Egyptian Accounting Standards and IFRS
Egyptian Accounting Standards and IFRS tests the interaction between the national standards issued by the Egyptian Society of Accountants and Auditors (ESAA) and IFRS. EAS are substantially converged with IFRS, but the exam expects candidates to know which framework applies, how Egyptian presentation and disclosure requirements operate, and how to handle a transaction where EAS gives specific Egyptian guidance.
Framework and hierarchy
- Egyptian companies subject to the Companies Law and capital market rules prepare statements under EAS. Where EAS does not address a matter, IFRS may be applied.
- EAS 1 governs presentation: fair presentation, going concern, accrual basis, materiality, consistency, and comparative information.
- The statement of financial position is classified into current and non-current assets and liabilities; the statement of profit or loss may be presented by function or by nature.
- The notes must disclose the basis of preparation and any departure from a standard, with the financial effect.
Recognition issues
- Inventories are measured at the lower of cost and net realisable value; cost includes purchase costs, conversion costs and other costs to bring inventory to its present location and condition.
- Property, plant and equipment is initially at cost; depreciation is systematic and reflects the consumption of benefits.
- Foreign currency transactions are translated at the spot rate on the transaction date; monetary items are retranslated at the closing rate, with exchange differences recognised in profit or loss.
Worked example
An Egyptian company buys machinery for USD 100,000 when the exchange rate is EGP 30.50 per USD. It pays immediately. At year-end the rate is EGP 31.00. The machinery is a non-monetary item measured at historical cost, so it remains at EGP 3,050,000 and is not retranslated. A USD 100,000 trade payable outstanding at year-end is monetary: it is retranslated to EGP 3,100,000, giving an exchange loss of EGP 50,000 in profit or loss. The reasoning is that only monetary items are retranslated at closing rates.
Traps that cost marks
- Retranslating non-monetary items such as inventory or machinery held at historical cost.
- Applying IFRS automatically when an EAS requirement is specific and different.
- Omitting the disclosure of the basis of preparation and significant judgements.
- Classifying a liability as non-current when the entity has no unconditional right to defer settlement for twelve months.