Korea IFRS Manager common mistakes
Korea IFRS Manager · Understand the traps and how to avoid them.
Classifies a change from weighted-average to FIFO as a change in estimate 'because the inventory numbers changed', adjusting only the current year's cost of sales - and when a change really is retrospective, restates comparatives but presents only two statements of financial position, omitting the third at the start of the earliest comparative period.
IAS 8 is memorised as a two-row table ('policy = retrospective, estimate = prospective') without asking whether new information arose. Practice material in Korean prep sets often shows just a retained-earnings adjustment line, so the IAS 1.40A presentation condition is never seen or tested.
What to do instead
Ask first: new information or development (estimate, prospective), new or revised standard, or voluntary change that is more relevant and reliable (policy, retrospective), or prior-period error (error, retrospective restatement). A policy change requires restating the earliest comparative period presented, adjusting opening retained earnings, and adding a third statement of financial position only where the restatement has a material effect on the opening balances. Recognise the related deferred tax and give the disclosures.
Includes 100% of the estimated variable consideration in the transaction price at inception and then spreads it pro rata across every performance obligation, keeping the whole amount as revenue even for the sales-based royalty or rebate element not expected to be met.
The constraint and the specific allocation rules sit after the familiar 'five steps', so the candidate stops at 'determine the transaction price'. Expected value versus most likely amount is memorised as a coin toss rather than as a method driven by the number of possible outcomes.
What to do instead
Use expected value for a large population of similar contracts and the most likely amount for a binary outcome. Apply the constraint: include only the amount for which it is highly probable that no significant reversal of cumulative revenue will occur when the uncertainty resolves, weighing the range of outcomes, entity experience and susceptibility to factors outside the entity's influence. Allocate discounts and variable consideration to specific obligations where the IFRS 15 allocation criteria are met; carry a refund liability or return asset rather than revenue.
Uses only the non-cancellable period and the initial contractual term as the lease term, ignores renewal and termination options, never reassesses when circumstances change (for example fit-out spend makes relocation uneconomic), and when a change does occur keeps discounting at the original incremental borrowing rate.
'Reasonably certain' was taught as the old IAS 17 'bargain renewal' language, so the narrow notion is carried forward. The IFRS 16 remeasurement triggers sit in a separate block of paragraphs that practice sets rarely walk through end to end.
What to do instead
Set the lease term as the non-cancellable period plus periods covered by extension options the lessee is reasonably certain to exercise, and minus termination options it is reasonably certain not to exercise, judged on economic incentives and entity-specific facts. Reassess whenever a significant event or change in circumstances within the lessee's control occurs; remeasure with a revised discount rate at the reassessment date and adjust the right-of-use asset, not profit or loss. For sale-and-leaseback, recognise only the gain attributable to the rights transferred.
Classifies by legal form - quoted equity as FVOCI, bonds as amortised cost - applies the business model test instrument by instrument, and concludes that a non-recourse securitised tranche or an ESG-linked loan passes the solely-payments-of-principal-and-interest test because the cash flows 'look like interest'.
IFRS 9 replaced rule-based IAS 39 categories with a principles-based two-test model, so memorised labels no longer decide the answer. The SPPI guidance on non-recourse, contractually linked and modified time-value arrangements is dense and seldom practised.
What to do instead
Run the tests in order. First, test the contractual cash flows: are they solely payments of principal and interest on the principal outstanding in the currency in which the instrument is denominated, where interest covers only time value, credit risk, other basic lending risks and a profit margin? Second, identify the business model at the level at which portfolios are managed - hold to collect, hold to collect and sell, or other - noting that actual sale activity, not stated intention, governs. Equity is FVTPL unless the irrevocable OCI election is made at initial recognition; derivatives are always FVTPL.
Calculates 12-month expected credit loss for the whole portfolio every period because 'Stage 1 is the safe default', builds it from historical default rates only with no forward-looking macroeconomic scenario, and never reassesses whether credit risk has increased significantly since initial recognition.
The three-stage model is learned as a diagram rather than as a process performed at each reporting date. A significant increase in credit risk is invisible in small data sets and is routinely confused with objective evidence of impairment, which is the Stage 3 trigger.
What to do instead
At each reporting date compare lifetime probability of default at the reporting date with the corresponding figure at initial recognition (quantitative trigger), add qualitative indicators and a 30-days-past-due backstop, and move the asset to lifetime ECL once credit risk has increased significantly, and to Stage 3 on default. Use probability-weighted forward-looking scenarios discounted at the effective interest rate; use a provision matrix for trade receivables where appropriate. Apply the IFRS 9 modification and extinguishment rules where terms change, recognising any day-one gain or loss.
Concludes that a 45% holder with widely dispersed remaining shareholders cannot be a parent because it lacks a majority, then measures goodwill as consideration transferred less the acquiree's book value of net assets, leaving unrecorded intangibles such as customer relationships, brands and in-process research unrecognised.
