Conceptual Framework, IAS 1, IAS 8 and IAS 10
Conceptual framework, presentation and policies
This domain tests the IAS 1 presentation requirements, the IAS 8 hierarchy and retrospective versus prospective mechanics, and the IAS 10 adjusting/non-adjusting distinction. The 2018 Conceptual Framework supplies the objective, qualitative characteristics, elements, recognition, measurement and derecognition. IAS 1 requires fair presentation, going concern, accrual accounting, materiality, aggregation, no offsetting unless required or permitted, comparatives and a complete set of statements. Current/non-current classification follows the operating cycle and the 12-month unconditional right to defer settlement.
Core rules
- Policy changes: retrospective restatement unless impracticable; estimate changes prospective; prior-period errors retrospective.
- Hierarchy: IFRS, then the Conceptual Framework, then other standard-setters' pronouncements with a similar framework, then other literature.
- IAS 10: adjust for conditions existing at year-end; do not adjust for conditions arising after. Dividends declared after the period are non-adjusting.
Worked example
A receivable of 500,000 was overdue at 31 December. On 10 February, before the financial statements were authorised, the customer filed for bankruptcy. The filing provides evidence of inability to pay that existed at year-end, so recognise an allowance in the year-end statements. If instead a fire destroyed the customer's factory in January, the event is non-adjusting; no allowance arises from the fire, though material disclosure may be needed.
Traps
- Treating a change in estimate as a policy change.
- Recognising a dividend declared after year-end as a liability.
- Offsetting assets and liabilities without a legal right and intention to settle net.
- Applying retrospective treatment when impracticable without explaining why.