International Financial Reporting Standards (IFRS)
The core standards
Candidates must be fluent in the recognition, measurement and disclosure logic of the main IFRSs: IAS 1 (presentation), IAS 2 (inventories - lower of cost and net realisable value), IAS 16 (property, plant and equipment - cost vs revaluation model, depreciation), IAS 36 (impairment), IAS 37 (provisions and contingencies), IAS 38 (intangibles), IFRS 9 (financial instruments), IFRS 15 (revenue - the five-step model), IFRS 16 (leases - right-of-use asset and lease liability), and IFRS 3 (business combinations).
Concepts to master
Know the five-step revenue model: identify the contract, identify performance obligations, determine transaction price, allocate the price, recognise revenue on satisfaction. Understand the distinction between a provision (present obligation, probable outflow, reliable estimate) and a contingent liability (disclose only). For leases, recognise that IFRS 16 removed the operating-lease off-balance-sheet treatment for lessees.
Traps in questions
- Applying the revaluation model to all asset classes - it is applied per class.
- Recognising a contingent asset; under IAS 37 it is not recognised, only disclosed when probable.
- Treating research costs as capitalisable - under IAS 38, research is expensed; development may be capitalised if criteria are met.
- Forgetting that IFRS 15 allocates discounts and variable consideration across performance obligations.
Worked example
A contract for 1,000,000 with two performance obligations, standalone prices 700,000 and 500,000 (total 1,200,000). Allocate: obligation 1 = 1,000,000 × (700/1,200) = 583,333; obligation 2 = 416,667. Revenue is recognised as each obligation is satisfied, not on cash receipt.