Consolidation questions are decided on the ownership percentage because that is the figure the fact pattern supplies first. IFRS 3's core point - the acquiree's assets and liabilities are remeasured at fair value and goodwill is a residual - is buried under mechanical consolidation entries.
What to do instead
Apply IFRS 10 control: power over the relevant activities, exposure to variable returns, and the ability to use that power to affect returns. Consider de facto control, potential voting rights, contractual arrangements and substantive kick-out rights, and reassess when facts change. Then use the acquisition method: identify the acquirer and the acquisition date, recognise identifiable assets acquired and liabilities assumed at fair value, including separately recognised intangibles meeting the contractual-legal or separable criterion; measure non-controlling interest at fair value or proportionate share per transaction; treat goodwill as the residual; expense acquisition-related costs; remeasure previously held interests at fair value through profit or loss.
Tests impairment by comparing carrying amount with undiscounted future cash flows, or computes value in use only and skips fair value less costs of disposal, mixes post-tax cash flows with a pre-tax discount rate, and reverses last year's goodwill impairment after a business upturn.
'Higher of' is easy to recite but harder to operate, because in exam fact patterns the fair value less costs of disposal is buried in narrative rather than given as a number, so it gets dropped. Pre-tax/post-tax consistency is a footnote that is rarely rehearsed.
What to do instead
Recoverable amount is the higher of fair value less costs of disposal and value in use, compared with the carrying amount of the asset or cash-generating unit. In value in use, use management's best estimates of cash flows in the asset's current condition, based on reasonable and supportable assumptions with greater weight on external evidence, discounting at a pre-tax rate matched to pre-tax flows (or a consistently post-tax pair). Project for a maximum of five years unless a longer period is justified, and use a terminal growth rate no higher than the long-run average. Allocate goodwill to the units that benefit, test annually, and never reverse a goodwill impairment; other reversals are capped at the carrying amount that would have existed without the impairment.
Expenses a graded-vesting option grant as a single tranche over the total vesting period on a straight-line basis, and reduces cumulative expense in later years when a relative total-shareholder-return hurdle is no longer expected to be met.
IFRS 2 is remembered as 'fair value at grant date, trued up for the number expected to vest', which collapses market conditions and non-market conditions into one rule. Illustrations usually show a single-line expense schedule, hiding the tranche-by-tranche mechanics of graded vesting.
What to do instead
Treat each tranche of a graded-vesting award as a separate grant with its own fair value and vesting period (or apply accelerated attribution), instead of expensing the whole award over the longest period. Market and other conditions embedded in the fair value of the award - a total-shareholder-return or share-price hurdle - are reflected in grant-date fair value using an option-pricing or Monte Carlo technique and are never re-trued if the condition is not met; only service and non-market performance conditions are revised for the number expected to vest. Remeasure cash-settled awards at fair value at each reporting date, recognising a liability.
Recognises a deferred tax asset on the full amount of unused tax losses and deductible temporary differences without assessing probable future taxable profits, and applies the initial recognition exemption to the deferred tax on right-of-use assets and lease liabilities, so the balance sheet shows a lease liability with no matching deferred tax.
Tax losses and the initial recognition exemption are exceptions to the general timing-difference model, so applying the general model and stopping produces a defensible-looking but wrong answer. Candidates rarely track the amendment that removed leases and decommissioning obligations from the exemption.
What to do instead
Recognise a deferred tax asset for tax losses and deductible temporary differences only to the extent that probable future taxable profit will be available against which they can be used, considering expiry periods, reversal of existing taxable temporary differences and tax planning, and recognise the same amount as income. Do not apply the initial recognition exemption to leases and decommissioning obligations - recognise the deferred tax asset and liability in equal amounts on transition. Apply the expected manner of recovery (use versus sale) when measuring deferred tax on investment property measured at fair value, and measure at rates enacted or substantively enacted by the reporting date.
Measures fair value as 'what I could get on a quick sale', anchors on carrying amount or the last transaction price, deducts a blockage discount for the size of the holding, and discloses everything as Level 2 because observable market data were used somewhere in the calculation.
IFRS 13 replaced a mix of cost- and price-based measures with a single exit-price model, so 'market value', 'value in use' and 'fair value' merge into one loose concept. The hierarchy is learned as a disclosure template rather than as a consequence of which input drove the measurement.
What to do instead
Start by writing down the unit of account, the principal market (or the most advantageous market when there is no principal market), and the exit price to a market participant at the measurement date. For non-financial assets, assume highest and best use by market participants, which may be in combination with other assets or standalone. Do not apply a blockage factor, because it is not a characteristic of the asset; premiums or discounts are permitted only where they reflect an attribute of the asset or liability within the unit of account. Assign the level based on the lowest-level input that is significant to the whole measurement, and disclose transfers between levels and valuation techniques.