Advanced Financial Reporting
Advanced Financial Reporting tests how the economic substance of groups and complex transactions is reported under IFRS as adopted by the FRCN in Nigeria. CAP-III scenarios are usually computational: consolidation workings, revenue allocation, expected credit losses and deferred tax.
Core rules
- IFRS 10 control: power over relevant activities, exposure to variable returns, and ability to use power to affect returns. Consolidate from the date control is obtained; deconsolidate when lost.
- IFRS 3 acquisition method: identify the acquirer, acquisition date and identifiable assets/liabilities at fair value. Goodwill = consideration transferred + NCI + previously held interest − net identifiable assets acquired.
- NCI may be measured at fair value or at proportionate share of net identifiable assets, choice by transaction.
- Intra-group balances, income and expenses are eliminated; unrealised profit in inventory is removed, and the NCI share is adjusted for upstream sales.
- IFRS 15 five steps: contract, performance obligations, transaction price, allocation, recognition.
- IAS 12: recognise deferred tax on temporary differences, including consolidation fair value uplifts and tax losses where recovery is probable.
Worked example: P buys 80% of S for ₦800m. S identifiable net assets have fair value ₦700m, including a ₦100m asset uplift on which deferred tax at 30% applies. NCI is at proportionate share. Net assets for goodwill = ₦700m − ₦30m = ₦670m. Goodwill = ₦800m + (20% × ₦670m) − ₦670m = ₦264m. If NCI were measured at fair value of ₦180m, goodwill would be ₦310m. The deferred tax on the uplift is the step most often missed.
Traps: using book values instead of acquisition-date fair values; forgetting deferred tax on uplifts; adjusting NCI for a downstream PURP (only upstream affects NCI); treating contingent consideration as an expense; confusing principal and agent under IFRS 15.