Preparing Financial Statements for Complex Transactions under IFRS
Core areas
Expect consolidation (IFRS 10 control, IFRS 3 acquisition accounting, goodwill and NCI, intra-group eliminations, deferred tax on fair value adjustments), revenue (IFRS 15 five-step model, variable consideration, contract costs), leases (IFRS 16 right-of-use assets and liabilities, remeasurement), financial instruments (IFRS 9 classification, expected credit losses, effective interest), impairment (IAS 36 CGUs and recoverable amount), share-based payment (IFRS 2), employee benefits (IAS 19), provisions and contingencies (IAS 37), and IAS 12 deferred tax.
Skills tested
You must prepare and adjust extracts, compute figures, and explain the effect on ratios. Understand the distinction between control and significant influence, how to measure NCI (fair value or proportionate share), and how to treat step acquisitions and disposals.
Traps
- Measuring goodwill without remeasuring previously held interests in a step acquisition.
- Forgetting deferred tax on consolidation fair value adjustments.
- Applying IFRS 15 at the contract level when performance obligations should be separated.
- Treating variable lease payments as part of the lease liability when they are not fixed.
- Using undiscounted cash flows for impairment.
- Recognising a provision where only a contingent liability exists.
Worked example (goodwill)
Parent pays 800 for 80% of Sub. Fair value of Sub's net identifiable assets is 700; NCI at fair value is 160. Goodwill = consideration 800 + NCI 160 − net assets 700 = 260. If proportionate NCI were used: NCI = 20% × 700 = 140, goodwill = 800 + 140 − 700 = 240. The 20 difference is goodwill attributable to NCI.