and every change in value goes straight to profit or loss. As the herd grows, so does profit. Reference: IAS 41 Agriculture, paragraph 26
• Your own brand is worth nothing. Build a brand yourself and it never reaches the balance sheet. Buy the same brand in an acquisition and it is recognised at fair value. Reference: IAS 38 Intangible Assets, paragraph 63
• Gift cards nobody spends are revenue. Expected breakage on gift cards is recognised as revenue as customers redeem the rest, without waiting for the cards to expire. Reference: IFRS 15 Revenue, paragraphs B44 to B47
• A new loan can be impaired on day one. Twelve months of expected credit losses are recognised from the day a loan is made, even if the borrower has never missed a payment. Reference: IFRS 9 Financial Instruments, paragraph 5.5.5
• No provisions for next year’s losses. However certain a loss-making year looks, provisions for future operating losses are banned. Test the assets for impairment instead. Reference: IAS 37 Provisions, paragraph 63
• Buying a business cheaply is a profit. If the net assets acquired are worth more than the price paid, the gain goes to profit or loss on the acquisition date, after a reassessment. Reference: IFRS 3 Business Combinations, paragraph 34